Bay Street News

Rogers Communications Reports Fourth Quarter and Full-Year 2018 Results; Announces 2019 Financial Guidance

TORONTO, Jan. 24, 2019 (GLOBE NEWSWIRE) — Rogers Communications Inc. today announced its unaudited financial and operating results for the fourth quarter ended December 31, 2018.

Consolidated Financial Highlights

  Three months ended December 31   Twelve months ended December 31  
(In millions of Canadian dollars, except per share amounts, unaudited) 2018   2017
(restated) 1
  % Chg   2018   2017
(restated) 1
  % Chg  
             
Total revenue 3,938   3,731   6   15,096   14,369   5  
Total service revenue 2 3,276   3,164   4   12,974   12,550   3  
Adjusted EBITDA 3 1,521   1,436   6   5,983   5,502   9  
Net income 502   499   1   2,059   1,845   12  
Adjusted net income 3 585   525   11   2,241   1,902   18  
             
Diluted earnings per share $0.97   $0.97     $3.99   $3.57   12  
Adjusted diluted earnings per share 3 $1.13   $1.02   11   $4.34   $3.68   18  
             
Cash provided by operating activities 1,051   1,142   (8 ) 4,288   3,938   9  
Free cash flow 3 275   230   20   1,771   1,685   5  

2017 reported figures have been restated applying the new revenue recognition standard, IFRS 15. See “Critical Accounting Policies and Estimates”.
As defined. See “Key Performance Indicators”.
As defined. See “Non-GAAP Measures”. These measures 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.

“We delivered strong financial and operating results in the fourth quarter and terrific results for the full year,” said Joe Natale, President and CEO. “We delivered on all of our key financial commitments and released a strong outlook for 2019. Overall, we have good momentum and we continue to make meaningful and substantial headway on our key strategic priorities, including our relentless focus on our customers, our well-timed investments in our networks, and our steadfast commitment to deliver strong shareholder value.”

Quarterly Financial Highlights

Higher revenue
Total revenue increased 6% this quarter, largely driven by Wireless service revenue growth of 5%. Growth in Wireless was a result of our balanced approach to continue monetizing the increasing demand for data along with a disciplined approach around subscriber base management. Wireless equipment revenue grew 17% this quarter driven by an increase in sales of higher value devices and increased hardware upgrades.

Cable revenue increased 1% this quarter as Internet revenue growth of 6% continued to drive the Cable segment. This quarter, we had net additions of 25,000 for Internet.

Media revenue increased 3% this quarter primarily as a result of higher advertising and sports-related revenue.

Higher adjusted EBITDA and margins
This quarter, adjusted EBITDA increased 6% with a margin expansion of 10 basis points. This increase was driven by Wireless adjusted EBITDA growth of 7%, as a result of strong growth in Wireless revenue, partially offset by investments in our frontline employees, which led to a margin of 41.7%, down 50 basis points from last year.

Cable adjusted EBITDA increased 3% this quarter primarily from the ongoing product mix shift to higher-margin Internet services and various cost efficiencies achieved. This gave rise to a margin of 49.4% this quarter, up 80 basis points from last year.

Media adjusted EBITDA increased 8% this quarter primarily as a result of increased revenue, resulting in a margin of 7.4%, up 40 basis points from last year.

Higher net income and adjusted net income
Net income and adjusted net income increased this quarter by 1% and 11%, respectively, as a result of higher adjusted EBITDA, partially offset by higher depreciation and amortization.

Substantial cash flow affords financial flexibility and supports network evolution
We continued to generate substantial cash flow from operating activities of $1,051 million this quarter and free cash flow of $275 million. Cash flow from operating activities decreased by 8% as a result of a higher net investment in working capital items and higher interest paid. Free cash flow increased by 20% as a result of higher adjusted EBITDA.

Our solid financial results enabled us to continue to make investments in our network, strengthen our balance sheet and liquidity, and still return substantial dividends to shareholders. We paid $247 million in dividends this quarter and announced a 4.2% increase to our annualized dividend rate, bringing our annual declared dividend to $2.00 per share. We ended the fourth quarter with a debt leverage ratio of 2.5, down from 2.7 at the end of 2017.

Strategic Highlights

Our six company priorities guide our work and decision-making as we further improve our operational execution and make well-timed investments to grow our core businesses and deliver increased shareholder value. Below are some highlights for 2018.

Create best-in-class customer experiences by putting our customers first in everything we do

Invest in our networks and technology to deliver leading performance and reliability

Deliver innovative solutions and compelling content that our customers will love

Drive profitable growth in all the markets we serve

Develop our people and a high performance culture

Be a strong, socially responsible leader in our communities across Canada

Achieved 2018 Guidance

The following table outlines guidance ranges that we had previously provided and our actual results and achievements for the selected full-year 2018 financial metrics.

  2017 2018 2018  
(In millions of dollars, except percentages) (restated) Guidance Ranges Actual Achievement
               
Consolidated Guidance 1              
Revenue 14,369 Increase of 3% to 5% 15,096   5.1% Y
Adjusted EBITDA 2 5,502 Increase of 7% to 9% 5,983   8.7% Y
Capital expenditures 3 2,436 2,650 to 2,850  2,790   n/m Y
Free cash flow 2 1,685 Increase of 5% to 7% 1,771   5.1% Y

n/m – not meaningful

1 This table outlines guidance ranges for selected full-year 2018 consolidated financial metrics provided in our January 25, 2018 earnings release and subsequently updated on October 19, 2018. Guidance ranges presented as percentages reflect percentage increases over 2017 actual results.
2 Adjusted EBITDA 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 net of proceeds on disposition, but does not include expenditures for spectrum licences.

2019 Outlook

For the full-year 2019, we expect steady growth in revenue and adjusted EBITDA to drive higher free cash flow, despite higher projected capital expenditures. In 2019, we expect to have the financial flexibility to maintain our network advantages, to further reduce debt, and to continue to return cash to shareholders.

  2018  
(In millions of dollars, except percentages) Actual 2019 Guidance Ranges 1
         
Consolidated Guidance        
Revenue 15,096   Increase of 3%  to 5%
Adjusted EBITDA 2, 3 5,983   Increase of 7%  to 9%
Capital expenditures 4 2,790   2,850  to 3,050  
Free cash flow 2, 3, 5 2,134   Increase of 200  to 300  

1 Guidance ranges presented as percentages reflect percentage increases over full-year 2018 results. 2019 amounts for purposes of assessing our performance against guidance will be calculated in accordance with accounting policies after adopting IFRS 16, Leases (IFRS 16) on January 1, 2019. See “Critical Accounting Polices and Estimates” for more information.
2 Adjusted EBITDA 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 We will record the initial impacts of adopting IFRS 16 in our opening balance sheet effective January 1, 2019. The ongoing impacts will be addressed in our results prospectively from that date. Our 2018 results will not be restated such that our 2019 guidance ranges for adjusted EBITDA and free cash flow include the effect of our adoption of IFRS 16. Were we to adopt IFRS 16 on a retrospective basis, 2018 adjusted EBITDA and free cash flow would each have been $174 million higher.
4 Includes additions to property, plant and equipment net of proceeds on disposition, but does not include expenditures for spectrum licences.
5 Effective January 1, 2019, we will amend our definition of free cash flow. Free cash flow presented above reflects this change. See “Managing our Liquidity and Financial Resources” for more information, including a reconciliation of the impact of this change on full-year 2018 free cash flow.

The above table outlines guidance ranges for selected full-year 2019 consolidated financial metrics. These ranges take into consideration our current outlook, our 2018 results, and the estimated effect of our adoption of IFRS 16 on January 1, 2019 on a cumulative catch-up basis and not retrospectively. The purpose of the financial outlook is to assist investors, shareholders, and others in understanding certain financial metrics relating to expected 2019 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” (including the material assumptions listed under the heading “Key assumptions underlying our 2019 guidance”) 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 that are consistent with annual full-year Board of Directors-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. 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).

Investment community contact Media contact
   
Paul Carpino Terrie Tweddle
647.435.6470 647.501.8346
paul.carpino@rci.rogers.com terrie.tweddle@rci.rogers.com

Quarterly Investment Community Teleconference

Our fourth quarter 2018 results teleconference with the investment community will be held on:

A rebroadcast will be available at investors.rogers.com 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 investors.rogers.com.

For More Information

You can find more information relating to us on our website (investors.rogers.com), 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 investors.rogers.com 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, 2018, 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, 2018, which we intend to file with securities regulators in Canada and the US in the coming weeks. These statements will be made available on the investors.rogers.com, 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 2017 Annual MD&A, our 2017 Audited Consolidated Financial Statements, our 2018 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.

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.

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 24, 2019 and was approved by RCI’s Board of Directors (the Board). This earnings release includes forward-looking statements and assumptions. See “About Forward-Looking Information” for more information.

In this earnings release, this quarter, the quarter, or the fourth quarter refer to the three months ended December 31, 2018, first quarter refers to the three months ended March 31, 2018, second quarter refers to the three months ended June 30, 2018, third quarter refers to the three months ended September 30, 2018, and year to date or full-year refer to the twelve months ended December 31, 2018. All results commentary is compared to the equivalent periods in 2017 or as at December 31, 2017, as applicable, unless otherwise indicated.

Reportable segments
We report our results of operations in three reportable segments. Each segment and the nature of its business is as follows:

Segment Principal activities
Wireless Wireless telecommunications operations for Canadian consumers and businesses.
Cable Cable telecommunications operations, including Internet, television, telephony (phone), and smart home monitoring services for Canadian consumers and businesses, and network connectivity through our fibre network and data centre assets to support a range of voice, data, networking, hosting, and cloud-based services for the enterprise, public sector, and carrier wholesale markets.
Media A diversified portfolio of media properties, including sports media and entertainment, television and radio broadcasting, specialty channels, multi-platform shopping, digital media, and publishing.

Wireless and Cable 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.

Effective January 1, 2018, we redefined our reportable segments as a result of technological evolution and the increased overlap between the various product offerings within our legacy Cable and legacy Business Solutions reportable segments, as well as how we allocate resources amongst, and the general management of, our reportable segments. The results of our legacy Cable segment, legacy Business Solutions segment, and our Smart Home Monitoring products are presented within a redefined Cable segment. Financial results related to our Smart Home Monitoring products were previously reported within Corporate items and intercompany eliminations. We have retrospectively amended our 2017 comparative segment results to account for this redefinition.

Additionally, effective January 1, 2018, we commenced using adjusted EBITDA as the key measure of profit for the purpose of assessing performance for each segment and to make decisions about the allocation of resources. This measure replaced our previous adjusted operating profit non-GAAP measure. We believe adjusted EBITDA more fully reflects segment and consolidated profitability. The difference between adjusted operating profit and adjusted EBITDA is that adjusted EBITDA includes stock-based compensation expense. Use of this measure changed our definition of free cash flow. Adjusted EBITDA 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.

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) 2018
  2017
(restated) 1
  % Chg  2018
  2017
(restated) 1
  % Chg 
             
Revenue            
Wireless 2,464   2,288   8   9,200   8,569   7  
Cable 2 989   981   1   3,932   3,894   1  
Media 540   526   3   2,168   2,153   1  
Corporate items and intercompany eliminations 2 (55 ) (64 ) (14 ) (204 ) (247 ) (17 )
Revenue 3,938   3,731   6   15,096   14,369   5  
Total service revenue 3 3,276   3,164   4   12,974   12,550   3  
             
Adjusted EBITDA 4            
Wireless 1,028   965   7   4,090   3,726   10  
Cable 2 489   477   3   1,874   1,819   3  
Media 40   37   8   196   127   54  
Corporate items and intercompany eliminations 2 (36 ) (43 ) (16 ) (177 ) (170 ) 4  
Adjusted EBITDA 1,521   1,436   6   5,983   5,502   9  
             
Adjusted EBITDA margin 4 38.6  % 38.5  % 0.1 pts 39.6  % 38.3  % 1.3 pts
             
Net income 502   499   1   2,059   1,845   12  
Basic earnings per share $0.97   $0.97     $4.00   $3.58   12  
Diluted earnings per share $0.97   $0.97     $3.99   $3.57   12  
             
Adjusted net income 4 585   525   11   2,241   1,902   18  
Adjusted basic earnings per share 4 $1.14   $1.02   12   $4.35   $3.69   18  
Adjusted diluted earnings per share 4 $1.13   $1.02   11   $4.34   $3.68   18  
             
Capital expenditures 828   841   (2 ) 2,790   2,436   15  
Cash provided by operating activities 1,051   1,142   (8 ) 4,288   3,938   9  
Free cash flow 4 275   230   20   1,771   1,685   5  

2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.
These figures have been retrospectively amended as a result of our reportable segment realignment. See “Reportable Segments”.
As defined. See “Key Performance Indicators”.
Adjusted EBITDA, adjusted EBITDA 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.

Results of our Reportable Segments

WIRELESS

Wireless Financial Results

  Three months ended December 31  Twelve months ended December 31 
(In millions of dollars, except margins) 2018
  2017
(restated) 1
  % Chg  2018
  2017
(restated) 1
  % Chg 
             
Revenue            
Service revenue 1,806   1,724   5   7,091   6,765   5  
Equipment revenue 658   564   17   2,109   1,804   17  
Revenue 2,464   2,288   8   9,200   8,569   7  
             
Operating expenses            
Cost of equipment 695   622   12   2,264   2,002   13  
Other operating expenses 2 741   701   6   2,846   2,841    
Operating expenses 1,436   1,323   9   5,110   4,843   6  
             
Adjusted EBITDA 1,028   965   7   4,090   3,726   10  
             
Adjusted EBITDA margin 41.7  % 42.2  % (0.5 pts) 44.5  % 43.5  % 1.0 pts
Capital expenditures 309   269   15   1,086   806   35  

1 2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.
Other operating expenses for 2017 have been retrospectively amended to include stock-based compensation. See “Reportable Segments”.

Wireless Subscriber Results 1

  Three months ended December 31  Twelve months ended December 31 
(In thousands, except churn, blended ABPU, and blended ARPU) 2018
  2017   Chg  2018
  2017   Chg 
             
Postpaid            
Gross additions 448   456   (8 ) 1,632   1,599   33  
Net additions 112   72   40   453   354   99  
Total postpaid subscribers 2 9,157   8,704   453   9,157   8,704   453  
Churn (monthly) 1.23  % 1.48  % (0.25 pts) 1.10  % 1.20  % (0.10 pts)
Prepaid            
Gross additions 157   165   (8 ) 751   782   (31 )
Net (losses) additions (139 ) (8 ) (131 ) (152 ) 61   (213 )
Total prepaid subscribers 2 1,626   1,778   (152 ) 1,626   1,778   (152 )
Churn (monthly) 5.85  % 3.22  % 2.63 pts 4.38  % 3.48  % 0.90 pts
Blended ABPU (monthly) $65.12   $63.46   $1.66   $64.74   $62.31   $2.43  
Blended ARPU (monthly) 3 $55.91   $54.95   $0.96   $55.64   $54.23   $1.41  

Subscriber counts, subscriber churn, blended ABPU, and blended ARPU are key performance indicators. Effective January 1, 2018, in conjunction with our transition to IFRS 15, we commenced reporting blended ABPU as a new key performance indicator. See “Key Performance Indicators”.
As at end of period.
3 Blended ARPU has been restated for 2017 using revenue recognition policies in accordance with IFRS 15.

Service revenue
The 5% increase in service revenue this quarter was a result of:

The 3% increase in blended ABPU this quarter was a result of the increased service revenue as described above.

Gross postpaid subscriber additions this quarter were 448,000. We believe the marginal decrease in this figure from the same period last year was a result of a highly competitive market this quarter along with our disciplined approach around subscriber base management. We believe the higher postpaid net additions and lower postpaid churn this quarter were a result of our strategic focus on enhancing the customer experience by improving our customer service and continually increasing the quality of our network.

Equipment revenue
The 17% increase in equipment revenue this quarter was a result of:

Operating expenses
Cost of equipment

The 12% increase in the cost of equipment this quarter was a result of:

Other operating expenses

The 6% increase in other operating expenses this quarter was primarily a result of investments in frontline employees.

Adjusted EBITDA
The 7% increase in adjusted EBITDA 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) 2018
  2017
(restated) 1
  % Chg  2018
  2017
(restated) 1
  % Chg 
             
Revenue            
Internet 536   508   6   2,114   1,967   7  
Television 363   372   (2 ) 1,442   1,501   (4 )
Phone 86   98   (12 ) 363   411   (12 )
Service revenue 985   978   1   3,919   3,879   1  
Equipment revenue 4   3   33   13   15   (13 )
Revenue 989   981   1   3,932   3,894   1  
             
Operating expenses            
Cost of equipment 6   5   20   21   20   5  
Other operating expenses 2 494   499   (1 ) 2,037   2,055   (1 )
Operating expenses 500   504   (1 ) 2,058   2,075   (1 )
             
Adjusted EBITDA 489   477   3   1,874   1,819   3  
             
Adjusted EBITDA margin 49.4  % 48.6  % 0.8 pts 47.7  % 46.7  % 1.0 pts
Capital expenditures 422   430   (2 ) 1,429   1,334   7  

1 Effective January 1, 2018 and on a retrospective basis, we realigned our reportable segments and related financial results. See “Reportable Segments”.
2 Other operating expenses for 2017 have been retrospectively amended to include stock-based compensation. See “Reportable Segments”.

Cable Subscriber Results 1

  Three months ended December 31   Twelve months ended December 31  
(In thousands) 2018
  2017
(restated)
  Chg   2018
  2017
(restated)
  Chg  
             
Internet 2            
Net additions 25   20   5   109   95   14  
Total Internet subscribers 3 2,430   2,321   109   2,430   2,321   109  
Television            
Net losses (16 ) (13 ) (3 ) (55 ) (80 ) 25  
Total Television subscribers 3 1,685   1,740   (55 ) 1,685   1,740   (55 )
Phone            
Net (losses) additions (4 ) 9   (13 ) 8   14   (6 )
Total Phone subscribers 3 1,116   1,108   8   1,116   1,108   8  
             
Homes passed 3 4,361   4,307   54   4,361   4,307   54  
Total service units 4            
Net additions 5   16   (11 ) 62   29   33  
Total service units 3 5,231   5,169   62   5,231   5,169   62  

Subscriber counts are key performance indicators. See “Key Performance Indicators”.
Effective January 1, 2018, and on a retrospective basis, our Internet subscriber results include Smart Home Monitoring subscribers.
As at end of period.
Includes Internet, Television, and Phone.

Revenue
The 1% increase in revenue this quarter was a result of:

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

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

Phone revenue
The 12% decrease in Phone revenue this quarter was a result of promotional pricing provided to subscribers.

Operating expenses
The 1% decrease in operating expenses this quarter was a result of various cost efficiencies and productivity initiatives.

Adjusted EBITDA
The 3% increase in adjusted EBITDA this quarter was a result of the revenue and expense changes discussed above.

MEDIA

Media Financial Results

  Three months ended December 31  Twelve months ended December 31 
(In millions of dollars, except margins) 2018
  2017   % Chg  2018
  2017   % Chg 
             
Revenue 540   526   3   2,168   2,153   1  
Operating expenses 1 500   489   2   1,972   2,026   (3 )
             
Adjusted EBITDA 40   37   8   196   127   54  
             
Adjusted EBITDA margin 7.4  % 7.0  % 0.4 pts 9.0  % 5.9  % 3.1 pts
Capital expenditures 43   39   10   90   83   8  

1 Operating expenses for 2017 have been retrospectively amended to include stock-based compensation. See “Reportable Segments”.

Revenue
The 3% increase in revenue this quarter was a result of:

Operating expenses
The 2% increase in operating expenses this quarter was a result of:

Adjusted EBITDA
The 8% increase in adjusted EBITDA this quarter was a result of the revenue and expense changes discussed above.

CAPITAL EXPENDITURES

  Three months ended December 31  Twelve months ended December 31 
(In millions of dollars, except capital intensity) 2018
  2017
(restated) 1
  % Chg  2018
  2017
(restated) 1
  % Chg 
             
Capital expenditures 2            
Wireless 309   269   15   1,086   806   35  
Cable 422   430   (2 ) 1,429   1,334   7  
Media 43   39   10   90   83   8  
Corporate 59   103   (43 ) 210   287   (27 )
             
Capital expenditures before proceeds on disposition 833   841   (1 ) 2,815   2,510   12  
Proceeds on disposition (5 )   n/m   (25 ) (74 ) (66 )
             
Capital expenditures 2 828   841   (2 ) 2,790   2,436   15  
             
Capital intensity 3 21.0  % 22.5  % (1.5 pts) 18.5  % 17.0  % 1.5 pts

Effective January 1, 2018 and on a retrospective basis, we realigned our reportable segments and related financial results. As a result, certain figures have been amended for comparative purposes. See “Reportable Segments”.
Includes additions to property, plant and equipment net of proceeds on disposition, but does not include expenditures for spectrum licences.
As defined. See “Key Performance Indicators”.

Wireless
The increase in capital expenditures in Wireless this quarter was a result of investments made to upgrade our wireless network to continue delivering reliable performance for our customers. We have continued augmenting our existing LTE network with 4.5G technology investments that are also 5G-ready.

Cable
The decrease in capital expenditures in Cable this quarter was a result of lower investments in information technology, partially offset by greater investments in customer premise equipment. We also continued upgrading our hybrid fibre-coaxial infrastructure with additional fibre deployments and further DOCSIS technology enhancements. These deployments and enhancements will lower the number of homes passed per node and incorporate the latest technologies to help deliver more bandwidth and an even more reliable customer experience.

Media
The increase in capital expenditures in Media this quarter was a result of higher investments in the Rogers Centre, partially offset by lower investments in our broadcast infrastructure.

Corporate
The decrease in capital expenditures in Corporate this quarter was a result of higher investments in information technology in 2017.

Capital intensity
Capital intensity decreased this quarter as a result of lower capital expenditures, as discussed above, and higher total revenue.

Review of Consolidated Performance

This section discusses our consolidated net income and other income and 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) 2018
  2017
(restated) 1
  % Chg   2018
  2017
(restated) 1
  % Chg  
             
Adjusted EBITDA 2 1,521   1,436   6   5,983   5,502   9  
Deduct (add):            
Depreciation and amortization 564   531   6   2,211   2,142   3  
Gain on disposition of property, plant and equipment       (16 ) (49 ) (67 )
Restructuring, acquisition and other 94   31   n/m   210   152   38  
Finance costs 205   184   11   793   746   6  
Other (income) expense (26 ) 3   n/m   (32 ) (19 ) 68  
Income tax expense 182   188   (3 ) 758   685   11  
             
Net income 502   499   1   2,059   1,845   12  

2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.
Adjusted EBITDA 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.

Depreciation and amortization

  Three months ended December 31   Twelve months ended December 31  
(In millions of dollars) 2018
  2017   % Chg   2018
  2017   % Chg  
             
Depreciation 557   518   8   2,174   2,087   4  
Amortization 7   13   (46 ) 37   55   (33 )
             
Total depreciation and amortization 564   531   6   2,211   2,142   3  

Total depreciation and amortization increased this quarter primarily as a result of higher capital expenditures this year. See “Capital Expenditures” for more information.

Restructuring, acquisition and other
This quarter, we incurred $94 million (2017 – $31 million) in restructuring, acquisition and other expenses. These costs were primarily a result of certain sports-related contract termination costs and severance costs associated with the targeted restructuring of our employee base.

Finance costs

  Three months ended December 31   Twelve months ended December 31  
(In millions of dollars) 2018
  2017   % Chg   2018
  2017   % Chg  
             
Interest on borrowings 1 173   184   (6 ) 709   740   (4 )
Interest on post-employment benefits liability 4   3   33   14   12   17  
Loss on repayment of long-term debt       28     n/m  
Loss (gain) on foreign exchange 90   8   n/m   136   (107 ) n/m  
Change in fair value of derivative instruments (63 ) (10 ) n/m   (95 ) 99   n/m  
Capitalized interest (5 ) (5 )   (20 ) (18 ) 11  
Other 6   4   50   21   20   5  
             
Total finance costs 205   184   11   793   746   6  

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

Bond forwards
During the quarter, we determined that we would no longer be able to exercise certain ten-year bond forward derivatives within the originally designated time frame. Consequently, we discontinued hedge accounting on those bond forward derivatives and reclassified a $21 million loss from the hedging reserve within shareholders’ equity to finance costs (recorded in “change in fair value of derivative instruments”). We subsequently extended the bond forwards to January 31, 2019, with the ability to extend them further, and redesignated them as effective hedges.

Income tax expense

  Three months ended December 31   Twelve months ended December 31  
(In millions of dollars, except tax rates) 2018
  2017
(restated) 1
  2018
  2017
(restated) 1
 
         
Statutory income tax rate 26.7  % 26.7  % 26.7  % 26.7  %
Income before income tax expense 684   687   2,817   2,530  
Computed income tax expense 183   184   752   676  
Increase (decrease) in income tax expense resulting from:        
Non-deductible stock-based compensation 3     5   9  
Non-(taxable) deductible portion of equity (income) losses (3 ) 2   1    
Non-deductible loss on FVTOCI investments       7  
Income tax adjustment, legislative tax change   2     2  
Non-taxable portion of capital gains     (9 ) (10 )
Other items (1 )   9   1  
         
Total income tax expense 182   188   758   685  
         
Effective income tax rate 26.6  % 27.4  % 26.9  % 27.1  %
Cash income taxes paid 54   76   370   475  

1 2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

The payment of cash income taxes was lower this quarter based on the timing of installment payments.

Net income

  Three months ended December 31   Twelve months ended December 31  
(In millions of dollars, except per share amounts)  2018
  2017
(restated) 1
  % Chg    2018
  2017
(restated) 1
  % Chg  
             
Net income 502   499   1   2,059   1,845   12  
Basic earnings per share $0.97   $0.97     $4.00   $3.58   12  
Diluted earnings per share $0.97   $0.97     $3.99   $3.57   12  

1 2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

Adjusted net income
We calculate adjusted net income from adjusted EBITDA as follows:

  Three months ended December 31   Twelve months ended December 31  
(In millions of dollars, except per share amounts) 2018   2017
(restated) 1
  % Chg   2018   2017
(restated) 1
  % Chg  
             
Adjusted EBITDA 2 1,521   1,436   6   5,983   5,502   9  
Deduct:            
Depreciation and amortization 564   531   6   2,211   2,142   3  
Finance costs 3 184   184     744   746    
Other (income) expense 4 (26 ) 3   n/m   (32 ) 1   n/m  
Income tax expense 5 214   193   11   819   711   15  
             
Adjusted net income 2 585   525   11   2,241   1,902   18  
             
Adjusted basic earnings per share 2 $1.14   $1.02   12   $4.35   $3.69   18  
Adjusted diluted earnings per share 2 $1.13   $1.02   11   $4.34   $3.68   18  

1  2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.
Adjusted EBITDA, 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.
Finance costs exclude a $21 million loss on discontinuation of hedge accounting on certain bond forwards for the three and twelve months ended December 31, 2018 (2017 – nil) and a $28 million loss on repayment of long-term debt for the twelve months ended December 31, 2018 (2017 – nil).
4 Other income for the twelve months ended December 31, 2017 excludes a $20 million provision reversal on the wind down of shomi.
Income tax expense excludes a $32 million recovery (2017 – $7 million recovery) for the three months ended December 31, 2018 and a $61 million recovery (2017 – $28 million recovery) for the twelve months ended December 31, 2018 related to the income tax impact for adjusted items. For the three and twelve months ended December 31, 2017, income tax expense also excludes expenses as a result of legislative tax changes of $2 million.

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) 2018
  2017
 (restated) 1
  2018
  2017
 (restated) 1
 
         
Cash provided by operating activities before changes in non-cash working capital items, income taxes paid, and interest paid 1,298   1,360   5,498   5,312  
Change in non-cash operating working capital items (42 ) (17 ) (114 ) (164 )
Cash provided by operating activities before income taxes paid and interest paid 1,256   1,343   5,384   5,148  
Income taxes paid (54 ) (76 ) (370 ) (475 )
Interest paid (151 ) (125 ) (726 ) (735 )
         
Cash provided by operating activities 1,051   1,142   4,288   3,938  
         
Investing activities:        
Capital expenditures (828 ) (841 ) (2,790 ) (2,436 )
Additions to program rights (26 ) (21 ) (54 ) (59 )
Changes in non-cash working capital related to property, plant and equipment and intangible assets 107   101   (125 ) 109  
Acquisitions and other strategic transactions, net of cash acquired       (184 )
Other 9   21   25   (60 )
         
Cash used in investing activities (738 ) (740 ) (2,944 ) (2,630 )
         
Financing activities:        
Net proceeds received (repayments) on short-term borrowings 256   (163 ) 508   858  
Net repayment of long-term debt   (3 ) (823 ) (1,034 )
Net proceeds (payments) on settlement of debt derivatives and forward contracts 26   40   388   (79 )
Transaction costs incurred     (18 )  
Dividends paid (247 ) (247 ) (988 ) (988 )
         
Cash provided by (used in) financing activities 35   (373 ) (933 ) (1,243 )
         
Change in cash and cash equivalents 348   29   411   65  
Cash and cash equivalents (bank advances), beginning of period 57   (35 ) (6 ) (71 )
         
Cash and cash equivalents (bank advances), end of period 405   (6 ) 405   (6 )

1 2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

Operating activities
The 8% decrease in cash provided by operating activities this quarter was a result of a higher net investment in working capital items and higher interest paid, partially offset by lower income taxes paid.

Investing activities
Capital expenditures
During the quarter, we incurred $828 million on capital expenditures, before changes in non-cash working capital items, which was lower than the same period in 2017. See “Capital Expenditures” for more information.

Financing activities
During the quarter, we received net amounts of $282 million (2017 – repaid net amounts of $126 million) on our short-term borrowings, long-term debt, and related derivatives. See “Financial Risk Management” for more information on the cash flows relating to our derivative instruments.

Short-term borrowings
Our short-term borrowings consist of amounts outstanding under our accounts receivable securitization program and under our US dollar-denominated commercial paper (US CP) program. Below is a summary of our short-term borrowings as at December 31, 2018 and December 31, 2017.

  As at
December 31
  As at
December 31
 
(In millions of dollars) 2018
  2017  
     
Accounts receivable securitization program 650   650  
US commercial paper program 1,605   935  
     
Total short-term borrowings 2,255   1,585  

The tables below summarize the activity relating to our short-term borrowings for the three and twelve months ended December 31, 2018 and 2017.

   Three months ended
December 31, 2018
   Twelve months ended
December 31, 2018
 
  Notional   Exchange   Notional   Notional   Exchange   Notional  
(In millions of dollars, except exchange rates) (US$)   rate   (Cdn$)   (US$)   rate   (Cdn$)  
             
Proceeds received from US commercial paper 3,826   1.31   5,026   15,262   1.29   19,752  
Repayment of US commercial paper (3,626 ) 1.32   (4,770 ) (14,858 ) 1.30   (19,244 )
Net proceeds received from US commercial paper     256       508  
             
Proceeds received from accounts receivable securitization           225  
Repayment of accounts receivable securitization           (225 )
Net proceeds received from accounts receivable securitization            
             
Net proceeds received on short-term borrowings     256       508  

   Three months ended
December 31, 2017
   Twelve months ended
December 31, 2017
 
  Notional   Exchange   Notional   Notional   Exchange   Notional  
(In millions of dollars, except exchange rates) (US$)   rate   (Cdn$)   (US$)   rate   (Cdn$)  
             
Proceeds received from US commercial paper 2,142   1.27   2,731   8,267   1.30   10,712  
Repayment of US commercial paper (1,958 ) 1.28   (2,504 ) (7,530 ) 1.29   (9,704 )
Net proceeds received from US commercial paper     227       1,008  
             
Proceeds received from accounts receivable securitization           530  
Repayment of accounts receivable securitization     (390 )     (680 )
Net repayment of accounts receivable securitization     (390 )     (150 )
             
Net (repayment of) proceeds received on short-term borrowings     (163 )     858  

Concurrent with our US CP issuances, we entered into debt derivatives to hedge the foreign currency risk associated with the principal and interest components of the borrowings under our US CP program. See “Financial Risk Management” for more information.

Long-term debt
Our long-term debt consists of amounts outstanding under our bank credit facilities and letter of credit facilities and the senior notes and debentures we have issued. The tables below summarize the activity relating to our long-term debt for the three and twelve months ended December 31, 2018 and 2017.

   Three months ended
December 31, 2018
   Twelve months ended
December 31, 2018
 
(In millions of dollars, except exchange rates) Notional   Exchange   Notional   Notional   Exchange   Notional  
(US$)   rate   (Cdn$)   (US$)   rate   (Cdn$)  
             
Credit facility borrowings (US$)       125   1.26   157  
Credit facility repayments (US$)       (125 ) 1.26   (157 )
Net borrowings under credit facilities            
             
Senior note issuances (US$)       750   1.25   938  
Senior note repayments (US$)       (1,400 ) 1.26   (1,761 )
Net repayment of senior notes           (823 )
             
Net repayment of long-term debt           (823 )

   Three months ended
December 31, 2017
   Twelve months ended
December 31, 2017
 
(In millions of dollars, except exchange rates) Notional   Exchange   Notional   Notional   Exchange   Notional  
(US$)   rate   (Cdn$)   (US$)   rate   (Cdn$)  
             
Credit facility borrowings (Cdn$)           1,730  
Credit facility borrowings (US$) 100   1.25   125   960   1.32   1,269  
Total credit facility borrowings     125       2,999  
             
Credit facility repayments (Cdn$)           (1,830 )
Credit facility repayments (US$) (100 ) 1.28   (128 ) (1,110 ) 1.31   (1,453 )
Total credit facility repayments     (128 )     (3,283 )
             
Net repayments under credit facilities     (3 )     (284 )
             
Senior note repayments (Cdn$)           (750 )
             
Net repayment of long-term debt     (3 )     (1,034 )

  Three months ended December 31   Twelve months ended December 31  
(In millions of dollars) 2018
  2017   2018
  2017  
         
Long-term debt net of transaction costs, beginning of period 13,865   14,402   14,448   16,080  
Net repayment of long-term debt   (3 ) (823 ) (1,034 )
Loss (gain) on foreign exchange 422   47   672   (608 )
Deferred transaction costs incurred     (18 ) (3 )
Amortization of deferred transaction costs 3   2   11   13  
         
Long-term debt net of transaction costs, end of period 14,290   14,448   14,290   14,448  

Dividends
Below is a summary of the dividends we declared and paid on our outstanding RCI Class A Voting common shares (Class A Shares) and RCI Class B Non-Voting common shares (Class B Non-Voting Shares) in 2018 and 2017. On January 24, 2019, we announced a 4.2% increase in the annualized dividend rate to $2.00 per Class A Voting Share and Class B Non-Voting Share, to be paid in quarterly installments of $0.50 per share.

Declaration date Record date Payment date Dividend per
share (dollars)
Dividends paid
(in millions of dollars)
         
January 25, 2018 March 12, 2018 April 3, 2018 0.48 247
April 19, 2018 June 11, 2018 July 3, 2018 0.48 247
August 15, 2018 September 14, 2018 October 3, 2018 0.48 247
October 19, 2018 December 11, 2018 January 3, 2019 0.48 247
         
January 26, 2017 March 13, 2017 April 3, 2017 0.48 247
April 18, 2017 June 12, 2017 July 4, 2017 0.48 247
August 17, 2017 September 15, 2017 October 3, 2017 0.48 247
October 19, 2017 December 11, 2017 January 2, 2018 0.48 247

Free cash flow

  Three months ended December 31   Twelve months ended December 31  
(In millions of dollars) 2018
  2017
(restated) 1
  % Chg   2018
  2017
(restated) 1
  % Chg  
             
Adjusted EBITDA 2 1,521   1,436   6   5,983   5,502   9  
Deduct:            
Capital expenditures 3 828   841   (2 ) 2,790   2,436   15  
Interest on borrowings, net of capitalized interest 168   179   (6 ) 689   722   (5 )
Net change in contract asset and deferred commission cost asset balances 196   110   78   363   184   97  
Cash income taxes 4 54   76   (29 ) 370   475   (22 )
             
Free cash flow 2 275   230   20   1,771   1,685   5  

1  2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.
Adjusted EBITDA 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.
Includes additions to property, plant and equipment net of proceeds on disposition, but does not include expenditures for spectrum licences.
Cash income taxes are net of refunds received.

Free cash flow increased this quarter primarily as a result of higher adjusted EBITDA and lower cash income taxes.

Effective January 1, 2019, we will redefine free cash flow such that we will no longer adjust for the “net change in contract asset and deferred commission cost asset balances” as outlined in the table below. We will redefine free cash flow to simplify this measure and we believe removing it will make us more comparable within our industry. This item was added on a transitional basis following our adoption of IFRS 15 to help stakeholders understand the impact this standard had on our results. The below table shows the effect this change will have on our free cash flow for the three and twelve months ended December 31, 2018 and 2017.

  Three months ended December 31   Twelve months ended December 31  
(In millions of dollars) 2018
  2017   % Chg   2018
  2017   % Chg  
             
Free cash flow as reported 1 275   230   20   1,771   1,685   5  
Add:            
Net change in contract asset and deferred commission cost asset balances 196   110   78   363   184   97  
             
Free cash flow (redefined) 1 471   340   39   2,134   1,869   14  

Free cash flow is a non-GAAP measure and should not be considered a substitute or alternative for GAAP measures. This 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.

Financial Condition

Below is a summary of our total available liquidity under our cash and cash equivalents, bank credit facilities, letter of credit facilities, and short-term borrowings as at December 31, 2018 and December 31, 2017.

As at December 31, 2018  
(In millions of dollars) Total available   Letters of credit   Letters of credit   US CP program   Net available  
           
Bank credit facilities:          
Revolving 3,200     9   1,605   1,586  
Outstanding letters of credit 982     982      
Total bank credit facilities 4,182     991   1,605   1,586  
Accounts receivable securitization 1,050   650       400  
Cash and cash equivalents 405         405  
           
Total 5,637   650   991   1,605   2,391  

As at December 31, 2017  
(In millions of dollars) Total available   Drawn   Letters of credit   Letters of credit   Net available  
           
Bank credit facilities:          
Revolving 3,200     9   935   2,256  
Outstanding letters of credit 87     87      
Bank advances   6       (6 )
Total bank credit facilities 3,287   6   96   935   2,250  
Accounts receivable securitization 1,050   650       400  
           
Total 4,337   656   96   935   2,650  

In addition to the sources of available liquidity noted above, we held $1,051 million of marketable securities in publicly traded companies as at December 31, 2018 (December 31, 2017 – $1,465 million).

Weighted average cost of borrowings
Our weighted average cost of borrowings was 4.45% as at December 31, 2018 (December 31, 2017 – 4.70%) and our weighted average term to maturity was 10.7 years (December 31, 2017 – 9.9 years).

Credit ratings
Below is a summary of the credit ratings on RCI’s outstanding senior notes and debentures (long-term) and US CP (short-term) as at December 31, 2018.

Issuance Standard & Poor’s Moody’s Fitch
Corporate credit issuer default rating 1 BBB+ with a stable outlook Baa1 with a stable outlook BBB+ with a stable outlook
Senior unsecured debt 1 BBB+ with a stable outlook Baa1 with a stable outlook BBB+ with a stable outlook
US commercial paper 1 A-2 P-2 N/A 2

Unchanged in the quarter.
We did not seek a rating from Fitch for our short-term obligations in 2018.

Adjusted net debt and debt leverage ratio
We use adjusted net debt and debt leverage ratio 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) 2018
  2017
(restated) 1
 
     
Long-term debt 2 14,404   14,555  
Net debt derivative assets valued without any adjustment for credit risk 3 (1,448 ) (1,146 )
Short-term borrowings 2,255   1,585  
(Cash and cash equivalents) bank advances (405 ) 6  
     
Adjusted net debt 4 14,806   15,000  
Divided by: trailing 12-month adjusted EBITDA 4 5,983   5,502  
     
Debt leverage ratio 4 2.5   2.7  

2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.
Includes current and long-term portion of long-term debt before deferred transaction costs and discounts. See “Reconciliation of adjusted net debt” in “Non-GAAP Measures” for the calculation of this amount.
For purposes of calculating adjusted net debt and debt leverage ratio, we believe including debt derivatives valued without adjustment for credit risk is commonly used to evaluate debt leverage and for market valuation and transactional purposes.
Adjusted net debt, adjusted EBITDA, and debt leverage ratio 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.

Normal course issuer bid
In April 2018, the TSX accepted a notice of our intention to commence a normal course issuer bid (NCIB) that allows us to purchase, during the twelve-month period beginning April 24, 2018 and ending April 23, 2019, the lesser of 35.8 million Class B Non-Voting Shares and that number of Class B Non-Voting Shares that can be purchased under the NCIB for an aggregate purchase price of $500 million. Rogers security holders may obtain a copy of this notice, without charge, by contacting us. We have not repurchased any shares under our NCIB this quarter or this year.

Outstanding common shares

  As at
December 31
  As at
December 31
 
  2018
  2017  
     
Common shares outstanding 1    
Class A Voting 111,155,637   112,407,192  
Class B Non-Voting 403,657,038   402,403,433  
     
Total common shares 514,812,675   514,810,625  
     
Options to purchase Class B Non-Voting Shares    
Outstanding options 2,719,612   2,637,890  
Outstanding options exercisable 1,059,590   924,562  

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 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 Shares may be made on different terms than the offer to the holders of Class B Non-Voting Shares.

Financial Risk Management

This section should be read in conjunction with “Financial Risk Management” in our 2017 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 85.3% of our outstanding debt, including short-term borrowings, as at December 31, 2018 (December 31, 2017 – 89.5%).

Debt derivatives
We use cross-currency interest exchange agreements (debt derivatives) to manage risks from fluctuations in foreign exchange rates associated with our US dollar-denominated senior notes and debentures, credit facility borrowings, and US dollar-denominated commercial paper borrowings. We designate the debt derivatives related to our senior notes and debentures as hedges for accounting purposes against the foreign exchange risk associated with specific debt instruments. Debt derivatives related to our credit facility and US CP borrowings have not been designated as hedges for accounting purposes.

Below is a summary of the debt derivatives we entered into and settled related to our credit facility borrowings and US CP program during the three and twelve months ended December 31, 2018 and 2017.

   Three months ended
December 31, 2018
   Twelve months ended
December 31, 2018
 
(In millions of dollars, except exchange rates) Notional
 (US$)
  Exchange
rate
Notional
(Cdn$)
  Notional
(US$)
  Exchange
rate
  Notional
(Cdn$)
 
             
Credit facilities            
Debt derivatives entered       125   1.26   157  
Debt derivatives settled       125   1.26   157  
Net cash paid           (1 )
             
US commercial paper program            
Debt derivatives entered 3,826   1.31   5,025   15,262   1.29   19,751  
Debt derivatives settled 3,620   1.31   4,735   14,833   1.29   19,148  
Net cash received     26       63  

   Three months ended December 31, 2017    Twelve months ended December 31, 2017  
(In millions of dollars, except exchange rates) Notional
 (US$)
  Exchange
rate
  Notional
(Cdn$)
  Notional
(US$)
  Exchange
rate
  Notional
(Cdn$)
 
             
Credit facilities            
Debt derivatives entered 100   1.25   125   1,610   1.32   2,126  
Debt derivatives settled 100   1.25   125   1,760   1.32   2,327  
Net cash received (paid)     4       (17 )
             
US commercial paper program            
Debt derivatives entered 2,140   1.28   2,732   8,266   1.30   10,711  
Debt derivatives settled 1,955   1.28   2,500   7,521   1.29   9,692  
Net cash received (paid)     36       (62 )

As at December 31, 2018, we had nil and US$1,178 million notional amount of debt derivatives outstanding relating to our credit facility borrowings and US CP program (December 31, 2017 – nil and US$746 million), respectively.

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

Senior notes
We did not enter into or settle any debt derivatives related to senior notes during the quarter. See “Mark-to-market value” for more information about our debt derivatives.

Bond forwards
We did not enter into or settle any bond forwards during the three or twelve months ended December 31, 2018 and 2017.

During the quarter, we determined that we would no longer be able to exercise certain ten-year bond forwards within the originally designated time frame. Consequently, we discontinued hedge accounting on those bond forwards and reclassified a $21 million loss from the hedging reserve within shareholders’ equity to finance costs. We subsequently extended the bond forwards to January 31, 2019, with the ability to extend them further, and redesignated them as effective hedges.

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

Expenditure derivatives
Below is a summary of the expenditure derivatives we entered into and settled during the three and twelve months ended December 31, 2018 and 2017.

   Three months ended
December 31, 2018
   Twelve months ended
December 31, 2018
 
(In millions of dollars, except exchange rates) Notional
(US$)
  Exchange
rate
Notional
(Cdn$)
  Notional
(US$)
  Exchange
rate
  Notional
(Cdn$)
 
             
Expenditure derivatives entered       720   1.24   896  
Expenditure derivatives settled 210   1.30   274   840   1.30   1,093  

   Three months ended
December 31, 2017
   Twelve months ended
December 31, 2017
 
(In millions of dollars, except exchange rates) Notional
(US$)
  Exchange
rate
  Notional
(Cdn$)
  Notional
(US$)
  Exchange
rate
  Notional
(Cdn$)
 
             
Expenditure derivatives entered       840   1.27   1,070  
Expenditure derivatives settled 225   1.33   300   930   1.33   1,240  

As at December 31, 2018, we had US$1,080 million notional amount of expenditure derivatives outstanding (December 31, 2017 – US$1,200 million) with terms to maturity ranging from January 2019 to December 2020 (December 31, 2017 – January 2018 to December 2019), at an average rate of $1.24/US$ (December 31, 2017 – $1.28/US$).

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

Equity derivatives
As at December 31, 2018, we had equity derivatives outstanding for 5.0 million (December 31, 2017 – 5.4 million) Class B Non-Voting Shares with a weighted average price of $51.54 (December 31, 2017 – $51.44).

We did not enter into or settle any equity derivatives during the quarter. 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, 2018  
(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 5,500   1.1243   6,184   1,354  
As liabilities 550   1.3389   736   (22 )
Short-term debt derivatives not accounted for as hedges:        
As assets 1,178   1.3276   1,564   41  
Net mark-to-market debt derivative asset       1,373  
Bond forwards accounted for as cash flow hedges:        
As liabilities     900   (87 )
Expenditure derivatives accounted for as cash flow hedges:        
As assets 1,080   1.2413   1,341   122  
Equity derivatives not accounted for as hedges:        
As assets     258   92  
         
Net mark-to-market asset       1,500  

  As at December 31, 2017  
(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   1,301  
As liabilities 1,500   1.3388   2,008   (149 )
Short-term debt derivatives not accounted for as hedges:        
As liabilities 746   1.2869   960   (23 )
Net mark-to-market debt derivative asset       1,129  
Bond forwards accounted for as cash flow hedges:        
As liabilities     900   (64 )
Expenditure derivatives accounted for as cash flow hedges:        
As assets 240   1.2239   294   5  
As liabilities 960   1.2953   1,243   (44 )
Net mark-to-market expenditure derivative liability       (39 )
Equity derivatives not accounted for as hedges:        
As assets     276   68  
         
Net mark-to-market asset       1,094  

Critical Accounting Policies and Estimates

IFRS 15, Revenue from contracts with customers
We adopted IFRS 15, Revenue from contracts with customers (IFRS 15), on January 1, 2018. IFRS 15 supersedes previous accounting standards for revenue, including IAS 18, Revenue (IAS 18) and IFRIC 13, Customer loyalty programmes (IFRIC 13).

The application of this new standard has significant impacts on our reported Wireless results, specifically with regards to the timing of recognition and classification of revenue, and the treatment of costs incurred in acquiring customer contracts. The timing of recognition and classification of revenue is affected because, at contract inception, IFRS 15 requires the estimation of total consideration over the contract term and the allocation of that consideration to all performance obligations in the contract based on their relative stand-alone selling prices. This affects our Wireless arrangements that bundle equipment and service together into monthly service fees, which results in an increase to equipment revenue recognized at contract inception and a decrease to service revenue recognized over the course of the contracts as the device subsidy recovery component of our revenue is largely removed from our service revenue. The application of IFRS 15 does not affect our cash flows from operations or the methods and underlying economics through which we transact with our customers.

We have retrospectively applied IFRS 15 to all contracts that were not complete on the date of initial application. We have made a policy choice to restate each prior period presented and have recognized the cumulative effect of initially applying IFRS 15 as an adjustment to the opening balance of equity as at January 1, 2017, subject to certain practical expedients we adopted. We have separately provided supplementary financial information at investors.rogers.com that provides our results under the prior accounting basis.

Effect of transition to IFRS 15
Below is a summary of the IFRS 15 adjustments on our key financial information for the three and twelve months ended December 31, 2017, all of which pertain to our Wireless segment.

  Three months ended December 31, 2017   Twelve months ended December 31, 2017  
(In millions of dollars) As previously
reported 1
  Adjustments   Restated   As previously
reported 1
  Adjustments   Restated  
                 
Consolidated            
Total revenue 3,632   99   3,731   14,143   226   14,369  
Total service revenue 2 3,430   (266 ) 3,164   13,560   (1,010 ) 12,550  
Adjusted EBITDA 3 1,326   110   1,436   5,318   184   5,502  
             
Net income 419   80   499   1,711   134   1,845  
Adjusted net income 3 445   80   525   1,768   134   1,902  
             
Wireless            
Service revenue 1,990   (266 ) 1,724   7,775   (1,010 ) 6,765  
Equipment revenue 199   365   564   568   1,236   1,804  
             
Operating expenses 4 1,334   (11 ) 1,323   4,801   42   4,843  
             
Adjusted EBITDA 855   110   965   3,542   184   3,726  

1 Amounts calculated on a basis consistent with our previous revenue recognition accounting policies prior to adopting IFRS 15. Certain amounts presented under prior accounting basis have been retrospectively amended as a result of our use of adjusted EBITDA in 2018.
As defined. See “Key Performance Indicators”.
Adjusted EBITDA and adjusted net income 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.
4 Operating expenses have been retrospectively amended to include stock-based compensation. See “Reportable Segments”.

Below is a summary of the IFRS 15 adjustments on certain key financial metrics from our Consolidated Statements of Financial Position as at January 1, 2017 and December 31, 2017.

  As at January 1, 2017   As at December 31, 2017  
(in millions of dollars) As previously
reported
  Adjustments   Restated   As previously
reported
  Adjustments   Restated  
             
Consolidated            
Total assets 28,342   1,469   29,811   28,863   1,627   30,490  
Total liabilities 23,073   454   23,527   22,516   478   22,994  
Shareholders’ equity 5,269   1,015   6,284   6,347   1,149   7,496  

The application of IFRS 15 did not affect our cash flow totals from operating, investing, or financing activities.

IFRS 16, Leases (IFRS 16)
Effective January 1, 2019, we will adopt IFRS 16. Our first quarter 2019 interim financial statements will be our first financial statements issued in accordance with IFRS 16. IFRS 16 supersedes the current accounting standards for leases, including IAS 17, Leases (IAS 17) and IFRIC 4, Determining Whether an Arrangement Contains a Lease (IFRIC 4).

IFRS 16 introduces a single accounting model for lessees unless the underlying asset is of low value. A lessee will be required to recognize, on its statement of financial position, a right-of-use asset, representing its right to use the underlying leased asset, and a lease liability, representing its obligation to make lease payments. As a result of adopting IFRS 16, we will recognize a significant increase to both assets and liabilities on our Consolidated Statements of Financial Position, as well as a decrease to operating costs (and therefore an increase to adjusted EBITDA) to remove lease rent, an increase to depreciation and amortization (due to depreciation of the right-of-use asset), and an increase to finance costs (due to accretion of the lease liability). The accounting treatment for lessors will remain largely the same as under IAS 17.

We will adopt IFRS 16 with the cumulative effect of initial application recognized as an adjustment to retained earnings within shareholders’ equity on January 1, 2019. We will not restate comparatives for 2018.

Key Performance Indicators

We measure the success of our strategy using a number of key performance indicators that are defined and discussed in our 2017 Annual MD&A and this earnings release. We believe these key performance indicators allow us to appropriately measure our performance against our operating strategy and 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 alternatives to net income or any other measure of performance under IFRS. They include:

Non-GAAP Measures

We use the following non-GAAP measures. These are reviewed regularly by management and the 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 EBITDA

 
Adjusted EBITDA 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 EBITDA:
Net income
add (deduct)
income tax expense (recovery); finance costs; depreciation and amortization; other expense (income); restructuring, acquisition and other; and loss (gain) on disposition of property, plant and equipment.

Adjusted EBITDA margin:
Adjusted EBITDA
divided by
revenue.

Net income
  We believe that certain investors and analysts use adjusted EBITDA 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)
restructuring, acquisition and other; loss (recovery) on sale or wind down of investments; loss (gain) on disposition of property, plant and equipment; (gain) on acquisitions; loss on non-controlling interest purchase obligations; loss on repayment of long-term debt; loss on bond forward derivatives; 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 and adjusted net income including the dilutive effect of stock-based compensation
divided by
basic and diluted weighted average shares outstanding.

Net income
 

Basic and
diluted
earnings per
share

Free cash flow 1   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 EBITDA
deduct
capital expenditures; interest on borrowings net of capitalized interest; net change in contract asset and deferred commission cost asset balances; 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.
Debt leverage ratio   To conduct valuation-related analysis and make decisions about capital structure. Adjusted net debt (defined above)
divided by
12-month trailing adjusted EBITDA (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.

1 Effective January 1, 2019, we will redefine free cash flow such that we will no longer adjust for the “net change in contract asset and deferred commission cost asset balances”. We will redefine free cash flow to simplify this measure and we believe removing it will make us more comparable within our industry. 

Reconciliation of adjusted EBITDA

  Three months ended December 31   Twelve months ended December 31  
(In millions of dollars) 2018
  2017 
(restated) 1
  2018
  2017
(restated) 1
 
         
Net income 502   499   2,059   1,845  
Add:        
Income tax expense 182   188   758   685  
Finance costs 205   184   793   746  
Depreciation and amortization 564   531   2,211   2,142  
         
EBITDA 1,453   1,402   5,821   5,418  
Add (deduct):        
Other (income) expense (26 ) 3   (32 ) (19 )
Restructuring, acquisition and other 94   31   210   152  
Gain on disposition of property, plant and equipment     (16 ) (49 )
         
Adjusted EBITDA 1,521   1,436   5,983   5,502  

2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

Reconciliation of adjusted EBITDA margin

  Three months ended December 31   Twelve months ended December 31  
(In millions of dollars, except margins) 2018
  2017 
(restated) 1
  2018
  2017
(restated) 1
 
         
Adjusted EBITDA 1,521   1,436   5,983   5,502  
Divided by: total revenue 3,938   3,731   15,096   14,369  
         
Adjusted EBITDA margin 38.6  % 38.5  % 39.6  % 38.3  %

2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

Reconciliation of adjusted net income

  Three months ended December 31   Twelve months ended December 31  
(In millions of dollars) 2018
  2017
(restated) 1
  2018
  2017
(restated) 1
 
         
Net income 502   499   2,059   1,845  
Add (deduct):        
Restructuring, acquisition and other 94   31   210   152  
Loss on bond forward derivatives 21     21    
Loss on repayment of long-term debt     28    
Gain on disposition of property, plant and equipment     (16 ) (49 )
Recovery on wind down of shomi       (20 )
Income tax impact of above items (32 ) (7 ) (61 ) (28 )
Income tax adjustment, legislative tax change   2     2  
         
Adjusted net income 585   525   2,241   1,902  

2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

Reconciliation of adjusted earnings per share

  Three months ended December 31   Twelve months ended December 31  
(In millions of dollars, except per share amounts; number of shares outstanding in millions) 2018
  2017
(restated) 1
  2018
2017
(restated) 1
 
         
Adjusted basic earnings per share:        
Adjusted net income 585   525   2,241   1,902  
Divided by:        
Weighted average number of shares outstanding 515   515   515   515  
         
Adjusted basic earnings per share $1.14   $1.02   $4.35   $3.69  
         
Adjusted diluted earnings per share:        
Diluted adjusted net income 585   523   2,239   1,901  
Divided by:        
Diluted weighted average number of shares outstanding 517   517   516   517  
         
Adjusted diluted earnings per share $1.13   $1.02   $4.34   $3.68  

2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

Reconciliation of free cash flow

  Three months ended December 31   Twelve months ended December 31  
(In millions of dollars) 2018
  2017   2018
  2017  
         
Cash provided by operating activities 1,051   1,142   4,288   3,938  
Add (deduct):        
Capital expenditures (828 ) (841 ) (2,790 ) (2,436 )
Interest on borrowings, net of capitalized interest (168 ) (179 ) (689 ) (722 )
Restructuring, acquisition and other 94   31   210   152  
Interest paid 151   125   726   735  
Program rights amortization (19 ) (15 ) (58 ) (64 )
Change in non-cash operating working capital items 42   17   114   164  
Other adjustments (48 ) (50 ) (30 ) (82 )
         
Free cash flow 275   230   1,771   1,685  
Net change in contract asset and deferred commission cost asset balances 1 196   110   363   184  
         
Free cash flow (with respect to “2019 Outlook”) 471   340   2,134   1,869  

1 Includes “net change in contract asset balances” and the net change in deferred commission cost asset balances in “other” in operating activities on the Interim Condensed Consolidated Statements of Cash Flows.

Reconciliation of adjusted net debt and debt leverage ratio

  As at
December 31
  As at
December 31
 
(In millions of dollars) 2018
  2017  
     
Current portion of long-term debt 900   1,756  
Long-term debt 13,390   12,692  
Deferred transaction costs and discounts 114   107  
  14,404   14,555  
Add (deduct):    
Net debt derivative assets (1,373 ) (1,129 )
Credit risk adjustment related to net debt derivative assets (75 ) (17 )
Short-term borrowings 2,255   1,585  
(Cash and cash equivalents) bank advances (405 ) 6  
     
Adjusted net debt 14,806   15,000  

  As at
December 31
  As at
December 31
 
(In millions of dollars, except ratios) 2018
  2017
(restated) 1
 
     
Adjusted net debt 14,806   15,000  
Divided by: trailing 12-month adjusted EBITDA 5,983   5,502  
     
Debt leverage ratio 2.5   2.7  

2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.

Other Information

Consolidated financial results – quarterly summary
Below is a summary of our consolidated results for the past eight quarters.

   2018
   2017 1
(In millions of dollars, except per share amounts) Q4
  Q3   Q2   Q1     Q4 Q3   Q2   Q1  
Revenue                  
Wireless 2,464   2,331   2,214   2,191     2,288   2,203   2,076   2,002  
Cable 2 989   983   991   969     981   977   976   960  
Media 540   488   608   532     526   516   637   474  
Corporate items and intercompany eliminations 2 (55 ) (33 ) (57 ) (59 )   (64 ) (50 ) (69 ) (64 )
Total revenue 3,938   3,769   3,756   3,633     3,731   3,646   3,620   3,372  
Total service revenue 3 3,276   3,271   3,300   3,127     3,164   3,196   3,221   2,969  
                   
Adjusted EBITDA 4                  
Wireless 1,028   1,099   1,029   934     965   1,017   915   829  
Cable 2 489   490   462   433     477   471   455   416  
Media 40   73   60   23     37   61   59   (30 )
Corporate items and intercompany eliminations 2 (36 ) (42 ) (47 ) (52 )   (43 ) (46 ) (40 ) (41 )
Adjusted EBITDA 1,521   1,620   1,504   1,338     1,436   1,503   1,389   1,174  
Deduct (add):                  
Depreciation and amortization 564   558   545   544     531   531   535   545  
Gain on disposition of property, plant and equipment   (5 )   (11 )       (49 )  
Restructuring, acquisition and other 94   47   26   43     31   59   34   28  
Finance costs 205   176   193   219     184   183   189   190  
Other (income) expense (26 ) 15   2   (23 )   3   20   (31 ) (11 )
Net income before income tax expense 684   829   738   566     687   710   711   422  
Income tax expense 182   235   200   141     188   202   183   112  
Net income 502   594   538   425     499   508   528   310  
                   
Earnings per share:                  
Basic $0.97   $1.15   $1.04   $0.83     $0.97   $0.99   $1.03   $0.60  
Diluted $0.97   $1.15   $1.04   $0.80     $0.97   $0.98   $1.02   $0.60  
                   
Net income 502   594   538   425     499   508   528   310  
Add (deduct):                  
Restructuring, acquisition and other 94   47   26   43     31   59   34   28  
Loss on bond forward derivatives 21                  
Loss on repayment of long-term debt       28            
Recovery on wind down of shomi               (20 )  
Gain on disposition of property, plant and equipment   (5 )   (11 )       (49 )  
Income tax impact of above items (32 ) (11 ) (10 ) (8 )   (7 ) (16 ) 3   (8 )
Income tax adjustment, legislative tax change           2        
Adjusted net income 4 585   625   554   477     525   551   496   330  
                   
Adjusted earnings per share 4:                  
Basic $1.14   $1.21   $1.08   $0.93     $1.02   $1.07   $0.96   $0.64  
Diluted $1.13   $1.21   $1.07   $0.90     $1.02   $1.07   $0.96   $0.64  
                   
Capital expenditures 828   700   657   605     841   658   451   486  
Cash provided by operating activities 1,051   1,304   1,048   885     1,142   1,377   823   596  
Free cash flow 4 275   550   562   384     230   523   607   325  

2017 reported figures have been restated applying IFRS 15. See “Critical Accounting Policies and Estimates”.
These figures have been retrospectively amended as a result of our reportable segment realignment. See “Reportable Segments”.
As defined. See “Key Performance Indicators”.
Adjusted EBITDA, 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.

Supplementary Information

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

  Three months ended December 31   Twelve months ended December 31  
   2018
   2017    2018
   2017  
      (restated)       (restated)  
         
Revenue 3,938   3,731   15,096   14,369  
         
Operating expenses:        
Operating costs 2,417   2,295   9,113   8,867  
Depreciation and amortization 564   531   2,211   2,142  
Gain on disposition of property, plant and equipment     (16 ) (49 )
Restructuring, acquisition and other 94   31   210   152  
Finance costs 205   184   793   746  
Other (income) expense (26 ) 3   (32 ) (19 )
         
Income before income tax expense 684   687   2,817   2,530  
Income tax expense 182   188   758   685  
         
Net income for the period 502   499   2,059   1,845  
         
Earnings per share:        
Basic $0.97   $0.97   $4.00   $3.58  
Diluted $0.97   $0.97   $3.99   $3.57  

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

  As at
December 31
  As at
December 31
  As at
January 1
 
  2018
  2017   2017  
      (restated)   (restated)  
       
Assets      
Current assets:      
Cash and cash equivalents 405      
Accounts receivable 2,259   2,035   1,944  
Inventories 466   435   452  
Current portion of contract assets 1,052   820   723  
Other current assets 436   414   417  
Current portion of derivative instruments 270   421   91  
Total current assets 4,888   4,125   3,627  
       
Property, plant and equipment 11,780   11,143   10,749  
Intangible assets 7,205   7,244   7,130  
Investments 2,134   2,561   2,174  
Derivative instruments 1,339   953   1,708  
Contract assets 535   413   354  
Other long-term assets 132   143   156  
Deferred tax assets   3   8  
Goodwill 3,905   3,905   3,905  
       
Total assets 31,918   30,490   29,811  
       
Liabilities and shareholders’ equity      
Current liabilities:      
Bank advances   6   71  
Short-term borrowings 2,255   1,585   800  
Accounts payable and accrued liabilities 3,052   2,931   2,783  
Income tax payable 177   62   186  
Other current liabilities 132   132   285  
Contract liabilities 233   278   302  
Current portion of long-term debt 900   1,756   750  
Current portion of derivative instruments 87   133   22  
Total current liabilities 6,836   6,883   5,199  
       
Provisions 35   35   33  
Long-term debt 13,390   12,692   15,330  
Derivative instruments 22   147   118  
Other long-term liabilities 546   613   562  
Deferred tax liabilities 2,910   2,624   2,285  
Total liabilities 23,739   22,994   23,527  
       
Shareholders’ equity 8,179   7,496   6,284  
       
Total liabilities and shareholders’ equity 31,918   30,490   29,811  

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

  Three months ended December 31   Twelve months ended December 31  
  2018
  2017   2018
  2017  
      (restated)       (restated)  
Operating activities:        
Net income for the period 502   499   2,059   1,845  
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation and amortization 564   531   2,211   2,142  
Program rights amortization 19   15   58   64  
Finance costs 205   184   793   746  
Income tax expense 182   188   758   685  
Post-employment benefits contributions, net of expense (6 ) 28   (44 ) 4  
Gain on disposition of property, plant and equipment     (16 ) (49 )
Recovery on wind down of shomi       (20 )
Net change in contract asset balances (186 ) (95 ) (354 ) (156 )
Other 18   10   33   51  
Cash provided by operating activities before changes in non-cash working capital items, income taxes paid, and interest paid 1,298   1,360   5,498   5,312  
Change in non-cash operating working capital items (42 ) (17 ) (114 ) (164 )
Cash provided by operating activities before income taxes paid and interest paid 1,256   1,343   5,384   5,148  
Income taxes paid (54 ) (76 ) (370 ) (475 )
Interest paid (151 ) (125 ) (726 ) (735 )
         
Cash provided by operating activities 1,051   1,142   4,288   3,938  
         
Investing activities:        
Capital expenditures (828 ) (841 ) (2,790 ) (2,436 )
Additions to program rights (26 ) (21 ) (54 ) (59 )
Changes in non-cash working capital related to property, plant and equipment and intangible assets 107   101   (125 ) 109  
Acquisitions and other strategic transactions, net of cash acquired       (184 )
Other 9   21   25   (60 )
         
Cash used in investing activities (738 ) (740 ) (2,944 ) (2,630 )
         
Financing activities:        
Net proceeds received (repayments) on short-term borrowings 256   (163 ) 508   858  
Net repayment of long-term debt   (3 ) (823 ) (1,034 )
Net proceeds (payments) on settlement of debt derivatives and forward contracts 26   40   388   (79 )
Transaction costs incurred     (18 )  
Dividends paid (247 ) (247 ) (988 ) (988 )
         
Cash provided by (used in) financing activities 35   (373 ) (933 ) (1,243 )
         
Change in cash and cash equivalents 348   29   411   65  
Cash and cash equivalents (bank advances), beginning of period 57   (35 ) (6 ) (71 )
         
Cash and cash equivalents (bank advances), end of period 405   (6 ) 405   (6 )

Investments

  As at
December 31
  As at
December 31
 
(In millions of dollars) 2018
  2017  
     
Investments in:    
Publicly traded companies 1,051   1,465  
Private companies 145   167  
Investments, measured at fair value through other comprehensive income 1,196   1,632  
Investments, associates and joint ventures 938   929  
     
Total investments 2,134   2,561  

Long-term debt

      Principal
amount
  Interest
rate
  As at
December 31
  As at
December 31
 
(In millions of dollars, except interest rates) Due date       2018
  2017  
             
Senior notes 2018 US 1,400   6.800 %   1,756  
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 % 682   627  
Senior notes 2023 US 850   4.100 % 1,160   1,066  
Senior notes 2024   600   4.000 % 600   600  
Senior notes 2025 US 700   3.625 % 955   878  
Senior notes 2026 US 500   2.900 % 682   627  
Senior debentures 1 2032 US 200   8.750 % 273   251  
Senior notes 2038 US 350   7.500 % 478   439  
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 % 682   627  
Senior notes 2043 US 650   5.450 % 887   816  
Senior notes 2044 US 1,050   5.000 % 1,433   1,318  
Senior notes 2048 US 750   4.300 % 1,022    
          14,404   14,555  
Deferred transaction costs and discounts         (114 ) (107 )
Less current portion         (900 ) (1,756 )
             
Total long-term debt         13,390   12,692  

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, 2018 and December 31, 2017.

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:

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:

Specific forward-looking information included or incorporated in this document includes, but is not limited to, our information and statements under “2019 Outlook” relating to our 2019 consolidated guidance on revenue, adjusted EBITDA, capital expenditures, 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:

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:

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 full-year 2019 guidance
Our 2019 guidance ranges above are based on many assumptions including, but not limited to, the following material assumptions:

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 2017 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.