Rogers Communications Reports Fourth Quarter 2016 Results

Consolidated Financial Highlights

Three months ended December 31

Twelve months ended December 31

(In millions of Canadian dollars, except per share

Consolidated Financial Highlights

Three months ended December 31

Twelve months ended December 31

(In millions of Canadian dollars, except per share
amounts, unaudited)

2016

2015

% Chg

2016

2015

% Chg

Total revenue

3,510

3,452

2

13,702

13,414

2

Adjusted operating profit 1

1,259

1,226

3

5,092

5,032

1

Net income (loss) 2

(9)

299

n/m

835

1,342

(38)

Adjusted net income 1,2

382

331

15

1,481

1,479

Basic earnings (loss) per share 2

($0.02)

$0.58

n/m

$1.62

$2.61

(38)

Adjusted basic earnings per share 1,2

$0.74

$0.64

16

$2.88

$2.87

Cash provided by operating activities

1,053

950

11

3,957

3,747

6

Free cash flow 1

392

274

43

1,705

1,676

2

1

Adjusted operating profit, adjusted net income, adjusted basic earnings per share, and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. See “Non-GAAP Measures” for information about these measures, including how we calculate them.

2

As a result of the IFRS Interpretations Committee’s agenda decision relating to IAS 12 Income Taxes, certain amounts have been retrospectively amended. See “Accounting Changes” for more information.

“We ended 2016 with continued momentum and strong operating performance in the fourth quarter. We maintained robust Wireless revenue growth, underpinned by strong subscriber metrics, and translated this to healthy adjusted operating profit. Internet results showed sustained strength as Rogers offers customers the fastest widely available Internet speeds in our marketplace,” said Alan Horn, Chairman and Interim President and CEO. “Our momentum to date as well as our commitment to further improve the customer experience, and enhance our execution, position us well to achieve our stronger growth targets for 2017.”

Key Financial Highlights

Higher revenue
Revenue increased 2% this quarter, largely driven by Wireless service revenue growth of 6%.

Wireless service revenue increased primarily as a result of a larger subscriber base and the continued adoption of higher-value Share Everything plans and the increase in data usage on these plans.

Cable revenue increased marginally as strong Internet revenue growth of 9% was largely offset by the decline in Television and Phone revenue. We continue to see an ongoing shift in product mix to higher-margin Internet services. Excluding the impact of lower wholesale Internet revenue as a result of the CRTC decision that reduced interim access service rates, Cable and Internet revenue would have increased by 2% and 12%, respectively.

Media revenue decreased as a result of fewer postseason Toronto Blue Jays games compared to last year, lower overall advertising revenue, and lower circulation revenue within publishing, partially offset by higher sales at The Shopping Channel (TSC).

Higher adjusted operating profit
Higher adjusted operating profit this quarter reflects an increase in Wireless adjusted operating profit due to the strong flow through of top line growth described above and improved Cable performance due to the shift in product mix to higher-margin Internet services. Excluding the impact from the CRTC decision to reduce wholesale Internet interim access service rates described above, Cable adjusted operating profit growth would have been 5%.

Net loss and higher adjusted net income
We recorded a net loss of $9 million this quarter, primarily as a result of the $484 million impairment and other charges we recognized related to the discontinued investment in our Internet Protocol Television (IPTV) product. See “Review of Consolidated Performance” for more information. Adjusted net income increased this quarter as a result of higher adjusted operating profit, lower depreciation and amortization, and lower finance costs, partially offset by higher income tax expense.

Substantial free cash flow affords financial flexibility
This quarter, we continued to generate substantial cash flow from operating activities and free cash flow of $1,053 million and $392 million, respectively. Free cash flow was higher this quarter as a result of increased adjusted operating profit and lower additions to property, plant and equipment, partially offset by higher cash income taxes.

We ended the fourth quarter with an adjusted net debt / adjusted operating profit ratio of 3.0. Strong operating cash flow allowed us to repay a net amount of more than $300 million of debt in the quarter. See “Managing our Liquidity and Financial Resources” for more information.

Our solid financial results enabled us to reduce outstanding debt, continue to make investments in our network, and still return substantial dividends to shareholders. We paid $247 million in dividends this quarter.

Achieved 2016 Guidance

The following table outlines guidance ranges that we had previously provided and our actual results and shows 100% achievement for the selected full-year 2016 financial metrics:

(In millions of dollars, except percentages)

2015

Actual

2016

Guidance Ranges

2016

Actual

Achievement

Consolidated Guidance 1

Revenue

13,414

Increase of 1%

to

3%

13,702

2.1%

Adjusted operating profit 2

5,032

Increase of 1%

to

3%

5,092

1.2%

Additions to property, plant and equipment 3

2,440

2,300

to

2,400

2,352

n/m

Free cash flow 2

1,676

Increase of 1%

to

3%

1,705

1.7%

Missed x

Achieved √

1

The above table outlines guidance ranges for selected full-year 2016 consolidated financial metrics provided in our January 27, 2016 earnings release. Guidance ranges presented as percentages reflect percentage increases over 2015 actual results.

2

Adjusted operating profit and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. See “Non-GAAP Measures” for information about these measures, including how we calculate them.

3

Includes additions to property, plant and equipment for the Wireless, Cable, Business Solutions, Media, and Corporate segments and does not include expenditures on spectrum licences.

2017 Outlook

As noted in the guidance ranges in the table below, we anticipate an even stronger growth profile in 2017. We expect to have the financial flexibility to maintain our network advantages, continue reducing debt, and return cash to shareholders.

2016

Actual

2017 Guidance

Ranges 1

(In millions of dollars, except percentages)

Consolidated Guidance

Revenue

13,702

Increase of 3%

to

5%

Adjusted operating profit 2

5,092

Increase of 2%

to

4%

Additions to property, plant and equipment, net 3

2,352

2,250

to

2,350

Free cash flow 2

1,705

Increase of 2%

to

4%

1

Guidance ranges presented as percentages reflect percentage increases over full-year 2016 actual results.

2

Adjusted operating profit and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. See “Non-GAAP Measures” for information about these measures, including how we calculate them.

3

Includes additions to property, plant and equipment for the Wireless, Cable, Business Solutions, Media, and Corporate segments net of proceeds on disposition, but does not include expenditures for spectrum licences.

The above table outlines guidance ranges for selected full-year 2017 consolidated financial metrics. These ranges take into consideration our current outlook and our actual results for 2016. The purpose of the financial outlook is to assist investors, shareholders, and others in understanding certain financial metrics relating to expected 2017 financial results for evaluating the performance of our business. This information may not be appropriate for other purposes. Information about our guidance, including the various assumptions underlying it, is forward-looking and should be read in conjunction with “About Forward-Looking Information” and the related disclosure and information about various economic, competitive, and regulatory assumptions, factors, and risks that may cause our actual future financial and operating results to differ from what we currently expect.

We provide annual guidance ranges on a consolidated full-year basis, which are consistent with annual full-year Board-approved plans. Any updates to our full-year financial guidance over the course of the year would only be made to the consolidated guidance ranges that appear above.

About Rogers

Rogers is a leading diversified Canadian communications and media company that’s working to deliver a great experience to our customers every day. We are Canada’s largest provider of wireless communications services and one of Canada’s leading providers of cable television, high-speed Internet, information technology, and telephony services to consumers and businesses. Through Rogers Media, we are engaged in radio and television broadcasting, sports, televised and online shopping, magazines, and digital media. Our shares are publicly traded on the Toronto Stock Exchange (TSX: RCI.A and RCI.B) and on the New York Stock Exchange (NYSE: RCI).

Quarterly Investment Community Teleconference

Our fourth quarter 2016 results teleconference with the investment community will be held on:

January 26, 20178:00 a.m. Eastern Timewebcast available at rogers.com/webcast media are welcome to participate on a listen-only basis

A rebroadcast will be available at rogers.com/investors on the Events and Presentations page for at least two weeks following the teleconference. Additionally, investors should note that from time to time, Rogers’ management presents at brokerage-sponsored investor conferences. Most often, but not always, these conferences are webcast by the hosting brokerage firm, and when they are webcast, links are made available on Rogers’ website at rogers.com/events and are generally placed there at least two days before the conference.

For More Information

You can find more information relating to us on our website (rogers.com/investors), on SEDAR (sedar.com), and on EDGAR (sec.gov), or you can e-mail us at investor.relations@rci.rogers.com. Information on or connected to these and any other websites referenced in this earnings release is not part of, or incorporated into, this earnings release.

You can also go to rogers.com/investors for information about our governance practices, corporate social responsibility reporting, a glossary of communications and media industry terms, and additional information about our business.

About this Earnings Release

This earnings release contains important information about our business and our performance for the three and twelve months ended December 31, 2016, as well as forward-looking information about future periods. This earnings release should be used as preparation for reading our forthcoming Management’s Discussion and Analysis (MD&A) and Audited Consolidated Financial Statements for the year ended December 31, 2016, which we intend to file with securities regulators in Canada and the US in the next few weeks. These statements will be made available on the rogers.com/investors, sedar.com, and sec.gov websites or mailed upon request.

The financial information contained in this earnings release is prepared using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. This earnings release should be read in conjunction with our 2015 Annual MD&A and our 2015 Audited Consolidated Financial Statements, our 2016 First, Second, and Third Quarter MD&A and Interim Condensed Consolidated Financial Statements, and our other recent filings with Canadian and US securities regulatory authorities, which are available on SEDAR at sedar.com or EDGAR at sec.gov, respectively.

All dollar amounts are in Canadian dollars unless otherwise stated and are unaudited. All percentage changes are calculated using the rounded numbers as they appear in the tables. Information is current as at January 25, 2017 and was approved by our Board of Directors (Board). This earnings release includes forward-looking statements and assumptions. See “About Forward-Looking Information” for more information.

We, us, our, Rogers, Rogers Communications, and the Company refer to Rogers Communications Inc. and its subsidiaries. RCI refers to the legal entity Rogers Communications Inc., not including its subsidiaries. Rogers also holds interests in various investments and ventures.

In this earnings release, this quarter refers to the three months ended December 31, 2016 and year to date or full-year refer to the twelve months ended December 31, 2016. All results commentary is compared to the equivalent periods in 2015 or as at December 31, 2015, as applicable, unless otherwise indicated.

Reporting Segments
We report our results of operations in four reporting segments. Each segment and the nature of its business is as follows:

Segment

Principal activities

Wireless

Wireless telecommunications operations for Canadian consumers and businesses.

Cable

Cable telecommunications operations, including Internet, television, and telephony (phone) services for Canadian consumers and businesses.

Business Solutions

Network connectivity through our fibre network and data centre assets to support a range of voice, data, networking, hosting, and cloud-based services for the enterprise, public sector, and carrier wholesale markets.

Media

A diversified portfolio of media properties, including sports media and entertainment, television and radio broadcasting, specialty channels, multi-platform shopping, publishing, and digital media.

Wireless, Cable, and Business Solutions are operated by our wholly-owned subsidiary, Rogers Communications Canada Inc. (RCCI), and certain of our other wholly-owned subsidiaries. Media is operated by our wholly-owned subsidiary, Rogers Media Inc., and its subsidiaries.

Strategic Update

Rogers’ strategy is designed to re-accelerate revenue growth in a sustainable way and translate this revenue growth into strong margins, adjusted operating profit, free cash flow, an increasing return on assets, and returns to shareholders.

Our fourth quarter and full-year 2016 results reflect solid execution of our strategy and the value inherent in our unique asset portfolio, including our best-in-class wireless and cable networks.

In 2017, we plan to further enhance our financial flexibility and execution, as well as capture cost and productivity improvements we see throughout our business. We believe this will position us well to translate our revenue growth into increased profitability and free cash flow.

Improving the Customer Experience
Our priority is to offer the products and services our customers want and need for the best experience. With that in mind, we launched a number of tools and offerings in 2016 with a focus on becoming a leader in self-serve options. For instance, we expanded worry-free wireless roaming, simplified mobile-first billing, and introduced a tool that allows families to manage their wireless data usage in real time. In 2015, we were the first telecommunications company in the world to launch customer care via Facebook Messenger, and this year, we were among the first globally to launch on Twitter. Our latest example of a self-serve option was the launch of Rogers EnRoute in the fourth quarter. This tool allows customers to track on their phone when a technician will arrive for an installation or service call. Our approach is resonating with customers, as we saw 42% more self-service transactions on the Rogers brand this quarter year on year and 56% more for the full-year 2016.

We look forward to doing more for our customers in 2017, including offering more self-serve options and new ways to interact with us digitally.

Maintaining Leadership and Momentum in Wireless
Despite an intense competitive backdrop, our fourth quarter results built on the strong momentum we have seen over the past year and we closed 2016 with the best Wireless service revenue growth and subscriber performance in many years. These results reflected a strong translation to adjusted operating profit, with fourth quarter growth of 5%. Fourth quarter Wireless service revenue growth of 6% was the highest since 2010 and postpaid net additions of 93,000 were the highest of any fourth quarter since 2009. On an annual basis, Wireless service revenue growth of 5% was the highest since 2009 and postpaid net additions of 286,000, up 180,000, were the highest since 2010.

Postpaid Wireless churn remained stable year on year in the fourth quarter and decreased four basis points in 2016 for the lowest postpaid churn rate since 2010. We will strive to make further improvements to churn going forward with our focus on further improving the customer experience.

We continued to make investments to enhance wireless network coverage and the quality of our network. Deployment of our prime 700 MHz LTE network has reached about 91% of Canada’s population at the end of 2016. Deployment of our overall LTE network has reached about 95% of Canada’s population at year-end.

Improving Cable on the Strength of Internet and our Partnership with Comcast
Subscriber trends have been improving in our Cable segment on the popularity of Ignite Internet, as Rogers offers the fastest widely available Internet speeds in our marketplace. For the second quarter in a row, we reported positive Cable total service unit net additions, driven by Internet net additions of 30,000, up 14,000 year on year.

Our Cable product mix continued to shift to higher-margin Internet services, driving overall Cable adjusted operating profit growth of 2% in the fourth quarter. We generated Internet revenue growth of 9% this quarter and double-digit Internet revenue growth of 11% in 2016. Excluding the impact of lower wholesale revenue as a result of the CRTC’s decision to reduce interim access service rates, Cable revenue and adjusted operating profit growth this quarter were 2% and 5%, respectively. Similarly, Internet revenue growth increases to double-digit growth of 12% from 9% in the quarter, excluding this same impact.

Approximately 46% of our residential Internet base is on plans of 100 megabits per second or higher. We now offer Ignite Gigabit Internet service to our entire Cable footprint of over four million homes. Our hybrid fibre-coaxial cable network allows us to make incremental success-based investments as the demand for greater speed and capacity grows. We believe this positions us well to earn attractive returns on investment for our shareholders.

Late in 2016, Rogers announced a long-term agreement with Comcast Corporation (Comcast) to bring our customers a best-in-class TV product and expect to deploy Comcast’s X1 IP-based video platform in early 2018. We are moving to this hosted platform to ensure we will have access to the scale and technical roadmap needed to meet the ongoing pace of IPTV innovation. Customers will benefit from Comcast’s substantial research and development investments and their continuing commitment to innovation. Comcast attributes the transformative X1 platform to improving Xfinity TV subscriber performance, reducing churn, and increasing engagement for customers.

Our adoption of the X1 platform not only includes access to the most advanced IPTV solution, but also to Comcast’s state-of-the-art customer premise equipment, including advanced DOCSIS 3.1 Wi-Fi gateways, Wi-Fi extenders, and wireless set-top boxes as well as the ability to send video to other third party companion devices (such as tablets and smartphones).

By mid-2017, Rogers plans to bring its customers the new advanced DOCSIS 3.1 Wi-Fi gateway, which is capable of delivering up to nine gigabits per second over Wi-Fi within the home, supports voice, home monitoring, and automation applications, and can act as the core in-home gateway for video and data applications. Throughout 2017, we also intend to provide our customers with further enhancements to our existing TV platform, including more 4K content.

First on the innovation roadmap, we intend to adopt Comcast’s new Digital Home solution. This whole-home networking solution will provide customers with a simple, fast, and intuitive way to control and manage their connected devices. The cloud-based platform will link to the new DOCSIS 3.1 Wi-Fi gateway devices to deliver fast, reliable connectivity in the home and will allow people to easily add or pause devices, pair Wi-Fi extenders that boost signal strength, and use voice controls to see who is on the network, all in a safe and secure manner. This should help support the broader adoption of connected devices and the Internet of Things (IoT).

The all-IP combination of voice, data, video, smart home monitoring, and IoT using a combination of the most extensive DOCSIS 3.1-based, gigabit-capable network in Canada, along with Rogers and Comcast technology, will provide our customers with a best-in-class next generation residential service suite in Canada.

Media Focused on Sports
Media remains focused on our strong portfolio of live sports entertainment, including our ownership of the Toronto Blue Jays, our exclusive NHL agreement, and our joint venture interest in MLSE. For the second year in a row, Sportsnet was the number-one sports media brand in Canada and the gap has widened. Sportsnet plans to deliver more than 100 live sporting events in 4K in 2017. Consumer interest in 4K TV continues to grow as evidenced by leading manufacturer expectations for 4K TV sales to top 50% of all TV sales in 2017. To achieve the high quality 4K resolution, significantly higher bandwidths are required. With more 4K television sets and video streaming devices in the home, the high bit rate requirement further emphasizes the speed and capacity advantages of Rogers’ hybrid fibre-coaxial cable network over the legacy networks of our telecommunication competitors.

In the fourth quarter of 2016, we committed to accelerating our shift from print to digital media in order to keep pace with changing audience demands. Since then, we have been realigning resources and developing the roadmap that will drive innovation and new content ideas while increasing digital audiences and revenue. A particular focus in 2017 will be the launch of some new initiatives that will help solidify our position in the digital space.

Corporate Developments
We intend to hire Joseph Natale as President and CEO effective July 2017. Alan Horn is currently acting as our Interim President and CEO.

Summary of Consolidated Financial Results

Three months ended December 31

Twelve months ended December 31

(In millions of dollars, except margins and per share amounts)

2016

2015

% Chg

2016

2015

% Chg

Revenue

Wireless

2,058

1,981

4

7,916

7,651

3

Cable

858

855

3,449

3,465

Business Solutions

96

95

1

384

377

2

Media

550

560

(2)

2,146

2,079

3

Corporate items and intercompany eliminations

(52)

(39)

33

(193)

(158)

22

Revenue

3,510

3,452

2

13,702

13,414

2

Adjusted operating profit

Wireless

792

754

5

3,285

3,239

1

Cable

435

426

2

1,674

1,658

1

Business Solutions

30

30

123

116

6

Media

49

56

(13)

169

172

(2)

Corporate items and intercompany eliminations

(47)

(40)

18

(159)

(153)

4

Adjusted operating profit 1

1,259

1,226

3

5,092

5,032

1

Adjusted operating profit margin 1

35.9%

35.5%

0.4pts

37.2%

37.5%

(0.3pts)

Net (loss) income 2

(9)

299

n/m

835

1,342

(38)

Basic (loss) earnings per share 2

($0.02)

$0.58

n/m

$1.62

$2.61

(38)

Diluted (loss) earnings per share 2

($0.04)

$0.58

n/m

$1.62

$2.60

(38)

Adjusted net income 1,2

382

331

15

1,481

1,479

Adjusted basic earnings per share 1,2

$0.74

$0.64

16

$2.88

$2.87

Adjusted diluted earnings per share 1,2

$0.74

$0.64

16

$2.86

$2.86

Additions to property, plant and equipment

604

773

(22)

2,352

2,440

(4)

Cash provided by operating activities

1,053

950

11

3,957

3,747

6

Free cash flow 1

392

274

43

1,705

1,676

2

Total service revenue 3

3,306

3,214

3

13,027

12,649

3

n/m – not meaningful

1

Adjusted operating profit, adjusted operating profit margin, adjusted net income, adjusted basic and diluted earnings per share, and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. See “Non-GAAP Measures” for information about these measures, including how we calculate them.

2

As a result of the IFRS Interpretations Committee’s agenda decision relating to IAS 12 Income Taxes, certain amounts have been retrospectively amended. See “Accounting Changes” for more information.

3

As defined. See “Key Performance Indicators”.

Results of our Reporting Segments

WIRELESS

Wireless Financial Results

Three months ended December 31

Twelve months ended December 31

(In millions of dollars, except margins)

2016

2015 1

% Chg

2016

2015 1

% Chg

Revenue

Service revenue

1,858

1,747

6

7,258

6,902

5

Equipment revenue

200

234

(15)

658

749

(12)

Revenue

2,058

1,981

4

7,916

7,651

3

Operating expenses

Cost of equipment

584

569

3

1,947

1,845

6

Other operating expenses

682

658

4

2,684

2,567

5

Operating expenses

1,266

1,227

3

4,631

4,412

5

Adjusted operating profit

792

754

5

3,285

3,239

1

Adjusted operating profit margin as a % of service revenue

42.6%

43.2%

(0.6 pts)

45.3%

46.9%

(1.6 pts)

Additions to property, plant and equipment

153

235

(35)

702

866

(19)

1 The operating results of Mobilicity are included in the Wireless results of operations from the date of acquisition on July 2, 2015.

Wireless Subscriber Results1

Three months ended December 31

Twelve months ended December 31

(In thousands, except churn, postpaid ARPA, and blended ARPU)

2016

2015

Chg

2016

2015

Chg

Postpaid

Gross additions

436

365

71

1,521

1,354

167

Net additions

93

31

62

286

106

180

Total postpaid subscribers 2

8,557

8,271

286

8,557

8,271

286

Churn (monthly)

1.35%

1.35%

1.23%

1.27%

(0.04 pts)

ARPA (monthly)

$119.90

$112.07

$7.83

$117.37

$110.74

$6.63

Prepaid

Gross additions

172

179

(7)

761

677

84

Net additions

38

27

11

111

75

36

Total prepaid subscribers 2,3

1,717

1,606

111

1,717

1,606

111

Churn (monthly)

2.62%

3.17%

(0.55 pts)

3.32%

3.45%

(0.13 pts)

Blended ARPU (monthly)

$60.72

$59.16

$1.56

$60.42

$59.71

$0.71

1

Subscriber counts, subscriber churn, postpaid ARPA, and blended ARPU are key performance indicators. See “Key Performance Indicators”.

2

As at end of period.

3

On July 2, 2015, we acquired approximately 154,000 Wireless prepaid subscribers as a result of our acquisition of Mobilicity, which are not included in the 2015 net additions above.

Service revenue
The 6% increase in service revenue this quarter was a result of:

larger postpaid and prepaid subscriber bases; and the continued adoption of customer-friendly Rogers Share Everything plans and the general increase in data usage noted on these types of plans. These plans generate higher postpaid ARPA, bundle in various calling features and long distance, provide the ability to pool and manage data usage across multiple devices, and grant access to our other offerings, such as Roam Like Home, Rogers NHL GameCentre LIVE, Spotify, and Texture by Next Issue.

The 7% increase in postpaid ARPA this quarter was the result of the continued adoption of Rogers Share Everything plans relative to the number of subscriber accounts as customers have increasingly utilized the advantages of premium offerings and access their shareable plans with multiple devices on the same account.

The 3% increase in blended ARPU this quarter was a result of:

increased service revenue as discussed above; partially offset by the general increase in prepaid net additions over the past year.

We believe the increases in gross and net additions to our postpaid subscriber base and the stable postpaid churn this quarter were results of our strategic focus on enhancing the customer experience by providing higher-value offerings, such as our Share Everything plans, improving our customer service, and continually increasing the quality of our network.

Equipment revenue
The 15% decrease in equipment revenue this quarter was a result of:

an 11% decrease in device upgrades by existing subscribers; and larger average subsidies given to customers who purchased devices; partially offset by higher postpaid gross additions.

Operating expenses
Cost of equipment
The 3% increase in the cost of equipment this quarter was a result of:

a shift in the product mix of device sales towards higher-cost smartphones; and higher postpaid gross additions; partially offset by the decrease in device upgrades by existing subscribers, as discussed above.

Other operating expenses

The 4% increase in other operating expenses this quarter was a result of:

higher commissions, primarily as a result of our higher postpaid gross additions; and higher marketing and advertising costs.

Adjusted operating profit
The 5% increase in adjusted operating profit this quarter was a result of the revenue and expense changes discussed above.

CABLE

Cable Financial Results

Three months ended December 31

Twelve months ended December 31

(In millions of dollars, except margins)

2016

2015

% Chg

2016

2015

% Chg

Revenue

Internet

378

348

9

1,495

1,343

11

Television

386

403

(4)

1,562

1,669

(6)

Phone

93

102

(9)

386

445

(13)

Service revenue

857

853

3,443

3,457

Equipment revenue

1

2

(50)

6

8

(25)

Revenue

858

855

3,449

3,465

Operating expenses

Cost of equipment

1

2

(50)

3

4

(25)

Other operating expenses

422

427

(1)

1,772

1,803

(2)

Operating expenses

423

429

(1)

1,775

1,807

(2)

Adjusted operating profit

435

426

2

1,674

1,658

1

Adjusted operating profit margin

50.7%

49.8%

0.9 pts

48.5%

47.8%

0.7 pts

Additions to property, plant and equipment

284

308

(8)

1,085

1,030

5

Cable Subscriber Results 1

Three months ended December 31

Twelve months ended December 31

(In thousands)

2016

2015

Chg

2016

2015

Chg

Internet

Net additions

30

16

14

97

37

60

Total Internet subscribers 2

2,145

2,048

97

2,145

2,048

97

Television

Net losses

(13)

(24)

11

(76)

(128)

52

Total television subscribers 2

1,820

1,896

(76)

1,820

1,896

(76)

Phone

Net additions (losses)

4

(15)

19

4

(60)

64

Total phone subscribers 2

1,094

1,090

4

1,094

1,090

4

Cable homes passed 2

4,241

4,153

88

4,241

4,153

88

Total service units 3

Net additions (losses)

21

(23)

44

25

(151)

176

Total service units 2

5,059

5,034

25

5,059

5,034

25

1 Subscriber counts are key performance indicators. See “Key Performance Indicators”.

2 As at end of period.

3 Includes Internet, Television, and Phone subscribers.

Revenue
The marginal increase in revenue this quarter was a result of:

a higher subscriber base for our Internet products; and the net impact of pricing changes implemented over the past year; partially offset by Television subscriber losses over the past year.

Internet revenue
The 9% increase in Internet revenue this quarter was a result of:

a larger Internet subscriber base; general movement of customers to higher speed and usage tiers of our Ignite broadband Internet offerings; and the net impact of changes in Internet service pricing; partially offset by lower wholesale revenue as a result of a CRTC decision that reduced access service rates.

Television revenue
The 4% decrease in Television revenue this quarter was a result of:

the decline in Television subscribers over the past year; and more promotional pricing provided to subscribers; partially offset by the impact of Television service pricing changes implemented over the past year.

Phone revenue
The 9% decrease in Phone revenue this quarter was a result of:

the impact of pricing packages, primarily related to Ignite multi-product bundles; partially offset by less promotional pricing provided to subscribers as a result of the pricing packages described above.

Operating expenses
The 1% decrease in operating expenses this quarter was a result of:

relative shifts in product mix to higher-margin Internet from conventional Television broadcasting; and lower service and programming costs.

Adjusted operating profit
The 2% increase in adjusted operating profit this quarter was a result of the revenue and expense changes discussed above.

BUSINESS SOLUTIONS

Business Solutions Financial Results

Three months ended December 31

Twelve months ended December 31

(In millions of dollars, except margins)

2016

2015 1

% Chg

2016

2015 1

% Chg

Revenue

Next generation

77

74

4

307

288

7

Legacy

17

20

(15)

71

85

(16)

Service revenue

94

94

378

373

1

Equipment revenue

2

1

100

6

4

50

Revenue

96

95

1

384

377

2

Operating expenses

66

65

2

261

261

Adjusted operating profit

30

30

123

116

6

Adjusted operating profit margin

31.3%

31.6%

(0.3 pts)

32.0%

30.8%

1.2 pts

Additions to property, plant and equipment

37

65

(43)

146

187

(22)

1

The operating results of Internetworking Atlantic Inc. are included in the Business Solutions results of operations from the date of acquisition on November 30, 2015.

Revenue
The stable service revenue this quarter was a result of the continued execution of our plan to grow higher-margin, next generation on-net and near-net IP-based services revenue, offset by the continued decline in our legacy and off-net voice business. We expect this trend to continue as we focus on migrating customers to more advanced, cost-effective IP-based services and solutions.

Next generation services, which include our data centre operations, represented 82% of total service revenue in the quarter (2015 – 79%).

Operating expenses
Operating expenses this quarter were in line with fourth quarter operating expenses of 2015.

Adjusted operating profit
Adjusted operating profit was stable this quarter as a result of the marginal increases in revenue and operating expenses this quarter.

MEDIA

Media Financial Results

Three months ended December 31

Twelve months ended December 31

(In millions of dollars, except margins)

2016

2015

% Chg

2016

2015

% Chg

Revenue

550

560

(2)

2,146

2,079

3

Operating expenses

501

504

(1)

1,977

1,907

4

Adjusted operating profit

49

56

(13)

169

172

(2)

Adjusted operating profit margin

8.9%

10.0%

(1.1 pts)

7.9%

8.3%

(0.4 pts)

Additions to property, plant and equipment

19

28

(32)

62

60

3

Revenue
The 2% decrease in revenue this quarter was a result of:

fewer postseason Toronto Blue Jays games compared to 2015; lower overall advertising revenue; and lower circulation revenue within publishing, partly due to the sale of certain brands; partially offset by higher sales at TSC.

Operating expenses
The 1% decrease in operating expenses this quarter was a result of:

lower publishing costs due to revenue softness and the strategic shift related to magazine content announced earlier in the year; partially offset by higher TSC merchandise costs; and higher digital media costs.

Adjusted operating profit
The 13% decrease in adjusted operating profit this quarter was primarily a result of the revenue and expense changes discussed above.

ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT

Three months ended December 31

Twelve months ended December 31

(In millions of dollars, except capital intensity)

2016

2015

% Chg

2016

2015

% Chg

Additions to property, plant and equipment

Wireless

153

235

(35)

702

866

(19)

Cable

284

308

(8)

1,085

1,030

5

Business Solutions

37

65

(43)

146

187

(22)

Media

19

28

(32)

62

60

3

Corporate

111

137

(19)

357

297

20

Total additions to property, plant and equipment 1

604

773

(22)

2,352

2,440

(4)

Capital intensity 2

17.2%

22.4%

(5.2 pts)

17.2%

18.2%

(1.0 pts)

1 Additions to property, plant and equipment do not include expenditures for spectrum licences.

2 As defined. See “Key Performance Indicators”.

Wireless
The decrease in additions to property, plant and equipment in Wireless this quarter was primarily a result of higher LTE network investments incurred in the fourth quarter of 2015 relative to 2016 to enhance network coverage and the quality of our network. Deployment of our 700 MHz LTE network has reached 91% of Canada’s population as at December 31, 2016 (December 31, 2015 – 78%). The 700 MHz LTE network offers improved signal quality in basements, elevators, and buildings with thick concrete walls. Deployment of our overall LTE network has reached approximately 95% of Canada’s population as at December 31, 2016 (December 31, 2015 – 93%).

Cable
The decrease in additions to property, plant and equipment in Cable this quarter was primarily a result of higher investment in information technology infrastructure incurred in the fourth quarter of 2015 relative to 2016 to improve the capacity of our Internet platform to deliver gigabit Internet speeds. We believe this has allowed us to keep ahead of customer data demands, which allowed us to deliver Ignite Gigabit Internet across our Cable footprint by the end of 2016.

Business Solutions
The decrease in additions to property, plant and equipment in Business Solutions this quarter was a result of higher investments in our data centres in the fourth quarter of 2015 relative to 2016.

Media
The decrease in additions to property, plant and equipment in Media this quarter was a result of higher investments incurred in the fourth quarter of 2015 relative to 2016 for conventional television, digital assets, and at TSC.

Corporate
The decrease in additions to property, plant and equipment in Corporate this quarter was a result of higher investments incurred in the fourth quarter of 2015 relative to 2016 in relation to premise improvements at our various offices, as well as higher information technology investments.

Capital intensity
Capital intensity decreased this quarter as a result of lower additions to property, plant and equipment in all our segments as discussed above, partially offset by higher revenue.

Review of Consolidated Performance

This section discusses our consolidated net income and other expenses that do not form part of the segment discussions above.

Three months ended December 31

Twelve months ended December 31

(In millions of dollars)

2016

2015

% Chg

2016

2015

% Chg

Adjusted operating profit 1

1,259

1,226

3

5,092

5,032

1

Deduct (add):

Stock-based compensation

16

16

61

55

11

Depreciation and amortization

555

580

(4)

2,276

2,277

Impairment of assets and related onerous contract charges

484

n/m

484

n/m

Restructuring, acquisition and other

34

23

48

160

111

44

Finance costs

188

192

(2)

761

774

(2)

Other (income) expense 2

(4)

4

n/m

191

(4)

n/m

Income tax (recovery) expense 2

(5)

112

n/m

324

477

(32)

Net (loss) income 2

(9)

299

n/m

835

1,342

(38)

1

Adjusted operating profit is a non-GAAP measure and should not be considered a substitute or alternative for GAAP measures. It is not a defined term under IFRS and does not have a standard meaning, so may not be a reliable way to compare us to other companies. See “Non-GAAP Measures” for information about this measure, including how we calculate it.

2

As a result of the IFRS Interpretations Committee’s agenda decision relating to IAS 12 Income Taxes, certain amounts have been retrospectively amended. See “Accounting Changes” for more information.

Stock-based compensation
Our stock-based compensation, which includes stock options (with stock appreciation rights), restricted share units, and deferred share units, is generally driven by:

the vesting of stock options and share units; and changes in the market price of RCI Class B shares; offset by the impact of certain equity derivative instruments designed to hedge a portion of the stock price appreciation risk for our stock-based compensation programs. See “Financial Risk Management” for more information about equity derivatives.

Three months ended December 31

Twelve months ended December 31

(In millions of dollars)

2016

2015

2016

2015

Impact of vesting

19

14

70

57

Impact of change in price

(22)

14

24

20

Equity derivatives, net of interest receipt

19

(12)

(33)

(22)

Total stock-based compensation

16

16

61

55

Depreciation and amortization

Three months ended December 31

Twelve months ended December 31

(In millions of dollars)

2016

2015

% Chg

2016

2015

% Chg

Depreciation

538

541

(1)

2,183

2,117

3

Amortization

17

39

(56)

93

160

(42)

Total depreciation and amortization

555

580

(4)

2,276

2,277

Total depreciation and amortization decreased this quarter as a result of the effect of ceasing amortization on certain brand name assets in 2016.

Impairment of assets and related onerous contract charges
During the quarter, we recorded a total charge of $484 million for asset impairment and onerous contracts related to our decision to discontinue developing our IPTV product as a result of our decision to develop a long-term relationship with Comcast and deploy their X1 IP-based video platform. See “Strategic Update” for more information. The onerous contracts charges primarily relate to the remaining contractual liabilities for the development of our IPTV product based on our best estimate of the expected future costs.

Restructuring, acquisition and other
This quarter, we incurred $34 million (2015 – $23 million) in restructuring, acquisition and other expenses. The costs this quarter were primarily a result of severance costs associated with the targeted restructuring of our employee base and costs related to integrating certain businesses.

Finance costs

Three months ended December 31

Twelve months ended December 31

(In millions of dollars)

2016

2015

% Chg

2016

2015

% Chg

Interest on borrowings 1

185

190

(3)

758

761

Interest on post-employment benefits liability

2

3

(33)

9

11

(18)

Loss on repayment of long-term debt

7

(100)

Loss on foreign exchange

32

2

n/m

13

11

18

Change in fair value of derivatives

(34)

(1)

n/m

(16)

3

n/m

Capitalized interest

(3)

(5)

(40)

(18)

(29)

(38)

Other

6

3

100

15

10

50

Total finance costs

188

192

(2)

761

774

(2)

1

Interest on borrowings includes interest on long-term debt and on short-term borrowings associated with our accounts receivable securitization program.

Interest on borrowings
Interest on borrowings decreased this quarter as a result of a decrease in the principal of our outstanding debt and lower interest rates on our bank credit facilities. See “Managing our Liquidity and Financial Resources” and “Financial Condition” for more information about our debt and related finance costs.

Income tax (recovery) expense 1

Three months ended December 31

Twelve months ended December 31

(In millions of dollars, except tax rates)

2016

2015

2016

2015

Statutory income tax rate

26.6

%

26.5

%

26.6

%

26.5

%

(Loss) income before income tax (recovery) expense

(14)

411

1,159

1,819

Computed income tax (recovery) expense

(4)

109

308

482

Increase (decrease) in income tax (recovery) expense resulting from:

Non-(taxable) deductible stock-based compensation

(2)

3

5

5

Non-deductible (taxable) portion of equity losses

2

(2)

18

11

Income tax adjustment, legislative tax change

3

6

Non-taxable gain on acquisition

(20)

Non-taxable portion of capital gain

(7)

Other items

(1)

2

(3)

(7)

Total income tax (recovery) expense

(5)

112

324

477

Effective income tax rate

35.7

%

27.3

%

28.0

%

26.2

%

Cash income taxes paid (received)

81

(6)

295

184

1 As a result of the IFRS Interpretations Committee’s agenda decision relating to IAS 12 Income Taxes, certain amounts have been retrospectively amended. See “Accounting Changes” for more information.

Cash income taxes paid increased this quarter as a result of applying non-capital losses from the Mobilicity transaction to offset our 2015 tax liability.

Net (loss) income 1

Three months ended December 31

Twelve months ended December 31

(In millions of dollars, except per share amounts)

2016

2015

% Chg

2016

2015

% Chg

Net (loss) income

(9)

299

n/m

835

1,342

(38)

Basic (loss) earnings per share

($0.02)

$0.58

n/m

$1.62

$2.61

(38)

Diluted (loss) earnings per share

($0.04)

$0.58

n/m

$1.62

$2.60

(38)

1

As a result of the IFRS Interpretations Committee’s agenda decision relating to IAS 12 Income Taxes, certain amounts have been retrospectively amended. See “Accounting Changes” for more information.

Adjusted net income
We calculate adjusted net income from adjusted operating profit as follows:

Three months ended December 31

Twelve months ended December 31

(In millions of dollars, except per share amounts)

2016

2015

% Chg

2016

2015

% Chg

Adjusted operating profit 1

1,259

1,226

3

5,092

5,032

1

Deduct:

Depreciation and amortization

555

580

(4)

2,276

2,277

Finance costs 2

188

192

(2)

761

767

(1)

Other (income) expense 3,4

(4)

4

n/m

40

(2)

n/m

Income tax expense 4,5

138

119

16

534

511

5

Adjusted net income 1,4

382

331

15

1,481

1,479

Adjusted basic earnings per share 1,4

$0.74

$0.64

16

$2.88

$2.87

Adjusted diluted earnings per share 1,4

$0.74

$0.64

16

$2.86

$2.86

1

Adjusted operating profit, adjusted net income, and adjusted basic and diluted earnings per share are non-GAAP measures and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. See “Non-GAAP Measures” for information about these measures, including how we calculate them.

2

Finance costs exclude a $7 million loss on repayment of long-term debt for the twelve months ended December 31, 2015.

3

Other expense for the twelve months ended December 31, 2016 excludes an $11 million net loss on divestitures pertaining to investments and a $140 million loss on the wind down of our shomi joint venture. Other income for the twelve months ended December 31, 2015 excludes a $74 million gain on acquisition of Mobilicity and a $72 million loss related to our share of an obligation to purchase at fair value the non-controlling interest in one of our joint ventures.

4

As a result of the IFRS Interpretations Committee’s agenda decision relating to IAS 12 Income Taxes, certain amounts have been retrospectively amended. See “Accounting Changes” for more information.

5

Income tax expense excludes a $143 million recovery (2015 – $7 million recovery) for the quarter and a $213 million recovery (2015 – $40 million recovery) for the year to date related to the income tax impact for adjusted items. Income tax expense also excludes expenses as a result of legislative tax changes of $3 million (2015 – $6 million) for the year to date.

Managing our Liquidity and Financial Resources

Operating, investing, and financing activities

Three months ended December 31

Twelve months ended December 31

(In millions of dollars)

2016

2015

2016

2015

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

1,276

1,264

4,994

5,004

Change in non-cash operating working capital items

(18)

(187)

14

(302)

Cash provided by operating activities before income taxes paid
and interest paid

1,258

1,077

5,008

4,702

Income taxes (paid) received

(81)

6

(295)

(184)

Interest paid

(124)

(133)

(756)

(771)

Cash provided by operating activities

1,053

950

3,957

3,747

Investing activities:

Additions to property, plant and equipment

(604)

(773)

(2,352)

(2,440)

Additions to program rights

(3)

(27)

(46)

(64)

Changes in non-cash working capital related to property, plant and
equipment and intangible assets

44

167

(103)

(116)

Acquisitions and other strategic transactions, net of cash acquired

(5)

(1,077)

Other

49

(32)

45

(70)

Cash used in investing activities

(514)

(670)

(2,456)

(3,767)

Financing activities:

Net repayments on short-term borrowings

(250)

(59)

(42)

Net (repayment) issuance of long-term debt

(57)

82

(538)

754

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

(28)

(25)

(45)

129

Transaction costs incurred

(17)

(9)

(17)

(9)

Dividends paid

(247)

(247)

(988)

(977)

Other

5

Cash used in financing activities

(599)

(258)

(1,583)

(145)

Change in cash and cash equivalents

(60)

22

(82)

(165)

(Bank advances) cash and cash equivalents, beginning of period

(11)

(11)

11

176

(Bank advances) cash and cash equivalents, end of period

(71)

11

(71)

11

Operating activities
The 11% increase in cash provided by operating activities this quarter was primarily a result of a lower net investment in non-cash working capital, partially offset by higher cash income taxes as a result of the timing of installment payments.

Investing activities

Additions to property, plant and equipment
We spent $604 million this quarter on additions to property, plant and equipment before changes in non-cash working capital items, which was lower than the same period in 2015. See “Additions to Property, Plant and Equipment” for more information.

Financing activities

Accounts receivable securitization
Below is a summary of the activity relating to our accounts receivable securitization program for the quarter and year to date:

Three months ended December 31

Twelve months ended December 31

(In millions of dollars)

2016

2015

2016

2015

Short-term borrowings

Proceeds received on short-term borrowings

22

295

294

Repayment of short-term borrowings

(250)

(81)

(295)

(336)

Net (repayments) proceeds received on short-term borrowings

(250)

(59)

(42)

As at December 31, 2016, our total funding under the securitization program was $800 million (December 31, 2015 – $800 million).

In July 2016, we amended the terms of the accounts receivable securitization program to, among other things, extend the expiry date from January 1, 2018 to January 1, 2019.

Bank and letter of credit facilities
Below is a summary of the activity relating to our revolving and non-revolving bank credit facilities for the quarter and year to date:

Three months ended
December 31, 2016

Twelve months ended
December 31, 2016

Notional

Exchange

Notional

Notional

Exchange

Notional

(In millions of dollars, except exchange rates)

(US$)

rate

(Cdn$)

(US$)

rate

(Cdn$)

Issuance of US dollar long-term debt

303

1.31

398

2,188

1.31

2,877

Issuance of Canadian dollar long-term debt

325

1,140

Total long-term debt issued

723

4,017

Repayment of US dollar long-term debt

(914)

1.34

(1,226)

(2,038)

1.32

(2,686)

Repayment of Canadian dollar long-term debt

(225)

(1,540)

Total long-term debt repaid

(1,451)

(4,226)

Three months ended
December 31, 2015

Twelve months ended
December 31, 2015

Notional

Exchange

Notional

Notional

Exchange

Notional

(In millions of dollars, except exchange rates)

(US$)

rate

(Cdn$)

(US$)

rate

(Cdn$)

Issuance of Canadian dollar long-term debt

1,190

6,025

Repayment of Canadian dollar long-term debt

(2,440)

(5,525)

As at December 31, 2016, we had $301 million ($100 million and US$150 million) of borrowings outstanding under our revolving and non-revolving credit facilities (December 31, 2015 – $500 million). Certain funds were borrowed in US dollars to take advantage of a favourable interest rate spread; we have entered into debt derivatives related to these borrowings to convert all the interest and principal payment obligations to Canadian dollars. See “Financial Risk Management” for more information.

As at December 31, 2016, we had available liquidity under our bank credit facilities of $2.4 billion, as illustrated below. Each of these facilities is unsecured and guaranteed by RCCI and ranks equally with all of our senior notes and debentures.

As at
December 31

As at

December 31

(In millions of dollars)

2016

2015

Total revolving & non-revolving credit and letter of credit facilities

2,860

3,567

Add (deduct):

Outstanding letters of credit

(68)

(68)

Borrowings

(301)

(500)

Bank advances

(71)

Available liquidity – bank credit facilities

2,420

2,999

Effective April 1, 2016, we amended our $2.5 billion revolving credit facility to, among other things, extend the maturity date from July 2019 to September 2020. At the same time, we also amended the $1.0 billion non-revolving credit facility to, among other things, extend the maturity date from April 2017 to April 2018. As a result of repayments made during the quarter, we reduced the amount of borrowings available under our non-revolving credit facility from $1.0 billion to $301 million.

Senior notes
The table below provides a summary of the issuance of our senior notes for the three months ended December 31, 2016 and 2015.

(In millions of dollars, except interest rates and discounts)

Date Issued

Principal
amount

Due date

Interest rate

Discount/
premium at
issuance

Total gross
proceeds 1
(Cdn$)

Transaction
costs and
discounts 2
(Cdn$)

2016 issuances

November 4, 2016

US

500

2026

2.900

%

98.354

%

671

17

2015 issuances

December 8, 2015

US

700

2025

3.625

%

99.252

%

937

December 8, 2015

US

300

2044

5.000

%

101.700

%

401

Total for 2015

1,338

13

1

Gross proceeds before transaction costs and discounts.

2

Transaction costs and discounts are included as deferred transaction costs and discounts in the carrying value of the long-term debt, and recognized in net income using the effective interest method.

Concurrent with the 2016 and 2015 issuances, we entered into debt derivatives to hedge the foreign currency risk associated with the principal and interest components of the US dollar-denominated senior notes.

The tables below provide a summary of the repayment of our senior notes for the three and twelve months ended December 31, 2016 and 2015.

Three months ended
December 31, 2016

Twelve months ended
December 31, 2016

(In millions of dollars)

Maturity date

Notional
amount (US$)

Notional
amount (Cdn$)

Notional
amount (US$)

Notional
amount (Cdn$)

May 26, 2016

1,000

Three months ended
December 31, 2015

Twelve months ended
December 31, 2015

(In millions of dollars)

Maturity date

Notional
amount (US$)

Notional
amount (Cdn$)

Notional
amount (US$)

Notional
amount (Cdn$)

March 15, 2015

550

702

March 15, 2015

280

357

Total

830

1,059

Dividends
The table below shows when dividends were declared and paid on both classes of our shares.

Declaration date

Record date

Payment date

Dividend per

share (dollars)

Dividends paid

(in millions of dollars)

January 27, 2016

March 13, 2016

April 1, 2016

0.48

247

April 18, 2016

June 12, 2016

July 4, 2016

0.48

247

August 11, 2016

September 11, 2016

October 3, 2016

0.48

247

October 20, 2016

December 12, 2016

January 3, 2017

0.48

247

January 28, 2015

March 13, 2015

April 1, 2015

0.48

248

April 21, 2015

June 12, 2015

July 2, 2015

0.48

247

August 13, 2015

September 11, 2015

October 1, 2015

0.48

247

October 22, 2015

December 11, 2015

January 4, 2016

0.48

247

Free cash flow

Three months ended December 31

Twelve months ended December 31

(In millions of dollars)

2016

2015

% Chg

2016

2015

% Chg

Adjusted operating profit 1

1,259

1,226

3

5,092

5,032

1

Deduct (add):

Additions to property, plant and equipment 2

604

773

(22)

2,352

2,440

(4)

Interest on borrowings, net of capitalized interest

182

185

(2)

740

732

1

Cash income taxes 3

81

(6)

n/m

295

184

60

Free cash flow 1

392

274

43

1,705

1,676

2

1

Adjusted operating profit and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. See “Non-GAAP Measures” for information about these measures, including how we calculate them.

2

Additions to property, plant and equipment do not include expenditures for spectrum licences.

3

Cash income taxes are net of refunds received.

The 43% increase in free cash flow this quarter was a result of higher adjusted operating profit and lower additions to property, plant and equipment, partially offset by higher cash income taxes as a result of applying non-capital losses from the Mobilicity transaction during the same period in 2015.

Financial Condition

As at
December 31

As at
December 31

(In millions of dollars)

2016

2015

Cash and cash equivalents

11

Bank credit facilities

2,420

3,000

Accounts receivable securitization program

250

250

Total available liquidity

2,670

3,261

In addition to the sources of available liquidity noted above, we held $1,047 million of marketable securities in publicly traded companies as at December 31, 2016 (December 31, 2015 – $966 million).

Our borrowings had a weighted average cost of financing of 4.72% as at December 31, 2016 (December 31, 2015 – 4.82%) and a weighted average term to maturity of 10.6 years (December 31, 2015 – 10.8 years). This comparative decline in our weighted average interest rate reflects the combined effects of:

the issuance of senior notes in November 2016 at comparatively lower interest rates; and the repayment of senior notes in May 2016 that were issued at comparatively higher interest rates.

As at December 31, 2016, the credit ratings on RCI’s outstanding senior notes and debentures were as follows:

Moody’s Ratings Services: Baa1 with a stable outlook (unchanged in the quarter); Standard and Poor’s Ratings Services: BBB+ with a stable outlook (unchanged in the quarter); and Fitch Ratings: BBB+ with a stable outlook (unchanged in the quarter).

Financial Risk Management

This section should be read in conjunction with “Financial Risk Management” in our 2015 Annual MD&A. We use derivative instruments to manage financial risks related to our business activities. We only use derivatives to manage risk and not for speculative purposes. We also manage our exposure to both fixed and fluctuating interest rates and had fixed the interest rate on 91.2% of our outstanding debt, including short-term borrowings, as at December 31, 2016 (December 31, 2015 – 90.3%).

Debt derivatives
We entered into the following new debt derivatives during the three and twelve months ended December 31, 2016 and 2015 in conjunction with the issuance of our senior notes:

(In millions of dollars, except for coupon and interest rates)

US$

Hedging effect

Effective date

Principal/notional
amount (US$)

Maturity date

Coupon rate

Fixed hedged Cdn$
interest rate 1

Equivalent Cdn$

2016 issuances

November 4, 2016

500

2026

2.900

%

2.834

%

671

2015 issuances

December 8, 2015

700

2025

3.625

%

3.566

%

937

December 8, 2015

300

2044

5.000

%

5.145

%

401

Total for 2015

1,000

1,338

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

During the quarter, we entered into debt derivatives related to our credit facility borrowings as a result of a favourable interest rate spread obtained from borrowing funds in US dollars. We used these derivatives to offset the foreign exchange and interest rate risk on our US dollar-denominated credit facility borrowings. As a result of the short-term nature of these debt derivatives related to our credit facility borrowings, we have not designated them as hedges for accounting purposes.

This quarter and year to date, we entered into and settled debt derivatives related to our credit facility borrowings as follows:

Three months ended
December 31, 2016

Twelve months ended
December 31, 2016

(In millions of dollars, except exchange rates)

Notional

(US$)

Exchange
rate

Notional
(Cdn$)

Notional

(US$)

Exchange
rate

Notional
(Cdn$)

Debt derivatives entered

1,947

1.33

2,583

8,683

1.31

11,360

Debt derivatives settled

2,558

1.32

3,385

8,533

1.31

11,159

Net cash received

25

8

We did not enter into any debt derivatives related to our credit facility borrowings during the three and twelve months ended December 31, 2015. See “Mark-to-market value” for more information about our debt derivatives.

Bond forwards
We did not enter into any new bond forwards this quarter.

On November 4, 2016, we exercised a $500 million notional bond forward due January 4, 2017 in relation to the issuance of the US$500 million senior notes due 2026 and paid $53 million to settle the derivative. The amount paid represents the fair value of the bond forward at the time of settlement and will be recycled into finance costs from the hedging reserve using the effective interest rate method over the life of the US$500 million senior notes due 2026.

See “Mark-to-market value” for more information about our bond forwards.

Expenditure derivatives
As at December 31, 2016, our outstanding expenditure derivatives had terms to maturity ranging from January 2017 to December 2018 at an average exchange rate of $1.32/US$ (December 31, 2015 – January 2016 to December 2017 at an average exchange rate of $1.24/US$). Our outstanding expenditure derivatives maturing in 2017 are hedged at an average exchange rate of $1.33/US$.

Below is a summary of the activity relating to our expenditure derivatives for the quarter and year to date.

Three months ended
December 31, 2016

Twelve months ended
December 31, 2016

(In millions of dollars, except exchange rates)

Notional
(US$)

Exchange
rate

Notional
(Cdn$)

Notional
(US$)

Exchange
rate

Notional
(Cdn$)

Expenditure derivatives entered

240

1.32

316

990

1.33

1,318

Expenditure derivatives settled

210

1.21

255

840

1.22

1,025

Three months ended
December 31, 2015

Twelve months ended
December 31, 2015

(In millions of dollars, except exchange rates)

Notional
(US$)

Exchange
rate

Notional
(Cdn$)

Notional
(US$)

Exchange
rate

Notional
(Cdn$)

Expenditure derivatives entered

300

1.30

390

990

1.28

1,266

Expenditure derivatives settled

225

1.12

252

810

1.11

902

See “Mark-to-market value” for more information about our expenditure derivatives.

Equity derivatives
As at December 31, 2016, we had equity derivatives for 5.4 million (December 31, 2015 – 5.7 million) RCI Class B shares with a weighted average price of $50.30 (December 31, 2015 – $50.37).

In August 2016, we settled 0.3 million equity derivatives at a weighted average price of $58.16 as a result of a reduction in the number of share-based compensation units outstanding.

In April 2016, we executed extension agreements for each of our equity derivative contracts under substantially the same terms and conditions with revised expiry dates to April 2017 (from April 2016).

See “Mark-to-market value” for more information about our equity derivatives.

Mark-to-market value
We record our derivatives using an estimated credit-adjusted, mark-to-market valuation, calculated in accordance with IFRS.

As at December 31, 2016

(In millions of dollars, except exchange rates)

Notional

amount

(US$)

Exchange

rate

Notional

amount

(Cdn$)

Fair value

(Cdn$)

Debt derivatives accounted for as cash flow hedges:

As assets

5,200

1.0401

5,409

1,751

As liabilities

1,500

1.3388

2,008

(68)

Short-term debt derivatives not accounted for as hedges:

As liabilities

150

1.3407

201

Net mark-to-market debt derivative asset

1,683

Bond forwards accounted for as cash flow hedges:

As liabilities

900

(51)

Expenditure derivatives accounted for as cash flow hedges:

As assets

990

1.2967

1,284

40

As liabilities

300

1.4129

424

(21)

Net mark-to-market expenditure derivative asset

19

Equity derivatives not accounted for as hedges:

As assets

270

8

Net mark-to-market asset

1,659

As at December 31, 2015

(In millions of dollars, except exchange rates)

Notional

amount

(US$)

Exchange

rate

Notional

amount

(Cdn$)

Fair value

(Cdn$)

Debt derivatives accounted for as cash flow hedges:

As assets

5,900

1.0755

6,345

2,032

As liabilities

300

1.3367

401

(4)

Net mark-to-market debt derivative asset

2,028

Bond forwards accounted for as cash flow hedges:

As liabilities

1,400

(91)

Expenditure derivatives accounted for as cash flow hedges:

As assets

1,140

1.2410

1,415

158

Equity derivatives not accounted for as hedges:

As liabilities

286

(15)

Net mark-to-market asset

2,080

Adjusted net debt and adjusted net debt / adjusted operating profit
We use adjusted net debt and adjusted net debt / adjusted operating profit to conduct valuation-related analysis and make capital structure-related decisions. Adjusted net debt includes long-term debt, net debt derivative assets or liabilities, short-term borrowings, and cash and cash equivalents or bank advances.

As at
December 31

As at

December 31

(In millions of dollars, except ratios)

2016

2015

Long-term debt 1

16,197

16,981

Net debt derivative assets valued without any adjustment for credit risk

(1,740)

(2,180)

Short-term borrowings

800

800

Bank advances (cash and cash equivalents)

71

(11)

Adjusted net debt 2

15,328

15,590

Adjusted net debt / adjusted operating profit 2,3

3.0

3.1

1

Includes current and long-term portion of long-term debt before deferred transaction costs and discounts. See “Reconciliation of adjusted net debt” in the section “Non-GAAP Measures” for the calculation of this amount.

2

Adjusted net debt and adjusted net debt / adjusted operating profit are non-GAAP measures and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. See “Non-GAAP Measures” for information about these measures, including how we calculate them.

3

Adjusted net debt / adjusted operating profit is measured using adjusted operating profit for the last twelve consecutive months.

In addition to the cash and cash equivalents as at December 31, 2016 and December 31, 2015 noted above, we held $1,047 million of marketable securities in publicly traded companies (December 31, 2015 – $966 million).

Our adjusted net debt decreased by $0.3 billion from December 31, 2015 primarily as a result of a decrease in our outstanding long-term debt, partially offset by a reduction in the fair value of our net debt derivative asset.

Outstanding common shares

As at
December 31

As at

December 31

2016

2015

Common shares outstanding 1

Class A Voting

112,411,992

112,438,692

Class B Non-Voting

402,396,133

402,307,976

Total common shares

514,808,125

514,746,668

Options to purchase Class B Non-Voting shares

Outstanding options

3,732,524

4,873,940

Outstanding options exercisable

1,770,784

2,457,005

1

Holders of our Class B Non-Voting shares are entitled to receive notice of and to attend shareholder meetings; however, they are not entitled to vote at these meetings except as required by law or stipulated by stock exchanges. If an offer is made to purchase outstanding Class A Voting shares, there is no requirement under applicable law or our constating documents that an offer be made for the outstanding Class B Non-Voting shares, and there is no other protection available to shareholders under our constating documents. If an offer is made to purchase both classes of shares, the offer for the Class A Voting shares may be made on different terms than the offer for the Class B Non-Voting shares.

Accounting Changes

We adopted the following amendments to accounting standards that were effective for our interim and annual consolidated financial statements commencing January 1, 2016. These changes did not have a material impact on our financial results.

Amendments to IAS 16, Property, Plant and Equipment and IAS 38, Intangible AssetsAmendments to IFRS 11, Joint Arrangements

In addition, following the November 2016 publication of the IFRS Interpretations Committee’s agenda decision addressing the expected manner of recovery of intangible assets with indefinite useful lives for the purposes of measuring deferred tax, we have retrospectively changed our related accounting policy. The IFRS Interpretations Committee observed that in applying International Accounting Standard 12, an entity determines its expected manner of recovery of the carrying amount of the intangible asset with an indefinite useful life, and reflects the tax consequences that follow from that expected manner of recovery. Previously, we measured deferred taxes on temporary differences arising from the portion of indefinite-life intangible assets with no initial associated underlying tax basis using a capital gains tax rate based upon the notion that recovery would result solely from sales of the assets. Consequently, we have adopted an accounting policy to measure deferred taxes on temporary differences arising from indefinite-life intangible assets based upon the tax consequences that follow from the expected manner of recovery of the assets.

This accounting policy has been applied in preparing this earnings release as at and for the year ended December 31, 2016 and the comparative information presented as at and for the three and twelve months ended December 31, 2015. The adjustment to previously reported amounts as a result of the change in the accounting policy are stated below.

Adjustments to Consolidated Statements of Income for the year ended December 31, 2015

(In millions of dollars, except per share amounts)

Previously reported
for the year ended
December 31, 2015

Adjustments

Amended for the year ended
December 31, 2015

Other (income) expense

(32)

28

(4)

Income tax expense

466

11

477

Net income

1,381

(39)

1,342

Earnings per share

Basic

$2.68

($0.07)

$2.61

Diluted

$2.67

($0.07)

$2.60

Adjustments to Consolidated Statements of Income for the quarter ended March 31, 2016

(In millions of dollars, except per share amounts)

Previously reported
for the quarter ended
March 31, 2016

Adjustments

Amended for the quarter ended
March 31, 2016

Income tax expense

61

18

79

Net income

248

(18)

230

Earnings per share

Basic

$0.48

($0.03)

$0.45

Diluted

$0.48

($0.04)

$0.44

Adjustments to the Consolidated Statements of Financial Position as at January 1, 2015

(In millions of dollars)

Previously reported as at
January 1, 2015

Adjustments

Amended as at
January 1, 2015

Goodwill 1

3,883

14

3,897

Total assets 1

26,522

14

26,536

Deferred tax liabilities

1,769

84

1,853

Shareholders’ equity

5,481

(70)

5,411

Total liabilities and shareholders’ equity

26,522

14

26,536

1 The adjustment relating to total assets and goodwill was recognized entirely within our Media reportable segment.

Adjustments to the Consolidated Statements of Financial Position as at December 31, 2015

(In millions of dollars)

Previously reported as at
December 31, 2015

Adjustments as at
January 1, 2015

Adjustments
for the year ended
December 31, 2015

Amended as at
December 31, 2015

Goodwill 1

3,891

14

3,905

Total assets 1

29,175

14

29,189

Deferred tax liabilities

1,943

84

39

2,066

Shareholders’ equity

5,745

(70)

(39)

5,636

Total liabilities and shareholders’ equity

29,175

14

29,189

1 The adjustment relating to total assets and goodwill was recognized entirely within our Media reportable segment.

Key Performance Indicators

We measure the success of our strategy using a number of key performance indicators that are defined and discussed in our 2015 Annual MD&A and this earnings release. We believe these key performance indicators allow us to appropriately measure our performance against our operating strategy as well as against the results of our peers and competitors. The following key performance indicators are not measurements in accordance with IFRS and should not be considered an alternative to net income or any other measure of performance under IFRS. They include:

Subscriber counts; Subscriber churn; Postpaid average revenue per account (ARPA); Blended average revenue per user (ARPU); Capital intensity; and Total service revenue.

Total service revenue
Commencing in the fourth quarter of 2016, we began disclosing total service revenue as one of our key performance indicators. We use total service revenue to measure our core business performance from the provision of services to our customers separate from revenue from the sale of equipment we have acquired from device manufacturers and resold. Included in this metric is our retail revenue from TSC and the Toronto Blue Jays, which are also core to our business. We calculate total service revenue by subtracting equipment revenue in Wireless, Cable, Business Solutions, and Corporate from total revenue.

Three months ended December 31

Twelve months ended December 31

(In millions of dollars)

2016

2015

2016

2015

Total revenue

3,510

3,452

13,702

13,414

Deduct:

Wireless equipment revenue

200

234

658

749

Cable equipment revenue

1

2

6

8

Business Solutions equipment revenue

2

1

6

4

Corporate equipment revenue

1

1

5

4

Total service revenue

3,306

3,214

13,027

12,649

Non-GAAP Measures

We use the following non-GAAP measures. These are reviewed regularly by management and our Board in assessing our performance and making decisions regarding the ongoing operations of our business and its ability to generate cash flows. Some or all of these measures may also be used by investors, lending institutions, and credit rating agencies as indicators of our operating performance, of our ability to incur and service debt, and as measurements to value companies in the telecommunications sector. These are not recognized measures under GAAP and do not have standard meanings under IFRS, so may not be reliable ways to compare us to other companies.

Non-GAAP measure

Why we use it

How we calculate it

Most
comparable IFRS financial
measure

Adjusted

operating profit

Adjusted

operating profit

margin

To evaluate the performance of our businesses,
and when making decisions about the ongoing
operations of the business and our ability to
generate cash flows.

Adjusted operating profit:

Net income

add (deduct)

income tax expense (recovery), other expense
(income), finance costs, restructuring, acquisition
and other, depreciation and amortization,
stock-based compensation, and impairment of
assets and related onerous contract charges.

Adjusted operating profit margin:

Adjusted operating profit

divided by

revenue (service revenue for Wireless).

Net income

We believe that certain investors and analysts
use adjusted operating profit to measure our
ability to service debt and to meet other
payment obligations.

We also use it as one component in determining
short-term incentive compensation for all
management employees.

Adjusted net

income

Adjusted basic

and diluted

earnings per

share

To assess the performance of our businesses
before the effects of the noted items, because
they affect the comparability of our financial
results and could potentially distort the analysis
of trends in business performance. Excluding
these items does not imply that they are
non-recurring.

Adjusted net income:

Net income

add (deduct)

stock-based compensation, restructuring,
acquisition and other, impairment of assets
and related onerous contract charges, loss (gain)
on sale or wind down of investments, (gain) on
acquisitions, loss on non-controlling interest
purchase obligations, loss on repayment of
long-term debt, and income tax adjustments
on these items, including adjustments as a
result of legislative changes.

Adjusted basic and diluted earnings per share:

Adjusted net income

divided by

basic and diluted weighted average shares
outstanding.

Net income

Basic and

diluted

earnings per

share

Free cash flow

To show how much cash we have available to
repay debt and reinvest in our company, which is
an important indicator of our financial strength
and performance.

Adjusted operating profit

deduct

additions to property, plant and equipment net
of proceeds on disposition, interest on
borrowings net of capitalized interest, and
cash income taxes.

Cash provided

by operating

activities

We believe that some investors and analysts
use free cash flow to value a business and its
underlying assets.

Adjusted net

debt

To conduct valuation-related analysis and make
decisions about capital structure.

Total long-term debt

add (deduct)

current portion of long-term debt, deferred
transaction costs and discounts, net debt
derivative (assets) liabilities, credit risk
adjustment related to net debt derivatives,
bank advances (cash and cash equivalents),
and short-term borrowings.

Long-term debt

We believe this helps investors and analysts
analyze our enterprise and equity value and
assess our leverage.

Adjusted net

debt / adjusted

operating profit

To conduct valuation-related analysis and make
decisions about capital structure.

Adjusted net debt (defined above)

divided by

12-month trailing adjusted operating profit
(defined above).

Long-term debt

divided by net

income

We believe this helps investors and analysts
analyze our enterprise and equity value and
assess our leverage.

Reconciliation of adjusted operating profit

Three months ended December 31

Twelve months ended December 31

(In millions of dollars)

2016

2015

2016

2015

Net (loss) income 1

(9)

299

835

1,342

Add (deduct):

Income tax (recovery) expense 1

(5)

112

324

477

Other (income) expense 1

(4)

4

191

(4)

Finance costs

188

192

761

774

Restructuring, acquisition and other

34

23

160

111

Depreciation and amortization

555

580

2,276

2,277

Impairment of assets and related onerous contract charges

484

484

Stock-based compensation

16

16

61

55

Adjusted operating profit

1,259

1,226

5,092

5,032

1

As a result of the IFRS Interpretations Committee’s agenda decision relating to IAS 12 Income Taxes, certain amounts have been retrospectively amended. See “Accounting Changes” for more information.

Reconciliation of adjusted operating profit margin

Three months ended December 31

Twelve months ended December 31

(In millions of dollars, except percentages)

2016

2015

2016

2015

Adjusted operating profit margin:

Adjusted operating profit

1,259

1,226

5,092

5,032

Divided by: total revenue

3,510

3,452

13,702

13,414

Adjusted operating profit margin

35.9

%

35.5

%

37.2

%

37.5

%

Reconciliation of adjusted net income

Three months ended December 31

Twelve months ended December 31

(In millions of dollars)

2016

2015

2016

2015

Net (loss) income 1

(9)

299

835

1,342

Add (deduct):

Stock-based compensation

16

16

61

55

Restructuring, acquisition and other

34

23

160

111

Loss on repayment of long-term debt

7

Net loss on divestitures pertaining to investments

11

Gain on acquisition of Mobilicity 1

(74)

Loss on non-controlling interest purchase obligation

72

Loss on wind down of shomi

140

Impairment of assets and related onerous contract charges

484

484

Income tax impact of above items

(143)

(7)

(213)

(40)

Income tax adjustment, legislative tax change

3

6

Adjusted net income 1

382

331

1,481

1,479

1

As a result of the IFRS Interpretations Committee’s agenda decision relating to IAS 12 Income Taxes, certain amounts have been retrospectively amended. See “Accounting Changes” for more information.

Reconciliation of adjusted earnings per share

(In millions of dollars, except per share amounts; number
of shares outstanding in millions)

Three months ended December 31

Twelve months ended December 31

2016

2015

2016

2015

Adjusted basic earnings per share:

Adjusted net income 1

382

331

1,481

1,479

Divided by:

Weighted average number of shares outstanding

515

515

515

515

Adjusted basic earnings per share

$0.74

$0.64

$2.88

$2.87

Adjusted diluted earnings per share:

Adjusted net income 1

382

331

1,481

1,479

Divided by:

Diluted weighted average number of shares outstanding

517

517

517

517

Adjusted diluted earnings per share 1

$0.74

$0.64

$2.86

$2.86

1

As a result of the IFRS Interpretations Committee’s agenda decision relating to IAS 12 Income Taxes, certain amounts have been retrospectively amended. See “Accounting Changes” for more information.

Reconciliation of free cash flow

Three months ended December 31

Twelve months ended December 31

(In millions of dollars)

2016

2015

2016

2015

Cash provided by operating activities

1,053

950

3,957

3,747

Add (deduct):

Additions to property, plant and equipment

(604)

(773)

(2,352)

(2,440)

Interest on borrowings, net of capitalized interest

(182)

(185)

(740)

(732)

Restructuring, acquisition and other

34

23

160

111

Interest paid

124

133

756

771

Change in non-cash working capital

18

187

(14)

302

Other adjustments

(51)

(61)

(62)

(83)

Free cash flow

392

274

1,705

1,676

Reconciliation of adjusted net debt and adjusted net debt / adjusted operating profit

As at
December 31

As at

December 31

(In millions of dollars)

2016

2015

Current portion of long-term debt

750

1,000

Long-term debt

15,330

15,870

Deferred transaction costs and discounts

117

111

16,197

16,981

Add (deduct):

Net debt derivative assets

(1,683)

(2,028)

Credit risk adjustment related to net debt derivative assets

(57)

(152)

Short-term borrowings

800

800

Bank advances (cash and cash equivalents)

71

(11)

Adjusted net debt

15,328

15,590

As at
December 31

As at

December 31

(In millions of dollars, except ratios)

2016

2015

Adjusted net debt / adjusted operating profit

Adjusted net debt

15,328

15,590

Divided by: trailing 12-month adjusted operating profit

5,092

5,032

Adjusted net debt / adjusted operating profit

3.0

3.1

Other Information

Consolidated financial results – quarterly summary

The table below shows our consolidated results for the past eight quarters.

2016

2015

(In millions of dollars, except per share amounts)

Full Year

Q4

Q3

Q2

Q1

Full Year

Q4

Q3

Q2

Q1

Revenue

Wireless

7,916

2,058

2,037

1,931

1,890

7,651

1,981

1,973

1,903

1,794

Cable

3,449

858

865

870

856

3,465

855

871

869

870

Business Solutions

384

96

95

97

96

377

95

94

94

94

Media

2,146

550

533

615

448

2,079

560

473

582

464

Corporate items and intercompany eliminations

(193)

(52)

(38)

(58)

(45)

(158)

(39)

(27)

(45)

(47)

Total revenue

13,702

3,510

3,492

3,455

3,245

13,414

3,452

3,384

3,403

3,175

Adjusted operating profit (loss)

Wireless

3,285

792

884

846

763

3,239

754

879

841

765

Cable

1,674

435

431

415

393

1,658

426

416

414

402

Business Solutions

123

30

31

31

31

116

30

31

27

28

Media

169

49

79

90

(49)

172

56

58

90

(32)

Corporate items and intercompany eliminations

(159)

(47)

(40)

(35)

(37)

(153)

(40)

(39)

(35)

(39)

Adjusted operating profit 1

5,092

1,259

1,385

1,347

1,101

5,032

1,226

1,345

1,337

1,124

Deduct (add):

Stock-based compensation

61

16

18

15

12

55

16

13

14

12

Depreciation and amortization

2,276

555

575

572

574

2,277

580

576

562

559

Impairment of assets and related onerous contract charges

484

484

Restructuring, acquisition and other

160

34

55

27

44

111

23

37

42

9

Finance costs

761

188

188

189

196

774

192

190

182

210

Other expense (income) 2

191

(4)

220

9

(34)

(4)

4

(31)

26

(3)

Net income (loss) before income tax expense (recovery) 2

1,159

(14)

329

535

309

1,819

411

560

511

337

Income tax expense (recovery) 2

324

(5)

109

141

79

477

112

135

148

82

Net income (loss) 2

835

(9)

220

394

230

1,342

299

425

363

255

Earnings (loss) per share 2:

Basic

$1.62

($0.02)

$0.43

$0.77

$0.45

$2.61

$0.58

$0.83

$0.70

$0.50

Diluted

$1.62

($0.04)

$0.43

$0.76

$0.44

$2.60

$0.58

$0.82

$0.70

$0.48

Net income (loss) 2

835

(9)

220

394

230

1,342

299

425

363

255

Add (deduct):

Stock-based compensation

61

16

18

15

12

55

16

13

14

12

Restructuring, acquisition and other

160

34

55

27

44

111

23

37

42

9

Gain on acquisition of Mobilicity 2

(74)

(74)

Loss on non-controlling interest purchase obligation

72

72

Loss on repayment of long-term debt

7

7

Loss on wind down of shomi

140

140

Net loss (gain) on divestitures pertaining to investments

11

50

(39)

Impairment of assets and related onerous contract charges

484

484

Income tax impact of above items 2

(213)

(143)

(56)

(9)

(5)

(40)

(7)

(12)

(13)

(8)

Income tax adjustment, legislative tax change

3

3

6

6

Adjusted net income 1,2

1,481

382

427

427

245

1,479

331

461

412

275

Adjusted earnings per share 1,2:

Basic

$2.88

$0.74

$0.83

$0.83

$0.48

$2.87

$0.64

$0.90

$0.80

$0.53

Diluted

$2.86

$0.74

$0.83

$0.83

$0.47

$2.86

$0.64

$0.89

$0.80

$0.53

Additions to property, plant and equipment

2,352

604

549

647

552

2,440

773

571

621

475

Cash provided by operating activities

3,957

1,053

1,185

1,121

598

3,747

950

1,456

1,114

227

Free cash flow 1

1,705

392

598

495

220

1,676

274

660

476

266

Total service revenue 3

13,027

3,306

3,328

3,308

3,085

12,649

3,214

3,183

3,204

3,048

1

Adjusted operating profit, adjusted net income, adjusted basic and diluted earnings per share, and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. See “Non-GAAP Measures” for information about these measures, including how we calculate them.

2

As a result of the IFRS Interpretations Committee’s agenda decision relating to IAS 12 Income Taxes, certain amounts have been retrospectively amended. See “Accounting Changes” for more information.

3

As defined. See “Key Performance Indicators”.

Supplementary Information

Rogers Communications Inc.
Interim Condensed Consolidated Statements of Income
(In millions of Canadian dollars, except per share amounts, unaudited)

Three months ended
December 31

Twelve months ended
December 31

2016

2015

2016

2015

Revenue

3,510

3,452

13,702

13,414

Operating expenses:

Operating costs

2,267

2,242

8,671

8,437

Depreciation and amortization

555

580

2,276

2,277

Impairment of assets and related
onerous contract charges

484

484

Restructuring, acquisition and other

34

23

160

111

Finance costs

188

192

761

774

Other (income) expense 1

(4)

4

191

(4)

(Loss) income before income tax (recovery) expense 1

(14)

411

1,159

1,819

Income tax (recovery) expense 1

(5)

112

324

477

Net (loss) income 1

(9)

299

835

1,342

(Loss) earnings per share 1:

Basic

($0.02)

$0.58

$1.62

$2.61

Diluted

($0.04)

$0.58

$1.62

$2.60

1

As a result of the IFRS Interpretations Committee’s agenda decision relating to IAS 12 Income Taxes, certain amounts have been retrospectively amended. See “Accounting Changes” for more information.

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

As at
December 31

As at
December 31

2016

2015

Assets

Current assets:

Cash and cash equivalents

11

Accounts receivable

1,949

1,792

Inventories

315

318

Other current assets

215

303

Current portion of derivative instruments

91

198

Total current assets

2,570

2,622

Property, plant and equipment

10,749

10,997

Intangible assets

7,130

7,243

Investments

2,174

2,271

Derivative instruments

1,708

1,992

Other long-term assets

98

150

Deferred tax assets

8

9

Goodwill 1

3,905

3,905

Total assets 1

28,342

29,189

Liabilities and shareholders’ equity

Current liabilities:

Bank advances

71

Short-term borrowings

800

800

Accounts payable and accrued liabilities

2,783

2,708

Income tax payable

186

96

Current portion of provisions

134

10

Unearned revenue

367

388

Current portion of long-term debt

750

1,000

Current portion of derivative instruments

22

15

Total current liabilities

5,113

5,017

Provisions

33

50

Long-term debt

15,330

15,870

Derivative instruments

118

95

Other long-term liabilities

562

455

Deferred tax liabilities 1

1,917

2,066

Total liabilities 1

23,073

23,553

Shareholders’ equity 1

5,269

5,636

Total liabilities and shareholders’ equity 1

28,342

29,189

1

As a result of the IFRS Interpretations Committee’s agenda decision relating to IAS 12 Income Taxes, certain amounts have been retrospectively amended. See “Accounting Changes” for more information.

Rogers Communications Inc.
Interim Condensed Consolidated Statements of Cash Flows
(In millions of Canadian dollars, unaudited)

Three months ended December 31

Twelve months ended December 31

2016

2015

2016

2015

Operating activities:

Net (loss) income for the period 1

(9)

299

835

1,342

Adjustments to reconcile net (loss) income to cash provided by
operating activities:

Depreciation and amortization

555

580

2,276

2,277

Program rights amortization

17

21

71

87

Finance costs

188

192

761

774

Income tax (recovery) expense 1

(5)

112

324

477

Stock-based compensation

16

16

61

55

Post-employment benefits contributions, net of expense

28

31

(3)

(16)

Net loss on divestitures pertaining to investments

11

Loss on wind down of shomi

140

Impairment of assets and related onerous contract charges

484

484

Gain on acquisition of Mobilicity 1

(74)

Other

2

13

34

82

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

1,276

1,264

4,994

5,004

Change in non-cash operating working capital items

(18)

(187)

14

(302)

Cash provided by operating activities before income taxes paid
and interest paid

1,258

1,077

5,008

4,702

Income taxes (paid) received

(81)

6

(295)

(184)

Interest paid

(124)

(133)

(756)

(771)

Cash provided by operating activities

1,053

950

3,957

3,747

Investing activities:

Additions to property, plant and equipment

(604)

(773)

(2,352)

(2,440)

Additions to program rights

(3)

(27)

(46)

(64)

Changes in non-cash working capital related to property, plant and
equipment and intangible assets

44

167

(103)

(116)

Acquisitions and other strategic transactions, net of cash acquired

(5)

(1,077)

Other

49

(32)

45

(70)

Cash used in investing activities

(514)

(670)

(2,456)

(3,767)

Financing activities:

Net repayment on short-term borrowings

(250)

(59)

(42)

Net (repayment) issuance of long-term debt

(57)

82

(538)

754

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

(28)

(25)

(45)

129

Transaction costs incurred

(17)

(9)

(17)

(9)

Dividends paid

(247)

(247)

(988)

(977)

Other

5

Cash used in financing activities

(599)

(258)

(1,583)

(145)

Change in cash and cash equivalents

(60)

22

(82)

(165)

(Bank advances) cash and cash equivalents, beginning of period

(11)

(11)

11

176

(Bank advances) cash and cash equivalents, end of period

(71)

11

(71)

11

1

As a result of the IFRS Interpretations Committee’s agenda decision relating to IAS 12 Income Taxes, certain amounts have been retrospectively amended. See “Accounting Changes” for more information.

Investments

As at
December 31

As at

December 31

(In millions of dollars)

2016

2015

Investments in:

Publicly traded companies

1,047

966

Private companies

169

212

Investments, available-for-sale

1,216

1,178

Investments, associates and joint ventures

958

1,093

Total investments

2,174

2,271

Long-Term Debt

Principal

amount

Interest

rate

As at
December 31

As at
December 31

(In millions of dollars, except interest rates)

Due date

2016

2015

Bank credit facilities

Floating

100

500

Bank credit facilities

US

150

Floating

201

Senior notes

2016

1,000

5.800

%

1,000

Senior notes

2017

500

3.000

%

500

500

Senior notes

2017

250

Floating

250

250

Senior notes

2018

US

1,400

6.800

%

1,880

1,938

Senior notes

2019

400

2.800

%

400

400

Senior notes

2019

500

5.380

%

500

500

Senior notes

2020

900

4.700

%

900

900

Senior notes

2021

1,450

5.340

%

1,450

1,450

Senior notes

2022

600

4.000

%

600

600

Senior notes

2023

US

500

3.000

%

671

692

Senior notes

2023

US

850

4.100

%

1,141

1,176

Senior notes

2024

600

4.000

%

600

600

Senior notes

2025

US

700

3.625

%

940

969

Senior notes

2026

US

500

2.900

%

671

Senior debentures 1

2032

US

200

8.750

%

269

277

Senior notes

2038

US

350

7.500

%

470

484

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

%

671

692

Senior notes

2043

US

650

5.450

%

873

900

Senior notes

2044

US

1,050

5.000

%

1,410

1,453

16,197

16,981

Deferred transaction costs and discounts

(117)

(111)

Less current portion

(750)

(1,000)

Total long-term debt

15,330

15,870

1

Senior debentures originally issued by Rogers Cable Inc. which are unsecured obligations of RCI and for which RCCI was an unsecured guarantor as at December 31, 2016 and for which Rogers Communications Partnership was an unsecured guarantor as at December 31, 2015.

About Forward-Looking Information

This earnings release includes “forward-looking information” and “forward-looking statements” within the meaning of applicable securities laws (collectively, “forward-looking information”), and assumptions about, among other things, our business, operations, and financial performance and condition approved by our management on the date of this earnings release. This forward-looking information and these assumptions include, but are not limited to, statements about our objectives and strategies to achieve those objectives, and about our beliefs, plans, expectations, anticipations, estimates, or intentions.

Forward-looking information

typically includes words like could, expect, may, anticipate, assume, believe, intend, estimate, plan, project, guidance, outlook, target, and similar expressions, although not all forward-looking information includes them; includes conclusions, forecasts, and projections that are based on our current objectives and strategies and on estimates, expectations, assumptions, and other factors, most of which are confidential and proprietary and that we believe to have been reasonable at the time they were applied but may prove to be incorrect; and was approved by our management on the date of this earnings release.

Our forward-looking information includes forecasts and projections related to the following items, some of which are non-GAAP measures (see “Non-GAAP Measures”), among others:

revenue; adjusted operating profit; additions to property, plant and equipment; cash income tax payments; free cash flow; dividend payments; the growth of new products and services; expected growth in subscribers and the services to which they subscribe; the cost of acquiring and retaining subscribers and deployment of new services; continued cost reductions and efficiency improvements; and all other statements that are not historical facts.

Specific forward-looking information included or incorporated in this document include, but is not limited to, our information and statements under “2017 Outlook” relating to our 2017 consolidated guidance on revenue, adjusted operating profit, additions to property, plant and equipment, and free cash flow. All other statements that are not historical facts are forward-looking statements.

We base our conclusions, forecasts, and projections on the following factors, among others:

general economic and industry growth rates; currency exchange rates and interest rates; product pricing levels and competitive intensity; subscriber growth; pricing, usage, and churn rates; changes in government regulation; technology deployment; availability of devices; timing of new product launches; content and equipment costs; the integration of acquisitions; and industry structure and stability.

Except as otherwise indicated, this earnings release and our forward-looking information do not reflect the potential impact of any non-recurring or other special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations, or other transactions that may be considered or announced or may occur after the date on which the statement containing the forward-looking information is made.

Risks and uncertainties
Actual events and results can be substantially different from what is expressed or implied by forward-looking information as a result of risks, uncertainties, and other factors, many of which are beyond our control, including, but not limited to:

regulatory changes; economic conditions; unanticipated changes in content or equipment costs; changing conditions in the entertainment, information, and communications industries; the integration of acquisitions; litigation and tax matters; technological changes; the level of competitive intensity; the emergence of new opportunities; and new interpretations and new accounting standards from accounting standards bodies.

These factors can also affect our objectives, strategies, and intentions. Many of these factors are beyond our control or our current expectations or knowledge. Should one or more of these risks, uncertainties, or other factors materialize, our objectives, strategies, or intentions change, or any other factors or assumptions underlying the forward-looking information prove incorrect, our actual results and our plans could vary significantly from what we currently foresee.

Accordingly, we warn investors to exercise caution when considering statements containing forward-looking information and caution them that it would be unreasonable to rely on such statements as creating legal rights regarding our future results or plans. We are under no obligation (and we expressly disclaim any such obligation) to update or alter any statements containing forward-looking information or the factors or assumptions underlying them, whether as a result of new information, future events, or otherwise, except as required by law. All of the forward-looking information in this earnings release is qualified by the cautionary statements herein.

Key assumptions underlying our 2017 guidance
Our 2017 guidance ranges under “2017 Outlook” are based on many assumptions including, but not limited to, the following material assumptions:

continued intense competition consistent with our experience during the full-year 2016 in all segments in which we operate; a substantial portion of our US dollar-denominated expenditures for 2017 is hedged at an average exchange rate of $1.33/US$; key interest rates remain relatively stable throughout 2017; no significant additional regulatory developments, shifts in economic condition, or macro changes in the competitive environment affecting our business activities. We note that regulatory decisions expected during 2017 could materially alter underlying assumptions around our 2017 Wireless, Cable, Business Solutions, and/or Media results in the current and future years, the impacts of which are currently unknown and not factored into our guidance; the CRTC decision to require distributors to offer a basic entry-level television package capped at $25 per month, as well as channels above the basic tier on an “à la carte” basis and in smaller, reasonably priced packages, is not expected to materially impact our Cable revenue; the CRTC decision to significantly reduce interim rates for the capacity charge tariff component of wholesale high-speed access service pending approval of final rates is expected to have an impact on our Cable revenue; Wireless customers will continue to adopt, and upgrade to, higher-value smartphones and a similar proportion of customers will remain on term contracts; overall wireless market penetration in Canada is expected to grow in 2017 at a similar rate as in 2016; our relative market share in Wireless and Cable will not be negatively impacted; continued subscriber growth in Wireless and Cable Internet; moderating net losses in Cable Television subscribers; and a relatively stable Phone subscriber base; in Business Solutions, continued declines in our legacy and off-net business, and the continued execution of our plan to grow higher-margin next generation IP- and cloud-based services; in Media, continued growth in Sportsnet and declines in our traditional media businesses, including our print publishing offerings; and with respect to additions to property, plant and equipment: we have rolled out LTE across the majority of our coverage area as well as deployed newly-acquired 700 MHz and AWS-1 spectrum; and we will make expenditures to prepare our network for our anticipated rollout of the Comcast X1 IPTV platform in early 2018.

Before making an investment decision
Before making any investment decisions and for a detailed discussion of the risks, uncertainties, and environment associated with our business, fully review the sections in our 2015 Annual MD&A entitled “Regulation in Our Industry” and “Governance and Risk Management”, as well as our various other filings with Canadian and US securities regulators, which can be found at sedar.com and sec.gov, respectively. Information on or connected to our website is not part of or incorporated into this earnings release.

SOURCE Rogers Communications Canada Inc. – English

Related Links

http://www.rogers.com

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