Record wireless subscriber loading
Dividend increased
VANCOUVER, Nov. 7 /CNW/ - TELUS Corporation today reported its financial
results for the third quarter of 2008, including revenue of $2.4 billion, a
six per cent increase from a year ago. Wireless revenue grew nine per cent
based on record year to date subscriber growth while wireline revenue grew
four per cent driven by data growth. Consolidated earnings before interest,
taxes, depreciation and amortization (EBITDA), as adjusted, decreased 0.6 per
cent when compared to the same period a year ago due to higher costs including
those supporting subscriber growth and implementing service for new large
enterprise customers.
Net income in the quarter was $285 million and earnings per share (EPS)
were $0.89, down 30 per cent and 28 per cent, respectively, compared to the
same period in 2007. The third quarter of 2007 included favourable income
tax-related adjustments of $93 million or 28 cents per share while the third
quarter of 2008 includes an unfavourable after-tax adjustment for a provincial
sales tax reassessment relating to prior years of approximately $8 million, or
two cents per share. Excluding tax-related adjustments and the impact of
adopting the net-cash settlement feature for options in 2007 and 2008, net
income and EPS were lower by 5.3% and 4.2%, respectively.
Free cash flow of $452 million, excluding the payment for AWS spectrum
licenses, decreased 10 per cent driven primarily by higher capital
expenditures, lower EBITDA and higher interest and restructuring payments.
Free cash flow including the $882 million payment for spectrum was negative
$430 million. During the third quarter TELUS continued to repurchase shares
under its normal course issuer bid, buying 1.97 million shares for
$75 million.
FINANCIAL HIGHLIGHTS
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C$ in millions, except per share amounts 3 months ended
September 30
(unaudited) 2008 2007 % Change
-------------------------------------------------------------------------
Operating revenues 2,449.3 2,309.9 6.0
EBITDA(1) 974.1 987.0 (1.3)
EBITDA (as adjusted)(2) 974.4 979.8 (0.6)
Income before income taxes and
non-controlling interest 411.2 490.2 (16.6)
Net income(3) 285.1 409.9 (30.4)
Earnings per share (EPS), basic(3) 0.89 1.24 (28.2)
Cash provided by operating activities 987.5 831.8 18.7
Capital expenditures 472.3 434.1 8.8
Free cash flow (including wireless
spectrum licences)(4) (429.8) 502.9 n.m.
(1) Earnings before interest, taxes, depreciation and amortization
(EBITDA) is defined as Operating revenues less Operations expense
less Restructuring costs. See Section 11.1 of Management's discussion
and analysis.
(2) Excludes a charge (recovery) of $0.3 million and $(7.2) million to
Operations expense in 2008 and 2007, respectively, for introducing a
net-cash settlement feature for share option awards granted prior to
2005.
(3) Net income and EPS for the three month period in 2008 included no
favourable income tax-related adjustments compared to $93 million or
28 cents for the same period in 2007.
(4) See Section 11.2 of Management's discussion and analysis.
Darren Entwistle, TELUS president and CEO said, "The third quarter saw
continued revenue growth generated by our national strategy focused on data
and wireless, highlighted by record wireless subscriber loading and excellent
wireless data revenue growth."
Mr. Entwistle stated, "TELUS continues to progress investments that are
strategic in nature but dilutive to earnings and cash flow in the near term.
These investments are key to growing shareholder value over the longer term
and includes launching a new basic wireless service under the Koodo brand,
rolling out TELUS TV and implementing large, managed data network contracts
for corporate and public sector clients. TELUS is determined to offset the
costs associated with these strategic programs as well as the cash consumed by
the advanced wireless spectrum auction and our recent wireless technology
evolution to LTE (4G). Therefore, TELUS is augmenting its operating efficiency
program to materially and sustainably rationalize costs over the remainder of
2008 and into 2009 and beyond. To this end, we are increasing our
restructuring costs for 2008 by $20 million to $50 million."
Robert McFarlane TELUS executive vice president and CFO said, "As a
result of prudent financial policies and stewardship, TELUS has maintained a
strong balance sheet with ample liquidity and an enviable debt maturity
profile. Traditional sources of capital have consistently been open and
available to TELUS throughout the recent period of capital market volatility.
The combination of our strong financial situation with confidence in our
future prospects is the basis for the Board decision announced today to
increase the TELUS dividend for the fifth consecutive year."
Full year 2008 guidance has been revised to reflect year to date results
and an increase in the expected restructuring costs related to ongoing
operating efficiency program initiatives.
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This news release contains statements about expected future events and
financial and operating results of TELUS that are forward-looking. By
their nature, forward-looking statements require the Company to make
assumptions and are subject to inherent risks and uncertainties. There is
significant risk that the forward-looking statements will not prove to be
accurate. Readers are cautioned not to place undue reliance on forward-
looking statements as a number of factors could cause actual future
results and events to differ materially from that expressed in the
forward-looking statements. Accordingly this news release is subject to
the disclaimer and qualified by the assumptions (including assumptions
for 2008 revised guidance and share purchases), qualifications and risk
factors referred to in the Management's discussion and analysis in the
2007 annual report and 2008 first, second and third quarter reports.
Except as required by law, TELUS disclaims any intention or obligation to
update or revise forward-looking statements, and reserves the right to
change, at any time at its sole discretion, its current practice of
updating annual guidance.
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OPERATING HIGHLIGHTS
TELUS wireless
- External revenues increased by $96.5 million or 8.7% to
$1.2 billion in the third quarter of 2008, compared with the same
period in 2007
- Wireless data revenue increased $65 million or 56% due to the
continued adoption of full function smartphones and increased
adoption of data services such as text messaging and e-mail
- ARPU (average revenue per subscriber unit per month) declined by 1%
to $64.14 compared to the same quarter a year ago, but was up
sequentially from the second quarter of 2008 by $1.41. The
fast-growing data component of $10.19, represented 16% of ARPU, while
the voice component continued to decline as a result of pricing
pressure, lower Mike service ARPU, use of included-minute rate plans,
subscriber loading from the new basic Koodo Mobile service and lower
inbound roaming
- Total wireless subscriber base reached the 6 million milestone.
Normalized net subscriber additions increased by 32% to 176,900 from
the same quarter in 2007, a TELUS third quarter record. Postpaid net
additions were 158,500, an increase of 61%, while net prepaid loading
decreased to 18,400. When including the impact of the analogue
network turndown, net additions increased 11% to 149,300. These
results include those from TELUS' postpaid Koodo service launched in
March 2008
- EBITDA as adjusted of $525 million increased slightly by $2 million
over the third quarter of 2007, as increased network revenue was
offset by higher cost of acquisition expense and network and other
expenses to support the 11% growth in the wireless subscriber base,
higher data revenue and the launch of the Koodo basic service brand.
Retention expenses increased due to higher retention volumes and
continued increases in smartphone adoption
- Cost of acquisition per gross addition decreased 10% year-over-year
to $341 reflecting slightly higher advertising and promotions costs
spread over the 23% increase in gross additions, a higher proportion
of new subscribers from lower cost distribution channels and
efficient marketing spending on a per-unit basis
- Normalized blended monthly subscriber churn increased slightly to
1.52% from 1.43% a year ago, excluding 27,600 deactivations from the
analogue network turndown this quarter
- Simple cash flow (EBITDA as adjusted less capital expenditures)
increased slightly by $1.2 million to $393 million in the quarter due
to relatively flat EBITDA as adjusted and continued low level of
capital spending.
TELUS wireline
- External revenues increased by $43 million or 3.6% to $1.25 billion
in the third quarter of 2008, when compared with the same period in
2007, as data growth more than offset the moderate declines in local
and long distance revenues
- Data revenues increased by $69 million or 16% due to revenues from
the two January acquisitions (Emergis and Fastvibe), increased
enhanced data and hosting services, as well as high-speed Internet
subscriber growth. When adjusted for the two acquisitions and a
regulatory adjustment in the third quarter of 2008, underlying data
growth was approximately 4%
- TELUS added 13,300 net high-speed Internet subscribers, a 58%
decrease from a year ago, due to increased competition and a maturing
market
- EBITDA as adjusted of $449 million declined by $7.4 million or 1.6%
due primarily to increased cost of sales for TELUS TV and upfront
costs for implementing large complex enterprise customer services and
higher restructuring costs
- Network access lines (NALs) declined by 43,000 in the quarter, and
3.6% from a year ago. Consistent with experience in recent years,
residential NAL losses were due to ongoing competitive activity and
wireless substitution, partially mitigated by an increase in business
access lines
- Simple cash flow (EBITDA as adjusted less capital expenditures)
decreased $45 million to $109 million in the quarter due to lower
EBITDA and a $37 million increase in capital expenditures. The
increase in capital primarily relates to supporting new enterprise
and broadband service customers
Corporate Developments
TELUS announces next generation network build
TELUS recently announced its commitment to Long Term Evolution (LTE) as
the technology for its fourth generation wireless broadband network. In
October, the Company announced it was beginning the immediate construction of
a national next generation wireless network based on HSPA (high speed packet
access) technology with service to be launched by early 2010. The HSPA network
is expected to augment TELUS' existing wireless service portfolio and position
the Company for a smoother future transition to LTE. The benefits of the
investment in HSPA are expected to include: increased international roaming,
access to increased global roaming revenues, fast network speeds, more devices
and lower handset costs over time due to the larger HSPA device ecosystem, and
lower network development and ongoing operating costs. TELUS plans to operate
and support its CDMA and iDEN networks for the foreseeable future.
TELUS also announced it has entered into an HSPA network sharing
agreement with Bell Canada, using existing 1900 MHz and 850 MHz spectrum. This
agreement builds on and enhances an agreement signed in 2001 and is expected
to enable TELUS to lower the cost, accelerate deployment of the next
generation wireless voice and data services on a national basis, optimize
cell-site utilization, and maximize potential operating efficiencies. Initial
capital expenditures for the new network are included in TELUS' original
capital expenditure guidance of approximately $1.9 billion for 2008. For 2009,
TELUS expects total wireless capital expenditures, including those related to
the HSPA network, of approximately $750 million, which would be temporarily
higher than historic annual levels.
AWS spectrum developments
In early September, each of the successful Advanced Wireless Services
(AWS) spectrum auction bidders, including TELUS, were required to make full
payment for the licences, and demonstrate compliance with Canadian ownership
requirements. In total, TELUS paid Industry Canada $882 million for the
licences and related auction charges financed through a combination of a draw
down on its credit facilities and cash on hand. Industry Canada is expected to
turn over the licences to respective spectrum auction winners following an
eligibility review process.
TELUS expects to face new competition in the future as a result of this
auction. Notwithstanding, the number, geographic coverage, and timing of
launch of new entrants remain to be determined.
TELUS invests in Quebec to open greenest Internet data centre
In October, TELUS announced an investment of more than $33 million in the
company's greenest Internet data centre (IDC), which will be located in Laval,
Quebec. IDCs are highly secure buildings housing extremely powerful computer
servers hosting data on behalf of clients around the world. TELUS currently
operates eight interconnected IDCs across Canada, each serving as a secure
platform for providing Managed Information Technology (IT), Unified
Communications and Contact Centre Solutions.
TELUS' newest IDC in Laval is expected to be a 44,500 square foot
facility connected to six mega-volt-amps of power, equivalent to the needs of
more than 5,000 homes. To counter the heat generated by the computer servers,
its high-density power design and efficient heat exchange system will turn
Quebec's cold climate into "free cooling" during two thirds of the year.
Large, highly efficient air conditioning units will be used when "free
cooling" is unavailable. The state-of-the-art facility is being designed
according to the Leadership in Energy and Environmental Design (LEED)
standards. Retrofitting of the existing structure has begun and hosting new
clients will begin in 2010.
TELUS TV now available in high definition in Eastern Quebec
TELUS is pleased to announce the availability of its high definition
television service to all TELUS TV users in Eastern Quebec. Thanks to an
exceptional sound and image quality, an innovative, user-friendly interactive
guide, and access to 25 high definition channels, TELUS subscribers can enjoy
a larger-than-life TV experience.
City of Vancouver awards TELUS IP telephony system contract
The City of Vancouver awarded TELUS a $7 million contract to supply,
install and support the City's new IP telephony system and contact centre
suite. TELUS' system will support 200 city sites including City Hall, the 311
Contact Centre, the Vancouver Police Department, the Vancouver Fire and Rescue
Department, the Vancouver Board of Parks and Recreation, and the Vancouver
Public Library. TELUS was awarded the contract after an extensive RFP review
process. Implementation is expected to be complete in 2011.
TELUS selected to provide Keal Technology with data management services
TELUS and Keal Technology have signed a $3 million agreement whereby
TELUS Internet data centres will manage Keal's data technology solutions,
providing increased information security and efficiency for both Keal and its
clients. Since 2003, Keal has created and maintained numerous hosted data
sites acting as an Application Service Provider for brokers throughout Canada.
With the demand for hosted solutions increasing, Keal chose to outsource and
consolidate its hosting services through TELUS to achieve increased stability
and redundancy for its clients. Keal has already begun migrating clients to
TELUS, and expects to be complete by year-end. Initially, TELUS will host more
than 500 Keal users with capacity for future expansion
TELUS launches advanced business centre in Toronto
In October, TELUS announced the launch of the new TELUS Business Centre
at the Toronto Board of Trade. The Business Centre will provide local
businesses with advanced communications solutions such as work stations,
thin-client computers, access to video and audio conferencing, and printing
facilities to help them optimize operations and grow their business. The
Business Centre will also demonstrate the latest in technology applications
for business including GPS and TELUS Visual Voice Mail.
TELUS believes in smartphones for all!
In August, TELUS launched its "smartphone for all" campaign and announced
it would be the first North American carrier to offer the HTC Touch Diamond
smartphone. When combined with the flexibility of TELUS' affordable rate plans
and access to Canada's largest 3G network, TELUS' wide range of smartphones
and touchscreen handsets give TELUS clients the freedom to choose the phone
reflecting their own needs and lifestyle.
Also in the quarter, TELUS launched TELUS Quick Find, its new search
engine for phones operating on the PCS network. Service is available on the
HTC Touch dual and MOTORAZR VE20, with more devices scheduled to launch in the
near future. TELUS also launched the Samsung Instinct, the LG KEYBO, the LG
Dare, and the LG Voyager.
TELUS launching Blackberry Storm smartphone
TELUS announced that it expects to offer customers Research In Motion's
first touchscreen device, the BlackBerry(R) Storm 9530 smartphone, in time for
the holiday season. The Storm is the world's first BlackBerry smartphone
delivering a high resolution display with an innovative, clickable touchscreen
giving users precise and responsive text input. It promises to deliver a rich
multimedia experience combined with the excellent communications experience
expected from BlackBerry smartphones - email, messaging, reliability,
security. The BlackBerry Storm smartphone is a world edition device, so it can
be used almost everywhere customers travel.
Clients interested in learning more about the BlackBerry Storm 9530 from
TELUS can visit and register online at www.telus.com/storm.
New contract ratified by members of the Syndicat des agents de maitrise
de TELUS
A majority of the members of the Syndicat des agents de maitrise de TELUS
(SAMT) voted to accept the Memorandum of Agreement reached with TELUS on
July 4, 2008. The SAMT represents more than 500 TELUS team members employed in
professional and supervisory positions working in the Lower Saint Lawrence,
the Gaspe, Montreal, Quebec, Sainte-Marie, Saint-Georges, Baie-Comeau and
Sept-Iles regions. Under the terms of the new contract, SAMT members will
enjoy a progressive performance bonus increase based on meeting personal and
corporate objectives and more flexible insurance coverage. The terms of the
new collective agreement will remain in effect until December 31, 2011.
TELUS creating jobs in Quebec
In order to continue offering superior client care to its growing
customer base across Canada, TELUS announced the creation of 149 new jobs in
the Quebec technical support team. The wide array of TELUS wireless phones and
the diverse functions they offer call for advanced technical skills and
specialized training for technicians assisting customers. TELUS will therefore
also be investing more than $1.6 million in a value-added training program,
$405,000 of which will come from Emploi-Quebec. Emploi-Quebec's support will
go toward improving TELUS' training to increasingly incorporate a greater
number of interactive and multimedia tools.
TELUS World Skins Game to be held in Quebec's capital region in
June, 2009
TELUS will host elite golfers from around the globe next June when the
TELUS World Skins Game is played at La Tempete Golf Club in the Quebec City
region. Next year's game should improve the quality of life for thousands of
sick kids for years to come as the money raised during the event will support
Operation Enfant Soleil, an organization that invests in the development of
quality paediatric care in Quebec. The charity will use the money raised to
equip the Centre hospitalier universitaire de Quebec's Centre mere-enfant's
surgical unit with the latest in multimedia technology to facilitate complex
pediatric heart surgeries. This will be the popular Canadian golf event's
first visit to the Quebec City region in its 16-year history.
TELUS hooks up with the Quebec City Remparts hockey club
TELUS became a major partner and the official provider of
telecommunications services to the Quebec City Remparts hockey club for the
next three years. TELUS has been supporting junior hockey in Quebec for eight
years through its partnerships with the Quebec Major Junior Hockey League
(QMJHL), the Montreal Junior, the Rimouski Oceanic, the Baie-Comeau Drakkar
and, now, the Quebec City Remparts. Remparts games, like all those of the
QMJHL, may be viewed free of charge, live or delayed, on telus.com/lhjmq.
Quebec City Remparts ring tones and images are available exclusively to TELUS
wireless subscribers.
Awards/Recognition
TELUS annual report ranked No. 3 in world
TELUS was recognized for having produced one of the best annual reports
in the world, according to a global survey of annual reports. The Annual
Report on Annual Reports 2008 gave TELUS a rating of A+ (up from last year's A
rating) and listed the TELUS report as the third best in the world. TELUS is
one of only 25 Canadian companies on the list and the only telecommunications
company globally to achieve the A+ rating.
TELUS named to global Dow Jones Sustainability Index for eighth year
For eight years in a row TELUS has been listed on the North American and
World Dow Jones Sustainability Indexes (DJSI). These indexes recognize
companies from around the world that demonstrate operational excellence from a
combined economic, social and environmental perspective. TELUS is the only
North American telecommunications company and one of only 10 Canadian
companies on the World Index. TELUS' overall score improved over last year,
placing the company just behind industry leader, BT Group. TELUS scored the
highest in the overall economic dimension among industry peers and the areas
of corporate citizenship/philanthropy and privacy protection.
TELUS named best in directory assistance
TELUS has been recognized as the top national directory assistance
provider in Canada by The Paisley Group. The TELUS Operator Services team's
drive for continuous improvement helped it to achieve its best results in
three years. TELUS placed first in passed calls, the key benchmark of
directory assistance. This measure combines customer fulfillment and customer
care to measure whether a customer received correct information while being
treated in a professional manner by call answer agents. The Paisley Group, a
directory assistance/operator services consulting company, conducts an annual
audit of directory customer service.
In addition, TELUS Operator Services also won an "Excellence in Directory
Information Services Automation" Award from the Pelorus Group in September.
The Pelorus Group is an independent market research and consultancy company in
the financial services and telecommunications industries.
Karen Radford named Woman of Distinction by YWCA
Karen Radford, executive vice-president and president of TELUS Quebec and
TELUS Partner Solutions, was recognized in the Business and Professions
category at the Women's Y Foundation's Women of Distinction Gala in September.
Radford, who has distinguished herself through her personality and actions in
the advancement of women and the enrichment of the community, was one of 11
women who made their mark in different sectors of activity in 2008. This award
is another in a series of honours bestowed upon Karen in recent years,
recognizing her leadership and her support for women in business and in the
community. This Gala is one of the principal sources of fundraising for the
Women's Y Foundation, and it raised $230,000 to help finance programs offered
to the 36,000 Montreal women who use the YWCA services each year.
TELUS receives videoconferencing award
Consulting firm Frost & Sullivan selected TELUS as the recipient of the
2008 North American Award for Market Leadership in the Canadian
videoconferencing services market. Each year Frost & Sullivan presents this
award to the company that has exhibited market share leadership through the
implementation of market strategy. TELUS has consistently had excellent
results in terms of market share, revenues, installed base, and breadth of
solution offerings in this fast evolving market.
Community investment
TELUS and Operation Enfant Soleil: partnering for a healthy Quebec
TELUS has again made a commitment to Operation Enfant Soleil to support
the development of quality pediatric care and to contribute to social
intervention projects for children across Quebec. As a major partner of
Operation Enfant Soleil since 1998, TELUS has committed to donate more than
$375,000 to the organization by the end of 2010. This new contribution will
bring TELUS' total donation to more than $1.1 million since the partnership
was formed.
General Rick Hillier named chair of new TELUS Atlantic Canada Community
Board
Through a newly created TELUS Atlantic Canada Community Board, TELUS team
members and Atlantic Canada community leaders will collaborate to donate
$250,000 to local charities each year on TELUS' behalf. General Rick Hillier
will be the Chairman of the Board, working with TELUS and the Board members to
develop a charitable giving and community program in Atlantic Canada. Local
charitable organizations are invited to apply for up to $20,000 in one-time
funding for projects in the areas of health and well-being in our environment,
education and sport, and arts and culture, with a focus on young Canadians and
the innovative use of technology.
The TELUS Atlantic Canada Community Board is part of a national
philanthropic program that now includes nine TELUS community boards across
Canada. Since their inception in 2005, the TELUS Community Boards have
allocated $11.5 million to local charities, supporting more than 800 community
projects.
TELUS technology helps to preserve 32 B.C. First Nations' languages
FirstVoices is an online archive that brings First Nations' youth and
elders together to keep their languages and cultures vibrant and accessible
for future generations. The site's administrator, the First Peoples' Council,
is working with TELUS to create more than 225 short video clips illustrating
phrases and words of everyday activities. Once integrated into FirstVoices
this winter, the video clips will provide valuable visual cues to assist
language learners with the meanings of verbs and phrases. TELUS has funded the
entire $25,000 budget of this project for FirstVoices and hired two First
Nations youths as apprentices during the production process.
Dividend Declaration - fifth increase in five years
The Board of Directors has declared a quarterly dividend of forty-seven
and one half cents ($0.475) Canadian per share on the issued and outstanding
Common shares and forty-seven and one half cents ($0.475) Canadian per share
on the issued and outstanding Non-Voting shares of the Company payable on
January 2, 2009 to holders of record at the close of business on December 11,
2008.
This quarterly dividend represents a two and one half cent (10 cents
annualized) or 5.6 per cent increase from the $0.45 quarterly dividend paid on
January 1, 2008. This is the fifth annual increase in five years.
About TELUS
TELUS (TSX: T, T.A; NYSE: TU) is a leading national telecommunications
company in Canada, with $9.5 billion of annual revenue and 11.5 million
customer connections including 6 million wireless subscribers, 4.3 million
wireline network access lines and 1.2 million Internet subscribers. TELUS
provides a wide range of communications products and services including data,
Internet protocol (IP), voice, entertainment and video. Committed to being
Canada's premier corporate citizen, we give where we live. Since 2000, TELUS
and our team members have contributed $113 million to charitable and
not-for-profit organizations and volunteered more than 2.1 million hours of
service to local communities. Nine TELUS Community Boards across Canada lead
our local philanthropic initiatives. For more information about TELUS, please
visit telus.com.
TELUS Corporation
interim consolidated statements of income and
other comprehensive income (unaudited)
Periods ended September 30
(millions except Three months Nine months
per share amounts) 2008 2007 2008 2007
-------------------------------------------------------------------------
OPERATING REVENUES $ 2,449.3 $ 2,309.9 $ 7,198.6 $ 6,743.6
-------------------------------------------------------------------------
OPERATING EXPENSES
Operations 1,465.4 1,316.5 4,336.4 4,093.4
Restructuring costs 9.8 6.4 21.0 14.3
Depreciation 344.0 332.5 1,033.2 968.5
Amortization of
intangible assets 92.1 70.1 244.5 192.2
-------------------------------------------------------------------------
1,911.3 1,725.5 5,635.1 5,268.4
-------------------------------------------------------------------------
OPERATING INCOME 538.0 584.4 1,563.5 1,475.2
Other expense, net 5.6 8.0 24.8 30.3
Financing costs 121.2 86.2 344.9 331.0
-------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES
AND NON-CONTROLLING INTEREST 411.2 490.2 1,193.8 1,113.9
Income taxes 125.1 78.6 348.0 251.6
Non-controlling interests 1.0 1.7 2.7 4.5
-------------------------------------------------------------------------
NET INCOME AND COMMON SHARE
AND NON-VOTING SHARE INCOME 285.1 409.9 843.1 857.8
OTHER COMPREHENSIVE INCOME
Change in unrealized fair
value of derivatives
designated as cash flow
hedges 4.7 8.5 (5.6) 64.3
Foreign currency
translation adjustment
arising from translating
financial statements of
self-sustaining foreign
operations 2.2 (1.1) (1.7) (4.9)
Change in unrealized fair
value of available-for-sale
financial assets (5.6) (0.2) (2.1) (0.3)
-------------------------------------------------------------------------
1.3 7.2 (9.4) 59.1
-------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 286.4 $ 417.1 $ 833.7 $ 916.9
-------------------------------------------------------------------------
NET INCOME PER COMMON SHARE
AND NON-VOTING SHARE
- Basic $ 0.89 $ 1.24 $ 2.62 $ 2.57
- Diluted $ 0.89 $ 1.23 $ 2.61 $ 2.55
DIVIDENDS DECLARED PER
COMMON SHARE AND
NON-VOTING SHARE $ 0.45 $ 0.375 $ 1.35 $ 1.125
TOTAL WEIGHTED AVERAGE
COMMON SHARES AND
NON-VOTING SHARES
OUTSTANDING
- Basic 319.3 330.1 321.3 333.5
- Diluted 320.3 332.8 322.6 336.2
TELUS Corporation
interim consolidated balance sheets (unaudited)
September 30, December 31,
As at (millions) 2008 2007
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ASSETS
Current Assets
Cash and temporary investments, net $ 35.9 $ 19.9
Short-term investments - 42.4
Accounts receivable 954.2 710.9
Income and other taxes receivable 69.0 120.9
Inventories 276.0 243.3
Prepaid expenses and other 238.9 199.5
Derivative assets 8.6 3.8
-------------------------------------------------------------------------
1,582.6 1,340.7
-------------------------------------------------------------------------
Capital Assets, Net
Property, plant, equipment and other 7,171.2 7,196.1
Intangible assets subject to amortization 1,280.6 959.4
Intangible assets with indefinite lives 2,966.5 2,966.5
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11,418.3 11,122.0
-------------------------------------------------------------------------
Other Assets
Payment for advanced wireless services spectrum
licences 881.6 -
Deferred charges 1,473.2 1,318.0
Investments 21.0 38.9
Goodwill 3,543.8 3,168.0
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5,919.6 4,524.9
-------------------------------------------------------------------------
$ 18,920.5 $ 16,987.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 1,470.2 $ 1,476.6
Income and other taxes payable 12.5 7.3
Restructuring accounts payable and accrued
liabilities 20.8 34.9
Dividends payable 143.6 -
Advance billings and customer deposits 643.3 631.6
Current maturities of long-term debt 4.6 5.4
Current portion of derivative liabilities 61.5 26.6
Current portion of future income taxes 725.6 503.6
-------------------------------------------------------------------------
3,082.1 2,686.0
-------------------------------------------------------------------------
Long-Term Debt 6,033.4 4,583.5
-------------------------------------------------------------------------
Other Long-Term Liabilities 1,588.0 1,717.9
-------------------------------------------------------------------------
Future Income Taxes 1,128.8 1,048.1
-------------------------------------------------------------------------
Non-Controlling Interests 21.9 25.9
-------------------------------------------------------------------------
Shareholders' Equity 7,066.3 6,926.2
-------------------------------------------------------------------------
$ 18,920.5 $ 16,987.6
-------------------------------------------------------------------------
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TELUS Corporation
interim consolidated statements of cash flows (unaudited)
Periods ended Three months Nine months
September 30 (millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 285.1 $ 409.9 $ 843.1 $ 857.8
Adjustments to reconcile
net income to cash
provided by operating
activities:
Depreciation and
amortization 436.1 402.6 1,277.7 1,160.7
Future income taxes 113.5 222.7 290.4 393.4
Share-based compensation 8.4 (3.3) 24.8 126.4
Net employee defined
benefit plans expense (25.3) (24.0) (74.8) (69.0)
Employer contributions
to employee defined
benefit plans (26.6) (18.9) (77.9) (67.5)
Restructuring costs,
net of cash payments (9.4) 3.3 (14.1) (21.0)
Amortization of deferred
gains on sale-leaseback
of buildings,
amortization of deferred
charges and other, net 0.3 5.9 (5.3) 1.1
Net change in non-cash
working capital 204.0 (166.4) (191.6) (27.6)
-------------------------------------------------------------------------
Cash provided by operating
activities 986.1 831.8 2,072.3 2,354.3
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures
excluding advance wireless
services spectrum licences (472.3) (434.1) (1,227.6) (1,297.8)
Payment for advanced wireless
services spectrum licences (881.6) - (881.6) -
Acquisitions (4.5) - (695.8) -
Proceeds from the sale of
property and other assets 9.3 4.1 12.6 5.4
Change in non-current
materials and supplies,
purchase of investments and
other (3.6) - 2.6 (7.7)
-------------------------------------------------------------------------
Cash used by investing
activities (1,352.7) (430.0) (2,789.8) (1,300.1)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Common Shares and
Non-Voting Shares issued 0.1 0.1 0.4 0.7
Dividends to shareholders - - (289.5) (250.9)
Purchase of Common Shares
and Non-Voting Shares for
cancellation (75.1) (232.2) (274.3) (602.4)
Long-term debt issued 2,970.5 2,682.5 9,544.8 4,774.1
Redemptions and repayment
of long-term debt (2,538.7) (2,853.4) (8,243.3) (4,958.0)
Dividends paid by a
subsidiary to non-
controlling interests - - (4.6) (4.3)
Other - - - (0.9)
-------------------------------------------------------------------------
Cash provided (used) by
financing activities 356.8 (403.0) 733.5 (1,041.7)
-------------------------------------------------------------------------
CASH POSITION
Increase (decrease) in
cash and temporary
investments, net (9.8) (1.2) 16.0 12.5
Cash and temporary
investments, net,
beginning of period 45.7 2.2 19.9 (11.5)
-------------------------------------------------------------------------
Cash and temporary
investments, net, end
of period $ 35.9 $ 1.0 $ 35.9 $ 1.0
-------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE
OF CASH FLOWS
Interest (paid) $ (43.1) $ (41.1) $ (263.9) $ (283.2)
-------------------------------------------------------------------------
Interest received $ 0.4 $ 1.4 $ 2.4 $ 8.9
-------------------------------------------------------------------------
Income taxes (inclusive of
Investment Tax Credits
(paid) received, net $ (1.7) $ (1.7) $ (8.3) $ 0.9
-------------------------------------------------------------------------
TELUS Corporation
segmented information (unaudited)
Three-month periods
ended September 30 Wireline Wireless
(millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
Operating revenues
External revenue $ 1,247.5 $ 1,204.6 $ 1,201.8 $ 1,105.3
Intersegment revenue 33.8 29.7 6.8 7.0
-------------------------------------------------------------------------
1,281.3 1,234.3 1,208.6 1,112.3
-------------------------------------------------------------------------
Operating expenses
Operations expense 823.8 761.6 682.2 591.6
Restructuring costs 8.7 6.4 1.1 -
-------------------------------------------------------------------------
832.5 768.0 683.3 591.6
-------------------------------------------------------------------------
EBITDA(1) $ 448.8 $ 466.3 $ 525.3 $ 520.7
-------------------------------------------------------------------------
CAPEX(2) $ 340.0 $ 302.6 $ 132.3 $ 131.5
-------------------------------------------------------------------------
EBITDA less CAPEX $ 108.8 $ 163.7 $ 393.0 $ 389.2
-------------------------------------------------------------------------
Operating expenses
(as adjusted)(3)
Operations expense
(as adjusted)(3) 823.2 771.1 682.5 589.3
Restructuring costs 8.7 6.4 1.1 -
-------------------------------------------------------------------------
831.9 777.5 683.6 589.3
-------------------------------------------------------------------------
EBITDA (as adjusted)(3) $ 449.4 $ 456.8 $ 525.0 $ 523.0
-------------------------------------------------------------------------
CAPEX(2) $ 340.0 $ 302.6 $ 132.3 $ 131.5
-------------------------------------------------------------------------
EBITDA (as adjusted) less
CAPEX $ 109.4 $ 154.2 $ 392.7 $ 391.5
-------------------------------------------------------------------------
(unaudited)
Three-month periods
ended September 30 Eliminations Consolidated
(millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
Operating revenues
External revenue $ - $ - $ 2,449.3 $ 2,309.9
Intersegment revenue (40.6) (36.7) - -
-------------------------------------------------------------------------
(40.6) (36.7) 2,449.3 2,309.9
-------------------------------------------------------------------------
Operating expenses
Operations expense (40.6) (36.7) 1,465.4 1,316.5
Restructuring costs - - 9.8 6.4
-------------------------------------------------------------------------
(40.6) (36.7) 1,475.2 1,322.9
-------------------------------------------------------------------------
EBITDA(1) $ - $ - $ 974.1 $ 987.0
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $ 472.3 $ 434.1
-------------------------------------------------------------------------
EBITDA less CAPEX $ - $ - $ 501.8 $ 552.9
-------------------------------------------------------------------------
Operating expenses
(as adjusted)(3)
Operations expense
(as adjusted)(3) (40.6) (36.7) 1,465.1 1,323.7
Restructuring costs - - 9.8 6.4
-------------------------------------------------------------------------
(40.6) (36.7) 1,474.9 1,330.1
-------------------------------------------------------------------------
EBITDA (as adjusted)(3) $ - $ - $ 974.4 $ 979.8
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $ 472.3 $ 434.1
-------------------------------------------------------------------------
EBITDA (as adjusted) less
CAPEX $ - $ - $ 502.1 $ 545.7
-------------------------------------------------------------------------
EBITDA (as adjusted)
(from above) $ 974.4 $ 979.8
Incremental charge(3) 0.3 (7.2)
-------------------------------------------
EBITDA (from above) 974.1 987.0
Depreciation 344.0 332.5
Amortization 92.1 70.1
-------------------------------------------
Operating income 538.0 584.4
Other expense, net 5.6 8.0
Financing costs 121.2 86.2
-------------------------------------------
Income before income
taxes and non-
controlling interests 411.2 490.2
Income taxes 125.1 78.6
Non-controlling
interests 1.0 1.7
-------------------------------------------
Net income $ 285.1 $ 409.9
-------------------------------------------
-------------------------------------------
(1) Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") is a measure that does not have any standardized meaning
prescribed by GAAP and is therefore unlikely to be comparable to
similar measures presented by other issuers; EBITDA is defined by the
Company as operating revenues less operations expense and
restructuring costs. The Company has issued guidance on, and reports,
EBITDA because it is a key measure used by management to evaluate
performance of its business segments and is utilized in measuring
compliance with certain debt covenants.
(2) Total capital expenditures ("CAPEX").
(3) Substantially all of the Company's share option awards that were
granted prior to January 1, 2005, and which were outstanding on
January 1, 2007, were amended by adding a net-cash settlement
feature; such amendment resulted in an incremental charge to
(recovery from) operations of $0.3 (2007 - $(7.2)) and did not result
in an immediate cash outflow (inflow). In respect of 2008 and 2007
results provided to the Company's chief operating decision maker,
operations expense and EBITDA are being presented both with, and
without, the impact of such amendment.
TELUS Corporation
segmented information (unaudited)
Nine-month periods
ended September 30 Wireline Wireless
(millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
Operating revenues
External revenue $ 3,754.4 $ 3,590.3 $ 3,444.2 $ 3,153.3
Intersegment revenue 96.9 83.5 21.0 20.0
-------------------------------------------------------------------------
3,851.3 3,673.8 3,465.2 3,173.3
-------------------------------------------------------------------------
Operating expenses
Operations expense 2,503.7 2,439.1 1,950.6 1,757.8
Restructuring costs 19.3 13.6 1.7 0.7
-------------------------------------------------------------------------
2,523.0 2,452.7 1,952.3 1,758.5
-------------------------------------------------------------------------
EBITDA(1) $ 1,328.3 $ 1,221.1 $ 1,512.9 $ 1,414.8
-------------------------------------------------------------------------
CAPEX(2) $ 916.1 $ 882.0 $ 311.5 $ 415.8
-------------------------------------------------------------------------
EBITDA less CAPEX $ 412.2 $ 339.1 $ 1,201.4 $ 999.0
-------------------------------------------------------------------------
Operating expenses (as
adjusted)(3)
Operations expense (as
adjusted)(3) 2,503.8 2,295.5 1,950.3 1,733.3
Restructuring costs 19.3 13.6 1.7 0.7
-------------------------------------------------------------------------
2,523.1 2,309.1 1,952.0 1,734.0
-------------------------------------------------------------------------
EBITDA (as adjusted)(3) $ 1,328.2 $ 1,364.7 $ 1,513.2 $ 1,439.3
-------------------------------------------------------------------------
CAPEX(2) $ 916.1 $ 882.0 $ 311.5 $ 415.8
-------------------------------------------------------------------------
EBITDA (as adjusted) less
CAPEX $ 412.1 $ 482.7 $ 1,201.7 $ 1,023.5
-------------------------------------------------------------------------
(unaudited)
Nine-month periods
ended September 30 Eliminations Consolidated
(millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
Operating revenues
External revenue $ - $ - $ 7,198.6 $ 6,743.6
Intersegment revenue (117.9) (103.5) - -
-------------------------------------------------------------------------
(117.9) (103.5) 7,198.6 6,743.6
-------------------------------------------------------------------------
Operating expenses
Operations expense (117.9) (103.5) 4,336.4 4,093.4
Restructuring costs - - 21.0 14.3
-------------------------------------------------------------------------
(117.9) (103.5) 4,357.4 4,107.7
-------------------------------------------------------------------------
EBITDA(1) $ - $ - $ 2,841.2 $ 2,635.9
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $ 1,227.6 $ 1,297.8
-------------------------------------------------------------------------
EBITDA less CAPEX $ - $ - $ 1,613.6 $ 1,338.1
-------------------------------------------------------------------------
Operating expenses (as
adjusted)(3)
Operations expense (as
adjusted)(3) (117.9) (103.5) 4,336.2 3,925.3
Restructuring costs - - 21.0 14.3
-------------------------------------------------------------------------
(117.9) (103.5) 4,357.2 3,939.6
-------------------------------------------------------------------------
EBITDA (as adjusted)(3) $ - $ - $ 2,841.4 $ 2,804.0
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $ 1,227.6 $ 1,297.8
-------------------------------------------------------------------------
EBITDA (as adjusted) less
CAPEX $ - $ - $ 1,613.8 $ 1,506.2
-------------------------------------------------------------------------
EBITDA (as adjusted)
(from above) $ 2,841.4 $ 2,804.0
Incremental charge(3) 0.2 168.1
-------------------------------------------
EBITDA (from above) 2,841.2 2,635.9
Depreciation 1,033.2 968.5
Amortization 244.5 192.2
-------------------------------------------
Operating income 1,563.5 1,475.2
Other expense, net 24.8 30.3
Financing costs 344.9 331.0
-------------------------------------------
Income before income
taxes and non-
controlling interests 1,193.8 1,113.9
Income taxes 348.0 251.6
Non-controlling interests 2.7 4.5
-------------------------------------------
Net income $ 843.1 $ 857.8
-------------------------------------------
-------------------------------------------
(1) Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") is a measure that does not have any standardized meaning
prescribed by GAAP and is therefore unlikely to be comparable to
similar measures presented by other issuers; EBITDA is defined by the
Company as operating revenues less operations expense and
restructuring costs. The Company has issued guidance on, and reports,
EBITDA because it is a key measure used by management to evaluate
performance of its business segments and is utilized in measuring
compliance with certain debt covenants.
(2) Total capital expenditures ("CAPEX").
(3) Substantially all of the Company's share option awards that were
granted prior to January 1, 2005, and which were outstanding on
January 1, 2007, were amended by adding a net-cash settlement
feature; such amendment resulted in an incremental charge to
operations of $0.2 (2007 - $168.1) and did not result in an immediate
cash outflow. In respect of 2008 and 2007 results provided to the
Company's chief operating decision maker, operations expense and
EBITDA are being presented both with, and without, the impact of such
amendment.
-------------------------------------------------------------------------
TELUS CORPORATION
Management's discussion and analysis
2008 Q3
-------------------------------------------------------------------------
Caution regarding forward-looking statements
-------------------------------------------------------------------------
This document and Management's discussion and analysis contain forward-
looking statements about expected future events and financial and
operating results of TELUS Corporation (TELUS or the Company, and where
the context of the narrative permits, or requires, its subsidiaries). By
their nature, forward-looking statements require the Company to make
assumptions and are subject to inherent risks and uncertainties. There is
significant risk that assumptions (see below), predictions and other
forward-looking statements will not prove to be accurate. Readers are
cautioned not to place undue reliance on forward-looking statements as a
number of factors could cause actual future results, conditions, actions
or events to differ materially from the targets, expectations, estimates
or intentions expressed in the forward-looking statements. The Company
disclaims any intention or obligation to update or revise any forward-
looking statements, whether as a result of new information, future events
or otherwise, except as required by law. In the case of annual guidance,
it is the current practice of the Company to evaluate and, where it deems
appropriate, provide updates (see Section 9). Subject to legal
requirements, this practice may be changed at any time at the Company's
sole discretion.
Assumptions for 2008 guidance include:
--------------------------------------
Reduced 2008 economic growth with an estimated Canadian gross domestic
product (GDP) growth rate of 0.7% and above average growth in the
provinces of Alberta and British Columbia; an average 2008 exchange rate
of approximately C$1.00 to U.S.$0.95 (after averaging U.S.$0.98 for the
first nine months of 2008); increased wireline competition in both
business and consumer markets, particularly from cable-TV and VoIP (voice
over Internet protocol) companies; impact from the acquisition of Emergis
in mid-January; Canadian wireless industry market penetration gain of
4.5% to 5%; the target for consolidated capital expenditures explicitly
excluded the payment for wireless spectrum licences acquired in the
advanced wireless services (AWS) spectrum auction; in addition to capital
expenditures, payment for AWS spectrum licences in the third quarter of
2008 was $881.6 million; no new wireless competitive entrants are assumed
for 2008; approximately $50 million restructuring expenses (up from
$20.4 million in 2007); a blended statutory tax rate of approximately
30.5% to 31.5%; a discount rate of 5.5% (50 basis points higher than
2007) and expected long-term return of 7.25% for pension accounting
(unchanged from 2007); and average shares outstanding of approximately
320 million (down from 331.7 million in 2007). Earnings per share (EPS),
cash balances, net debt and common equity may be affected by purchases of
up to 20 million TELUS shares over a 12-month period under the normal
course issuer bid that commenced December 20, 2007.
Factors that could cause actual results to differ materially include, but
-------------------------------------------------------------------------
are not limited to:
-------------------
Competition (including more active price competition and the likelihood
of new wireless competitors beginning to offer services in 2009 following
the AWS spectrum auction); economic growth and fluctuations (including
the global credit crisis, and pension performance, funding and expenses);
capital expenditure levels (potentially increased in 2009 and future
years by the Company's fourth generation (4G) wireless deployment
strategy and any new Industry Canada wireless spectrum auctions);
financing and debt requirements (including ability to carry out
refinancing activities and fund share repurchases); tax matters
(including acceleration or deferral of required payments of significant
amounts of cash taxes); human resource developments; business
integrations and internal reorganizations (including post-acquisition
integration of Emergis); technology (including reliance on systems and
information technology, broadband and wireless technology options and
choice of suppliers, expected technology and evolution path and
transition to 4G technology, expected future benefits and performance of
HSPA (high speed packet access)/LTE (long-term evolution) wireless
technology, successful implementation of the network build and sharing
arrangement with Bell Canada to achieve cost efficiencies and reduce
deployment risks, successful deployment and operation of new wireless
networks and successful introduction of new products, services and
supporting systems); regulatory approvals and developments (including
interpretation and application of tower sharing and roaming rules, the
design and impact of future spectrum auctions, the new media proceeding
and possible changes to foreign ownership restrictions); process risks
(including conversion of legacy systems and billing system integrations);
health, safety and environmental developments; litigation and legal
matters; business continuity events (including manmade and natural
threats); any prospective acquisitions or divestitures; and other risk
factors discussed herein and listed from time to time in TELUS' reports
and public disclosure documents, including its annual report, annual
information form, and other filings with securities commissions in Canada
(on www.sedar.com) and in its filings in the United States, including
Form 40-F (on EDGAR at www.sec.gov).
For further information, see Section 10: Risks and risk management of
TELUS' 2007 annual and 2008 first and second quarter Management's
discussions and analyses, as well as updates in Section 10 of this
document.
-------------------------------------------------------------------------
Management's discussion and analysis
November 5, 2008
The following is a discussion of the consolidated financial condition and
results of operations of TELUS Corporation for the three-month and nine-month
periods ended September 30, 2008 and 2007, and should be read together with
TELUS' interim Consolidated financial statements. This discussion contains
forward-looking information that is qualified by reference to, and should be
read together with, the Caution regarding forward-looking statements above.
TELUS' interim Consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles (GAAP),
which differ in certain respects from U.S. GAAP. The principal differences
between Canadian and U.S. GAAP, as they relate to TELUS, are summarized in
Note 20 of the interim Consolidated financial statements. Management's
discussion and analysis and the interim Consolidated financial statements were
reviewed by TELUS' Audit Committee and approved by TELUS' Board of Directors.
All amounts are in Canadian dollars unless otherwise specified.
TELUS has issued guidance on and reports on certain non-GAAP measures
used by management to evaluate performance of business units, segments and the
Company. Non-GAAP measures are also used to determine compliance with debt
covenants and manage the capital structure. Because non-GAAP measures do not
have a standardized meaning, securities regulations require that non-GAAP
measures be clearly defined and qualified, and reconciled with their nearest
GAAP measure. For the reader's reference, the definition, calculation and
reconciliation of consolidated non-GAAP measures are provided in Section 11:
Reconciliation of non-GAAP measures and definitions.
Management's discussion and analysis contents
-------------------------------------------------------------------------
Section Contents
-------------------------------------------------------------------------
1. Introduction Introduction and summary of TELUS'
consolidated results for the third quarter
and first nine months of 2008
-------------------------------------------------------------------------
2. Core business, vision A discussion of activities in support of
and strategy TELUS' six strategic imperatives
-------------------------------------------------------------------------
3. Key performance drivers A listing of corporate priorities for 2008
-------------------------------------------------------------------------
4. Capability to deliver A description of the factors that affect the
results capability to execute strategies, manage key
performance drivers and deliver results
-------------------------------------------------------------------------
5. Results from operations A detailed discussion of operating results
for the third quarter and first nine months
of 2008
-------------------------------------------------------------------------
6. Financial condition A discussion of significant changes in
TELUS' balance sheets for the nine-month
period ended September 30, 2008
-------------------------------------------------------------------------
7. Liquidity and capital A discussion of cash flow, liquidity, credit
resources facilities and other disclosures
-------------------------------------------------------------------------
8. Critical accounting A description of accounting estimates that
estimates and are critical to determining financial
accounting policy results, and changes to accounting policies
developments
-------------------------------------------------------------------------
9. Annual guidance for TELUS' revised annual guidance compared to
2008 original targets
-------------------------------------------------------------------------
10. Risks and risk An update on certain risks and uncertainties
management facing TELUS and how the Company manages
these risks
-------------------------------------------------------------------------
11. Reconciliation of A description, calculation and
non-GAAP measures and reconciliation of certain measures used by
definitions management
-------------------------------------------------------------------------
1. Introduction
The following discussion is qualified in its entirety by the Caution
regarding forward-looking statements at the beginning of Management's
discussion and analysis. It is also qualified by Section 10: Risks and risk
management of TELUS' 2007 annual Management's discussion and analysis, and
updates in TELUS' 2008 first, second and this third quarter Management's
discussion and analyses.
1.1 Materiality for disclosures
Management determines whether or not information is material based on
whether it believes a reasonable investor's decision to buy, sell or hold
securities in the Company would likely be influenced or changed if the
information were omitted or misstated.
1.2 Canadian economic environment
There is economic uncertainty related to tightening of credit markets
worldwide. The credit situation is fluid and it is difficult to predict future
outcomes. TELUS' capital structure financial policies, which are discussed
under Capabilities - Section 4.3 Liquidity and capital resources, were
designed with credit cycles in mind. The Company believes that these financial
policies and guidelines, and maintaining credit ratings in the range of BBB+
to A-, or the equivalent, provide reasonable access to capital markets.
The Company's undiscounted financial liability contractual maturities are
presented in Liquidity risk under Section 7.8 Financial instruments.
1.3 Canadian telecommunications industry
Wireless developments - advanced wireless service (AWS) and other
spectrum auction in the 2 GHz range
Industry Canada conducted a wireless spectrum licence auction between May
27 and July 21, 2008 for 90 MHz of AWS spectrum (including 40 MHz set aside
for new entrants), 10 MHz for personal communications network (PCS) service
extension, and 5 MHz for another small band. The auction concluded after 331
rounds with Industry Canada reporting total proceeds of $4,255 million
(average of $1.55/MHz/POP for AWS and PCS spectrum, where POP refers to person
of population). TELUS was the successful bidder on 59 spectrum licences (see
table), providing additional spectrum depth nationally in markets TELUS
already covers. The average spectrum acquired by TELUS was 16.2 MHz at an
average cost of $1.82/MHz/POP.
Each of the successful spectrum bidders, including TELUS, was required to
remit a 20% deposit in August and complete full payment for the licences in
September, as well as demonstrate compliance with Canadian ownership
requirements. Industry Canada is expected to turn over licences to the
respective spectrum auction winners following a closed-door eligibility review
process. For additional discussion, see Section 2 - Building national
capabilities, Section 4.1 Principal markets addressed and competitors and
Section 10.1 Regulatory.
In the third quarter, TELUS paid Industry Canada $881.6 million for the
licences and related auction charges. The Company paid the amount through a
combination of drawing on its credit facilities and utilization of cash on
hand. Ownership compliance decisions by Industry Canada are pending.
-------------------------------------------------------------------------
Licences acquired by TELUS in the May 27 to July 21, 2008 Industry Canada
spectrum auction
-------------------------------------------------------------------------
Number of
Bandwidth licences acquired Geographic areas
-------------------------------------------------------------------------
20 MHz comprised of 32 Quebec, SW Ontario, Ottawa
10 MHz in the 1700 MHz Region, Manitoba,
range paired with 10 MHz Saskatchewan, Alberta and
in the 2100 MHz range B.C.
10 MHz comprised of 27 Toronto, Central, and
5 MHz in the 1700 MHz N. Ontario; Yukon, Northwest
range paired with 5 MHz Territories & Nunavut;
in the 2100 MHz range Newfoundland & Labrador;
Nova Scotia; New Brunswick;
and P.E.I.
-------------------------------------------------------------------------
1.4 Consolidated highlights
The chief executive officer, who is the chief operating decision-maker,
regularly receives TELUS' consolidated reports on two bases: including and
excluding (as shown in the "as adjusted" calculations) an incremental charge
for introducing a net-cash settlement feature for share option awards granted
prior to 2005. The net-cash settlement feature was introduced in the first
quarter of 2007. The highlights table below presents the unadjusted and
adjusted views.
-------------------------------------------------------------------------
Consolidated highlights
($ millions, except
shares, per-share Quarters ended Nine-month periods
amounts, subscribers September 30 ended Sept. 30
and ratios) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Consolidated statements of income
-------------------------------------------------------------------------
Operating revenues 2,449.3 2,309.9 6.0 % 7,198.6 6,743.6 6.7 %
Operating income 538.0 584.4 (7.9)% 1,563.5 1,475.2 6.0 %
Net-cash settlement
feature expense
(recovery) 0.3 (7.2) n.m 0.2 168.1 (99.9)%
-------- -------- ------- -------- -------- -------
Operating income
(as adjusted) 538.3 577.2 (6.7)% 1,563.7 1,643.3 (4.8)%
Income before
income taxes 411.2 490.2 (16.1)% 1,193.8 1,113.9 7.2 %
Net-cash settlement
feature expense
(recovery) 0.3 (7.2) n.m 0.2 168.1 (99.9)%
-------- -------- ------- -------- -------- -------
Income before income
taxes (as adjusted) 411.5 483.0 (14.8)% 1,194.0 1,282.0 (6.9)%
Net income 285.1 409.9 (30.4)% 843.1 857.8 (1.7)%
Net-cash settlement
feature, after tax 0.2 (4.9) n.m. 0.1 104.1 (99.9)%
-------- -------- ------- -------- -------- -------
Net income
(as adjusted) 285.3 405.0 (29.6)% 843.2 961.9 (12.3)%
Earnings per share,
basic ($) 0.89 1.24 (28.2)% 2.62 2.57 1.9 %
Net-cash settlement
feature per share - (0.01) n.m. - 0.31 (100.0)%
-------- -------- ------- -------- -------- -------
Earnings per share,
basic
(as adjusted) ($) 0.89 1.23 (27.6)% 2.62 2.88 (9.0)%
Earnings per share,
diluted ($) 0.89 1.23 (27.6)% 2.61 2.55 2.4 %
Cash dividends
declared per
share ($) 0.45 0.375 20.0 % 1.35 1.125 20.0 %
-------------------------------------------------------------------------
Consolidated statements of cash flows
-------------------------------------------------------------------------
Cash provided by
operating
activities 986.1 831.8 18.6 % 2,072.3 2,354.3 (12.0)%
Cash used by
investing
activities 1,352.7 430.0 n.m. 2,789.5 1,300.1 114.6 %
Capital
expenditures 472.3 434.1 8.8 % 1,227.6 1,297.8 (5.4)%
Payment for
advanced wireless
services (AWS)
spectrum licences 881.6 - - 881.6 - -
Acquisitions 4.5 - - 695.8 - -
Cash provided
(used) by financing
activities 356.8 (403.0) n.m. 733.5 (1,041.7) n.m.
-------------------------------------------------------------------------
Subscribers and other measures
-------------------------------------------------------------------------
Subscriber
connections(1)
(thousands) 11,475 11,008 4.2 %
EBITDA(2) 974.1 987.0 (1.3)% 2,841.2 2,635.9 7.8 %
Net-cash settlement
feature expense
(recovery) 0.3 (7.2) n.m. 0.2 168.1 (99.9)%
-------- -------- ------- -------- -------- -------
EBITDA (as adjusted) 974.4 979.8 (0.6)% 2,841.4 2,804.0 1.3 %
Free cash flow,
including payment
for AWS spectrum
licences(3) (429.8) 502.9 n.m. 452.3 1,145.4 (60.5)%
-------------------------------------------------------------------------
Debt and payout ratios(4)
-------------------------------------------------------------------------
Net debt to EBITDA -
excluding
restructuring costs 1.9 1.7 0.2
Dividend payout ratio
of sustainable
net earnings (%) 54 47 7 pts
-------------------------------------------------------------------------
pt; pts - percentage point(s); n.m. - not meaningful
(1) The sum of wireless subscribers, network access lines and Internet
access subscribers measured at the end of the respective periods
based on information in billing and other systems.
(2) EBITDA is a non-GAAP measure. See Section 11.1 Earnings before
interest, taxes, depreciation and amortization (EBITDA).
(3) Free cash flow is a non-GAAP measure. See Section 11.2 Free cash
flow.
(4) See Section 7.4 Liquidity and capital resource measures and Section
11.4 Definitions of liquidity and capital resource measures.
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Highlights from operations:
- Subscriber connections increased by 467,000 in the twelve-month
period ended September 30, 2008. The number of wireless subscribers
grew by 10.6% to 5.98 million, the number of Internet subscribers
grew by 4.6% to 1.21 million and the number of network access lines
decreased by 3.6% to 4.33 million.
- Wireless gross subscriber additions increased to a TELUS third
quarter record of 446,600, or up 23%, when compared to the same
period in 2007, and were positively influenced by the introduction of
the new postpaid basic service and brand Koodo Mobile (R) earlier in
2008. Wireless average revenue per subscriber unit per month (ARPU)
was $64.14 in the third quarter of 2008, up $1.41 from the second
quarter of 2008, although down $0.66 from $64.80 in the third quarter
of 2007.
- Operating revenues increased by $139.4 million and $455.0 million,
respectively, in the third quarter and first nine months of 2008 when
compared to the same periods in 2007. Growth in wireless network
revenues and wireline data revenues (including revenues from the
Emergis acquisition) more than offset revenue declines in wireline
voice local and long distance.
- Operating income adjusted to exclude the net-cash settlement feature
decreased by $38.9 million and $79.6 million, respectively, in the
third quarter and first nine months of 2008, when compared to the
same periods in 2007. The decreases were primarily due to additional
software amortization from the January acquisition of Emergis and a
new converged wireline billing system, as well as increased
depreciation. In addition, EBITDA (as adjusted) decreased by
$5.4 million in the third quarter of 2008 when compared to the same
period in 2007, as increased data revenues were offset by costs
supporting the growth, including acquisition costs supporting strong
wireless subscriber additions and upfront implementation costs for
new wireline enterprise customers. EBITDA (as adjusted) increased by
$37.4 million in the first nine months of 2008 when compared to the
same period in 2007, primarily from growth in the wireless segment.
- Income before income taxes (as adjusted) decreased by $71.5 million
in the third quarter and decreased by $88.0 million in the first nine
months of 2008 when compared to the same periods in 2007, due to
lower operating income (as adjusted) and higher net financing
expenses. Net financing expenses increased mainly from debt added in
2008 to help fund acquisitions in January and payment for advanced
wireless services spectrum licences in the third quarter, while
interest income from the settlement of tax-related matters decreased
significantly. The Net debt to EBITDA ratio remained within the
Company's long-term policy range.
- Net income decreased by $124.8 million or 35 cents per share in the
third quarter of 2008 when compared to the same period in 2007, with
the biggest component of the decrease being favourable income tax-
related adjustments one year earlier of approximately $93 million or
28 cents per share. In addition, an unfavourable after-tax adjustment
of approximately $8 million, or two cents per share, was recorded in
the third quarter of 2008 for sales tax reassessments relating to
prior years. For the first nine months of 2008, Net income decreased
by $14.7 million, but increased by 5 cents per share (basic) when
compared to the same period in 2007. Average shares outstanding
during the first nine months of 2008 were 3.7% lower than in the same
period in 2007, due to market repurchases under normal course issuer
bid (NCIB) programs.
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Net income changes
Nine-month
Quarters ended periods
($ millions) September 30 ended Sept. 30
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Net income in 2007 409.9 857.8
Tax-effected changes:
Lower net-cash settlement feature
(recovery) expense (5.1) 104.0
Change in EBITDA as adjusted(1) (3.7) 25.7
Higher depreciation and amortization(1),
excluding investment tax credits in 2007 (23.0) (77.4)
Lower (higher) interest expenses(1) (7.2) 9.9
Income tax-related adjustments
(see Section 5.2) (93.0) (97.0)
Other 7.2 20.1
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Net income in 2008 285.1 843.1
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(1) For the purposes of this presentation, the 2008 blended statutory tax
rates were used.
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Highlights - liquidity and capital resources:
- At September 30, 2008, TELUS had unutilized credit facilities
exceeding $1.1 billion, consistent with its objective of generally
maintaining more than $1 billion of unutilized liquidity. In addition
the Company continues to meet two other key guidelines. First, Net
debt to EBITDA at September 30, 2008 was 1.9 times, as compared to
1.7 times at September 30 and December 31, 2007, continuing the
achievement of the Company's long-term target policy range of 1.5 to
2.0 times. Second, the dividend payout ratio, based on the annualized
third quarter dividend and earnings for the 12-month trailing period
ended September 30, 2008 (excluding favourable tax-related
adjustments), was 54%, within the Company's guideline of 45% to 55%
of sustainable net earnings.
- Cash provided by operating activities increased by $154.3 million in
the third quarter of 2008 and decreased by $282.0 million in the
first nine months of 2008 when compared to the same periods in 2007,
mainly due to changes in proceeds from securitized accounts
receivable and other changes in non-cash working capital.
- Cash used by investing activities increased by $922.7 million in the
third quarter of 2008 and increased by $1,489.7 million during the
first nine months of 2008 when compared to the same periods in 2007.
The increase for the third quarter was due mainly to the $882 million
payment for advanced wireless services spectrum licences and higher
wireline capital expenditures. The increase for the first nine months
included payment for advanced wireless services spectrum licences and
the January 2008 acquisitions of Emergis and Fastvibe totalling
$687 million net of acquired cash, partly offset by lower wireless
capital expenditures.
As described in Section 2 - Building national capabilities, the
Company announced its national launch of a next generation wireless
network and service by early 2010, based on the latest version of
HSPA (high speed packet access) technology. The cost of the network
build is to be shared with Bell Canada under a new and enhanced
network sharing agreement. TELUS' total capital expenditure guidance
for 2008 is unchanged and includes such expenditures for the current
year. For 2009, TELUS expects that total wireless capital
expenditures, including those related to the HSPA build-out, will be
slightly higher than historic levels on a temporary basis, at
approximately $750 million. See Caution on forward looking statements
at the front of this Management's Discussion and Analysis and risks
described in Section 10.4 Technology.
- Net cash provided by financing activities was $356.8 million and
$733.5 million, respectively, in the third quarter and first nine
months of 2008. This compares to net cash used by financing
activities of $403.0 million and $1,041.7 million, respectively, in
the same periods of 2007. Net cash provided by financing activities
in 2008 included an increase in commercial paper, higher utilization
of the 2012 bank facility, and the April 2008 issue of $500 million
Notes maturing in 2015, which helped support payment of
$881.6 million for AWS spectrum licences in the third quarter and
$691.3 million for January acquisitions, net of acquired cash. Net
cash used by financing activities in 2007 included the June repayment
of $1.5 billion of matured Notes.
- Free cash flow decreased by $932.7 million and $693.1 million,
respectively, in the third quarter and first nine months of 2008,
when compared to the same periods in 2007, due mainly to the payment
for AWS spectrum licences in the third quarter of 2008. Free cash
flow in 2008 was supplemented by financing activities to help fund
the purchase AWS spectrum licences in third quarter and to complete
January acquisitions.
2. Core business, vision and strategy
The following discussion is qualified in its entirety by the Caution
regarding forward-looking statements at the beginning of Management's
discussion and analysis. It is also qualified by Section 10: Risks and risk
management of TELUS' 2007 annual Management's discussion and analysis, and
updates in TELUS' 2008 first, second and this third quarter Management's
discussion and analyses.
TELUS' core business, vision and strategy were detailed in its 2007
Management's discussion and analysis. Activities that supported the Company's
six strategic imperatives during 2008 include the following:
Building national capabilities across data, IP, voice and wireless
In July, TELUS successfully bid on 20 MHz and 10 MHz blocks of advanced
wireless services (AWS) spectrum in the 1700 MHz / 2100 MHz ranges in the
Industry Canada auction. The average spectrum won by TELUS was 16.2 MHz
nationally, which increases TELUS' strong spectrum position, and is expected
to provide capacity for the introduction of future 4G (fourth generation)
service offerings.
In September, the Company turned down its first-generation wireless
(analogue) network, deployed in the mid-1980's. The analogue network had
reached the end of its useful service life and only 27,600 customers were
using it just before deactivation. TELUS began notifying customers of the
pending network turndown about one year earlier. Customers were offered free
digital phones and the option of higher-powered long-range phones at
below-cost prices. The turndown of the analogue network frees up more spectrum
for digital capacity and allows the Company to focus on improvements in the
current third generation network and prepare for future 4G services.
TELUS has recently announced it has chosen Long Term Evolution (LTE) as
the technology path for its fourth generation wireless broadband network, and
that as an interim step, is immediately launching a national build of a next
generation wireless service to be launched commercially by early 2010, based
on the latest version of HSPA technology using existing 1900 MHz and 850 MHz
spectrum. The HSPA service is expected to augment TELUS' existing wireless
service portfolio and position the Company for a smoother future transition to
LTE. TELUS' existing portfolio of wireless services includes CDMA (code
division multiple access) providing access to third generation (3G) high-speed
wireless services (EVDO), and iDEN-based Mike(R) service, the Company's Push
To Talk(TM) network and business service. LTE is an emerging worldwide 4G
technology that has gained support from many of the world's largest carriers
and manufacturers, but it is not expected to be available commercially for a
number of years. The benefits of the investment in HSPA are expected to
include: increased international roaming for existing TELUS customers, access
to increased global roaming revenues for TELUS, faster network speeds, lower
handset costs due to the larger HSPA device ecosystem, and lower network
development and ongoing operating costs. TELUS also plans to support its CDMA
and iDEN (Mike service) customers for the foreseeable future.
After a comprehensive review process, the Company selected two suppliers,
Nokia Siemens Networks and Huawei, for TELUS' next generation wireless
network. TELUS also announced it has entered into an HSPA network sharing
agreement with Bell Canada. This agreement builds on and enhances an agreement
signed in 2001 and is expected to enable the Company to lower the cost,
accelerate deployment of the next generation wireless voice and data services
on a national basis, optimize cell-site utilization, and maximize potential
operating efficiencies. Initial capital expenditures for the new network are
included in TELUS' original and unchanged capital expenditure guidance of
approximately $1.9 billion for 2008 (see Section 9: Annual guidance for 2008).
For 2009, TELUS expects total wireless capital expenditures, including those
related to HSPA, to be temporarily higher than historic levels at
approximately $750 million. See Caution on forward looking statements at the
front of this Management's Discussion and Analysis and risks described in
Section 10.4 Technology. TELUS' HSPA and LTE evolution strategy is also
consistent with the objectives of focusing on the growth markets of data, IP
and wireless, and partnering to accelerate TELUS' strategy.
Focusing relentlessly on the growth markets of data, IP and wireless
The third quarter of 2008 is the second full period including the
operations of TELUS' wireless postpaid Koodo brand and service, launched in
March to better address segments of the wireless market and complement the
fully featured TELUS brand service. The expected benefits include more
flexibility in serving various market segments, increasing postpaid customer
additions, protecting revenue on the premium TELUS brand, and improving client
retention programs.
In October, the Company also announced an investment of $33 million to
build its most environmentally-friendly Internet data centre in Laval, Quebec.
The new facility will be designed according to the latest Leadership in Energy
and Environmental Design (LEED) standards and will support TELUS' data service
growth. An Internet data centre is a highly secure building that houses
powerful computer servers, all of which have redundant power, cooling and
security systems.
Investing in internal capabilities to build a high-performance culture
and efficient operations
In mid-July, following a large pilot implementation for 150,000
residential customers in British Columbia, TELUS successfully converted more
than one million B.C. wireline residential customers to a new billing and
client care system. This converges to the system in Alberta, and for the first
time most residential customers in Alberta and B.C. are on the same billing
and client care system. During the B.C. conversion, TELUS applied learnings
from the Alberta conversion in 2007 and the implementation appears to have
been successful. The critical billing function performed as expected, while
billing cycles have been maintained. The order entry system also performed
well, without capacity and stability issues experienced initially with the
Alberta conversion. Service levels have not been materially impacted following
the 2008 conversion. The expected customer service and cost benefits of this
project include streamlined and standardized processes and the elimination
over time of multiple legacy information systems. See Section 10.2 Process
risks.
In September, a new collective agreement with the members of the Syndicat
des agents de maitrise de TELUS (SAMT) was ratified, and will remain in effect
until December 31, 2011. The SAMT agreement covers more than 500 professional
and supervisory team members employed in Quebec.
