EX-99.2 3 rci-09302017xexhibit992.htm EXHIBIT 99.2 Exhibit


Exhibit 99.2
rogerslogoa06.jpg




Rogers Communications Inc.



INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Three and nine months ended September 30, 2017 and 2016

































Rogers Communications Inc.
1
Third Quarter 2017



Rogers Communications Inc.
Interim Condensed Consolidated Statements of Income
(In millions of Canadian dollars, except per share amounts, unaudited)
  
  
Three months ended September 30
 
 
Nine months ended September 30
 
  
Note
2017

2016

 
2017

2016

 
 
 
 
 
 
see note 2

 
 
 
 
 
 
 
Revenue
 
3,581

3,492

 
10,511

10,192

 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
Operating costs
4
2,133

2,125

 
6,519

6,404

Depreciation and amortization
 
531

575

 
1,611

1,721

Gain on disposition of property, plant and equipment
 
—

—


(49
)
—

Restructuring, acquisition and other
5
59

55

 
121

126

Finance costs
6
183

188

 
562

573

Other expense (income)
7
20

220

 
(22
)
195

 
 
 
 
 
 
 
Income before income tax expense
 
655

329

 
1,769

1,173

Income tax expense
 
188

109

 
477

329

 
 
 
 
 
 
 
Net income for the period
 
467

220

 
1,292

844

 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
Basic
8
$0.91
$0.43
 
$2.51
$1.64
Diluted
8
$0.91
$0.43
 
$2.50
$1.63
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
 

Rogers Communications Inc.
2
Third Quarter 2017



Rogers Communications Inc.
Interim Condensed Consolidated Statements of Comprehensive Income
(In millions of Canadian dollars, unaudited)
  
Three months ended September 30
 
 
Nine months ended September 30
 
  
2017

2016

 
2017

2016

 
 
 
 
 
see note 2

 
 
 
 
 
 
Net income for the period
467

220

 
1,292

844

 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
Items that may subsequently be reclassified to income:
 
 
 
 
 
Available-for-sale investments:
 
 
 
 
 
Increase (decrease) in fair value
222

(56
)
 
437

45

Reclassification to net income for gain on sale of investment
—

—

 
—

(39
)
Related income tax (expense) recovery
(30
)
7

 
(57
)
(1
)
 
 
 
 
 
 
Available-for-sale investments
192

(49
)
 
380

5

 
 
 
 
 
 
Cash flow hedging derivative instruments:
 
 
 
 
 
Unrealized (loss) gain in fair value of derivative instruments
(226
)
128

 
(527
)
(433
)
Reclassification to net income of loss (gain) on debt derivatives
332

(124
)
 
634

448

Reclassification to net income or property, plant and equipment of loss (gain) on expenditure derivatives
20

(19
)
 
26

(61
)
Reclassification to net income for accrued interest
(11
)
(15
)
 
(48
)
(51
)
Related income tax (expense) recovery
(2
)
(2
)
 
24

63

 
 
 
 
 
 
Cash flow hedging derivative instruments
113

(32
)
 
109

(34
)
 
 
 
 
 
 
Share of other comprehensive (loss) income of equity-accounted investments, net of tax
(5
)
1

 
(19
)
(19
)
 
 
 
 
 
 
Other comprehensive income (loss) for the period
300

(80
)
 
470

(48
)
 
 
 
 
 
 
Comprehensive income for the period
767

140

 
1,762

796

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

Rogers Communications Inc.
3
Third Quarter 2017



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

As at
December 31

  
Note

2017

2016

 
 
 
 
Assets
 
 
 
Current assets:
 
 
 
Accounts receivable
 
1,816

1,949

Inventories
 
235

315

Other current assets
 
240

215

Current portion of derivative instruments
9

423

91

Total current assets
 
2,714

2,570

 
 
 
 
Property, plant and equipment
 
10,821

10,749

Intangible assets
10

7,270

7,130

Investments
11

2,569

2,174

Derivative instruments
9

988

1,708

Other long-term assets
 
91

98

Deferred tax assets
 
6

8

Goodwill
 
3,905

3,905

 
 
 
 
Total assets
 
28,364

28,342

 
 
 
 
Liabilities and shareholders' equity
 
 
 
Current liabilities:
 
 
 
Bank advances
 
35

71

Short-term borrowings
12

1,738

800

Accounts payable and accrued liabilities
 
2,589

2,783

Income tax payable
 
95

186

Current portion of provisions
 
4

134

Unearned revenue
 
274

367

Current portion of long-term debt
13

1,747

750

Current portion of derivative instruments
9

84

22

Total current liabilities
 
6,566

5,113

 
 
 
 
Provisions
 
33

33

Long-term debt
13

12,655

15,330

Derivative instruments
9

160

118

Other long-term liabilities
 
540

562

Deferred tax liabilities
 
2,120

1,917

Total liabilities
 
22,074

23,073

 
 
 
 
Shareholders' equity
14

6,290

5,269

 
 
 
 
Total liabilities and shareholders' equity
 
28,364

28,342

 
 
 
 
Subsequent event
14

 
 
Contingent liabilities
17

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


Rogers Communications Inc.
4
Third Quarter 2017



Rogers Communications Inc.
Interim Condensed Consolidated Statements of Changes in Shareholders' Equity
(In millions of Canadian dollars, except number of shares, unaudited)
 
Class A
Voting shares
Class B
Non-voting shares
 
 
 
 
 
Nine months ended September 30, 2017
Amount

Number
of shares
(000s)

Amount

Number
of shares
(000s)

Retained
earnings

Available-
for-sale
financial
assets
reserve

Hedging
reserve

Equity
investment reserve

Total
shareholders'
equity

Balances, January 1, 2017
72

112,412

405

402,396

4,247

642

(107
)
10

5,269

Net income for the period
—

—

—

—

1,292

—

—

—

1,292

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

—

—

—

—

380

—

—

380

Derivative instruments accounted for as hedges, net of tax
—

—

—

—

—

—

109

—

109

Share of equity-accounted investments, net of tax
—

—

—

—

—

—

—

(19
)
(19
)
Total other comprehensive income (loss)
—

—

—

—

—

380

109

(19
)
470

Comprehensive income for the period
—

—

—

—

1,292

380

109

(19
)
1,762

 
 
 
 
 
 
 
 
 
 
Transactions with shareholders recorded directly in equity:
 
 
 
 
 
 
 
 
 
Dividends declared
—

—

—

—

(741
)
—

—

—

(741
)
Shares issued on exercise of stock options
—

—

—

2

—

—

—

—

—

Share class exchange
—

(5
)
—

5

—

—

—

—

—

Total transactions with shareholders
—

(5
)
—

7

(741
)
—

—

—

(741
)
 
 
 
 
 
 
 
 
 
 
Balances, September 30, 2017
72

112,407

405

402,403

4,798

1,022

2

(9
)
6,290


 
Class A
Voting shares
Class B
Non-voting shares
 
 
 
 
 
Nine months ended September 30, 2016
Amount

Number
of shares
(000s)

Amount

Number
of shares
(000s)

Retained
earnings

Available-
for-sale
financial
assets
reserve

Hedging
reserve

Equity
investment
reserve

Total
shareholders'
equity

Balances, January 1, 2016
72

112,439

402

402,308

4,474

598

57

33

5,636

Net income for the period (see note 2)
—

—

—

—

844

—

—

—

844

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

—

—

—

—

5

—

—

5

Derivative instruments accounted for as hedges, net of tax
—

—

—

—

—

—

(34
)
—

(34
)
Share of equity-accounted investments, net of tax
—

—

—

—

—

—

—

(19
)
(19
)
Total other comprehensive income (loss)
—

—

—

—

—

5

(34
)
(19
)
(48
)
Comprehensive income for the period
—

—

—

—

844

5

(34
)
(19
)
796

 
 
 
 
 
 
 
 
 
 
Transactions with shareholders recorded directly in equity:
 
 
 
 
 
 
 
 
 
Dividends declared
—

—

—

—

(741
)
—

—

—

(741
)
Shares issued on exercise of stock options
—

—

3

61

—

—

—

—

3

Share class exchange
—

(25
)
—

25

—

—

—

—

—

Total transactions with shareholders
—

(25
)
3

86

(741
)
—

—

—

(738
)
 
 
 
 
 
 
 
 
 
 
Balances, September 30, 2016
(see note 2)
72

112,414

405

402,394

4,577

603

23

14

5,694

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


Rogers Communications Inc.
5
Third Quarter 2017



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

Nine months ended September 30
 
  
Note

2017

2016

 
2017

2016

 
 
 
 
 
 
see note 2

Operating activities:
 
 
 
 
 
 
Net income for the period
 
467

220

 
1,292

844

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
 
Depreciation and amortization
 
531

575

 
1,611

1,721

Program rights amortization
 
13

15

 
49

54

Finance costs
6

183

188

 
562

573

Income tax expense
 
188

109

 
477

329

Stock-based compensation
15

15

18

 
47

45

Post-employment benefits contributions, net of expense
 
35

30

 
(24
)
(31
)
Net loss on divestitures pertaining to investments
 
—

50

 
—

11

Gain on disposition of property, plant and equipment
 
—

—

 
(49
)
—

Loss (recovery) on wind down of shomi
7

—

140

 
(20
)
140

Other
 
5

22

 
(1
)
32

Cash provided by operating activities before changes in non-cash working capital items, income taxes paid, and interest paid
 
1,437

1,367

 
3,944

3,718

Change in non-cash operating working capital items
18

266

117

 
(139
)
32

Cash provided by operating activities before income taxes paid and interest paid
 
1,703

1,484

 
3,805

3,750

Income taxes paid
 
(87
)
(59
)
 
(399
)
(214
)
Interest paid
 
(239
)
(240
)
 
(610
)
(632
)
 
 
 
 
 
 
 
Cash provided by operating activities
 
1,377

1,185

 
2,796

2,904

 
 
 
 
 
 
 
Investing activities:
 
 
 
 
 
 
Additions to property, plant and equipment, net
18

(658
)
(549
)
 
(1,595
)
(1,748
)
Additions to program rights
 
(5
)
(19
)
 
(38
)
(43
)
Changes in non-cash working capital related to property, plant and equipment and intangible assets
 
96

(42
)
 
8

(147
)
Acquisitions and other strategic transactions, net of cash acquired
10

—

—

 
(184
)
—

Other
 
(29
)
(11
)
 
(81
)
(4
)
 
 
 
 
 
 
 
Cash used in investing activities
 
(596
)
(621
)
 
(1,890
)
(1,942
)
 
 
 
 
 
 
 
Financing activities:
 
 
 
 
 
 
Net (repayment) proceeds received on short-term borrowings
18

(204
)
—

 
1,021

250

Net repayment of long-term debt
18

(183
)
(215
)
 
(1,031
)
(481
)
Net (payments) proceeds on settlement of debt derivatives and forward contracts
9

(108
)
25

 
(119
)
(17
)
Dividends paid
 
(247
)
(247
)
 
(741
)
(741
)
Other
 
—

5

 
—

5

 
 
 
 
 
 
 
Cash used in financing activities
 
(742
)
(432
)
 
(870
)
(984
)
 
 
 
 
 
 
 
Change in cash and cash equivalents
 
39

132

 
36

(22
)
(Bank advances) cash and cash equivalents, beginning of period
 
(74
)
(143
)
 
(71
)
11

 
 
 
 
 
 
 
Bank advances, end of period
 
(35
)
(11
)
 
(35
)
(11
)
The accompanying notes are an integral part of the interim condensed consolidated financial statements.


Rogers Communications Inc.
6
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


 
NOTE 1: NATURE OF THE BUSINESS

Rogers Communications Inc. is a diversified Canadian communications and media company. Substantially all of our operations and sales are in Canada. RCI is incorporated in Canada and its registered office is located at 333 Bloor Street East, Toronto, Ontario, M4W 1G9. RCI's shares are publicly traded on the Toronto Stock Exchange (TSX: RCI.A and RCI.B) and on the New York Stock Exchange (NYSE: RCI).

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

We report our results of operations in four reporting segments. Each segment and the nature of its business is as follows:
Segment
Principal activities
Wireless
Wireless telecommunications operations for Canadian consumers and businesses.
Cable
Cable telecommunications operations, including Internet, television, and telephony (phone) services for Canadian consumers and businesses. 
Business Solutions
Network connectivity through our fibre network and data centre assets to support a range of voice, data, networking, hosting, and cloud-based services for the enterprise, public sector, and carrier wholesale markets.
Media
A diversified portfolio of media properties, including sports media and entertainment, television and radio broadcasting, specialty channels, multi-platform shopping, digital media, and publishing. 

During the nine months ended September 30, 2017, Wireless, Cable, and Business Solutions were operated by our wholly-owned subsidiary, Rogers Communications Canada Inc. (RCCI), and certain other wholly-owned subsidiaries. Media was operated by our wholly-owned subsidiary, Rogers Media Inc., and its subsidiaries.

Statement of Compliance
We prepared our interim condensed consolidated financial statements for the three and nine months ended September 30, 2017 (third quarter 2017 interim financial statements) in accordance with International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB) following the same accounting policies and methods of application as those disclosed in our annual audited consolidated financial statements for the year ended December 31, 2016 (2016 financial statements) with the exception of new accounting policies that were adopted on January 1, 2017 as described in note 2. These third quarter 2017 interim financial statements were approved by the Audit and Risk Committee of our Board of Directors on October 18, 2017.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

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

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

Change in Accounting Policies Adopted in 2016
We disclosed in our 2016 financial statements a change in accounting policy for measurement of deferred income taxes as a result of the IFRS Interpretations Committee's agenda decision relating to IAS 12, Income Taxes. As a result of this change, certain comparative information in these third quarter 2017 interim condensed consolidated financial statements was retrospectively amended. The impact of the change in policy as at and for the nine months ended September 30, 2016 was an $18 million increase in income tax expense and corresponding deferred tax liability, which resulted in a decrease to net income of the same amount. Basic and diluted earnings per share were decreased by $0.03 and $0.04, respectively, for this comparative period. There was no impact for the three months ended September 30, 2016 as a result of this change in policy.

Rogers Communications Inc.
7
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)



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

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

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

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

NOTE 3: SEGMENTED INFORMATION

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

The Chief Executive Officer and Chief Financial Officer of RCI are our chief operating decision makers and regularly review our operations and performance by segment. They review adjusted operating profit as the key measure of profit for the purpose of assessing performance of each segment and to make decisions about the allocation of resources. Adjusted operating profit is defined as income before stock-based compensation, depreciation and amortization, gain on disposition of property, plant and equipment, restructuring, acquisition and other, finance costs, other (income) expense, and income tax expense.


Rogers Communications Inc.
8
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


Information by Segment
Three months ended September 30, 2017
Note
Wireless

Cable

Business
Solutions

Media

Corporate
items and
eliminations

Consolidated
totals

(In millions of dollars)
 
 
 
 
 
 
 
 
Revenue
 
2,138

870

97

516

(40
)
3,581

 
 
 
 
 
 
 
 
Operating costs 1
 
1,174

430

64

451

(1
)
2,118

 
 
 
 
 
 
 
 
Adjusted operating profit
 
964

440

33

65

(39
)
1,463

 
 
 
 
 
 
 
 
Stock-based compensation 1
15
 
 
 
 
 
15

Depreciation and amortization
 
 
 
 
 
 
531

Restructuring, acquisition and other
5
 
 
 
 
 
59

Finance costs
6
 
 
 
 
 
183

Other expense
7
 
 
 
 
 
20

 
 
 
 
 
 
 
 
Income before income taxes
 
 
 
 
 
 
655

1 Included in Operating costs on the interim condensed consolidated financial statements.
Three months ended September 30, 2016
Note
Wireless

Cable

Business
Solutions

Media

Corporate
items and
eliminations

Consolidated
totals

(In millions of dollars)
 
 
 
 
 
 
 
 
Revenue
 
2,037

865

95

533

(38
)
3,492

 
 
 
 
 
 
 
 
Operating costs 1
 
1,153

434

64

454

2

2,107

 
 
 
 
 
 
 
 
Adjusted operating profit
 
884

431

31

79

(40
)
1,385

 
 
 
 
 
 
 
 
Stock-based compensation 1
15
 
 
 
 
 
18

Depreciation and amortization
 
 
 
 
 
 
575

Restructuring, acquisition and other
5
 
 
 
 
 
55

Finance costs
6
 
 
 
 
 
188

Other expense
7
 
 
 
 
 
220

 
 
 
 
 
 
 
 
Income before income taxes
 
 
 
 
 
 
329

1 Included in Operating costs on the interim condensed consolidated financial statements.
Nine months ended September 30, 2017
Note
Wireless

Cable

Business
Solutions

Media

Corporate
items and
eliminations

Consolidated
totals

(In millions of dollars)
 
 
 
 
 
 
 
 
Revenue
 
6,154

2,595

288

1,627

(153
)
10,511

 
 
 
 
 
 
 
 
Operating costs 1
 
3,453

1,335

192

1,527

(35
)
6,472

 
 
 
 
 
 
 
 
Adjusted operating profit
 
2,701

1,260

96

100

(118
)
4,039

 
 
 
 
 
 
 
 
Stock-based compensation 1
15
 
 
 
 
 
47

Depreciation and amortization
 
 
 
 
 
 
1,611

Gain on disposition of property, plant and equipment
 
 
 
 
 
 
(49
)
Restructuring, acquisition and other
5
 
 
 
 
 
121

Finance costs
6
 
 
 
 
 
562

Other income
7
 
 
 
 
 
(22
)
 
 
 
 
 
 
 
 
Income before income taxes
 
 
 
 
 
 
1,769

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

Rogers Communications Inc.
9
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


Nine months ended September 30, 2016
Note
Wireless

Cable

Business
Solutions

Media

Corporate
items and
eliminations

Consolidated
totals

(In millions of dollars)
 
 
 
 
 
 
 
 
Revenue
 
5,858

2,591

288

1,596

(141
)
10,192

 
 
 
 
 
 
 
 
Operating costs 1
 
3,365

1,352

195

1,476

(29
)
6,359

 
 
 
 
 
 
 
 
Adjusted operating profit
 
2,493

1,239

93

120

(112
)
3,833

 
 
 
 
 
 
 
 
Stock-based compensation 1
15
 
 
 
 
 
45

Depreciation and amortization
 
 
 
 
 
 
1,721

Restructuring, acquisition and other
5
 
 
 
 
 
126

Finance costs
6
 
 
 
 
 
573

Other expense
7
 
 
 
 
 
195

 
 
 
 
 
 
 
 
Income before income taxes
 
 
 
 
 
 
1,173

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

NOTE 4: OPERATING COSTS
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2017

2016

 
2017

2016

 
 
 
 
 
 
Cost of equipment sales and direct channel subsidies
484

470

 
1,390

1,366

Merchandise for resale
55

49

 
170

147

Other external purchases
1,006

1,027

 
3,289

3,287

Employee salaries and benefits and stock-based compensation
588

579

 
1,670

1,604

 
 
 
 
 
 
Total operating costs
2,133

2,125

 
6,519

6,404


NOTE 5: RESTRUCTURING, ACQUISITION AND OTHER

During the three and nine months ended September 30, 2017, we incurred $59 million and $121 million (2016 - $55 million and $126 million), respectively, in restructuring, acquisition and other expenses. These expenses in 2017 and 2016 primarily consisted of severance costs associated with the targeted restructuring of our employee base and certain contract termination costs. In 2016, these costs primarily related to severance costs as described above and the wind down of and changes to certain businesses.

NOTE 6: FINANCE COSTS
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2017

2016

 
2017

2016

 
 
 
 
 
 
Interest on borrowings
185

185

 
556

573

Interest on post-employment benefits liability
3

2

 
9

7

(Gain) loss on foreign exchange
(66
)
28

 
(115
)
(19
)
Change in fair value of derivative instruments
61

(24
)
 
109

18

Capitalized interest
(5
)
(6
)
 
(13
)
(15
)
Other
5

3

 
16

9

 
 
 
 
 
 
Total finance costs
183

188

 
562

573



Rogers Communications Inc.
10
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


NOTE 7: OTHER EXPENSE (INCOME)
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2017

2016

 
2017

2016

 
 
 
 
 
 
Losses (income) from associates and joint ventures
19

182

 
(25
)
209

Net loss on divestitures pertaining to investments
—

50

 
—

11

Other investment losses (income)
1

(12
)
 
3

(25
)
 
 
 
 
 
 
Total other expense (income)
20

220

 
(22
)
195


During the nine months ended September 30, 2017, we recognized a $20 million provision reversal related to the wind down of shomi, which is recorded in income from associates and joint ventures. During the three and nine months ended September 30, 2016, we recognized a $140 million loss associated with the writedown of our investment in shomi.

NOTE 8: EARNINGS PER SHARE
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars, except per share amounts)
2017

2016

 
2017

2016

 
 
 
 
 
 
Numerator (basic) - Net income for the period
467

220

 
1,292

844

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

515

 
515

515

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

2

 
2

2

 
 
 
 
 
 
Weighted average number of shares outstanding - diluted
516

517

 
517

517

 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
Basic

$0.91

$0.43
 
$2.51
$1.64
Diluted

$0.91

$0.43
 
$2.50
$1.63

For the three and nine months ended September 30, 2017 and 2016, the diluted earnings per share calculation reflects accounting for outstanding share-based payments using the cash-settled method for stock-based compensation as it was determined to be more dilutive than using the equity-settled method.

A total of nil and 489,835 options were out of the money for the three and nine months ended September 30, 2017 (2016 - nil and nil), respectively. These options were excluded from the calculation of the effect of dilutive securities because they were anti-dilutive.

NOTE 9: FINANCIAL INSTRUMENTS

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

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 commercial paper borrowings (see note 12). 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 commercial paper borrowings have not been designated as hedges for accounting purposes.


Rogers Communications Inc.
11
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


Below is a summary of the debt derivatives we entered into and settled related to our credit facility borrowings and US dollar-denominated commercial paper (US CP) program during the three and nine months ended September 30, 2017 and 2016.
 
 
Three months ended September 30, 2017
 
 
 
Nine months ended September 30, 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
335

1.29

433

 
1,510

1.33

2,001

Debt derivatives settled
485

1.31

636

 
1,660

1.33

2,202

 
 
 
 
 
 
 
 
Net cash paid
 
 
(20
)
 
 
 
(21
)
 
 
 
 
 
 
 
 
Commercial paper program
 
 
 
 
 
 
 
Debt derivatives entered
3,096

1.26

3,896

 
6,126

1.30

7,979

Debt derivatives settled
3,290

1.25

4,127

 
5,566

1.29

7,192

 
 
 
 
 
 
 
 
Net cash paid
 
 
(88
)
 
 
 
(98
)
 
 
Three months ended September 30, 2016
 
 
 
Nine months ended September 30, 2016
 
(In millions of dollars, except exchange rates)
Notional
 (US$)

Exchange rate

Notional (Cdn$)

 
Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
 
 
 
 
 
 
 
Credit facilities
 
 
 
 
 
 
 
Debt derivatives entered
2,939

1.30

3,827

 
6,736

1.30

8,777

Debt derivatives settled
3,066

1.30

3,975

 
5,975

1.30

7,774

 
 
 
 
 
 
 
 
Net cash received (paid)
 
 
25

 
 
 
(17
)

As at September 30, 2017, we had nil and US$560 million notional amount of debt derivatives outstanding relating to our credit facility borrowings and commercial paper program (December 31, 2016 - US$150 million and nil), respectively.

As at September 30, 2017, we had US$6,700 million (December 31, 2016 - US$6,700 million) in US dollar-denominated senior notes and debentures, of which all of the associated foreign exchange risk had been hedged using debt derivatives. We did not enter into or settle any debt derivatives related to senior notes or debentures during the three or nine months ended September 30, 2017 or 2016.

Bond forwards
We use bond forward derivatives (bond forwards) to hedge interest rate risk on the senior notes we expect to issue in the future. We did not enter into or settle any bond forwards during the three or nine months ended September 30, 2017 or 2016. As at September 30, 2017, we had $900 million (December 31, 2016 - $900 million) notional amount of bond forwards outstanding, all of which were designated as hedges for accounting purposes.

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

Below is a summary of the expenditure derivatives we entered into and settled during the three and nine months ended September 30, 2017 and 2016.
 
 
Three months ended September 30, 2017
 
 
Nine months ended September 30, 2017
 
(In millions of dollars, except exchange rates)
Notional (US$)

Exchange rate

Notional (Cdn$)

Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
 
 
 
 
 
 
Expenditure derivatives entered
360

1.24

445

840

1.27

1,070

Expenditure derivatives settled
240

1.33

320

705

1.33

940


Rogers Communications Inc.
12
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


 
 
Three months ended September 30, 2016
 
 
Nine months ended September 30, 2016
 
(In millions of dollars, except exchange rates)
Notional (US$)

Exchange rate

Notional (Cdn$)

Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
 
 
 
 
 
 
Expenditure derivatives entered
60

1.27

76

750

1.34

1,002

Expenditure derivatives settled
210

1.22

257

630

1.22

770


As at September 30, 2017, we had US$1,425 million of expenditure derivatives outstanding (December 31, 2016 - US$1,290 million) with terms to maturity ranging from October 2017 to December 2019 (December 31, 2016 - January 2017 to December 2018), at an average rate of $1.29/US$ (December 31, 2016 - $1.32/US$).

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

As at September 30, 2017, we had equity derivatives outstanding for 5.4 million (December 31, 2016 - 5.4 million) RCI Class B shares with a weighted average price of $51.44 (December 31, 2016 - $50.30).

During the three months ended September 30, 2017, we did not enter into or settle any equity derivatives. During the nine months ended September 30, 2017, we settled existing equity derivatives for net proceeds of $6 million and entered into new derivatives on one million RCI Class B shares with an expiry date of March 2018. We have also executed extension agreements for the remaining equity derivative contracts under substantially the same terms and conditions with revised expiry dates to April 2018 (from April 2017). We did not enter into or settle any equity derivatives during the three or nine months ended September 30, 2016.

Fair Values of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable, bank advances, short-term borrowings, and accounts payable and accrued liabilities approximate their fair values because of the short-term nature of these financial instruments.

We determine the fair value of each of our publicly-traded investments using quoted market values. We determine the fair value of our private investments by using implied valuations from follow-on financing rounds, third party sale negotiations, or using market-based approaches. These are applied appropriately to each investment depending on its future operating and profitability prospects.

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

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

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

Our disclosure of the three-level fair value hierarchy reflects the significance of the inputs used in measuring fair value:
•
financial assets and financial liabilities in Level 1 are valued by referring to quoted prices in active markets for identical assets and liabilities;
•
financial assets and financial liabilities in Level 2 are valued using inputs based on observable market data, either directly or indirectly, other than the quoted prices; and
•
Level 3 valuations are based on inputs that are not based on observable market data.

There were no material financial instruments categorized in Level 3 as at September 30, 2017 and December 31, 2016 and there were no transfers between Level 1, Level 2, or Level 3 during the three or nine months ended September 30, 2017 or 2016.

Rogers Communications Inc.
13
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


Below is a summary of the financial instruments carried at fair value by valuation method as at September 30, 2017 and December 31, 2016.
  
Carrying value
 
Fair value (Level 1)
 
Fair value (Level 2)
 
 
As at
Sept. 30

As at
Dec. 31

As at
Sept. 30

As at
Dec. 31

As at
Sept. 30

As at
Dec. 31

(In millions of dollars)
2017

2016

2017

2016

2017

2016

Financial assets
 
 
 
 
 
 
Available-for-sale, measured at fair value:
 
 
 
 
 
 
Investments in publicly-traded companies
1,472

1,047

1,472

1,047

—

—

Held-for-trading:
 
 
 
 
 
 
Debt derivatives accounted for as cash flow hedges
1,329

1,751

—

—

1,329

1,751

Debt derivatives not accounted for as hedges
8

—

—

—

8

—

Expenditure derivatives accounted for as cash flow hedges
5

40

—

—

5

40

Equity derivatives not accounted for as cash flow hedges
69

8

—

—

69

8

 
 
 
 
 
 
 
Total financial assets
2,883

2,846

1,472

1,047

1,411

1,799

 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
 
Held-for-trading:
 
 
 
 
 
 
Debt derivatives accounted for as cash flow hedges
141

68

—

—

141

68

Bond forwards accounted for as cash flow hedges
37

51

—

—

37

51

Expenditure derivatives accounted for as cash flow hedges
66

21

—

—

66

21

 
 
 
 
 
 
 
Total financial liabilities
244

140

—

—

244

140


Below is a summary of the fair value of our long-term debt as at September 30, 2017 and December 31, 2016.
  
As at September 30, 2017
 
As at December 31, 2016
 
(In millions of dollars)
Carrying amount

Fair value 1

Carrying amount

Fair value 1

 
 
 
 
 
Long-term debt (including current portion)
14,402

16,048

16,080

17,628

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

We did not have any non-derivative held-to-maturity financial assets during the three and nine months ended September 30, 2017 and 2016.

NOTE 10: INTANGIBLE ASSETS

In June 2017, upon receipt of all necessary regulatory approvals, we acquired an AWS-1 spectrum licence from Quebecor Inc., pursuant to an existing agreement, by paying $184 million. Upon acquisition, we recognized the spectrum licence as an intangible asset of $184 million, which included directly attributable costs. The spectrum licence provides us with more wireless capacity in the Greater Toronto Area.

NOTE 11: INVESTMENTS
 
As at
September 30

As at
December 31

(In millions of dollars)
2017

2016

 
 
 
Investments in:
 
 
Publicly-traded companies
1,472

1,047

Private companies
163

169

Investments, available-for-sale
1,635

1,216

Investments, associates and joint ventures
934

958

 
 
 
Total investments
2,569

2,174



Rogers Communications Inc.
14
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


NOTE 12: SHORT-TERM BORROWINGS
 
As at
September 30

As at
December 31

(In millions of dollars)
2017

2016

 
 
 
Accounts receivable securitization program
1,040

800

US commercial paper program
698

—

 
 
 
Total short-term borrowings
1,738

800


Accounts Receivable Securitization Program
 
As at
September 30

As at
December 31

(In millions of dollars)
2017

2016

 
 
 
Trade accounts receivable sold to buyer as security
1,286

1,460

Short-term borrowings from buyer
(1,040
)
(800
)
 
 
 
Overcollateralization
246

660


Below is a summary of the activity relating to our accounts receivable securitization program for the three and nine months ended September 30, 2017 and 2016.
 
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2017

2016

 
2017

2016

 
 
 
 
 
 
Proceeds received from accounts receivable securitization
80

—

 
530

295

Repayment of accounts receivable securitization
(50
)
—

 
(290
)
(45
)
 
 
 
 
 
 
Net proceeds received from accounts receivable securitization
30

—

 
240

250

 
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2017

2016

 
2017

2016

 
 
 
 
 
 
Accounts receivable securitization program, beginning of period
1,010

1,050

 
800

800

Net proceeds received from accounts receivable securitization
30

—

 
240

250

 
 
 
 
 
 
Accounts receivable securitization program, end of period
1,040

1,050

 
1,040

1,050


US Commercial Paper Program
In March 2017, we entered into a US CP program that allows us to issue up to a maximum aggregate principal amount of US$1 billion. Funds can be borrowed under this program with terms to maturity ranging from 1 to 397 days, subject to ongoing market conditions. Any issuances made under the US CP program will be issued at a discount. Borrowings under our US CP program are classified as short-term borrowings on our consolidated statements of financial position when they are due within one year of the date of the financial statements.


Rogers Communications Inc.
15
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


Below is a summary of the activity relating to our US CP program for the three and nine months ended September 30, 2017.
 
 
Three months ended September 30, 2017
 
 
 
Nine months ended September 30, 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
3,095

1.26

3,897

 
6,125

1.30

7,981

Repayment of US commercial paper
(3,293
)
1.25

(4,131
)
 
(5,572
)
1.29

(7,200
)
 
 
 
 
 
 
 
 
Net (repayment of) proceeds received from US commercial paper
 
 
(234
)
 
 
 
781

 
 
Three months ended September 30, 2017
 
 
 
Nine months ended September 30, 2017
 
 
Notional

Exchange

Notional

 
Notional

Exchange

Notional

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

rate

(Cdn$)

 
(US$)

rate

(Cdn$)

 
 
 
 
 
 
 
 
US commercial paper program, beginning of period
754

1.30

978

 
—

—

—

Net (repayment of) proceeds received from US commercial paper
(198
)
1.18

(234
)
 
553

1.41

781

Discounts on issuance 1
4

1.25

5

 
7

1.29

9

Gain on foreign exchange 1
 
 
(51
)
 
 
 
(92
)
 
 
 
 
 
 
 
 
US commercial paper program, end of period
560

1.25

698

 
560

1.25

698

1 Included in finance costs.

Concurrent with the commercial paper issuances, we entered into debt derivatives to hedge the foreign currency risk associated with the principal and interest components of the borrowings under the US CP program (see note 9). We have not designated these debt derivatives as hedges for accounting purposes.


Rogers Communications Inc.
16
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


NOTE 13: LONG-TERM DEBT
 
 
 
Principal
amount

Interest
rate

As at
September 30

As at
December 31

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

2016

 
 
 
 
 
 
 
Bank credit facilities
 
 
 
Floating

—

100

Bank credit facilities
 
US
revolving

Floating

—

201

Senior notes
2017
 
250

Floating

—

250

Senior notes
2017
 
500

3.000
%
—

500

Senior notes
2018
US
1,400

6.800
%
1,747

1,880

Senior notes
2019
 
400

2.800
%
400

400

Senior notes
2019
 
500

5.380
%
500

500

Senior notes
2020
 
900

4.700
%
900

900

Senior notes
2021
 
1,450

5.340
%
1,450

1,450

Senior notes
2022
 
600

4.000
%
600

600

Senior notes
2023
US
500

3.000
%
624

671

Senior notes
2023
US
850

4.100
%
1,061

1,141

Senior notes
2024
 
600

4.000
%
600

600

Senior notes
2025
US
700

3.625
%
874

940

Senior notes
2026
US
500

2.900
%
624

671

Senior debentures 1
2032
US
200

8.750
%
250

269

Senior notes
2038
US
350

7.500
%
437

470

Senior notes
2039
 
500

6.680
%
500

500

Senior notes
2040
 
800

6.110
%
800

800

Senior notes
2041
 
400

6.560
%
400

400

Senior notes
2043
US
500

4.500
%
624

671

Senior notes
2043
US
650

5.450
%
811

873

Senior notes
2044
US
1,050

5.000
%
1,310

1,410

 
 
 
 
 
14,512

16,197

Deferred transaction costs and discounts
 
 
 
 
(110
)
(117
)
Less current portion
 
 
 
 
(1,747
)
(750
)
 
 
 
 
 
 
 
Total long-term debt
 
 
 
 
12,655

15,330

1 
Senior debentures originally issued by Rogers Cable Inc. which are unsecured obligations of RCI and for which RCCI was an unsecured guarantor as at September 30, 2017 and December 31, 2016.


Rogers Communications Inc.
17
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


Bank Credit and Letter of Credit Facilities
Below is a summary of the activity relating to our revolving and non-revolving bank credit facilities during the three and nine months ended September 30, 2017 and 2016.
 
 
Three months ended September 30, 2017
 
 
 
Nine months ended September 30, 2017
 
 
Notional

Exchange

Notional

 
Notional

Exchange

Notional

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

rate

(Cdn$)

 
(US$)

rate

(Cdn$)

 
 
 
 
 
 
 
 
US dollar borrowings
285

1.30

370

 
860

1.33

1,144

Canadian dollar borrowings
 
 
450

 
 
 
1,730

 
 
 
 
 
 
 
 
Total borrowings
 
 
820

 
 
 
2,874

 
 
 
 
 
 
 
 
US dollar repayments
(435
)
1.27

(553
)
 
(1,010
)
1.31

(1,325
)
Canadian dollar repayments
 
 
(450
)
 
 
 
(1,830
)
 
 
 
 
 
 
 
 
Total repayments
 
 
(1,003
)
 
 
 
(3,155
)
 
 
 
 
 
 
 
 
Net repayments under credit facilities
 
 
(183
)
 
 
 
(281
)
 
 
Three months ended September 30, 2016
 
 
 
Nine months ended September 30, 2016
 
 
Notional

Exchange

Notional

 
Notional

Exchange

Notional

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

rate

(Cdn$)

 
(US$)

rate

(Cdn$)

 
 
 
 
 
 
 
 
US dollar borrowings
478

1.29

617

 
1,885

1.32

2,479

Canadian dollar borrowings
 
 
625

 
 
 
815

 
 
 
 
 
 
 
 
Total borrowings
 
 
1,242

 
 
 
3,294

 
 
 
 
 
 
 
 
US dollar repayments
(605
)
1.31

(792
)
 
(1,124
)
1.30

(1,460
)
Canadian dollar repayments
 
 
(665
)
 
 
 
(1,315
)
 
 
 
 
 
 
 
 
Total repayments
 
 
(1,457
)
 
 
 
(2,775
)
 
 
 
 
 
 
 
 
Net (repayments) borrowings under credit facilities
 
 
(215
)
 
 
 
519


As at September 30, 2017, we had nil outstanding under our revolving and non-revolving credit facilities (December 31, 2016 - $301 million).

In March 2017, we amended our revolving credit facility to, among other things, extend the maturity date of the original $2.5 billion facility from September 2020 to March 2022. In addition, we added a $700 million tranche to the facility that matures in March 2020. As a result, the total credit limit for the facility is now $3.2 billion.

In March 2017, we repaid the entire balance that was outstanding under our non-revolving bank credit facility. As a result of this repayment, this facility was terminated.

Senior Notes
Issuance of senior notes and related derivative settlements
We did not issue any senior notes during the three or nine months ended September 30, 2017 or 2016.


Rogers Communications Inc.
18
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


Repayment of senior notes and related derivative settlements
Below is a summary of the repayment of our senior notes for the three and nine months ended September 30, 2017 and 2016.
  
Three months ended September 30, 2017
 
 
Nine months ended September 30, 2017
 
(In millions of dollars)
Maturity date
Notional
amount (US$)

Notional
amount (Cdn$)

 
Notional
amount (US$)

Notional
amount (Cdn$)

 
 
 
 
 
 
March 2017
—

—

 
—

250

June 2017
—

—

 
—

500

 
 
 
 
 
 
Total
—

—

 
—

750

  
Three months ended September 30, 2016
 
 
Nine months ended September 30, 2016
 
(In millions of dollars)
Maturity date
Notional
amount (US$)

Notional
amount (Cdn$)

 
Notional
amount (US$)

Notional
amount (Cdn$)

 
 
 
 
 
 
May 2016
—

—

 
—

1,000


There were no debt derivatives associated with these Canadian dollar-denominated senior notes.

NOTE 14: SHAREHOLDERS' EQUITY

Dividends
Below is a summary of the dividends we declared and paid on our outstanding Class A Voting and Class B Non-Voting shares in 2017 and 2016.
Date declared
Date paid
Dividend per share (dollars)  

 
 
 
January 26, 2017
April 3, 2017
0.48

April 18, 2017
July 4, 2017
0.48

August 17, 2017
October 3, 2017
0.48

 
 
1.44

 
 
 
January 27, 2016
April 1, 2016
0.48

April 18, 2016
July 4, 2016
0.48

August 11, 2016
October 3, 2016
0.48

October 20, 2016
January 3, 2017
0.48

 
 
1.92


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

NOTE 15: STOCK-BASED COMPENSATION

Below is a summary of our stock-based compensation expense, which is included in employee salaries and benefits expense.
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2017

2016

 
2017

2016

 
 
 
 
 
 
Stock options
8

12

 
33

26

Restricted share units
15

15

 
42

40

Deferred share units
10

13

 
45

31

Equity derivative effect, net of interest receipt
(18
)
(22
)
 
(73
)
(52
)
 
 
 
 
 
 
Total stock-based compensation expense
15

18

 
47

45



Rogers Communications Inc.
19
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


As at September 30, 2017, we had a total liability, recorded at its fair value, of $223 million (December 31, 2016 - $189 million) related to stock-based compensation, including stock options, restricted share units (RSUs), and deferred share units (DSUs).

During the three and nine months ended September 30, 2017, we paid $11 million and $92 million (2016 - $7 million and $58 million), respectively, to holders of stock options, RSUs, and DSUs upon exercise using the cash settlement feature.

Stock Options
Summary of stock options
  
Three months ended September 30, 2017
 
 
Nine months ended September 30, 2017
(In number of units, except prices)
Number of options

Weighted average
exercise price

 
Number of options

Weighted average
exercise price
 
 
 
 
 
 
Outstanding, beginning of period
3,270,658

$48.56
 
3,732,524

$43.70
Granted
—

—

 
993,740

$59.71
Exercised
(174,282
)
$38.47
 
(1,495,187
)
$42.65
Forfeited
(171,229
)
$51.86
 
(305,930
)
$50.46
 
 
 
 
 
 
Outstanding, end of period
2,925,147

$48.97
 
2,925,147

$48.97
 
 
 
 
 
 
Exercisable, end of period
1,032,932

$41.49
 
1,032,932

$41.49
  
Three months ended September 30, 2016
 
 
Nine months ended September 30, 2016
(In number of units, except prices)
Number of options

Weighted average
exercise price

 
Number of options

Weighted average
exercise price
 
 
 
 
 
 
Outstanding, beginning of period
5,164,435

$43.99
 
4,873,940

$41.47
Granted
—

—

 
1,054,530

$49.95
Exercised
(289,433
)
$36.59
 
(1,003,316
)
$35.78
Forfeited
—

—

 
(50,152
)
$45.83
 
 
 
 
 
 
Outstanding, end of period
4,875,002

$44.43
 
4,875,002

$44.43
 
 
 
 
 
 
Exercisable, end of period
2,205,418

$41.44
 
2,205,418

$41.44

Included in the above table are grants of nil and 489,835 performance options to certain key executives during the three and nine months ended September 30, 2017 (2016 - nil and 420,035), respectively.

Unrecognized stock-based compensation expense related to stock option plans was $8 million as at September 30, 2017 (December 31, 2016 - $3 million) and will be recognized in net income over the next four years as the options vest.

Restricted Share Units
Summary of RSUs
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In number of units)
2017

2016

 
2017

2016

 
 
 
 
 
 
Outstanding, beginning of period
1,809,475

2,340,614

 
2,237,085

2,484,405

Granted and reinvested dividends
150,370

56,355

 
793,042

723,793

Exercised
(12,015
)
(30,862
)
 
(930,042
)
(728,956
)
Forfeited
(41,092
)
(23,868
)
 
(193,347
)
(137,003
)
 
 
 
 
 
 
Outstanding, end of period
1,906,738

2,342,239

 
1,906,738

2,342,239


Included in the above table are grants of 2,101 and 131,532 performance RSUs to certain key executives during the three and nine months ended September 30, 2017 (2016 - 4,631 and 94,972), respectively.


Rogers Communications Inc.
20
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


Unrecognized stock-based compensation expense related to these RSUs was $49 million as at September 30, 2017 (December 31, 2016 - $35 million) and will be recognized in net income over the next three years as the RSUs vest.

Deferred Share Units
Summary of DSUs
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In number of units)
2017

2016

 
2017

2016

 
 
 
 
 
 
Outstanding, beginning of period
2,771,892

2,499,799

 
2,396,458

1,770,871

Granted and reinvested dividends
31,149

26,935

 
713,425

947,694

Exercised
(85,050
)
(10,308
)
 
(220,580
)
(125,666
)
Forfeited
(221,924
)
(19,421
)
 
(393,236
)
(95,894
)
 
 
 
 
 
 
Outstanding, end of period
2,496,067

2,497,005

 
2,496,067

2,497,005


Included in the above table are grants of 5,248 and 187,748 performance DSUs to certain key executives during the three and nine months ended September 30, 2017 (2016 - 6,458 and 322,285), respectively.

Unrecognized stock-based compensation expense related to these DSUs as at September 30, 2017 was $29 million (December 31, 2016 - $30 million) and will be recognized in net income over the next three years as the executive DSUs vest. All other DSUs are fully vested.

NOTE 16: RELATED PARTY TRANSACTIONS

Controlling Shareholder
We enter into certain transactions with private companies controlled by the controlling shareholder of RCI, the Rogers Control Trust. These transactions were recognized at the amount agreed to by the related parties and are subject to the terms and conditions of formal agreements approved by the Audit and Risk Committee. The totals received or paid during the three and nine months ended September 30, 2017 and 2016 were less than $1 million, respectively.

Transactions with Key Management Personnel
We have entered into business transactions with companies whose partners or senior officers are Directors of RCI. These Directors are:
•
the non-executive chairman of a law firm that provides a portion of our legal services; and
•
the chair of the board of a company that provides printing services to the Company.

We recognize these transactions at the amounts agreed to by the related parties, which are also reviewed by the Audit and Risk Committee. The amounts owing for these services are unsecured, interest-free, and due for payment in cash within one month of the date of the transaction. Below is a summary of the related party activity for the business transactions described above.
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2017

2016

 
2017

2016

 
 
 
 
 
 
Printing and legal services
4

7

 
14

18


NOTE 17: CONTINGENT LIABILITIES

We have the following contingent liabilities as at September 30, 2017:

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

In 2007, the Saskatchewan Court granted the plaintiffs' application to have the proceeding certified as a national, "opt-in" class action where affected customers outside Saskatchewan must take specific steps to participate in the proceeding. In 2008, our motion to stay the proceeding based on the arbitration clause in our wireless service agreements was

Rogers Communications Inc.
21
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


granted. The Saskatchewan Court directed that its order, in respect of the certification of the action, would exclude customers who are bound by an arbitration clause from the class of plaintiffs.

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

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

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

Cellular Devices
In July 2013, a class action was launched in British Columbia against providers of wireless communications in Canada and manufacturers of wireless devices. The class action relates to the alleged adverse health effects incurred by long-term users of cellular devices. The plaintiffs are seeking unspecified damages and punitive damages, effectively equal to the reimbursement of the portion of revenue the defendants have received that can reasonably be attributed to the sale of cellular phones in Canada. We have not recognized a liability for this contingency.

Outcome of Proceedings
The outcome of all the proceedings and claims against us, including the matters described above, is subject to future resolution that includes the uncertainties of litigation. It is not possible for us to predict the result or magnitude of the claims due to the various factors and uncertainties involved in the legal process. Based on information currently known to us, we believe it is not probable that the ultimate resolution of any of these proceedings and claims, individually or in total, will have a material adverse effect on our business, financial results, or financial condition. If it becomes probable that we will be held liable for claims against us, we will recognize a provision during the period in which the change in probability occurs, which could be material to our Consolidated Statements of Income or Consolidated Statements of Financial Position.

NOTE 18: SUPPLEMENTAL CASH FLOW INFORMATION

Change in Non-Cash Operating Working Capital Items
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2017

2016

 
2017

2016

 
 
 
 
 
 
Accounts receivable
43

(31
)
 
97

(95
)
Inventories
54

(32
)
 
80

48

Other current assets
51

37

 
(26
)
(34
)
Accounts payable and accrued liabilities
206

159

 
(196
)
146

Unearned revenue
(88
)
(16
)
 
(94
)
(33
)
 
 
 
 
 
 
Total change in non-cash operating working capital items
266

117

 
(139
)
32


Additions to Property, Plant and Equipment, net
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2017

2016

 
2017

2016

 
 
 
 
 
 
Additions to property, plant and equipment
658

549

 
1,669

1,748

Proceeds from disposition of property, plant and equipment
—

—

 
(74
)
—

 
 
 
 
 
 
Additions to property, plant and equipment, net
658

549

 
1,595

1,748


Rogers Communications Inc.
22
Third Quarter 2017


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)



Net (Repayment) Proceeds Received on Short-Term Borrowings
  
 
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
Note
2017

2016

 
2017

2016

 
 
 
 
 
 
 
Net proceeds received from accounts receivable securitization
12
30

—

 
240

250

Net (repayment of) proceeds received from US commercial paper
12
(234
)
—

 
781

—

 
 
 
 
 
 
 
Net (repayment) proceeds received on short-term borrowings
 
(204
)
—

 
1,021

250


Net Repayment of Long-Term Debt
  
 
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
Note
2017

2016

 
2017

2016

 
 
 
 
 
 
 
Net (repayments) borrowings under credit facilities
13
(183
)
(215
)
 
(281
)
519

Net repayment of senior notes
13
—

—

 
(750
)
(1,000
)
 
 
 
 
 
 
 
Net repayment of long-term debt
 
(183
)
(215
)
 
(1,031
)
(481
)


Rogers Communications Inc.
23
Third Quarter 2017