Form 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
For the month of ___November___ 2005
(Commission File No. 000-24876)
TELUS Corporation
(Translation of registrant's name into English)
21st Floor, 3777 Kingsway
Burnaby, British Columbia V5H 3Z7
Canada
(Address of principal registered offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F:
X
Form 20-F _____ Form 40-F _____
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
X
Yes _____ No _____
This Form 6-K consists of the following:
Press Release dated November 10, 2005 of the Third Quarter Results
______________________________________________________________________________
News release via Canada NewsWire, Calgary 403-269-7605
Attention Business/Financial Editors:
TELUS Reports Third Quarter Results
Strong performance underpins increase in revenue guidance, 21% net income
growth and 37.5% dividend increase
VANCOUVER, Nov. 10 /CNW/ - TELUS Corporation (TSX: T and T.NV / NYSE: TU)
today reported for the third quarter of 2005 continued strong wireless
performance at TELUS Mobility, and wireline results at TELUS Communications
that reflected the impact of the labour disruption in Western Canada.
Operating revenues of $2.1 billion in the quarter increased 6% from a year ago
and operating earnings (EBITDA) were up 3%. Reported earnings per share (EPS)
for the third quarter were 53 cents up 21% compared to 44 cents for the same
period a year ago. EPS this quarter was positively affected by tax-related
adjustments of five cents. Free cash flow was $581 million during the quarter,
a $79 million or 16% improvement from a year ago.
FINANCIAL HIGHLIGHTS
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C$ in millions, except per share amounts 3 months ended
September 30
(unaudited) 2005 2004 % Change
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Operating revenues 2,062.8 1,946.9 6.0
EBITDA(1) 839.7 817.9 2.7
Operating income 430.5 410.3 4.9
Net income 190.1 156.6 21.4
Earnings per share (EPS), basic(2) 0.53 0.44 20.5
Capital expenditures 263.0 319.8 (17.8)
Cash provided by operating activities 693.5 847.2 (18.1)
Free cash flow(3) 581.3 502.6 15.7
(1) Earnings before interest, taxes, depreciation and amortization
(EBITDA) is defined as Operating revenues less Operations expense
less Restructuring and workforce reduction costs. See Section 11.1
of Management's discussion and analysis.
(2) EPS includes favourable tax adjustments of five cents for the three
month period ended September 30, 2005
(3) See Section 11.2 of Management's discussion and analysis.
Darren Entwistle, president and CEO, stated "TELUS' third quarter results
reflect continued strong, on-strategy growth. TELUS Mobility delivered
another outstanding quarter with excellent subscriber growth, ARPU and churn
results that resulted in wireless revenue and EBITDA increases of 16% and 28%,
respectively. I am pleased that we have a tentative negotiated collective
agreement that is being recommended by the TWU and currently being voted on,
which benefits TELUS, our team members, customers and investors. We have an
agreement that recognizes our team members' tremendous contributions and
provides TELUS with the flexibility to successfully operate in a highly
competitive market. As part of our ongoing commitment and track record of
returning capital to investors, we are today announcing a 37.5 percent
increase to the quarterly dividend payable on January 1."
Robert McFarlane, executive vice president and CFO, commented that "Cash
flow was strong in the third quarter due to the excellent performance at TELUS
Mobility and the temporary constraint on fully deploying our capital
expenditure program during the labour disruption. The changes to annual 2005
guidance announced today, including a $150 million increase in cash flow,
reflect the strong operational performance and resilience of TELUS regardless
of whether the labour disruption continues. Consistent with the Company's
forward looking dividend payout target of 45 to 55% of sustainable net
earnings and the outlook for future growth in earnings, the Board approved an
increase in the TELUS quarterly dividend of 7.5 cents to 27.5 cents. This
dividend increase, continued execution of our significant share repurchase
program with $233 million purchased in the third quarter, lowering of our long
term debt to EBITDA leverage target range and early redemption of $1.6 billion
of debt this December together demonstrate the considerable financial strength
of TELUS to continue to create value for our equity and debt investors. "
OPERATING HIGHLIGHTS
TELUS Mobility
Strong cash flow improvement of $107 million driven by 16% revenue growth
and significant margin expansion
- revenues increased by $117 million or 16% to $864 million in the third
quarter of 2005, when compared with the same period in 2004
- EBITDA increased strongly by $90 million or 28% to $414 million
- EBITDA margin expanded by 3.9 points to 51% of network revenue, and by
4.5 points to 47.5% of total revenue
- ARPU (average revenue per subscriber unit) increased by $2 or 3% to
$64 driven by higher voice and data usage
- cost of acquisition ("COA") per gross subscriber improved slightly to
$371 from $374
- net subscriber additions of 138,000 were a record for a third quarter.
Higher revenue-generating postpaid subscriber net additions of 104,600
represented 76% of total net additions
- blended monthly churn was flat at 1.33% versus 1.34% in the same
quarter a year ago. Post paid churn was 1.04%
- cash flow (EBITDA less capital expenditures) increased by $107 million
or 49% to $327 million due to higher EBITDA and capital
expenditures being $17 million lower due to the labour disruption
TELUS Communications
Stable revenues, labour disruption in Western Canada impacted expenses
- revenues were flat at $1,199 million in the third quarter of 2005,
when compared with the same period in 2004
- data revenue increased 5% caused by increased Internet and enhanced
data service revenues
- non-incumbent revenues in Ontario and Quebec increased 4% to
$151 million and TELUS achieved a fourth consecutive quarter of EBITDA
profitability
- long-distance revenue declined 5%, reflecting increased competition
- EBITDA fell 14% or $68 million in the quarter to $426 million
due to increased temporary expenses associated with the labour
disruption
- high-speed Internet net additions of 7,100 in the third quarter were
lower than historic loading levels as the labour disruption
constrained marketing and fulfillment efforts, bringing TELUS'
high-speed Internet subscriber base to 736,100, a 12% increase from
last year
- network access lines of 4.7 million, declined 108,000 or 2.2% from a
year ago as the labour disruption constrained new activations, while
competitive activity increased and wireless substitution continued
- cash flow (EBITDA less capital expenditures) decreased by $28 million
or 10% to $250 million in the third quarter, compared to the same
period a year ago. Lower EBITDA was partially offset by $40 million in
lower capital expenditures caused by the labour disruption
CORPORATE DEVELOPMENTS
Labour Relations Update
TELUS operated under a labour disruption that commenced on July 21 and
continues into the fourth quarter. Emergency operations procedures involving
management reassignments were in place to maintain customer service at the
best possible level. The labour disruption impact was most evident in British
Columbia where all unionized employees were not at work. In Alberta, the
number of unionized employees reporting to work increased from approximately
29% at the start of the labour disruption to approximately 53% at August 31
and 56% at September 30. There was no labour disruption in the Ontario and
Quebec operations. As expected, the overall net impact of the labour
disruption was higher operating expenses and lower capital expenditures
resulting in a negative impact on EBITDA and a positive impact to cash flow.
Customer service levels were maintained during the labour disruption at levels
significantly better than expected.
TELUS informed the TWU that it would commence implementation of its
comprehensive offer of settlement on July 22. The TWU responded by commencing
strike action on July 21. After two weeks of bargaining, TELUS and the TWU
jointly announced on October 10 a memorandum of settlement on the terms of a
five-year collective agreement. The TWU recommended acceptance to its members
and began a lengthy ratification process. The result of the ratification vote
on October 31 was a 50.3% rejection by a margin of 53 votes (4,540 no and
4,487 yes).
TELUS and the TWU reached a second memorandum of settlement on
November 6. The TWU executive council and bargaining committee recommended its
members accept the negotiated collective agreement, which if ratified is
expected to be effective from November 17, 2005 to November 16, 2010. The
terms of the agreement were submitted to TWU members for ratification where
TWU members are voting by a mail-in balloting process with ballots to be
returned by November 15. The final vote result is expected to be announced on
November 16. TELUS will, within 72 hours of a positive ratification, begin the
process of bringing unionized team members back to work as expeditiously as
possible.
TELUS announces significant dividend increase
The TELUS Board has approved a 37.5% increase in the TELUS dividend to
27.5 cents from 20 cents per quarter, which will be payable on January 1,
2006.
The increase in the dividend reflects the strong financial position of the
company including its successful de-leveraging, strong free cash flow and
expectation of increased EPS growth in 2006 due to factors such as continued
revenue growth and reduced interest expense. The increase is consistent to the
forward looking dividend payout ratio guideline established a year ago (45 to
55% of sustainable net earnings), which provides investors with greater
clarity and is also consistent with TELUS' dividend growth approach.
TELUS continues share repurchases
During the quarter, TELUS continued to purchase shares under its Normal
Course Issuer Bid. In the third quarter, a total of 5.1 million shares
(2.54 million common and 2.55 million non-voting) were purchased, for a total
outlay of $233 million.
TELUS commenced the program on December 20, 2004 with the intention to
purchase and cancel, over a 12-month period, up to 14 million of its common
shares and up to 11.5 million of its non-voting shares, or approximately
seven per cent of the issued and outstanding shares in each share class.
Since the program commenced, a total of 17.9 million shares (8.36 million
common and 9.58 million non-voting) have been purchased, for a total outlay of
$742 million, representing 70% of the 25.5 million shares authorized under the
program. TELUS believes that such purchases are in the best interest of TELUS
and constitute an attractive investment opportunity and desirable use of
TELUS' funds that should enhance the value of the remaining shares.
TELUS to redeem $1.6 billion 7.50% Notes due June 1, 2006
On September 26, 2005 TELUS announced its intention to redeem early its
$1,578 million 7.50%, Series CA, Notes due June 1, 2006. On October 17, 2005,
TELUS gave its formal notice of redemption.
The redemption price, which is payable on December 1, 2005, will be set
on November 28, 2005, based on the yield for a Government of Canada bond with
the equivalent maturity, plus 35 basis points as defined in the trust
Indenture governing these Notes, but in no case will be less than par. The
Noteholders will also receive the regularly scheduled semi-annual interest
payment on December 1, 2005.
Costs and non-cash write-downs related to this early redemption are
expected to result in increased financing charges which will have an after tax
impact on the Company in the fourth quarter of 2005 of approximately 6 to
7 cents per share. As a result of the redemption, the company will benefit
from net interest expense savings beginning in December 2005.
TELUS plans to finance the redemptions through general corporate funds
including cash balances, proceeds of accounts receivable securitization,
and/or funds available under its revolving credit facilities.
TELUS receives credit rating enhancements and sets new leverage target
Three of four credit rating agencies that cover TELUS issued positive
updates, after TELUS' announcement of its intention to early-redeem
$1.6 billion in Notes on December 1, 2005.
At the end of September, Standard & Poor's raised its ratings for
long-term corporate credit and senior unsecured debt of TELUS Corporation and
operating subsidiary, TELUS Communications Inc (TCI) to 'BBB+' from 'BBB',
while revising the outlook to stable.
In October, Fitch Ratings upgraded its long-term 'BBB' ratings for TELUS
and TCI to 'BBB+' with a stable outlook. In addition, Dominion Bond Rating
Service upgraded the ratings of TELUS Corporation and TCI, to BBB (high) and
A (low) from BBB and BBB (high), respectively, while indicating all trends are
stable.
TELUS has set a new long-term financial policy leverage target for Net
debt to EBITDA in the range of 1.5:1 to 2.0:1, down from the previous target
of 2.2:1 or less. This reflects TELUS' view of longstanding commitment to
balance the interests of shareholders and debtholders.
Executive Leadership Team and Board of Director changes
On October 19, 2005, TELUS announced the departure of George Cope,
President and CEO of TELUS Mobility. After playing an important role in
establishing TELUS Mobility as a leading global wireless company, Mr. Cope
resigned to accept the position of Chief Operating Officer at Bell Canada
starting in January 2006. Darren Entwistle has assumed Mr. Cope's leadership
role on an interim basis until a permanent successor is named. The experienced
TELUS Mobility leadership team remains focused on accelerating TELUS' success
in the Canadian wireless industry, growing the business profitably and
providing continued excellence in customer service.
TELUS is pleased to announce that Pierre Ducros has joined TELUS' Board
of Directors, effective September 26, 2005. Mr. Ducros is President of
P. Ducros & Associes Inc. Previously, he was President and CEO of
DMR Consulting Group, Inc. (Canada), which he co-founded in 1973. He has also
held various management positions at IBM Canada Limited and served as an
officer of the Royal Canadian navy. He is presently a member of the Boards of
Directors of Manulife Financial Corporation, Cognos Incorporated,
Emergis Inc., Nstein Technologies Inc., Engenuity Technologies Inc., and
RONA Inc. Mr. Ducros was educated at the Universite de Paris at College
Stanislas in Montreal, Royal Military College of Canada and McGill University.
Mr. Ducros is a member of the Order of Canada and an officer of the Order of
Belgium. Mr. Ducros now serves on the TELUS' Audit Committee.
TELUS Mobility
TELUS Mobility to introduce national Wireless High Speed network
TELUS Mobility will introduce its new Wireless High Speed network in
major centres across Canada next week, offering business clients wireless data
transfers at typical speeds of 400 to 700 kilobits per second - at least six
times faster than previous wireless data services. Also called EVDO, the
Wireless High Speed Network will operate in Vancouver, Calgary, Edmonton,
Montreal and Toronto, allowing clients access to the Internet, corporate
servers and e-mail systems at broadband speeds on devices such as the Sierra
Wireless AirCard 580 and several new mobile data devices that will be
introduced in coming weeks.
TELUS Mobility enhances mobile global roaming
This week, TELUS Mobility announced the availability of two new global
communications solutions: the Motorola A840 Worldphone, operating on both Code
Division Multiple Access (CDMA) and Global System for Mobile (GSM) networks,
and a GSM Global Roaming Card. The Global Roaming Card can be used in any
unlocked GSM phone, with all calls and messaging billed to the client's
regular TELUS Mobility invoice. Both devices allow TELUS Mobility clients to
roam in more than 120 countries worldwide, including the destinations most
popular with Canadians, such as Mexico, France, Hong Kong, China, Dominican
Republic, Australia, Italy, Germany and Spain. CDMA, used by the most
subscribers and employed by the largest wireless carriers in North America, is
the dominant wireless network technology in Canada and the United States. GSM
technology, meanwhile, predominates in Europe and other regions. By combining
access to the two technologies in these new devices, TELUS Mobility offers
clients full access to both North America's superior CDMA coverage and GSM's
broad worldwide footprint.
Wireless carriers announce joint m-commerce initiative
Canada's major wireless carriers recently announced WPI Wireless Payment
Service Inc., a joint venture of TELUS Mobility, Bell Mobility and Rogers
Wireless that should bring common and easy-to-use mobile commerce services to
Canadians. Wireless Payment Services will act as an m-commerce gateway,
facilitating secure wireless payment transactions while building a
standardized client experience across devices, payment mechanisms and wireless
carriers. This solution will allow clients to purchase goods and services
through existing debit and credit accounts over wireless devices. The first
phase of the project, expected to launch in the second half of 2006, will
allow prepaid wireless users to add minutes to their existing accounts
wirelessly using their debit or credit cards. Phase two will target additional
opportunities for wireless users to make a wide variety of purchases and
payments using their mobile phones.
Wireless Number Portability implementation
Canada's wireless carriers and the Canadian Wireless Telecommunications
Association (CWTA) announced in September a detailed implementation plan for
the rollout of Wireless Number Portability, or WNP, across the country.
Pending resolution of certain technical and regulatory issues, the industry is
moving to implement WNP nationally by September 2007, which will allow
customers of all major wireless carriers to transfer phone numbers between
carriers and also between landline and wireless services. Prepared by
independent consultants PricewaterhouseCoopers (PwC), the plan ensures
virtually all Canadians will have access to number portability at the same
time, and compares favourably with earlier WNP implementations and those
planned by carriers and government groups worldwide.
Mike extends "Push To" into instant multimedia communications
Building on its leadership in the instant-contact "Push To" market,
TELUS Mobility has introduced a new series of Motorola iDEN handsets that
allow Mike clients to Push To send picture messages and other data at the
press of a button - just as quickly as they can speak using Mike's powerful
Direct Connect Push To Talk service. The Motorola i560, i760, i850 and i860
offer Push To View picture messaging as well as Push To Send Contacts and
Push To Send My Info, which allow clients to instantly send their own and
other stored contact information.
TELUS mobile TV introduced
TELUS mobile TV service, launched in August, allows TELUS Mobility
clients to access unlimited live television on their wireless phones for just
$15 per month. Currently available on the powerful Motorola V710 multimedia
handset - described as "one of the more impressive TV cellphones" by the
National Post - TELUS mobile TV now offers access to seven channels and boasts
a high-quality display rate of four to six frames per second. Channel and
handset selection for TELUS Mobile TV will be greatly expanded in coming
months.
TELUS Mobility wins international award for innovative phone
TELUS Mobility, along with its partners Digit Wireless and
LG Electronics, was awarded in September the CDMA Development Group's Industry
Achievement Award for Subscriber Technology Innovation for the Fastap LG 6190
phone. A world exclusive to TELUS Mobility, the Fastap LG 6190 integrates a
full set of text keys around a standard numeric keypad, allowing for fast and
easy text messaging and other data input. A TELUS Mobility client survey found
that those who bought the Fastap phone sent 120 per cent more text messages
than those with other types of phones.
Stylish PCS phones and accessories
In response to the increasing trend toward phone personalization,
TELUS Mobility has introduced the Motorola V265, a compact clamshell phone
with changeable faceplates (and, like the Motorola V262 introduced at the same
time, advanced speech recognition features); the LG 200, an affordable but
fashion-forward phone in an attractive blue and silver clamshell design; and a
broad line of wireless carrying solutions from renowned New York designer
Nicole Miller.
Heavy-duty wireless: Mobile satellite cell sites, powerful Motorola
phones
TELUS Mobility announced the exclusive Canadian availability of SATCOLTs
- satellite-equipped radio cell sites on light trucks - designed to improve
remote communications coverage in emergency situations for Public Safety
professionals. The mobile SATCOLT system is rapidly deployable and fully
self-sufficient, enabling emergency responders to effectively communicate
during crisis situations. SATCOLTs create wide-area network coverage
permitting interoperable voice and - using TELUS Mobility's Multi-Network Data
Access Solution - encrypted data communications between first responders
across Canada and the United States.
TELUS Mobility also announced the exclusive availability of the Motorola
M800 in-vehicle and bag phones. Operating on TELUS Mobility's national PCS
network, these powerful phones are aimed at heavy-duty users in the
agriculture, forestry and oil and gas industries, who often operate in remote
regions. With a booster system enabling exceptionally powerful digital
reception, both phones offer large, easy-to-use keypads, privacy headsets,
large screens and voice dial features.
TELUS Communications
TELUS to move to next stage of TELUS TV
TELUS is announcing the extension of its Future Friendly Home strategy
and the expansion of its suite of services from mobility and security to
entertainment. TELUS will begin a targeted launch of its innovative all
digital television service, TELUS TV, in Edmonton and Calgary.
Friends and family of TELUS employees will be the first invited to
experience the differentiated and unparalleled customer choice offered by
TELUS TV. Further expansion of TELUS TV will continue on a targeted basis
through a phased neighbourhood roll-out. TELUS' own skilled team members will
be selling, installing and supporting TELUS TV.
TELUS signs a five-year IP services contract with General Motors
TELUS has signed a five-year contract with General Motors of Canada (GM)
to provide and manage Internet-based voice and data services for 4,600 GM
Canada employees. GM will migrate from their Centrex-based infrastructure to
IP-One Evolution solution, TELUS' leading hosted and managed VoIP solution.
GM became an IP-One Evolution customer based on the benefits of IP
including the cost efficiencies of a converged voice and data network and its
capacity for allowing mobile workers to bring their communications devices on
the road for improved productivity. GM was seeking an innovative IP solution
that would facilitate a gradual, progressive and controlled introduction to
IP telephony. GM has also been a long-standing customer of TELUS Mobility.
Calgary Board of Education signs $65 million contract with TELUS Sourcing
Solutions to provide human resource services
The Calgary Board of Education signed in October a $65 million dollar,
10-year contract with TELUS Sourcing Solutions, a wholly-owned subsidiary of
TELUS, for the delivery of some of the school's human resource (HR) services.
This ground-breaking collaboration will allow the school board to benefit
from leading-edge HR technology and expertise without up-front capital
investment. The CBE is the first Canadian school district to enter this type
of HR services agreement with a private sector organization.
TELUS Sourcing Solutions will provide a range of HR and payroll services
to the CBE. To support the delivery of these services, TELUS Sourcing
Solutions will implement and manage a new Human Resource Management System
(HRMS) for CBE, delivering services including payroll, benefits, leave
administration and recruitment and administrative activities related to the
placement of support and temporary staff. TELUS Sourcing Solutions will manage
these important HR services, enabling the CBE to focus on its business of
providing quality education programs for students. As part of the agreement,
approximately 50 CBE employees will transfer to TELUS Sourcing Solutions under
their existing terms and conditions of employment.
The CBE is the largest school district in Western Canada with
approximately 97,000 students and an annual budget of $790 million. Formed in
2003, TELUS Sourcing Solutions is the leading provider of full service
alternative HR service delivery in Canada.
TELUS secures $12 million in contracts with CallCentreAnywhere(TM)
TELUS launched in August CallCentreAnywhere(TM), a full-featured,
on-demand IP contact centre solution that eliminates capital costs, cuts
operating costs by up to 50 per cent, and reduces the technical complexity of
implementing and supporting a multimedia contact centre.
TELUS has an exclusive partnership with Telephony(at)Work, a worldwide
leader in adaptive IP contact centre technology, to provide
CallCentreAnywhere. TELUS has secured more than $12 million in contracts for
this innovative solution, available exclusively in Canada from TELUS.
Customers currently using CallCentreAnywhere include Canada Post's Innovapost,
the Red Cross, Ivanhoe Cambridge and others in the government, financial,
travel, and retail sectors
Creating future friendly communities
TELUS continues to make significant investments in the communities where
its team members live, work and serve. TELUS is committed to becoming Canada's
premier corporate citizen, and taking a leadership role in supporting
Canadians by leveraging its funding, technology and expertise to help make a
difference.
In the third quarter of 2005, TELUS launched the TELUS Ottawa Community
Board, part of a seven-city new community investment program. The TELUS Ottawa
Community Board will oversee $500,000 in annual donations to philanthropic
initiatives in the National Capital Region.
TELUS supported numerous community programs and organizations this
quarter, including:
- At the launch of the TELUS Ottawa Community Board in September, the
Board's initial donations in excess of $100,000, included the
Children's Hospital of Eastern Ontario (CHEO), Boys & Girls Club,
Computer Learning Centre, Ottawa's Great Canadian Theatre Company and
alpine ski organizations in Outaouais and Ottawa areas.
- TELUS announced in September a $100,000 donation to Bloorview
MacMillan Children's Centre, Canada's largest and only teaching
hospital for pediatric rehabilitation. The funds will go to
Bloorview's Electronic Aids to Daily Living program, which teams up
clinical therapists with specialized engineers to craft and adapt
daily living devices for young people with disabilities and special
needs.
TELUS partners with additional sports organizations
TELUS has recently signed sponsorship agreements with two National Hockey
League (NHL) and two major junior hockey teams. In addition to TELUS being the
four teams' exclusive telecommunications sponsor, TELUS will support several
charitable causes driven by the teams and will work with the teams to use
telecommunications technology - such as ring tones, web pages and games
streaming to TELUS high speed Internet customers - to bring the game to fans
in innovative ways.
TELUS' support of amateur and professional athletics across Canada now
includes:
- a five-year, multi-million dollar sponsorship agreement with the
Vancouver Canucks of the NHL,
- a five-year sponsorship of both the Calgary Flames of the NHL and the
Calgary Hitmen of the Western Hockey League (WHL) and
- a four-year partnership with the Vancouver Giants of the WHL.
TELUS recognized for excellence in corporate sustainability, governance
and disclosure
For the fifth consecutive year, the Dow Jones Sustainability Index
(DJSI), a worldwide 'corporate sustainability' ranking, has recognized TELUS
as an economic, environmental and social leader. In the 2005 Global DJSI
rankings, TELUS is once again the only North American telecommunications
company to be recognized and one of only 12 Canadian companies of 317 to make
the global list. TELUS is also included in the North American DJSI, a new
ranking of North American companies.
TELUS was also recognized for excellence in corporate governance and
disclosure, including:
- Canadian Business magazine's Top 25 Boards in Canada survey ranked the
TELUS Board as the third best board in Canada, scoring 97 out of 100
possible points.
- The 2004 TELUS Annual Report was ranked second globally out of 1,100
international companies reviewed in the 2005 Annual Report on Annual
Reports. This is an evaluation of financial and operational
reporting; operations, business and responsibility; strategy,
leadership and governance; investor and risk information; and
packaging, visuals and communication.
TELUS was one of only four companies recognized in October by the
National Quality Institute (NQI) with a Gold Trophy under their Canada Awards
for Excellence Program. The Gold Trophy is awarded to organizations meeting
all criteria of the Canadian Framework for Excellence, a management model used
to foster excellence in leadership, planning, customer and people focus,
process management, supplier and partner focus, and overall business and
financial performance. While TELUS Mobility, Operator Services and Health
Services have been recognized in the past by NQI, this was the first time the
entire TELUS organization has been honoured.
Dividend declaration
The Board of Directors declared a quarterly dividend of 27.5 cents
($0.275) per share on outstanding Common and Non-Voting Shares payable on
January 1, 2006 to shareholders of record on the close of business on December
9, 2005. This represents a 37.5% increase from the previous twenty cent
quarterly dividend.
TELUS Corporation
consolidated statements of income
Periods ended September 30 Three months Nine months
(millions except per
share amounts) 2005 2004 2005 2004
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OPERATING REVENUES $ 2,062.8 $ 1,946.9 $ 6,056.0 $ 5,616.3
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OPERATING EXPENSES
Operations 1,221.5 1,112.8 3,476.7 3,259.5
Restructuring and
workforce reduction
costs 1.6 16.2 18.4 32.8
Depreciation 335.6 327.1 996.4 969.5
Amortization of
intangible assets 73.6 80.5 214.1 256.1
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1,632.3 1,536.6 4,705.6 4,517.9
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OPERATING INCOME 430.5 410.3 1,350.4 1,098.4
Other expense, net 7.1 (3.2) 9.1 -
Financing costs 144.8 158.6 451.4 460.5
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INCOME BEFORE INCOME TAXES
AND NON-CONTROLLING
INTEREST 278.6 254.9 889.9 637.9
Income taxes 86.9 97.2 263.2 204.7
Non-controlling interest 1.6 1.1 4.9 3.0
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NET INCOME 190.1 156.6 621.8 430.2
Preference and preferred
share dividends - 0.1 - 1.8
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COMMON SHARE AND
NON-VOTING SHARE INCOME $ 190.1 $ 156.5 $ 621.8 $ 428.4
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INCOME PER COMMON SHARE
AND NON-VOTING SHARE
- Basic $ 0.53 $ 0.44 $ 1.74 $ 1.20
- Diluted $ 0.53 $ 0.43 $ 1.72 $ 1.19
DIVIDENDS DECLARED PER
COMMON SHARE AND
NON-VOTING SHARE $ 0.20 $ 0.15 $ 0.60 $ 0.45
TOTAL WEIGHTED AVERAGE
COMMON SHARES AND
NON-VOTING SHARES
OUTSTANDING
- Basic 356.8 355.7 358.3 354.4
- Diluted 361.7 361.8 362.1 356.7
TELUS Corporation
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consolidated balance sheets
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As at As at
September 30, December 31,
(millions) 2005 2004
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ASSETS
Current Assets
Cash and temporary investments, net $ 1,322.1 $ 896.5
Accounts receivable 893.5 863.5
Income and other taxes receivable 150.3 132.5
Inventories 102.1 133.3
Prepaid expenses and other 211.8 183.4
Current portion of future income taxes 396.2 438.4
-------------------------------------------------------------------------
3,076.0 2,647.6
-------------------------------------------------------------------------
Capital Assets, Net
Property, plant, equipment and other 7,377.6 7,528.2
Intangible assets subject to amortization 629.1 737.0
Intangible assets with indefinite lives 2,964.6 2,955.8
-------------------------------------------------------------------------
10,971.3 11,221.0
-------------------------------------------------------------------------
Other Assets
Deferred charges 815.0 704.4
Future income taxes - 99.8
Investments 30.8 38.4
Goodwill 3,157.0 3,126.8
-------------------------------------------------------------------------
4,002.8 3,969.4
-------------------------------------------------------------------------
$ 18,050.1 $ 17,838.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 1,471.3 $ 1,362.6
Restructuring and workforce reduction
accounts payable and accrued liabilities 51.7 70.7
Advance billings and customer deposits 545.1 531.5
Current maturities of long-term debt 1,581.6 4.3
-------------------------------------------------------------------------
3,649.7 1,969.1
-------------------------------------------------------------------------
Long-Term Debt 4,497.3 6,332.2
-------------------------------------------------------------------------
Other Long-Term Liabilities 1,642.7 1,506.1
-------------------------------------------------------------------------
Future Income Taxes 1,139.0 991.9
-------------------------------------------------------------------------
Non-Controlling Interest 23.2 13.1
-------------------------------------------------------------------------
Shareholders' Equity
Convertible debentures conversion option - 8.8
Common equity 7,098.2 7,016.8
-------------------------------------------------------------------------
7,098.2 7,025.6
-------------------------------------------------------------------------
$ 18,050.1 $ 17,838.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TELUS Corporation
consolidated statements of cash flows
Periods ended September 30 Three months Nine months
(millions) 2005 2004 2005 2004
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 190.1 $ 156.6 $ 621.8 $ 430.2
Adjustments to reconcile
net income to cash
provided by operating
activities:
Depreciation and
amortization 409.2 407.6 1,210.5 1,225.6
Future income taxes 89.2 91.4 284.2 281.9
Share-based compensation 10.3 7.3 21.2 17.9
Net employee defined
benefit plans expense (0.3) 4.9 0.8 14.7
Employer contributions
to employee defined
benefit plans (30.1) (25.8) (89.8) (112.3)
Restructuring and
workforce reduction
costs, net of cash
payments (5.7) 6.4 (19.0) (55.1)
Amortization of deferred
gains on sale-leaseback
of buildings,
amortization of
deferred charges and
other, net (3.6) (3.9) (3.9) 13.7
Net change in non-cash
working capital 34.4 202.7 83.8 107.7
-------------------------------------------------------------------------
Cash provided by operating
activities 693.5 847.2 2,109.6 1,924.3
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (263.0) (319.8) (944.9) (975.6)
Acquisition - - (29.4) -
Proceeds from the sale of
property and other assets 0.1 1.8 3.5 18.2
Purchase of investments,
change in non-current
materials and supplies
and other (0.4) 1.5 (8.7) 0.7
-------------------------------------------------------------------------
Cash used by investing
activities (263.3) (316.5) (979.5) (956.7)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Common Shares and Non-
Voting Shares issued 56.3 27.0 200.3 70.8
Dividends to shareholders (71.7) (45.5) (215.6) (136.1)
Purchase of Common Shares
and Non-Voting Shares
for cancellation (233.1) - (663.5) -
Long-term debt issued 0.3 - 4.7 37.8
Redemptions and repayment
of long-term debt (1.0) (210.7) (21.3) (247.7)
Payment for redemption of
preference and preferred
shares - (37.0) - (72.8)
Dividends paid by a
subsidiary to non-
controlling interests - - (7.9) -
Other - - (1.2) (3.6)
-------------------------------------------------------------------------
Cash used by financing
activities (249.2) (266.2) (704.5) (351.6)
-------------------------------------------------------------------------
CASH POSITION
Increase in cash and
temporary investments,
net 181.0 264.5 425.6 616.0
Cash and temporary
investments, net,
beginning of period 1,141.1 357.7 896.5 6.2
-------------------------------------------------------------------------
Cash and temporary
investments, net,
end of period $ 1,322.1 $ 622.2 $ 1,322.1 $ 622.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE
OF CASH FLOWS
Interest (paid) $ (12.2) $ (23.1) $ (319.1) $ (339.7)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest received $ 9.3 $ 2.1 $ 34.4 $ 23.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Income taxes
(inclusive of Investment
Tax Credits) received,
net $ 2.9 $ 11.8 $ 22.2 $ 197.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TELUS Corporation
Segmented Information
Three-month periods
ended September 30 Communications Mobility
(millions) 2005 2004 2005 2004
-------------------------------------------------------------------------
External revenue $ 1,198.6 $ 1,199.9 $ 864.2 $ 747.0
Intersegment revenue 23.6 24.9 5.7 5.0
-------------------------------------------------------------------------
Total operating revenue 1,222.2 1,224.8 869.9 752.0
Operations expense 794.5 714.2 456.3 428.5
Restructuring and work-
force reduction costs 1.6 16.2 - -
-------------------------------------------------------------------------
EBITDA(1) $ 426.1 $ 494.4 $ 413.6 $ 323.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ 176.5 $ 216.4 $ 86.5 $ 103.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ 249.6 $ 278.0 $ 327.1 $ 220.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three-month periods
ended September 30 Eliminations Consolidated
(millions) 2005 2004 2005 2004
-------------------------------------------------------------------------
External revenue $ - $ - $ 2,062.8 $ 1,946.9
Intersegment revenue (29.3) (29.9) - -
-------------------------------------------------------------------------
Total operating revenue (29.3) (29.9) 2,062.8 1,946.9
Operations expense (29.3) (29.9) 1,221.5 1,112.8
Restructuring and work-
force reduction costs - - 1.6 16.2
-------------------------------------------------------------------------
EBITDA(1) $ - $ - $ 839.7 $ 817.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $ 263.0 $ 319.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ - $ - $ 576.7 $ 498.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine-month periods
ended September 30 Communications Mobility
(millions) 2005 2004 2005 2004
-------------------------------------------------------------------------
External revenue $ 3,637.3 $ 3,560.0 $ 2,418.7 $ 2,056.3
Intersegment revenue 67.4 72.0 17.2 15.2
-------------------------------------------------------------------------
Total operating revenue 3,704.7 3,632.0 2,435.9 2,071.5
Operations expense 2,242.9 2,132.7 1,318.4 1,214.0
Restructuring and work-
force reduction costs 18.4 32.8 - -
-------------------------------------------------------------------------
EBITDA(1) $ 1,443.4 $ 1,466.5 $ 1,117.5 $ 857.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ 684.0 $ 743.5 $ 260.9 $ 232.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ 759.4 $ 723.0 $ 856.6 $ 625.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine-month periods
ended September 30 Eliminations Consolidated
(millions) 2005 2004 2005 2004
-------------------------------------------------------------------------
External revenue $ - $ - $ 6,056.0 $ 5,616.3
Intersegment revenue (84.6) (87.2) - -
-------------------------------------------------------------------------
Total operating revenue (84.6) (87.2) 6,056.0 5,616.3
Operations expense (84.6) (87.2) 3,476.7 3,259.5
Restructuring and work-
force reduction costs - - 18.4 32.8
-------------------------------------------------------------------------
EBITDA(1) $ - $ - $ 2,560.9 $ 2,324.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $ 944.9 $ 975.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ - $ - $ 1,616.0 $ 1,348.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") is a non-GAAP measure and is defined by the Company as
operating revenues less operations expense and restructuring and
workforce reduction 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").
Forward-looking statements
==========================================================================
This document and the Management's discussion and analysis contain
statements about expected future events and financial and operating
results of TELUS Corporation ("TELUS" or the "Company") 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 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, guidance (including revised
guidance), expectations, estimates or intentions expressed in the
forward-looking statements.
Factors that could cause actual results to differ materially include but
are not limited to: competition; economic fluctuations; financing and
debt requirements (including share repurchases and debt redemptions); tax
matters; human resources (including the ongoing impact and outcome of
outstanding labour relations issues and the duration and impact on
operating expenses, customer service and revenue due to the labour
disruption); technology (including reliance on systems and information
technology); regulatory developments; process risks (including conversion
of legacy systems); health and safety; litigation; business continuity
events (including man-made and natural threats); and other risk factors
discussed herein and listed from time to time in TELUS' reports,
comprehensive public disclosure documents including the 2004 Annual
Report, Annual Information Form, and in other filings with securities
commissions in Canada (filed on SEDAR at www.sedar.com) and the United
States (filed on EDGAR at www.sec.gov).
For further information, see Section 10: Risks and uncertainties in
TELUS' annual 2004 and interim first and second quarter 2005 Management's
discussions and analysis, as well as updates included in Section 10 of
this third quarter interim report.
==========================================================================
Management's discussion and analysis - November 8, 2005
The following is a discussion of the consolidated financial condition and
results of operations of TELUS Corporation for the periods ended September 30,
2005 and 2004, 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
discussion 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. See Note 18 to the interim
consolidated financial statements for a summary of the principal differences
between Canadian and U.S. GAAP as they relate to TELUS. The interim
consolidated financial statements and Management's discussion and analysis
were reviewed by TELUS' Audit Committee on November 7, 2005 and approved by
TELUS' Board of Directors on November 8, 2005. All amounts are in Canadian
dollars unless otherwise specified.
The Company has issued guidance on and reports on certain non-GAAP
measures that are used by management to evaluate performance of business units
and segments. Non-GAAP measures are used in measuring compliance with debt
covenants. 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 readers'
reference, the definition, calculation and reconciliation of consolidated non-
GAAP measures is provided in Section 11: Reconciliation of non-GAAP measures
and definition of key operating indicators.
Management's discussion and analysis contents
-------------------------------------------------------------------------
Section Contents
-------------------------------------------------------------------------
1. Overall performance A summary of consolidated results for
the third quarter and first nine months
of 2005
-------------------------------------------------------------------------
2. Core business, vision and Recent examples of TELUS' activities in
strategy support of its six strategic
imperatives
-------------------------------------------------------------------------
3. Key performance drivers Recent examples of TELUS' activities in
support of its key performance drivers
-------------------------------------------------------------------------
4. Capability to deliver An update on TELUS' capability to
results deliver results
-------------------------------------------------------------------------
5. Results from operations A detailed discussion of operating
results
-------------------------------------------------------------------------
6. Financial condition A discussion of significant changes in
the balance sheet since the beginning
of the year
-------------------------------------------------------------------------
7. Liquidity and capital A discussion of cash flow, liquidity,
resources credit facilities, off-balance sheet
arrangements and other disclosures
-------------------------------------------------------------------------
8. Critical accounting A description of accounting estimates,
estimates and accounting which are critical to determining
policy developments financial results, and changes to
accounting policies
-------------------------------------------------------------------------
9. Revised guidance A discussion of revisions to TELUS'
guidance for 2005
-------------------------------------------------------------------------
10. Risks and risk management An update of risks and uncertainties
facing TELUS and how it manages the
risk
-------------------------------------------------------------------------
11. Reconciliation of non-GAAP A description, calculation and
measures and definition of reconciliation of certain measures used
key operating indicators by management
-------------------------------------------------------------------------
1. Overall performance
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 Consolidated highlights
-------------------------------------------------------------------------
($ millions except Quarters ended Nine-month periods
margin and per- September 30 ended Sept. 30
share amounts) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
Operating revenues 2,062.8 1,946.9 6.0 % 6,056.0 5,616.3 7.8 %
EBITDA(1) 839.7 817.9 2.7 % 2,560.9 2,324.0 10.2 %
EBITDA margin (%)(2) 40.7 42.0 (1.3)pts 42.3 41.4 0.9 pts
Operating income 430.5 410.3 4.9 % 1,350.4 1,098.4 22.9 %
Net income 190.1 156.6 21.4 % 621.8 430.2 44.5 %
Earnings per share,
basic 0.53 0.44 20.5 % 1.74 1.20 45.0 %
Earnings per share,
diluted 0.53 0.43 23.3 % 1.72 1.19 44.5 %
Cash dividends
declared per share 0.20 0.15 33.3 % 0.60 0.45 33.3 %
Cash provided by
operating
activities 693.5 847.2 (18.1)% 2,109.6 1,924.3 9.6 %
Cash used by
investing
activities 263.3 316.5 (16.8)% 979.5 956.7 2.4 %
Capital
expenditures 263.0 319.8 (17.8)% 944.9 975.6 (3.1)%
Cash used by
financing
activities 249.2 266.2 (6.4)% 704.5 351.6 100.4 %
Free cash flow(3) 581.3 502.6 15.7 % 1,355.7 1,175.4 15.3 %
-------------------------------------------------------------------------
pts - percentage points
(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is a non-GAAP measure. See Section 11.1 Earnings before
interest, taxes, depreciation and amortization (EBITDA).
(2) EBITDA margin is EBITDA divided by Operating revenues.
(3) Free cash flow is a non-GAAP measure. See Section 11.2 Free cash
flow.
-------------------------------------------------------------------------
Despite experiencing a labour disruption in Western Canada, strong growth
in consolidated Operating revenues was achieved in the third quarter of 2005,
when compared with the same period in 2004, as a result of 16% revenue growth
in the TELUS Mobility (wireless) segment, while revenues remained stable in
the TELUS Communications (wireline) segment. For the first nine months of
2005, TELUS Mobility revenues grew at more than 17% and Communications segment
revenues grew by 2%, when compared with the same period in 2004. The increase
in consolidated EBITDA resulted from improved profitability at TELUS Mobility,
while EBITDA and EBITDA margins decreased in the Communications Segment due to
a net temporary increase in expenses to maintain operations during the labour
disruption. Increased consolidated EBITDA was the primary contributor to the
growth in Operating income of $20 million and $252 million, respectively, in
the third quarter and first nine months of 2005, when compared with the same
periods in 2004.
Net income and earnings per share also increased significantly in the
third quarter and first nine months of 2005, when compared to the same periods
in 2004 due to improved Operating income, lower net financing expenses and
lower effective income tax rates. A reduction in B.C. provincial income tax
rates effective July 1, 2005 resulted in a revaluation of future tax
liabilities and assets and a corresponding $12.8 million reduction in future
income tax expense (approximately four cents per share) being recorded in the
third quarter of 2005.
Cash provided by operating activities decreased by 18% to $693.5 million
this quarter as changes in non-cash working capital more than offset improved
Net income. However, strong growth in Net income contributed to a 10%
improvement in Cash provided by operating activities for the first nine months
of 2005. Free cash flow increased both in the quarter and for the nine months
primarily because of improved EBITDA, lower capital expenditures, lower
payments under restructuring programs, lower interest payments, and higher
interest received, partly offset by lower cash tax recoveries.
Effect of the labour disruption on TELUS operations during
the third quarter of 2005
TELUS third quarter 2005 results were affected to varying degrees by a
labour disruption that commenced on July 21 and continues into the fourth
quarter with the ratification process underway for a second tentative
agreement (see Section 3.1 Reaching a collective agreement). Emergency
operations procedures were in place to maintain customer service at the best
possible level. The labour disruption was most evident in British Columbia
where all unionized employees were not at work during the labour disruption.
In Alberta, the number of unionized employees reporting to work increased from
approximately 29% at the start of the labour disruption to approximately 53%
at August 31, and approximately 56% at September 30. While customer service
levels were higher than expected, costs were also higher due to the sizeable
number of bargaining unit employees working in Alberta, as well as higher than
expected security costs to ensure the safety of employees and protection of
Company assets. There was no labour disruption in the Ontario and Quebec
operations. Incremental expenses that arose from emergency operations
procedures included management reassignments, paid overtime, third party
security and contractor costs, travel and accommodation. These incremental
expenses exceeded cost savings, such as those arising from lower compensation
expenses for employees who stayed off work and adjustments to accruals for
payroll and other employee related expenses, by approximately $65 million.
Capital expenditures were also lower due to deferral of some construction
activities, while the balance of assets under construction rose due to delays
in completion of in-progress work.
TELUS Mobility demonstrated strong results in the third quarter of 2005,
despite having part of its operations impacted by the labour disruption in
B.C. and Alberta. TELUS Communications results were affected by the labour
disruption primarily in incumbent operations in B.C. and Alberta. However, the
recent increase in competition for local residential telephony services by
resellers, cable-TV companies, and other competitors offering VoIP services,
makes it difficult to fully separate the competitive effects from labour
disruption impacts on wireline revenues and subscribers in the third quarter
of 2005. Some general observations can be made:
- Residential network access line losses during the third quarter were
32,000, compared with an increase of 5,000 lines during the third
quarter of 2004. During the labour disruption, reduced availability
of field resources resulted in the Company giving priority to repair
activities limiting its ability to perform installations. Net line
losses during the current quarter were an improvement from the 40,000
line losses experienced in the second quarter of 2005 following the
introduction of a competitors' cable telephony service in Alberta;
- Total business network access lines were unchanged during the third
quarter of 2005, compared with a net loss of 15,000 during the same
period in 2004 and a net loss of 12,000 during the second quarter of
2005, reflecting management's priority for business and data services
during the labour disruption; and
- The net increase in high-speed Internet subscribers was 7,100 during
the third quarter of 2005, compared with a net increase of 30,600 in
the third quarter of 2004. The low net additions in the current
quarter were due to lower gross additions caused by the labour
disruption, partially offset by a lower rate of disconnection among
existing customers. Net losses of dial-up Internet subscribers
increased to 10,700 during the third quarter of 2005, as compared
with dial-up subscriber losses of 8,000 in the same period in 2004.
The Company continues to follow its emergency operations procedures to
minimize the impact of the labour disruption on its customers. The emergency
operations plan continues to be adjusted so as to be more efficient and to
reduce the ongoing costs each month.
2. Core business, vision and strategy
TELUS continues to be guided by its six long-standing strategic
imperatives that guide the Company's actions and are driving the financial
results of the Company. Some recent examples of TELUS' activities in support
of, and the results from, these imperatives follow.
2.1 Focusing relentlessly on the growth markets of data, IP and wireless
Investment and operational execution in wireless continues to drive
significant value creation for TELUS. With third quarter 2005 results, TELUS
has now increased its exposure to the high growth wireless business to 42% of
consolidated revenue, 49% of consolidated EBITDA and 57% of consolidated cash
flow (measured as EBITDA less capital expenditures).
2.2 Partnering, acquiring and divesting to accelerate the implementation
of TELUS' strategy
The acquisition of a 52.5% ownership interest in Ambergris Solutions Inc.
earlier this year, combined with the acquisition of ADCOM, Inc. in November
2004, provided aggregate incremental revenues of approximately $40 million and
incremental EBITDA of less than $10 million for the first nine months of 2005.
3. Key performance drivers
To focus on the opportunities and challenges, and to create value for
shareholders, TELUS sets corporate priorities each year. An update on certain
priorities follows:
3.1 Reaching a collective agreement
A labour disruption that began on July 21, 2005 continues as the
Telecommunications Workers Union ("TWU") membership rejected the proposed new
five-year collective agreement by a very narrow margin of 50.3% on October 30,
2005. TELUS and the TWU reached a second memorandum of settlement on
November 6. The TWU Executive Council and bargaining committee recommended its
members accept the negotiated collective agreement, which if ratified will be
effective from November 17, 2005 to November 16, 2010. The terms of the
agreement were submitted to TWU members for ratification where TWU members are
voting by a mail-in balloting process with ballots to be returned by
November 15. The final vote result is expected to be announced on November 16.
TELUS will, within 72 hours of a positive ratification, begin the process of
bringing unionized team members back to work as expeditiously as possible. The
following is a summary of events during the year that led to the labour
disruption and the current status.
Following the CIRB's February 2, 2005 decision which overturned its
January 2004 binding arbitration order, the parties resumed negotiations on
February 10, 2005 with the assistance of a federally appointed mediator.
Ultimately this return to negotiations led to TELUS tabling a comprehensive
offer of settlement on April 13 which was amended on June 14. These contract
proposals were not presented by the TWU to its membership for a ratification
vote at that time.
On April 18, 2005, the Company declared negotiations to be at an impasse
and delivered first notice of lockout measures to the TWU. TELUS escalated
lockout measures during May and June aimed at placing pressure to reach a
settlement in a timely fashion. In response, the TWU imposed an overtime and
relieving management ban and announced a work-to-rule campaign. The TWU also
began rotating strike activity in early July, in the form of "study sessions",
to which management usually responded by imposing three-hour or longer
lockouts for those employees who participated in the strike activity.
Given the escalation of job action by the union and its continuing
refusal to place TELUS' comprehensive offer of settlement before its
membership for a ratification vote, management informed the TWU that,
effective July 22, it would commence implementation of its comprehensive offer
of settlement. In response, on July 21, the TWU called for a full scale
strike, which caused the Company to implement its emergency operations plans
designed to minimize the labour disruption impacts to customers. On July 22,
TELUS commenced implementation of its offer, which included payment in
September of a portion of certain lump sums contained in TELUS' offer to only
those bargaining unit employees who returned to work.
At the beginning of the labour disruption, approximately 29 per cent of
Alberta-based bargaining unit employees were reporting to work. This increased
to approximately 53 per cent by end of August and approximately 56 per cent by
the end of September. TELUS' unionized operations east of Alberta were largely
unaffected by the work stoppage activity taking place in B.C. and Alberta.
On September 27, negotiations between TELUS and the TWU resumed, and a
tentative agreement was announced on October 10. The tentative agreement was
recommended for acceptance by the TWU's Executive Council, bargaining
committee and business agents. Following a series of ratification meetings
held between October 19 and October 29, the results of the vote were tabulated
on October 30, which resulted in the tentative agreement being rejected by a
50.3% margin or a difference of only 53 votes. The TWU announced that of the
9,027 votes, 4,540 were "no" and 4,487 were "yes". On November 6, TELUS and
the TWU reached a second memorandum of settlement, as described above.
3.2 Enhancing Mobility's leadership position in wireless
TELUS Mobility achieved the top spot in N. Moore Capital Ltd.'s ranking
of North American wireless carriers based on second quarter 2005 results.
Since the first quarter of 2004 through to the most recently ranked second
quarter, TELUS Mobility has achieved first place or second place in these
rankings through its commitment to exceptional client service and its value-
added approach, supported by TELUS' strong brand and superior network quality.
TELUS Mobility continued its trend of significant profitable growth in
the third quarter of 2005, with revenue growth of 16%, EBITDA growth of 28%
and cash flow growth (EBITDA less capital expenditures) of 49%. Strong
wireless growth is a result of higher average revenue per subscriber unit per
month ("ARPU") postpaid subscriber net additions of 104,600 (representing 76%
of total net additions of 138,000), ongoing scale efficiencies, high client
satisfaction, and innovative value added offerings.
3.3 Accelerating wireline performance in Ontario and Quebec business
markets
The results for non-incumbent local exchange carrier ("non-ILEC")
operations in Central Canada, which are included in the Communications
segment, demonstrate that the Company is on track to exceed its original
annual targets for non-ILEC revenue and EBITDA and achieve its current annual
guidance of $625 to $650 million for non-ILEC revenue and $15 to $20 million
for non-ILEC EBITDA. Non-ILEC revenue increased by $6.1 million and
$62.1 million, respectively, in the third quarter of 2005 and first nine
months of 2005, when compared with the same periods in 2004. Non-ILEC EBITDA
grew by $5.7 million and $40.0 million, respectively, for the same periods and
has now been positive for four consecutive quarters, continuing a long-term
trend of non-ILEC EBITDA improvement.
4. Capability to deliver results
4.1 Operational capabilities - TELUS Communications segment
The largest impacts of the labour disruption were in the Communications
segment where Alberta bargaining unit employees were allowed to cross the
picket lines to return to work over a certain period of time, whereas B.C.
bargaining unit employees were not allowed to cross picket lines for reasons
including personal safety. With redeployment of management to front line
positions and more than half of the Alberta bargaining unit members crossing
the picket lines by the end of August, customer service levels exceeded the
Company's expectations under its emergency operations plan. The Company's
networks continued to operate reliably throughout the labour disruption.
In late September, TELUS Communications announced that it would direct a
small portion of its customer care and operator services call centre volumes
to the Philippines operations of TELUS International. This measure helped the
Company during the disruption to maintain customer service levels on an
efficient basis, while facilitating deployment of management staff to other
parts of the business to help meet customers' needs, and providing relief to
redeployed management staff. This measure also demonstrated TELUS'
international call centre capabilities and backup capabilities. The
international capability will also support TELUS in its bids to offer
competitive call centre services to potential new clients, which if
successful, would potentially increase the number of bargaining unit and
management positions in the Company.
During the third quarter, the Company continued to develop a new billing
system in the Communications segment, which will include re-engineering
processes for order entry, pre-qualification, service fulfillment and
assurance, customer care, collections/credit, customer contract and
information management. The expected benefits of this project include
streamlined and standardized processes and the elimination over time of
multiple legacy information systems. The Company plans to implement this
project in phases, beginning with a launch for consumer mass market accounts
currently planned for the first half of 2006. See Risks and uncertainties -
Section 10.3 Process risks.
4.2 Operational capabilities - TELUS Mobility
Some impacts of the labour disruption were experienced in the Mobility
segment where Alberta bargaining unit employees were allowed cross the picket
lines to return to work over a certain period of time, whereas B.C. bargaining
unit employees were not allowed cross picket lines for reasons including
personal safety. TELUS Mobility call centre performance was maintained at or
exceeded service levels prior to the labour disruption due to the successful
redeployment of a key support team to client care teams. In late September,
the Company announced that TELUS Mobility would direct some client care and
service activation calls to a supplier's call centre operating in India. This
enabled the Company to maintain good service levels during the labour
disruption by supplementing the resources of regular operations during a
record third quarter of customer loading and into the seasonally peak demands
of the fourth quarter.
TELUS Mobility's networks have continued to operate reliably throughout
the labour disruption. TELUS Mobility's continued delivery of value-added
solutions, excellent network quality, and an exceptional client service
experience, drove profitable growth despite new competitive pressures. Future
profitability and cash flow growth are expected to be realized from continued
subscriber growth and operating scale efficiencies through a well managed
client focused organization.
On October 19, 2005, George Cope, President and Chief Executive Officer,
TELUS Mobility resigned from TELUS to assume the position of chief operating
officer at Bell Canada. Darren Entwistle has assumed Mr. Cope's leadership
role on an interim basis until a permanent successor is named. The experienced
TELUS Mobility leadership team remains focused on a growing the business
profitably and providing continued excellence in customer service.
4.3 Liquidity and capital resources
TELUS had more than $1.3 billion of cash at September 30, 2005. With
access to available undrawn credit facilities of approximately $1.6 billion,
ability to increase securitized receivables and expected cash provided by
operating activities, the Company believes it has sufficient capability to
fund its cash requirements in 2005 and 2006. With the release of the current
quarter results, TELUS is announcing a new long-term leverage guideline for
Net debt to EBITDA in the range of 1.5:1 to 2.0:1, down from the previous
guideline of 2.2:1 or less. At September 30, 2005, Net debt to EBITDA was
1.8:1.
On October 17, 2005, TELUS announced that it had given notice of
redemption of its $1.578 billion 7.5%, Series CA, Notes due June 1, 2006. The
Company's intention to redeem these notes was previously announced on
September 26, 2005. The redemption price, which is payable on December 1,
2005, will be based on the yield for a Government of Canada bond with the
equivalent maturity plus 35 basis points as defined in the trust Indenture
governing these Notes, but in no case will be less than par. The Government of
Canada bond yield used for this redemption will be the mid market yield as
quoted by a dealer selected by the Company at noon (Eastern Time) on
November 28, 2005. The Noteholders will also receive the regularly scheduled
semi-annual interest payment on December 1, 2005.
Costs and non-cash write-downs related to this early redemption are
expected to result in increased financing charges which are estimated to have
an after tax impact on the Company of approximately six to seven cents per
share in the fourth quarter of 2005. TELUS plans to finance the redemptions
through general corporate sources including cash balances, proceeds of
accounts receivable securitization and/or funds available under its revolving
credit facilities.
During the fourth quarter of 2005, the Company expects to redeem long-
term debt principal of approximately $1.578 billion plus an estimated
redemption premium of $31 million (as noted above). In addition, the Company
expects to make usual semi-annual interest payments of approximately
$290 million including interest on the early redeemed notes, make quarterly
dividend payments and acquire additional Common shares and Non-voting shares
under the normal course issuer bid. Should the tentative agreement with the
TWU be ratified, the Company expects to pay the balance of lump sum amounts
under the agreement; such lump sum amounts including the amounts paid during
the third quarter of 2005, are expected to total approximately $200 million in
2005. The Company expects to fund its cash flow requirements in the fourth
quarter of 2005 through general corporate sources including cash balances,
proceeds of accounts receivable securitization, and/or funds available under
its revolving credit facilities.
5. Results from operations
5.1 General
The Company's reportable segments, which reflect TELUS' organizational
structure and are used to manage the business, are TELUS Communications
(discussed in Section 5.4 Communications segment results) and TELUS Mobility
(discussed in Section 5.5 Mobility segment results). The two segments are
differentiated based on management, products and services, distribution
channels, technology, and regulatory treatment. Intersegment sales are
recorded at the exchange value. Segmented information may also be found in
Note 17 of the interim consolidated financial statements.
5.2 Quarterly results summary
-------------------------------------------------------------------------
($ millions, except 2005 2005 2005 2004 2004 2004
per share amounts) Q3 Q2 Q1 Q4 Q3 Q2
-------------------------------------------------------------------------
Segmented revenue
(external)
Communications
segment 1,198.6 1,216.5 1,222.2 1,209.3 1,199.9 1,189.0
Mobility segment 864.2 802.0 752.5 755.6 747.0 676.6
-------- -------- -------- -------- -------- --------
Operating revenues
(consolidated) 2,062.8 2,018.5 1,974.7 1,964.9 1,946.9 1,865.6
Net income 190.1 189.5 242.2 135.6 156.6 172.3
Per weighted average
Common Share and
Non-Voting Share
outstanding
- basic 0.53 0.53 0.67 0.38 0.44 0.48
- diluted 0.53 0.52 0.66 0.37 0.43 0.48
Dividends declared
per Common Share
and Non-Voting
Share outstanding 0.20 0.20 0.20 0.20 0.15 0.15
-------------------------------------------------------------------------
-------------------------------------
($ millions, except 2004 2003
per share amounts) Q1 Q4
-------------------------------------
Segmented revenue
(external)
Communications
segment 1,171.1 1,182.4
Mobility segment 632.7 643.2
-------- --------
Operating revenues
(consolidated) 1,803.8 1,825.6
Net income 101.3 47.8
Per weighted average
Common Share and
Non-Voting Share
outstanding
- basic 0.28 0.13
- diluted 0.28 0.13
Dividends declared
per Common Share
and Non-Voting
Share outstanding 0.15 0.15
-------------------------------------
The results for the third quarter of 2005 include significant net
temporary expenses associated with the labour disruption, as discussed
earlier. The underlying trend in 2005 also includes the expected impacts on
Communications Segment from greater network access line losses due to
increased competition for local telephone service from resellers and VoIP-
based service providers, as well as wireless substitution. During the third
quarter of 2005, the labour disruption reduced the number of available field
personnel and limited the Company's ability to do installations of residential
network access lines.
The trend in consolidated Operating revenues continues to reflect strong
wireless growth at TELUS Mobility. Wireless growth resulted from increases in
the subscriber base and ARPU. TELUS Communications data and local revenues
continue to grow on a year-over-year basis, while long distance and other
revenue continue to decline.
Net income and earnings per share continue to reflect the trends of
growing EBITDA and Operating income, combined with decreasing net interest
expense due to debt reduction and increasing cash balances, as well as
generally favourable tax adjustments.
On November 8, 2005, the Board of Directors of TELUS declared a quarterly
dividend of 27.5 cents per share on outstanding Common and Non-Voting shares
payable on January 1, 2006 to shareholders of record on the close of business
on December 9, 2005. This quarterly dividend was 7.5 cents per share or 37.5%
above the prior dividend level of 20 cents per share, and is consistent with
target guideline of 45 to 55% of earnings.
5.3 Consolidated results from operations
-------------------------------------------------------------------------
($ millions except
EBITDA margin and Quarters ended Nine-month periods
employees) September 30 ended Sept. 30
2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
Operating revenues 2,062.8 1,946.9 6.0 % 6,056.0 5,616.3 7.8 %
Operations expense 1,221.5 1,112.8 9.8 % 3,476.7 3,259.5 6.7 %
Restructuring and
workforce reduction
costs 1.6 16.2 (90.1)% 18.4 32.8 (43.9)%
-------------------------------------------------------------------------
EBITDA(1) 839.7 817.9 2.7 % 2,560.9 2,324.0 10.2 %
-------------------------------------------------------------------------
EBITDA margin (%)(2) 40.7 42.0 (1.3)pts 42.3 41.4 0.9 pts
-------------------------------------------------------------------------
Full time equivalent
employees, end of
period(3) n. m. 24,538 -
-------------------------------------------------------------------------
n. m. - not meaningful
(1) EBITDA is a non-GAAP measure. See Section 11.1 Earnings before
interest, taxes, depreciation and amortization (EBITDA).
(2) EBITDA margin is EBITDA divided by Operating revenues.
(3) The measure of full time equivalent employees is not reported in the
third quarter of 2005, as it does not factor in the effect of
overtime hours on staff equivalents because of the labour disruption.
The total number of active, working employees at September 30 of 2005
and 2004 were 20,743 and 25,464, respectively.
-------------------------------------------------------------------------
Despite the experience of a labour disruption in Western Canada,
consolidated Operating revenues increased by $115.9 million and
$439.7 million, respectively, in third quarter and first nine months of 2005,
when compared with the same periods in 2004, as a result of strong revenue
growth at TELUS Mobility. TELUS Communications (wireline) segment revenues
were stable in the third quarter and increased by 2% for the nine-month
period. Consolidated EBITDA increased by $21.8 million and $236.9 million,
respectively, in the third quarter and first nine months of 2005, when
compared with the same periods in 2004. The increase in consolidated EBITDA
resulted from improved profitability at TELUS Mobility, while EBITDA and
EBITDA margins decreased in the Communications Segment due to temporary
expenses incurred to maintain operations in the face of the labour disruption,
net of a revision to the labour settlement estimate.
For further discussion by segment, see Section 5.4 Communications segment
results and Section 5.5 Mobility segment results.
-------------------------------------------------------------------------
Depreciation and Quarters ended Nine-month periods
amortization September 30 ended Sept. 30
($ millions) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
Depreciation 335.6 327.1 2.6 % 996.4 969.5 2.8 %
Amortization of
intangible assets 73.6 80.5 (8.6)% 214.1 256.1 (16.4)%
-------------------------------------------------------------------------
409.2 407.6 0.4 % 1,210.5 1,225.6 (1.2)%
-------------------------------------------------------------------------
Depreciation increased in the third quarter and first nine months of
2005, when compared with the same periods in 2004, due primarily to growth in
shorter life data and wireless network assets and a reduction in service lives
for ADSL (high-speed Internet) equipment, partly offset by lower depreciation
arising from full amortization of older cell sites. Amortization of intangible
assets decreased in the third quarter and first nine months of 2005, when
compared with the same periods in 2004, as a result of several software assets
becoming fully depreciated (partly offset by a $5.0 million write-down of an
intangible right, related to termination of an infeasible right-of-use
contract for fibre, in the third quarter of 2005).
-------------------------------------------------------------------------
Other expense Quarters ended Nine-month periods
(income), net September 30 ended Sept. 30
($ millions) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
7.1 (3.2) n. m. 9.1 - n. m.
-------------------------------------------------------------------------
Other expense includes charitable donations, accounts receivable
securitization expense (see Section 7.6 Accounts receivable sale), gains and
losses on disposal of property, and income (loss) or impairments in equity or
portfolio investments. Charitable donations increased in the third quarter of
2005, when compared with the same period of 2004, but were of similar
magnitude for the nine month periods of both years. In the third quarter and
first nine months of 2004, net gains realized from the sale of portfolio
investments and the sale of land and buildings more than offset the other
expenses in the same periods. Other expense for the first nine months of 2005
included impairments in the value of portfolio investments, which were partly
offset by gains on the disposal of real estate. The gains on real estate
included recognition of a portion of gain deferred under sale and leaseback
arrangements for administrative properties sold in 2002, following the return
of some space to the respective landlords.
-------------------------------------------------------------------------
Quarters ended Nine-month periods
Financing costs September 30 ended Sept. 30
($ millions) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
Interest on long-
term debt, short-
term obligations
and other 157.2 161.7 (2.8)% 494.7 494.6 - %
Foreign exchange
losses (gains) (0.1) (0.3) 66.7 % 3.0 (1.0) n. m.
Interest income (12.3) (2.8) n. m. (46.3) (33.1) (39.9)%
-------------------------------------------------------------------------
144.8 158.6 (8.7)% 451.4 460.5 (2.0)%
-------------------------------------------------------------------------
For the first nine months of 2005, interest on long-term debt, short-term
obligations and other included a second quarter accrual of $17.5 million for
estimated damages stemming from a recent Ontario Appeal Court ruling on
litigation affecting TELUS Communications Inc. ("TCI"). This ruling related to
a BC TEL bond redemption matter dating back to 1997. See Risks and risk
management - Section 10.5 Litigation. Otherwise, interest on long-term debt,
short-term obligations and other decreased by approximately 3% in the third
quarter and first nine months of 2005 when compared with the same periods in
2004. The decrease was primarily due to the repayment of TCI Debentures and
Medium-term Notes in the third quarter of 2004 and conversion/redemption of
convertible debentures in the second quarter of 2005. TELUS maintains a
hedging program using cross currency swaps, and as a result, long-term
financing costs were generally unaffected by fluctuations in the value of the
Canadian dollar against the U.S. dollar. Debt (the sum of Long-term Debt,
Current maturities and the deferred hedging liability) was $7,237.9 million at
September 30, 2005, when compared with $7,371.6 million one year earlier.
Interest income earned includes interest for the settlement of various
tax matters of $3.2 million and $20.7 million, respectively, in the third
quarter and first nine months of 2005 (as compared to no interest and
$26.0 million, respectively, in the same periods of 2004). The balance of
interest income, earned primarily from cash and temporary investments, was
significant at $9.1 million and $25.6 million, respectively, in the third
quarter and first nine months of 2005, increases of $6.3 million and
$18.5 million, respectively, from the same periods in 2004.
-------------------------------------------------------------------------
Income taxes Quarters ended Nine-month periods
($ in millions, September 30 ended Sept. 30
except tax rates) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
Blended federal
and provincial
statutory income
tax based on net
income before tax 93.6 88.8 5.4 % 304.8 221.7 37.5 %
Changes in estimates
of available
deductible
differences in
prior years (1.5) - n. m. (37.5) - n. m.
Tax rate
differential on,
and consequential
adjustments from,
the reassessment
of prior year tax
issues (0.7) (0.3) (133.3)% (12.0) (36.1) 66.8 %
Revaluation of
future tax assets
and liabilities for
changes in statutory
income tax rates (12.8) (0.7) n. m. (12.8) (3.2) n. m.
Large corporations
tax and other 8.3 9.4 (11.7)% 20.7 22.3 (7.2)%
-------------------------------------------------------------------------
86.9 97.2 (10.6)% 263.2 204.7 28.6 %
-------------------------------------------------------------------------
Blended federal and
provincial statutory
tax rates (%) 33.6 34.8 (1.2) pts 34.2 34.8 (0.6) pts
Effective tax
rates (%) 31.2 38.1 (6.9) pts 29.6 32.1 (2.5) pts
-------------------------------------------------------------------------
Increases in the blended federal and provincial statutory income tax
expense were due to growth in income before taxes of 9.3% and 39.5%,
respectively, for the third quarter and first nine months of 2005, when
compared with the same periods in 2004. The blended federal and provincial tax
rate decreased in the third quarter as the B.C. provincial government
substantively enacted a reduction to general corporate income tax rates from
13.5% to 12.0% on income taxed in B.C, effective July 1 of 2005. The rate
adjustment resulted in a positive adjustment to earnings of $2.0 million. The
change in the B.C. tax rate also required a revaluation of the future tax
liability and the future tax asset, resulting in a further net recovery of
$12.8 million. Reductions in tax also included changes in estimates of
available deductible differences in prior years and a tax rate differential
(and consequential adjustments from) the favourable reassessment of prior
years' tax issues.
Based on the assumption of the continuation of the rate of TELUS
earnings, the current legal entity structure of TELUS and no substantive
changes to tax regulations, the Company expects to be able to fully utilize
its non-capital losses before the end of 2006. The Company's assessment is
that the risk of expiry of such non-capital losses is remote. Any material
current income taxes recorded in 2006 are expected to be payable in future
years.
-------------------------------------------------------------------------
Non-controlling Quarters ended Nine-month periods
interest September 30 ended Sept. 30
($ millions) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
1.6 1.1 45.5 % 4.9 3.0 63.3 %
-------------------------------------------------------------------------
Non-controlling interest represents minority shareholders' interests in
several small subsidiaries, including minority shareholders' interest in
Ambergris, acquired in February 2005.
-------------------------------------------------------------------------
Preference and Quarters ended Nine-month periods
preferred dividends September 30 ended Sept. 30
($ millions) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
- 0.1 (100.0)% - 1.8 (100.0)%
-------------------------------------------------------------------------
Preference and preferred dividends ceased with the redemption of all of
the publicly held TELUS Communications Inc. Preference and Preferred Shares,
completed on August 3, 2004.
5.4 Communications segment results
-------------------------------------------------------------------------
Operating revenues -
Communications Quarters ended Nine-month periods
segment September 30 ended Sept. 30
($ millions) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
Voice local 541.8 538.3 0.7 % 1,637.4 1,611.0 1.6 %
Voice long distance 221.5 233.5 (5.1)% 676.4 691.6 (2.2)%
Data 376.2 358.1 5.1 % 1,133.6 1,043.6 8.6 %
Other 59.1 70.0 (15.6)% 189.9 213.8 (11.2)%
-------------------------------------------------------------------------
External operating
revenue 1,198.6 1,199.9 (0.1)% 3,637.3 3,560.0 2.2 %
Intersegment
revenue 23.6 24.9 (5.2)% 67.4 72.0 (6.4)%
-------------------------------------------------------------------------
Total operating
revenue 1,222.2 1,224.8 (0.2)% 3,704.7 3,632.0 2.0 %
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Key operating indicators - Communications segment
----------------------------------------------
At September 30
(000s) 2005 2004 Change
----------------------------------------------
Residential network
access lines 2,961 3,058 (3.2)%
Business network
access lines 1,748 1,759 (0.6)%
-------- -------- --------
Total network
access lines(1) 4,709 4,817 (2.2)%
High-speed Internet
subscribers 736.1 654.9 12.4 %
Dial-up Internet
subscribers 249.8 292.7 (14.7)%
-------- -------- --------
Total Internet
subscribers(2) 985.9 947.6 4.0 %
Quarters ended Nine-month periods
September 30 ended Sept. 30
(000s) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
Change in
residential network
access lines (32) 5 n. m. (86) (28) n. m.
Change in business
network access lines - (15) 100.0 % (13) (25) 48.0 %
-------- -------- -------- -------- -------- --------
Change in total
network access lines (32) (10) n. m. (99) (53) (86.8)%
High-speed Internet
net additions 7.1 30.6 (76.8)% 46.4 93.3 (50.3)%
Dial-up Internet
net reductions (10.7) (8.0) (33.8)% (31.8) (27.1) (17.3)%
-------- -------- -------- -------- -------- --------
Total Internet
subscriber net
additions (3.6) 22.6 n. m. 14.6 66.2 (77.9)%
-------------------------------------------------------------------------
(1) Network access lines are measured at the end of the reporting period
based on information in billing and other systems.
(2) Internet subscribers are measured at the end of the reporting period
based on Internet access counts from billing and other systems.
-------------------------------------------------------------------------
TELUS Communications revenues decreased slightly by $2.6 million in the
third quarter and increased by $72.7 million in the first nine months of 2005,
respectively, when compared with the same periods in 2004. Lower long distance
and voice equipment sales in the third quarter of 2005 were nearly offset by
growing data services revenues and a small increase in local service revenues.
For the nine month period, growth in data services revenue significantly
exceeded long distance revenue erosion and lower voice equipment sales.
- Voice local revenue increased by $3.5 million and $26.4 million,
respectively, in the third quarter and first nine months of 2005,
when compared to the same periods in 2004. After normalizing for a
positive $10.2 million regulatory adjustment recognized in June 2004
(in respect of CRTC Decision 2004-42 pertaining to deferral account
recognition items), local revenue increased by $36.6 million for the
first nine months. The increases in the quarter and first nine months
of 2005 were due primarily to 2005 regulatory adjustments and the
effect of business rate increases implemented June 1, 2005, partly
offset by the effect of continued line losses. The favourable
regulatory adjustments included approximately $10 million and
$40 million, respectively, drawn from the price cap deferral account
to offset mandated additional discounts for competitive digital
network services (in basic data services) pursuant to CRTC Decision
2005-6. This adjustment was required because TELUS used the liability
method for recording price cap deferrals. See the discussion below
for data revenues, which contains the equal and offsetting negative
revenue impact for Decision 2005-6. Another regulatory adjustment
affecting the year-to-date results for 2005 was a non-recurring
positive $6.4 million recorded in the first quarter for CRTC Decision
2005-4 (pertaining to subsidy requirements for high cost areas in
TELUS Quebec ILEC territory for 2003 to 2005).
The 37,000 increase in residential line losses in the third quarter
of 2005, when compared with the third quarter of 2004, was due to
increased competition from resellers, VoIP competitors (including the
introduction of cable telephony in Calgary and Edmonton),
technological substitution to wireless services, and the labour
disruption. The number of business lines was unchanged in the third
quarter of 2005, as growth in non-ILEC business lines offset a
decrease in ILEC business lines. For the first nine months of 2005,
net business line losses were primarily due to competitive losses and
migration to more efficient ISDN services in ILEC regions. The trend
of declining residential network access lines may worsen in the
future due to increased competition facilitated by technology change.
- Voice long distance revenues decreased by $12.0 million and
$15.2 million, respectively, in the third quarter and first nine
months of 2005, when compared with the same periods in 2004. The
decrease is consistent with industry-wide trends due to strong price
competition and technological substitution. The rate of erosion
increased to 5.1% in the third quarter of 2005, when compared with a
2.1% decrease in the third quarter of 2004 because of lower minute
volumes, continued decreases in average per-minute prices and the
labour disruption impact of reduced call centre winback activity. On
a year-to-date basis, the 2.2% rate of erosion remained lower than
the 5.1% observed for the same period in 2004 due to increased minute
volumes (including growth in non-incumbent volumes) and increases in
the monthly long distance administration fee in certain long distance
plans, offset by lower average per-minute prices.
- Communications segment data revenues increased by $18.1 million and
$90.0 million, respectively, in the third quarter and first nine
months of 2005, when compared with the same periods in 2004. This
included revenues from two recent acquisitions totalling more than
$10 million and $40 million, respectively, for the third quarter and
first nine months of 2005. The increase in data revenues from
acquisitions were substantially offset by the additional discounts in
the same periods of approximately $10 million and $40 million,
respectively, for competitive digital network services mandated by
CRTC Decision 2005-6.
The remaining growth in data revenues not attributed to acquisitions
in the third quarter and first nine months of 2005 was primarily due
to: (i) increased Internet and enhanced data service revenues of
$20.4 million and $67.9 million, respectively, as a result of
traction from new business contracts, and continued growth in high-
speed Internet subscribers and a higher average price; (ii) increased
managed data revenues from the provision of business process
outsourcing services to customers; and (iii) lower data equipment
sales for the third quarter, but increased data equipment sales for
the nine month period. These increases were partly offset by the
additional discounts for competitive digital network services in
basic data services and migration to enhanced data services.
The rate of growth in high-speed Internet subscribers has slowed, as
expected, from that observed in 2004 due to the high existing
household penetration rates for high-speed services in Western Canada
and lower gross additions caused by increased competitive activity
and the labour disruption, mitigated in part by fewer deactivations
of existing customers. In addition, the Company experienced high net
additions in the first quarter of 2004 due to a very attractive
introductory marketing promotion of limited duration.
- Other revenue decreased by $10.9 million and $23.9 million,
respectively, in the third quarter and first nine months of 2005,
when compared with the same periods in 2004 due mainly to lower voice
equipment sales.
- Intersegment revenue represents services provided by the
Communications segment to the Mobility segment. These revenues are
eliminated upon consolidation together with the associated expense in
TELUS Mobility.
Total external operating revenue discussed above included non-ILEC
revenues of $151.4 million and $466.4 million, respectively, for the third
quarter and first nine months of 2005. This represents increases of
$6.1 million (4.2%) and $62.1 million (15.4%), respectively, when compared
with the same periods in 2004. The increase was a result of revenues from the
purchase of ADCOM and growth in data service revenues, partly offset by
competitive pricing pressures on voice services.
-------------------------------------------------------------------------
Operations expense -
Communications segment Quarters ended Nine-month periods
($ millions, except September 30 ended Sept. 30
employees) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
Salaries, benefits
and other employee-
related expenses 394.9 412.2 (4.2)% 1,231.5 1,219.7 1.0 %
Other operations
expenses 399.6 302.0 32.3 % 1,011.4 913.0 10.8 %
-------------------------------------------------------------------------
Total operations
expense 794.5 714.2 11.2 % 2,242.9 2,132.7 5.2 %
-------------------------------------------------------------------------
Full-time equivalent
employees, end of
period(1) n. m. 18,857 -
-------------------------------------------------------------------------
(1) The measure of full time equivalent employees is not reported in the
third quarter of 2005, as it does not factor in the effect of
overtime hours on staff equivalents because of the labour disruption.
The total number of active, working employees at September 30 of 2005
and 2004 were 14,958 and 19,493, respectively.
-------------------------------------------------------------------------
Operations expenses increased in the third quarter and first nine months
of 2005, when compared with the same periods in 2004, due primarily to
activation of emergency operations procedures to minimize the impact on
customer services during the labour disruption. Increased temporary expenses
associated with the labour disruption included: management reassignments,
overtime, third party security and contractor costs, and travel and
accommodation, which exceeded savings in compensation for employees who were
not working and a revision to the labour settlement estimate. The addition of
two operations in late 2004 (B.C. payroll services and the acquisition of
ADCOM) and an investment in Ambergris in February 2005 also contributed to
increased expenses, which were in aggregate less than $20 million and
$55 million, respectively, for the third quarter and first nine months of
2005.
- Salaries, benefits and employee-related expenses, decreased in the
third quarter of 2005, when compared with the same period in 2004,
due primarily to the net impacts of the labour disruption. For the
first nine months of 2005, salaries, benefits and employee-related
expenses increased primarily due to acquisitions and the B.C. payroll
contract described above, as well as increased compensation in 2005,
partly offset by the labour disruption impacts, when compared with
the same period in 2004. The expense for defined benefit pension
plans decreased in third quarter and first nine months by
approximately $4 million and $12 million, respectively, due to
favourable returns on plan assets during 2004 more than offsetting
the negative impact of a higher discount rate.
- Other operations expenses increased in the third quarter and first
nine months of 2005, when compared to the same periods in 2004. The
increase was due primarily to temporary expenses incurred during the
labour disruption, such as increased third party security and
contractors. In addition, increased expenses of $28.0 million and
$10.5 million, respectively, were recorded due to lower
capitalization of labour resulting from deferral of capital
expenditures and reassignment of staff to operational activities.
Expenses also increased as a result of acquisitions and the B.C.
payroll contract, as described above. Otherwise, expenses decreased
for the third quarter and first nine months of 2005 as a result of:
(i) nominal payments to Verizon under the renegotiated Software and
Related Technology and Service Agreement, compared with $8.6 million
and $26.0 million, respectively, in the same periods in 2004; (ii)
reduced facilities, transit and termination costs of $6.1 million and
$19.3 million, respectively, due to the movement of traffic on-net
and price cap discounts from competitor ILECs arising from CRTC
Decision 2005-6, partly offset by higher outbound traffic volumes;
(iii) a lower bad debt expense of $2.4 million and $8.5 million,
respectively, due to lower credit risk and continued improvement of
collection practices that have reduced credit loss exposure; and (iv)
a lower cost of goods sold in the third quarter associated with lower
voice equipment and data equipment sales.
Included in the total segment expenses discussed above are non-ILEC
operations expenses of $148.7 million and $452.3 million, respectively, in the
third quarter and first nine months of 2005. Third quarter expenses were
unchanged from the same period in 2004 and included a one-time contract
termination amount related to the cancellation of an indefeasible right of use
for fibre. Expenses for the first nine months increased by $22.1 million
(5.1%) when compared with the same period in 2004. The increase in operations
expense supported growth in non-ILEC revenues for the same period.
-------------------------------------------------------------------------
Restructuring and
workforce reduction
costs -
Communications Quarters ended Nine-month periods
segment September 30 ended Sept. 30
($ millions) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
1.6 16.2 (90.1)% 18.4 32.8 (43.9)%
-------------------------------------------------------------------------
In the first nine months of 2005, the Company undertook a number of
smaller initiatives within the ILEC portion of the Communications Segment,
such as operational consolidation, rationalization and integrations. These
initiatives are aimed to improve the Company's operating and capital
productivity. Management currently expects that restructuring charges will
range between $20 million and $50 million for the full year of 2005.
-------------------------------------------------------------------------
EBITDA and EBITDA
margin - Quarters ended Nine-month periods
Communications September 30 ended Sept. 30
segment 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
EBITDA ($ millions) 426.1 494.4 (13.8)% 1,443.4 1,466.5 (1.6)%
EBITDA margin (%) 34.9 40.4 (5.5)pts 39.0 40.4 (1.4)pts
-------------------------------------------------------------------------
EBITDA decreased by $68.3 million and $23.1 million, respectively, in the
third quarter and first nine months of 2005, when compared with the same
periods in 2004. Temporary expenses associated with maintaining operations
during the labour disruption, emergency operations planning expenses prior to
July 21, and flat revenues in the third quarter were the primary causes,
despite improved non-ILEC profitability and lower restructuring charges.
Included in these results were non-ILEC EBITDA of $2.7 million and
$14.1 million, respectively, for the third quarter and first nine months of
2005, compared with EBITDA losses of $3.0 million and $25.9 million,
respectively, in the same periods of 2004.
Communications segment capital expenditures are discussed in Section 7.2
Cash used by investing activities.
5.5 Mobility segment results
-------------------------------------------------------------------------
Operating revenues - Quarters ended Nine-month periods
Mobility segment September 30 ended Sept. 30
($ millions) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
Network revenue 808.8 686.0 17.9 % 2,247.7 1,903.9 18.1 %
Equipment revenue 55.4 61.0 (9.2)% 171.0 152.4 12.2 %
-------------------------------------------------------------------------
External operating
revenue 864.2 747.0 15.7 % 2,418.7 2,056.3 17.6 %
Intersegment revenue 5.7 5.0 14.0 % 17.2 15.2 13.2 %
-------------------------------------------------------------------------
Total operating
revenue 869.9 752.0 15.7 % 2,435.9 2,071.5 17.6 %
-------------------------------------------------------------------------
----------------------------------------------
Key operating indicators
- Mobility segment
----------------------------------------------
(000s) At September 30
2005 2004 Change
----------------------------------------------
Subscribers -
postpaid 3,523.6 3,095.5 13.8 %
Subscribers -
prepaid 762.1 654.5 16.4 %
-------- -------- --------
Subscribers -
total(1) 4,285.7 3,750.0 14.3 %
Digital POPs(2)
covered including
roaming/resale
(millions)(3) 30.2 29.7 1.7 %
Quarters ended Nine-month periods
September 30 ended Sept. 30
(000s) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
Subscriber net
additions -
postpaid 104.6 115.4 (9.4)% 283.3 283.7 (0.1)%
Subscriber net
additions -
prepaid 33.4 20.8 60.6 % 66.0 42.3 56.0 %
-------------------------------------------------------------------------
Subscriber net
additions - total 138.0 136.2 1.3 % 349.3 326.0 7.1 %
Churn, per
month (%)(4) 1.33 1.34 (0.01)pts 1.38 1.38 -
COA(5) per gross
subscriber
addition ($)(4) 371 374 (0.8)% 356 379 (6.1)%
ARPU ($)(4) 64 62 3.2 % 61 59 3.4 %
Average minutes of
use per subscriber
per month ("MOU") 408 393 3.8 % 395 382 3.4 %
EBITDA to network
revenue (%) 51.1 47.2 3.9 pts 49.7 45.0 4.7 pts
Retention spend to
network
revenue(4) (%) 5.4 4.1 1.3 pts 5.6 4.6 1.0 pts
EBITDA ($ millions) 413.6 323.5 27.9 % 1,117.5 857.5 30.3 %
EBITDA excluding
COA ($ millions)(4) 527.3 429.6 22.7 % 1,423.1 1,148.9 23.9 %
-------------------------------------------------------------------------
pts - percentage points
(1) Subscribers are measured at the end of the reporting period based on
information from billing systems.
(2) POPs is an acronym for population. A POP refers to one person living
in a population area, which in whole or substantial part is included
in the coverage areas.
(3) At September 30, 2005, TELUS Mobility PCS digital population coverage
includes expanded coverage of approximately 7.5 million PCS POPs due
to roaming/resale agreements principally with Bell Mobility and
Aliant Telecom Wireless.
(4) See Section 11.3 Definition of key operating indicators. These are
industry measures useful in assessing operating performance of a
wireless company, but are not defined under accounting principles
generally accepted in Canada and the U.S.
(5) Cost of acquisition.
-------------------------------------------------------------------------
- TELUS Mobility Network revenue increased by $122.8 million for the
third quarter of 2005 and $343.8 million for the first nine months of
2005 as compared with the same periods last year. This growth was a
result of the continued expansion of the subscriber base combined
with increased average revenue per subscriber unit per month
("ARPU"). ARPU increased by $2 in the third quarter and first nine
months of 2005, when compared with the same periods in 2004, as a
result of increased data usage including picture and text messaging,
as well as an overall increase in average minutes of use per
subscriber per month ("MOU").
Average minutes of use per subscriber per month increased by 3.8% in
the third quarter and 3.4% in first nine months of 2005, when
compared with the same periods in 2004. At September 30, 2005,
postpaid subscribers represented 82.2% of the total cumulative
subscriber base, remaining relatively stable from one-year earlier,
and contributing to the significant ARPU premium TELUS Mobility
enjoys over its competitors. Despite the commercial launch by a new
competitor in the prepaid market, TELUS Mobility achieved a second
successive quarter of positive growth in year over year prepaid
subscriber net additions. Consequently, total subscriber net
additions of 138,000 represented a record for all previously reported
third quarters for TELUS Mobility.
Blended postpaid and prepaid monthly churn rates remained favourable,
improving slightly in the third quarter and remaining steady in the
first nine months of 2005, as compared with the same periods last
year despite continued competitive pricing pressures. Deactivations
were 168,600 and 509,100, respectively, for the third quarter and
first nine months of 2005, as compared with 147,600 and 442,600 for
the same periods last year. Notably, the monthly churn rate achieved
during the third quarter of 2005 has improved steadily during 2005.
This is a significant accomplishment, in face of pressures from
labour disruptions, new competition, and other aggressive push-to-
talk offerings. The excellent churn results reflect a continued focus
on customer care including successful loyalty and retention efforts,
value-added solutions and superior network quality.
- Equipment sales, rental and service revenue decreased in the third
quarter when compared to the same period in 2004 despite higher gross
additions principally due to product mix and increased promotional,
retention, and contracting activity. Handset revenue for the first
nine months increased mainly due to continued subscriber growth.
Gross subscriber additions grew to 306,600 for the third quarter and
858,400 for the first nine months of 2005 as compared with 283,800
and 768,600 for the same periods in 2004. Handset revenues associated
with gross subscriber activations are included in COA per gross
subscriber addition.
- Intersegment revenues represent services provided by the Mobility
segment to the Communications segment and are eliminated upon
consolidation along with the associated expense in TELUS
Communications.
-------------------------------------------------------------------------
Operations expense -
Mobility segment Quarters ended Nine-month periods
($ millions, except September 30 ended Sept. 30
employees) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
Equipment sales
expenses 114.7 111.2 3.1 % 328.9 299.6 9.8 %
Network operating
expenses 101.7 104.3 (2.5)% 298.9 301.2 (0.8)%
Marketing expenses 91.8 78.4 17.1 % 253.5 213.2 18.9 %
General and
administration
expenses 148.1 134.6 10.0 % 437.1 400.0 9.3 %
-------------------------------------------------------------------------
Total operations
expense 456.3 428.5 6.5 % 1,318.4 1,214.0 8.6 %
-------------------------------------------------------------------------
Full-time equivalent
employees, end of
period(1) n. m. 5,681 -
-------------------------------------------------------------------------
(1) The measure of full time equivalent employees is not reported in the
third quarter of 2005, as it does not factor in the effect of
overtime hours on staff equivalents because of the labour disruption.
The total number of active, working employees at September 30 of 2005
and 2004 were 5,785 and 5,971 respectively.
-------------------------------------------------------------------------
Mobility segment operations expense increased in the third quarter and
first nine months of 2005, when compared with the same periods in 2004, to
support growth in the subscriber base. TELUS Mobility continued to achieve
economies of scale as third quarter total operations expenses increased by
only 6.5%, while the corresponding Network revenue growth was 17.9% and year-
over-year subscriber growth was 14.3%.
- Expenses related to equipment sales increased in the third quarter
and first nine months of 2005 when compared with the same periods in
2004, principally due to an increase in gross subscriber activations
as well as increased retention activity. Handset costs associated
with gross subscriber activations are included in COA per gross
subscriber addition.
- Network operating expenses decreased in the third quarter and first
nine months of 2005, as compared with the same period last year.
Decreases in network operating expenses were the result of efforts to
improve roaming rates and reduced leased line costs through microwave
build, as well as scale efficiencies, and the competitive digital
network services discounts arising from CRTC Decision 2005-6. The
decreases were partly offset by increased transmission and site-
related expenses to support the greater number of cell sites, a
larger subscriber base, and improved network quality and coverage.
The digital population coverage grew to 30.2 million at September 30,
2005, as a result of continued activation of digital roaming regions
and network expansion.
- Marketing expenses increased primarily due to higher dealer
compensation costs and advertising expenses associated with the
expanded subscriber base and increased re-contracting activity.
However, COA per gross subscriber addition improved by $3 in the
third quarter to $371 as compared with the same period last year due
to higher gross subscriber additions and lower handset costs.
Similarly, COA per gross subscriber addition improved by $23 to $356
for the first nine months of 2005, when compared with the same period
in 2004. With the higher ARPU, COA per gross subscriber addition
expressed as a ratio of the lifetime revenue of the subscriber
improved in the third quarter and first nine months of 2005 as
compared with the same periods in 2004.
- General and administration expenses increased by 10.0% in the third
quarter and 9.3% for the first nine months of 2005, when compared to
the same periods in 2004. The number of full-time equivalent
employees working overtime to support the significant growth in the
subscriber base and continued expansion of the company-owned retail
stores, combined with additional labour disruption-related costs,
somewhat offset the payroll savings from fewer active full-time
employees. General and administration savings as a result of work
action were approximately $3 million in the third quarter of 2005.
-------------------------------------------------------------------------
EBITDA and EBITDA Quarters ended Nine-month periods
margin - Mobility September 30 ended Sept. 30
segment 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
EBITDA ($ millions) 413.6 323.5 27.9 % 1,117.5 857.5 30.3 %
EBITDA margin (%) 47.5 43.0 4.5 pts 45.9 41.4 4.5 pts
-------------------------------------------------------------------------
TELUS Mobility EBITDA increased by $90.1 million in the third quarter and
$260.0 million for the first nine months of 2005, when compared to the
corresponding periods in 2004. The improvement in EBITDA and EBITDA margin was
attributed to TELUS Mobility's focus on profitable subscriber growth,
increased ARPU, a lower cost of acquisition per gross subscriber addition,
excellent monthly churn rates, and successful cost containment efforts. The
EBITDA margin, when calculated as a percentage of Network revenue, improved to
a record 51.1% for the third quarter and improved to 49.7% for the first nine
months of 2005. This compares with 47.2% and 45.0%, respectively, for the same
periods in 2004, representing positive increases of 3.9 and 4.7 percentage
points, respectively.
Mobility segment capital expenditures are discussed in Section 7.2 Cash
used by investing activities.
6. Financial condition
The following are the significant changes in the consolidated balance
sheets between December 31, 2004 and September 30, 2005.
-------------------------------------------------------------------------
Sept. 30, Dec. 31, Change % Change Explanation
($ millions) 2005 2004
-------------------------------------------------------------------------
Current Assets
Cash and
temporary See Section 7.
investments, Liquidity and
net 1,322.1 896.5 425.6 47.5 % capital resources
-------------------------------------------------------------------------
Accounts Primarily an
receivable 893.5 863.5 30.0 3.5 % increase in
settlement
billings and
accruals with
alliance
partners, as well
as an increase in
work-in-progress.
Customer
receivables did
not change
significantly.
-------------------------------------------------------------------------
Income and Changes in
other taxes estimates of
receivable 150.3 132.5 17.8 13.4 % collectible near-
term recoveries
of taxes due to
available
deductible
differences,
reassessments and
interest for
prior years net
of refunds
received
-------------------------------------------------------------------------
Inventories 102.1 133.3 (31.2) (23.4)% Primarily a
reduction by
TELUS Mobility
from the peak
year-end
inventory levels,
partly offset by
new handset
launches
-------------------------------------------------------------------------
Prepaid expenses Primarily
and other 211.8 183.4 28.4 15.5 % prepayment of
property taxes,
federal Canada
Pension Plan
contributions,
federal
Employment
Insurance
premiums,
Mobility licence
fees net of
amortization and
a reduction in
connection and
activation fees
-------------------------------------------------------------------------
Current Decrease in
portion of available tax
future income loss pools for
taxes 396.2 438.4 (42.2) (9.6)% the upcoming 12
months and
temporary
differences in
short-term assets
and liabilities
-------------------------------------------------------------------------
Current Liabilities
Accounts payable Primarily an
and accrued increase in
liabilities 1,471.3 1,362.6 108.7 8.0 % interest payable
and an interest
accrual for
settlement of a
lawsuit, partly
offset by lower
payroll and
capital
expenditure
liabilities
-------------------------------------------------------------------------
Restructuring
and workforce
reduction
accounts Payments under
payable and previous programs
accrued exceeded new
liabilities 51.7 70.7 (19.0) (26.9)% obligations
-------------------------------------------------------------------------
Advance billings Primarily an
and customer increase in price
deposits 545.1 531.5 13.6 2.6 % cap deferred
revenues and
increased
Mobility
billings, partly
offset by lower
activation and
connection fees
-------------------------------------------------------------------------
Current Reclassification
maturities to current of
of long- $1,575.7 million
term debt 1,581.6 4.3 1,577.3 n.m. TELUS Corporation
7.5% Notes due
June 2006, for
which notice of
early redemption
on December 1,
2005 was given
-------------------------------------------------------------------------
Working Primarily
capital(1) (573.7) 678.5 (1,252.2) n.m. reflects debt to
be redeemed early
on December 1,
2005, net of cash
accumulation
-------------------------------------------------------------------------
Capital Assets, See Sections 5.3
Net 10,971.3 11,221.0 (249.7) (2.2)% Consolidated
results of
operations -
Depreciation and
amortization and
7.2 Cash used by
investing
activities
-------------------------------------------------------------------------
Other Assets
Deferred Primarily pension
charges 815.0 704.4 110.6 15.7 % plan
contributions in
excess of charges
to income
-------------------------------------------------------------------------
Future income Reflects use of
taxes - 99.8 (99.8) (100.0)% loss carry
forward amounts
and temporary
differences on
long-term assets
and liabilities
reversed to long-
term future tax
liability
-------------------------------------------------------------------------
Investments 30.8 38.4 (7.6) (19.8)% Includes a write
down in the
second quarter of
2005
-------------------------------------------------------------------------
Goodwill 3,157.0 3,126.8 30.2 1.0 % Goodwill added
for consolidation
of Ambergris, net
of foreign
exchange changes
since the
acquisition of
Ambergris
-------------------------------------------------------------------------
Long-Term Debt 4,497.3 6,332.2 (1,834.9) (29.0)% - TELUS
Corporation
7.5% Notes
became current
(Dec. 31:
$1,574.6
million);
- the $141.6
million Dec. 31
balance of
Convertible
debentures was
converted to
equity or
redeemed; and
- the Canadian
dollar value of
U.S. dollar
denominated
notes decreased
by $121.3
million because
of a
strengthening
Canadian
dollar.
-------------------------------------------------------------------------
Other Long-Term Primarily an
Liabilities 1,642.7 1,506.1 136.6 9.1 % increase in the
deferred hedging
liability for
U.S. dollar
denominated
notes, resulting
from a
strengthening
Canadian dollar
-------------------------------------------------------------------------
Future Income Primarily future
Taxes 1,139.0 991.9 147.1 14.8 % accounting
expenses
exceeding future
tax deductions
for existing
long-term assets
and liabilities
such as pension
amounts and fixed
assets, as well
as a 2005
acquisition
-------------------------------------------------------------------------
Non-Controlling The increase was
Interest 23.2 13.1 10.1 77.1 % from minority
partners' share
of earnings in
several small
subsidiaries,
including an
acquisition in
2005
-------------------------------------------------------------------------
Shareholders'
Equity
Convertible $7.8 million was
debentures - 8.8 (8.8) (100.0)% transferred to
share capital (in
Common equity)
when shareholders
exercised their
conversion option
in 2005, while
the balance was
transferred to
contributed
surplus (in
Common equity)
with the
redemption of the
remaining
debentures on
June 15, 2005
-------------------------------------------------------------------------
Common equity 7,098.2 7,016.8 81.4 1.2 % - 2005 nine-month
Net income of
$621.8 million;
- share options
exercised of
$215.3 million
to issue 6.9
million non-
voting shares
and 0.9 million
common shares;
- conversion of
$131.7 million
of Convertible
debentures into
3.3 million
Non-voting
shares;
- less dividends
of $215.6
million;
- less normal
course issuer
bid
expenditures of
$663.5 million
to repurchase
8.1 million
non-voting
shares and 7.6
million common
shares; and
- other of $(8.3)
million.
-------------------------------------------------------------------------
(1) Current assets subtracting Current liabilities - an indicator of the
ability to finance current operations and meet obligations as they
fall due.
-------------------------------------------------------------------------
7. Liquidity and capital resources
7.1 Cash provided by operating activities
-------------------------------------------------------------------------
Quarters ended Nine-month periods
September 30 ended Sept. 30
($ millions) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
693.5 847.2 (18.1)% 2,109.6 1,924.3 9.6 %
-------------------------------------------------------------------------
Cash provided by operating activities decreased by $153.7 million in the
third quarter and increased by $185.3 million in first nine months of
2005, when compared with the same periods in 2004. Changes in cash
provided by operating activities in the third quarter and first nine
months of 2005 were mainly due to the following:
- EBITDA increased by $21.8 million and $236.9 million, respectively
- Restructuring and workforce reduction payments decreased by
$2.5 million and $47.4 million, respectively
- Reduced repayments of securitized accounts receivable (no repayments
in 2005 or the third quarter of 2004; $150 million repayments in the
first nine months 2004)
- Interest paid decreased by $10.9 million and $20.6 million,
respectively
- Interest received increased by $7.2 million and $11.1 million,
respectively
- Employer contributions to employee defined benefit plans increased by
$4.3 million and decreased by $22.5 million, respectively. The
changes were due to updated actuarial valuations and a net
acceleration of discretionary funding in the second quarter of 2004.
The best estimate of fiscal 2005 employer contributions to the
Company's defined benefit pension plan has been revised to
approximately $115 million
- Income tax recoveries net of installment payments decreased by
$8.9 million and $175.2 million, respectively, in the third quarter
and first nine months of 2005, when compared with the same periods in
2004, and
- Other changes in non-cash working capital in the respective years,
including a reduction of accruals for capital expenditures, payroll
and employee-related liabilities, and payment of partial lump sum
amounts to bargaining unit employees in the third quarter of 2005.
7.2 Cash used by investing activities
-------------------------------------------------------------------------
Quarters ended Nine-month periods
September 30 ended Sept. 30
($ millions) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
263.3 316.5 (16.8)% 979.5 956.7 2.4 %
-------------------------------------------------------------------------
Cash used by investing activities decreased by $53.2 million in the third
quarter and increased by $22.8 million in first nine months of 2005, when
compared with the same periods in 2004. A deferral of capital
expenditures associated with the labour disruption led to a decrease in
capital expenditures of $56.8 million and $30.7 million, respectively, in
the third quarter and first nine months of 2005, when compared with the
same periods in 2004. In addition, a $29.4 million investment in
Ambergris was made in 2005, whereas in the same period in 2004, proceeds
of $18.2 million were realized from the sale of several non-core real
estate properties. Assets under construction increased to $589.1 million
at September 30, 2005, compared with $465.5 million one year earlier and
$329.6 million at December 31, 2004, due to delays in completing capital
projects caused by the labour disruption, as well as continued
development of a new billing system in the Communications segment.
-------------------------------------------------------------------------
Capital expenditures
by segment
($ millions,
except capital Quarters ended Nine-month periods
expenditure September 30 ended Sept. 30
intensity) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
Communications
segment 176.5 216.4 (18.4)% 684.0 743.5 (8.0)%
Mobility segment 86.5 103.4 (16.3)% 260.9 232.1 12.4 %
-------------------------------------------------------------------------
TELUS
consolidated 263.0 319.8 (17.8)% 944.9 975.6 (3.1)%
Capital
expenditure
intensity(1) (%) 12.7 16.4 (3.7)pts 15.6 17.4 (1.8)pts
-------------------------------------------------------------------------
(1) Measured by dividing capital expenditures by operating revenues. This
measure provides a method of comparing the level of capital
expenditures to other companies of varying size within the same
industry.
-------------------------------------------------------------------------
- Communications segment ILEC capital expenditures decreased by 15.4% to
$155.8 million in the third quarter of 2005, and decreased by 3.0% to
$605.6 million for the first nine months of 2005, when compared with
the same periods in 2004. The decrease includes some deferral of
capital expenditures due to the labour disruption. Greater investment
in internal systems and processes was more than offset by lower
expenditures on network infrastructure, high-speed Internet, and other
initiatives. Expenditures for high-speed Internet were approximately
$14 million and $60 million, respectively, for the third quarter and
first nine months of 2005.
Non-ILEC capital expenditures decreased by 35.5% to $20.7 million in
the third quarter of 2005 and decreased by 33.8% to $78.4 million in
the first nine months of 2005, when compared with the same periods in
2004. While the decrease in spending was primarily due to up-front
expenditures in the same period last year that related to the costs to
support certain major new customers, the year-over-year decrease in
quarterly non-ILEC expenditures is not expected to continue in future.
Deferral of capital expenditures in the Communications segment due to
the labour disruption resulted in capital expenditure intensity ratios
decreasing to 14.4% and 18.5%, respectively, in the third quarter and
first nine months of 2005, compared with 17.7% and 20.5% for the same
periods in 2004. Cash flow (EBITDA less capital expenditures) for the
third quarter of 2005 decreased by 10.2% to $249.6 million, when
compared with the same period in 2004, due primarily to increased
expenses associated with the labour disruption. Cash flow for the
first nine months of 2005 increased by 5.0% to $759.4 million, when
compared with the same period in 2004, as increased revenues,
decreased capital expenditures, and lower restructuring charges more
than offset higher operations expenses. TELUS Communications expects
to achieve capital expenditure intensity of approximately 19% for the
full year.
- Mobility segment capital expenditures decreased by $16.9 million in
the third quarter of 2005, when compared with the same period in 2004,
due to deferral of network capital expenditures related to the labour
disruption, a stronger Canadian dollar, and lower infrastructure
equipment costs. Increased capital expenditures of $28.8 million for
the first nine months of 2005 were attributed to strategic investment
in next-generation EVDO capable wireless network technology and
continued enhancement of digital wireless coverage. TELUS Mobility
expects to launch Wireless High Speed, or EVDO, services in Canada's
largest urban centres by mid-November 2005.
Capital expenditure intensity for TELUS Mobility decreased to 9.9% in
the third quarter of 2005 from 13.8% in the third quarter of 2004 due
to a significant increase in operating revenues. Similarly, capital
expenditure intensity for the first nine months of 2005 was 10.7% as
compared with 11.2% for the same period in 2004. TELUS Mobility
expects to achieve capital expenditure intensity of approximately 12%
for the full year. Continued strong growth in TELUS Mobility EBITDA
generated record TELUS Mobility cash flows (EBITDA less capital
expenditures) of $327.1 million in the third quarter and
$856.6 million for the first nine months of 2005 as compared with
$220.1 million and $625.4 million for the same periods in 2004,
representing increases of 48.6% and 37.0%, respectively.
Consolidated cash flows (EBITDA less capital expenditures) were
$576.7 million and $1,616.0 million, respectively, for the third
quarter and first nine months of 2005, representing increases of 15.8%
and 19.8%, respectively, when compared with the same periods in 2004.
The increases resulted primarily from growth in TELUS Mobility cash
flows.
7.3 Cash used by financing activities
-------------------------------------------------------------------------
Quarters ended Nine-month periods
September 30 ended Sept. 30
($ millions) 2005 2004 Change 2005 2004 Change
-------------------------------------------------------------------------
249.2 266.2 (6.4)% 704.5 351.6 100.4 %
-------------------------------------------------------------------------
Cash used by financing activities decreased in the third quarter and
increased in the first nine months of 2005, when compared with the same
periods in 2004. Financing activities included the following:
- Proceeds from Common Shares and Non-Voting Shares issued were
$56.3 million and $200.3 million, respectively, in the third quarter
and nine-month period ended September 30, 2005, increases of
$29.3 million and $129.5 million, respectively, when compared with
the same periods in 2004. The increases were mainly due to the
exercise of options and warrants in 2005, partly offset by lower
proceeds from share purchases for employee share plans, as TELUS now
purchases these shares in the market, rather than issuing shares from
treasury.
In addition, during the second quarter of 2005, convertible
debentures with a principal value of $131.7 million were converted
into approximately 3.3 million Non-Voting Shares. Due to the non-cash
nature of these transactions, the conversions are shown as balance
sheet adjustments and are not included in the financing activities of
the cash flow statements.
- Cash dividends paid to shareholders were $71.7 million and
$215.6 million in the third quarter and first nine months of 2005;
increases of $26.2 million and $79.5 million when compared with the
same periods in 2004. The increase was due principally to the change
in dividend rate from 15 cents per quarter to 20 cents per quarter
effective in the fourth quarter of 2004, as well as the purchase of
dividend reinvestment plan shares in the market rather than issuing
shares from treasury.
- Under the Normal Course Issuer Bid program, TELUS purchased for
cancellation approximately 2.5 million Common Shares and
approximately 2.5 million Non-Voting Shares for a total outlay of
$233.1 million in the third quarter of 2005. This total outlay was
comprised of a reduction to share capital of $86.0 million
representing the book value of shares repurchased, and a reduction to
retained earnings of $147.1 million representing the amount in excess
of book value. The following tables enumerate the shares repurchased
and cost under this program since inception.
Normal Course Issuer Bid to September 30, 2005 - shares repurchased
-------------------------------------------------------------------------
Purchased for
Purchased in Purchased for cancellation in
December 2004, cancellation the first nine
(Number of shares) and cancelled in 2005 Q3 months of 2005
-------------------------------------------------------------------------
Common Shares 755,711 2,535,100 7,604,700
Non-Voting Shares 1,451,400 2,549,500 8,125,800
-------------------------------------------------------------------------
2,207,111 5,084,600 15,730,500
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cumulative Maximum shares Percentage
shares permitted for of maximum
purchased for repurchase under permitted shares
(Number of shares) cancellation the program repurchased
-------------------------------------------------------------------------
Common Shares 8,360,411 14,000,000 59.7 %
Non-Voting Shares 9,577,200 11,500,000 83.3 %
-------------------------------------------------------------------------
17,937,611 25,500,000 70.3 %
-------------------------------------------------------------------------
Normal Course Issuer Bid to September 30, 2005 - cost
-------------------------------------------------------------------------
2005
December 2005 nine-month Cumulative
($ millions) 2004 outlay Q3 outlay outlay outlay
-------------------------------------------------------------------------
Reduction to:
share capital 39.4 86.0 265.1 304.5
retained earnings 38.6 147.1 398.4 437.0
-------------------------------------------------------------------------
78.0 233.1 663.5 741.5
-------------------------------------------------------------------------
- No significant long-term debt was issued in the third quarters of
2005 and 2004. Long-term debt issues of $4.7 million for the first
nine months of 2005 were capital leases. In the comparative nine-
month period of 2004, long-term debt issues were primarily bank
facilities that were repaid.
- Redemptions and repayments of long-term debt were $1.0 million and
$21.3 million, respectively, in the third quarter first nine months
of 2005 (2004 - $210.7 million and $247.7 million, respectively). The
June 16, 2005 redemption of convertible debentures, which were not
previously converted into Non-voting shares, was $17.9 million. Other
redemptions in 2005 were primarily capital leases. The redemptions in
the third quarter and first nine months of 2004 included TCI Series A
Debentures and TCI medium-term Notes.
7.4 Liquidity and capital resource measures
-------------------------------------------------------------------------
Periods ended September 30, September 30,
2005 2004 Change
-------------------------------------------------------------------------
Components of debt and coverage
ratios(1)
-------------------------------
Net debt ($ millions) 5,915.8 6,749.4 (833.6)
Total capitalization -
book value ($ millions) 13,037.2 13,588.8 (551.6)
EBITDA (excluding restructuring)
($ millions) - 12-month trailing 3,365.7 3,055.8 309.9
Net interest cost ($ millions) -
12-month trailing 604.2 624.2 (20.0)
Debt ratios
-----------
Fixed rate debt as a proportion
of total indebtedness (%) 93.1 93.2 (0.1) pts
Average term to maturity of debt
(years) 4.6 5.6 (1.0)
Net debt to total capitalization
(%)(1) 45.4 49.7 (4.3) pts
Net debt to EBITDA(1) 1.8 2.2 (0.4)
Coverage ratios(1)
------------------
Interest coverage on long-term debt 2.7 2.1 0.6
EBITDA interest coverage 5.6 4.9 0.7
Other measures
--------------
Free cash flow ($ millions) -
12-month trailing(2) 1,477.6 1,246.9 230.7
Dividend payout ratio (%)(1) 38 45 (7) pts
-------------------------------------------------------------------------
(1) See Section 11.4 Definition of liquidity and capital resource
measures. Net debt is a non-GAAP measure that is defined and
reconciled to its nearest GAAP measure in Section 11.4.
(2) See Section 11.2 Free cash flow.
Net debt decreased at the end of the third quarter of 2005, when compared
to one year earlier, as a result of an increase in cash and temporary
investments of $699.9 million (netted against debt for the purposes of
this calculation), conversion and redemption of convertible debentures in
2005. Total capitalization also decreased for these reasons; partly
offset by a $278.5 million increase in common equity over this 12-month
period. The net debt to EBITDA ratio measured at September 30, 2005
improved significantly, when compared with one year earlier, as a result
of increased cash, debt reduction and an increase in 12-month trailing
EBITDA (excluding restructuring).
Interest coverage on long-term debt improved because of increased income
before interest and taxes and lower interest on long-term debt. The
EBITDA interest coverage ratio improved by 0.5 as a result of higher
EBITDA (excluding restructuring), and increased by 0.2 due to lower
interest. Free cash flow measure for the 12-month period ended September
30, 2005 increased, when compared with one year earlier, primarily
because of improved EBITDA, lower capital expenditures, lower payments
under restructuring programs, and lower interest payments, partly offset
by lower cash tax recoveries and interest received.
Long-term guidelines for certain TELUS' liquidity measures, as defined in
Section 11.4 Definition of liquidity and capital resource measures, are:
- Net debt to total capitalization of 45 to 50%
- Net debt to EBITDA of 1.5:1 to 2.0:1
- Dividend payout ratio of 45% to 55% of sustainable net earnings.
With the November 8, 2005 announcement of an increase in the quarterly
dividend from 20 cents per share to 27.5 cents per share effective with
the 2005 fourth quarter dividend, the dividend payout ratio increased to
52%, consistent with the guideline. This ratio was calculated as four
times the fourth quarter dividend of 27.5 cents, divided by the sum of
earnings per share reported for the four quarters ending September 30,
2005 (or $2.11).
7.5 Credit facilities
TELUS arranged new credit facilities in May 2005 to replace $1.6 billion
of prior credit facilities. The prior 364-day facility, which was due to
expire, and a term facility with three years remaining to maturity were
replaced with a new three-year facility due in May 2008 and a longer
maturity five-year term facility due in May 2010. The new credit
facilities have no substantial changes in terms and conditions, other
than reduced pricing and the extension of term, which reflect favourable
market conditions and TELUS' strong financial position.
Including cash in excess of $1.3 billion and the credit facilities
described in the table below, TELUS had unutilized available liquidity in
excess of $2.8 billion at September 30, 2005.
-------------------------------------------------------------------------
Credit Facilities Outstanding
At September 30, 2005 undrawn letters
($ in millions) Expiry Size Drawn of credit
-------------------------------------------------------------------------
Five-year revolving
facility(1) May 4, 2010 800.0 - -
Three-year revolving
facility(1) May 7, 2008 800.0 - 100.6
Other bank facilities - 74.0 - 6.6
-------------------------------------------------------------------------
Total - 1,674.0 - 107.2
-------------------------------------------------------------------------
(1) Canadian dollars or U.S. dollar equivalent.
-------------------------------------------------------------------------
TELUS' credit facilities contain customary covenants including a
requirement that TELUS not permit its consolidated Leverage Ratio (Funded
Debt to trailing 12-month EBITDA) to exceed 4.0:1 (approximately 1.8:1 at
September 30, 2005) and not permit its consolidated Coverage Ratio
(EBITDA to Interest Expense on a trailing 12-month basis) to be less than
2.0:1 (approximately 5.6:1 at September 30, 2005) at the end of any
financial quarter. There are certain minor differences in the calculation
of the Leverage Ratio and Coverage Ratio under the credit agreement as
compared with the calculation of net debt to EBITDA and EBITDA interest
coverage. The calculations are not expected to be materially different.
The covenants are not impacted by revaluation of capital assets,
intangible assets and goodwill for accounting purposes, and continued
access to TELUS' credit facilities is not contingent on the maintenance
by TELUS of a specific credit rating.
7.6 Accounts receivable sale
TELUS Communications Inc., a wholly owned subsidiary of TELUS, is able to
sell an interest in certain of its receivables up to a maximum of
$650 million and is required to maintain at least a "BBB (low)" credit
rating by Dominion Bond Rating Service ("DBRS"), or the purchaser may
require the sale program to be wound down. The necessary credit rating
was exceeded by three levels at "A (low)" as of November 8, 2005. The
proceeds of securitized receivables were $150 million at September 30,
2005, unchanged from one year earlier and the end of 2004. It is
necessary to retain a minimum of $150 million proceeds under this program
to keep it active.
7.7 Credit ratings
The credit ratings for TELUS and TCI remain investment grade. After
TELUS' announcement on September 26, 2005, of its intention to early-
redeem $1.6 billion in Notes on December 1, 2005, three of four credit
rating agencies that cover TELUS issued updates:
- On September 27, S&P raised its ratings for long-term corporate credit
and senior unsecured debt of TELUS Corporation and TCI from "BBB" to
"BBB+," while revising the outlook to stable;
- On October 18, Fitch Ratings upgraded its long-term "BBB" ratings for
TELUS and TCI to "BBB+" with a stable outlook; and
- On October 24, DBRS upgraded its "BBB" rating for TELUS Corporation
Notes and its "BBB (high)" ratings for TCI to "BBB (high)" and "A
(low)," respectively, while the trend was revised to stable.
Earlier in the year on June 27, Moody's Investors Services Inc. increased
its investment grade rating for TELUS Notes from "Baa3" with a positive
outlook to "Baa2" with a stable outlook. TELUS has an objective to
preserve access to capital markets at a reasonable cost by maintaining
and improving investment grade credit ratings in the range of "BBB+" to
"A-," or the equivalent.
-------------------------------------------------------------------------
Credit rating summary DBRS(1) S&P(1) Moody's(1) Fitch(1)
-------------------------------------------------------------------------
TELUS Corporation
Senior bank debt - - - BBB+
Notes BBB (high) BBB+ Baa2 BBB+
TELUS Communications Inc.
Debentures A (low) BBB+ - BBB+
Medium-term Notes A (low) BBB+ - BBB+
First mortgage bonds A (low) A- - -
-------------------------------------------------------------------------
(1) Outlook or trend "stable"
-------------------------------------------------------------------------
7.8 Off-balance sheet arrangements, commitments and contingent
liabilities
Financial instruments (Note 3 of the interim consolidated financial
statements)
During the first quarter of 2005, the Company entered into a hedging
relationship that fixes the Company's compensation cost arising from a
specific grant of restricted stock units; hedge accounting has been
applied to this relationship.
As at September 30, 2005, the Company had entered into foreign currency
forward contracts that have the effect of fixing the exchange rate on
U.S. $52 million of fiscal 2005 and 2006 purchase commitments; hedge
accounting has been applied to these foreign currency forward contracts,
all of which relate to the Mobility segment.
The fair values of the Company's long-term debt are estimated based on
quoted market prices for the same or similar issues or on the current
rates offered to the Company for debt of the same maturity as well as the
use of discounted future cash flows using current rates for similar
financial instruments subject to similar risks and maturities. The fair
values of the Company's derivative financial instruments used to manage
exposure to interest rate and currency risks are estimated similarly. The
carrying amount and fair value of long-term debt are as follows:
As at As at
September 30, 2005 December 31, 2004
-------------------------------------------------------------------------
Carrying Fair Carrying Fair
($ millions) amount value amount value
-------------------------------------------------------------------------
Long-term debt
Principal 6,078.9 6,894.3 6,345.3 7,342.3
Derivative financial
instruments used to manage
interest rate and currency
risks associated with U.S.
dollar denominated debt
(Hedging item maximum
maturity date: June 2011) 1,154.9 1,560.5 1,032.6 1,299.5
Derivative financial
instruments used to manage
interest rate risk
associated with Canadian
dollar denominated debt
(Hedging item maximum
maturity date: June 2006) - 1.4 - 1.3
-------------------------------------------------------------------------
7,233.8 8,456.2 7,377.9 8,643.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Commitments and contingent liabilities (Note 14 of the interim
consolidated financial statements)
At September 30, 2005, the Company had $42.1 million in outstanding
commitments for restructuring programs prior to 2005 and $9.6 million in
outstanding commitments for restructuring programs initiated in 2005.
In accordance with CRTC Price Cap Decisions 2002 34 and 2002 43, the
Company defers a portion of revenues in a deferral account, which at
September 30, 2005, had balance of $148.0 million. Due to the Company's
use of the liability method of accounting for the deferral account, the
CRTC Decision 2005-6, as it relates to the Company's provision of
competitive digital network services, is not expected to affect the
Company's consolidated revenues -- to the extent that the CRTC Decision
2005-6 requires the Company to provide discounts on Competitor Digital
Network services, both for current and prior periods, the Company draws
down the deferral account by an offsetting amount.
Canadian generally accepted accounting principles require the disclosure
of certain types of guarantees and their maximum, undiscounted amounts.
The maximum potential payments represent a "worst-case scenario" and do
not necessarily reflect results expected by the Company. Guarantees
requiring disclosure are those obligations that require payments
contingent on specified types of future events. In the normal course of
its operations, the Company enters into obligations that GAAP may
consider to be guarantees. As defined by Canadian GAAP, guarantees
subject to these disclosure guidelines do not include guarantees that
relate to the future performance of the Company. At September 30, 2005,
the Company has no liability recorded in respect of performance
guarantees, and has $1.0 million recorded in respect of lease guarantees.
The maximum undiscounted guarantee amounts as at September 30, 2005,
without regard for the likelihood of having to make such payment, were
not significant.
In the normal course of operations, the Company may provide
indemnification in conjunction with certain transactions. The term of
these indemnification obligations range in duration and often are not
explicitly defined. Where appropriate, an indemnification obligation is
recorded as a liability. In many cases, there is no maximum limit on
these indemnification obligations and the overall maximum amount of the
obligations under such indemnification obligations cannot be reasonably
estimated. Other than obligations recorded as liabilities at the time of
the transaction, historically the Company has not made significant
payments under these indemnifications.
In connection with its 2001 disposition of TELUS' directory business, the
Company agreed to bear a proportionate share of the new owner's increased
directory publication costs if the increased costs were to arise from a
change in the applicable CRTC regulatory requirements. The Company's
proportionate share would be 80% through May 2006, declining to 40% in
the next five-year period and then to 15% in the final five years. As
well, should the CRTC take any action which would result in the owner
being prevented from carrying on the directory business as specified in
the agreement, TELUS would indemnify the owner in respect of any losses
that the owner incurred. At September 30, 2005, the Company has no
liability recorded in respect of indemnification obligations.
A number of claims and lawsuits seeking damages and other relief are
pending against the Company. It is impossible at this time for the
Company to predict with any certainty the outcome of such litigation.
However, management is of the opinion, based upon legal assessment and
information presently available, that it is unlikely that any liability,
to the extent not provided for through insurance or otherwise, would be
material in relation to the Company's consolidated financial position,
excepting items enumerated in Note 14(d) of the interim consolidated
financial statements.
7.9 Outstanding share information
The following is a summary of the outstanding shares for each class of
equity at September 30, 2005 and at October 31, 2005. In addition, for
October 31, 2005, the total number of outstanding and issuable shares is
presented, assuming full conversion of options. Unexercised warrants that
were issued under the terms of the arrangement to acquire Clearnet
expired on September 15, 2005.
-------------------------------------------------------------------------
Class of equity security
Non-Voting
Common Shares Shares Total Shares
(millions of shares) outstanding outstanding outstanding
-------------------------------------------------------------------------
At September 30, 2005
Common equity - Common
Shares outstanding 186.0 - 186.0
Common equity - Non-Voting
Shares outstanding - 168.4 168.4
-------------- -------------- --------------
186.0 168.4 354.4(1)
-------------- -------------- --------------
At October 31, 2005
Common equity - Common
Shares outstanding 186.0 - 186.0
Common equity - Non-Voting
Shares outstanding - 168.6 168.6
-------------- -------------- --------------
186.0 168.6 354.6
-------------- -------------- --------------
Outstanding and issuable
shares(2) at October 31, 2005
Common Shares and Non-Voting
Shares outstanding 186.0 168.6 354.6
Options 1.6 22.5 24.1
-------------- -------------- --------------
187.6 191.1 378.7
-------------- -------------- --------------
-------------- -------------- --------------
-------------------------------------------------------------------------
(1) For the purposes of calculating diluted earnings per share for the
third quarter of 2005, the number of shares was 361.7 million.
(2) Assuming full conversion and ignoring exercise prices.
-------------------------------------------------------------------------
8. Critical accounting estimates and accounting policy developments
8.1 Critical accounting estimates
TELUS' significant accounting policies are described in Note 1 of its
annual 2004 consolidated financial statements. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
As described in Note 1(b) of the interim consolidated financial
statements, during the third quarter of 2005, the Company revised
estimates that had been made over a period of years, resulting in a
revision of accruals for payroll and other employee-related liabilities.
8.2 Accounting policy developments (Note 2 of the interim consolidated
financial statements)
Accounting policies are consistent with those described in TELUS' annual
2004 consolidated financial statements. Possibly, commencing with the
Company's 2005 fiscal year, proposed amendments to the recommendations of
the Canadian Institute of Chartered Accountants ("CICA") for the
calculation and disclosure of earnings per share (CICA Handbook Section
3500) may apply to the Company. The proposed amendments are not expected
to materially impact the Company.
Commencing with the Company's 2006 fiscal year, the amended
recommendations of the CICA for measurement of non-monetary transactions
(CICA Handbook Section 3830) will apply to the Company. The amended
recommendations will result in non-monetary transactions normally being
measured at their fair values, unless certain criteria are met. The
Company's current operations are not materially affected by the amended
recommendations.
Commencing in the Company's 2006 fiscal year, the proposed amended
recommendations of the CICA for subsequent events (CICA Handbook Section
3820) will apply to the Company. The proposed amended recommendations
will result in closer harmony with the corresponding requirements of U.S.
GAAP. The Company does not expect to be materially affected by the
proposed amended recommendations.
9. Revised guidance
The Company has a practice of reaffirming or adjusting annual guidance on
a quarterly basis. This revised 2005 guidance is subject to the forward-
looking statements disclaimer at the beginning of this Management's
discussion and analysis. Specifically, the revised guidance reflects
changing assumptions including:
- An expectation of increased revenues in TELUS Communications based on
year-to-date performance, more than offset by the various impacts
of the labour disruption, which includes higher net operations
expenses at TELUS Communications and constrained ability to activate
certain customer services such as high-speed Internet and to complete
planned capital expenditures;
- Restructuring and workforce reduction expenses for the full year of
$20 to $50 million - previously $100 million, or less;
- Growth in TELUS Mobility revenue and EBITDA resulting from an
approximate five percentage point annual gain in Canadian wireless
industry market penetration for the full year of 2005 - previously
estimated at four percentage points - as well as higher ARPU from
increased use of services and airtime, and continued scale
efficiencies;
- The announcement on October 17, 2005, that the Company had delivered
notice of early redemption on December 1, 2005, of $1.578 billion
7.5%, Series CA, Notes due June 1, 2006. The redemption is expected
to increase financing charges by approximately six to seven cents per
share after tax;
- The change in guidance for free cash flow considers impacts of the
labour disruption including deferral of capital expenditures, as well
as increased TELUS Mobility EBITDA, and uncertainty of the timing of
the receipt certain cash tax recoveries, and
The following table presents the revised guidance.
-------------------------------------------------------------------------
Updated guidance August 4, 2005
for 2005 guidance Change
-------------------------------------------------------------------------
Consolidated
Revenues $8.1 to $8.15 $7.95 to $8.05 $100 to $150
billion billion million
-------------------------------------------------------------------------
EBITDA(1) no change $3.25 to $3.325 -
billion
-------------------------------------------------------------------------
Earnings per
share - basic $1.90 to $2.00 $1.85 to $2.05 narrowed range
-------------------------------------------------------------------------
Capital Approx. Approx. Approx.
expenditures $1.3 billion $1.4 billion $(100) million
-------------------------------------------------------------------------
Free cash flow(2) $1.4 to $1.5 $1.25 to $1.35 $150 million
billion billion
-------------------------------------------------------------------------
Communications
segment
Revenue $4.825 to $4.85 $4.75 to $4.8 $50 to $75
(external) billion billion million
-------------------------------------------------------------------------
Non-ILEC revenue no change $625 to $650 -
million
-------------------------------------------------------------------------
EBITDA $1.8 to $1.875 $1.875 to $1.925 $(50) to $(75)
billion billion million
-------------------------------------------------------------------------
Non-ILEC EBITDA no change $15 to $20 -
million
-------------------------------------------------------------------------
Capital Approx. Approx. Approx.
expenditures $900 million $1.0 billion $(100) million
-------------------------------------------------------------------------
High-speed
Internet net
additions Approx. 65,000 Approx. 100,000 Approx. (35,000)
-------------------------------------------------------------------------
Mobility segment
Revenue (external) $3.275 to $3.3 $3.2 to $3.25 $50 to $75
billion billion million
-------------------------------------------------------------------------
EBITDA $1.425 to $1.45 $1.375 to $1.4 $50 million
billion billion
-------------------------------------------------------------------------
Capital Approx.
expenditures no change $400 million -
-------------------------------------------------------------------------
Wireless
subscriber net Greater than
additions no change 525,000 -
-------------------------------------------------------------------------
(1) See Section 11.1 Earnings before interest, taxes, depreciation and
amortization (EBITDA) for the definition of EBITDA.
(2) See Section 11.2 Free cash flow for the definition of free cash flow.
-------------------------------------------------------------------------
10. Risks and risk management
The following are significant updates to the risks and uncertainties
described in TELUS' 2004 Annual Report and first and second quarter
interim 2005 Management's discussions and analysis, which are filed on
SEDAR (www.sedar.com) and EDGAR (www.sec.gov).
10.1 Human Resources
The outcome of outstanding labour relations issues, such as the duration
and impact of the continuing labour disruption, may result in further
unanticipated increased costs and may cause reduced productivity and/or
morale issues. There can be no assurance that, with the eventual outcome
of collective bargaining, compensation increases will be as planned or
that reduced productivity and customer service will not occur as a result
of the labour disruption. Should the ultimate operational and financial
impacts differ from management's assessments and assumptions, a material
adjustment to the Company's financial position and the results of its
operations could result.
10.2 Regulatory
Implementation of wireless number portability ("WNP") - Telecom Public
Notice CRTC 2005-14
The CRTC issued a public notice on September 16, 2005, inviting comments
on several issues related to implementation of wireless number
portability between wireless carriers and between those carriers and
wireline local exchange carriers. The comment and reply comment periods
were completed in October 2005. The four issues considered in this
proceeding were:
- how wireless carriers may gain direct access to number portability
systems, and the terms and conditions that should apply;
- what the appropriate service interval should be to port a telephone
number to and/or from a wireless carrier;
- what the eligible porting scenarios should be to port a telephone
number to and/or from a wireless carrier; and
- wireless number portability implementation timeframes.
The CRTC also indicated that it intends to issue another public notice
once it has reviewed in detail the Canadian Wireless Telecommunications
Association ("CWTA") implementation plan titled "Implementation of
Wireless Number Portability: Selling a New World-Class Standard", issued
on September 12, 2005. The proceeding under the future public notice may
include such matters as:
- wireless services subject to number porting;
- the interchange of traffic between wireless carriers and local
exchange carriers in a portability environment;
- wireless carrier access to ILECs' operational support systems;
- criteria for denying a wireless port;
- ILEC winback rules for wireless number ports;
- directory listings and information provided for E-911 calls;
- Any other matters that may arise from a review of the implementation
plan.
TELUS Mobility is a member of the CWTA that commissioned the independent
report prepared by PricewaterhouseCoopers LLP. Under the plan, consistent
with the Government of Canada's definition of wireless number
portability, customers will be able to transfer numbers between wireless
service providers as well as transfer numbers between wireline phone
service and wireless service. The proposed implementation includes a mid-
2007 pilot trial and national implementation in September 2007,
contingent on timely resolution of a number of outstanding issues and
full co-operation of the Canadian telecommunications sector. This number
portability implementation strategy differs from the one implemented in
the U.S. previously, as follows: (i) implementation is planned to occur
across the country simultaneously, rather than a regional phased
implementation as in the U.S.; and (ii) the implementation simultaneously
addresses wireline-to-wireless portability, and vice versa, as well as
wireless-to-wireless portability. A WNP taskforce has begun
implementation of the recommendations, and is expected to make Canada the
third country in the world to offer complete wireless-to-wireless,
wireless-to-wireline, and wireline-to-wireless number portability.
There is no assurance that TELUS will be able to implement the required
changes in the desired timeframe, without incurring significant
additional costs and/or ongoing administration costs. Implementation of
wireless number portability may result in increased migration of network
access lines to wireless services, increased wireless subscriber monthly
churn, or additional wireless customer retention costs. TELUS believes
that such risks will be reduced by the Company's Future Friendly(R)
initiatives, commitment to exceptional client service, a strong brand and
superior wireline and wireless network quality.
Issues with respect to the provision of optical fibre (Telecom Decision
CRTC 2005-63)
On October 21, 2005, the CRTC determined that it would require TELUS to
provide inter-exchange dark fibre on a tariffed basis, and that it would
not be appropriate for CRTC to forbear from regulating the provision of
dark fibre on inter-exchange private line routes that were previously
forborne from rate regulation. The CRTC directed TELUS to file, within 60
days, a general tariff for the provision of inter-exchange dark fibre in
its ILEC territory. The general tariff is subject to the availability of
existing and unallocated facilities. Where facilities are not available
and TELUS elects to undertake construction to provide service to a
particular customer, TELUS can provide dark fibre under a special
facilities tariff, provided the facilities are not provided at less than
a general tariff. TELUS expects that this decision will not materially
impact its operations.
Proceeding on local exchange services forbearance (Telecom Public Notice
CRTC 2005-2)
The CRTC initiated a proceeding to examine a range of issues including:
the relevant markets for forbearance, which CRTC powers and duties should
be forborne, and the post-forbearance criteria and conditions that might
apply. The proceeding also considered a transitional regime that could
provide ILECs with more regulatory flexibility prior to forbearance.
TELUS participated in the oral consultation in late September 2005. The
proceeding completed in early October 2005 and a decision is expected by
the end of the first quarter of 2006. There can be no assurance that the
local exchange forbearance rules eventually adopted by the CRTC will
provide transitional relief on win backs and promotions.
10.3 Process risks
The Company continues to develop a new billing system in the
Communications segment, which will include re-engineering processes for
order entry, pre-qualification, service fulfillment and assurance,
customer care, collections/credit, customer contract and information
management. This customer-focused project requires extensive system
development and in itself presents implementation risks due to the
complexity of the implementation task and resource constraints. The
Company plans to implement this project in phases, beginning with the
implementation of consumer accounts in Alberta, currently scheduled in
the first half of 2006, followed by implementation of consumer customer
accounts in B.C. at a later date. There can be no assurance that this
undertaking will not negatively impact TELUS' customer service levels,
competitive position and financial results.
With the labour disruption and reassignment of management to front line
positions, the risk of not detecting billing issues and revenue leakage
increased. At the same time, management team members gained experience
and understanding of front line operations that is expected to prove
valuable in implementing process changes in future.
10.4 Manmade and natural threats
The number of vandalism and theft incidents affecting TELUS' network
facilities and infrastructure has increased since April 2005. The
majority of these incidents disrupted service to one or more customers
and were all under investigation by the appropriate police authorities
and some arrests were made. On-going security reviews have led the
Company to implement new security measures in 2005. There can be no
assurance that specific events in the future will not impact TELUS
operations.
There is a small exposure to international geopolitical risks in TELUS
International, including its presence in the Philippines; however, TELUS
International's operations are insignificant when compared with the
Company's consolidated operations.
10.5 Litigation
In June 2005, the Ontario Court of Appeal unanimously overturned a 2003
trial court decision and ruled that when TCI's predecessor BC TEL
redeemed $125 million of Series AL Bonds in December 1997, it was in
breach of a covenant contained in the deed of trust and mortgage under
which the Bonds were issued. The Ontario Court of Appeal returned the
case to the trial courts to determine damages and TELUS accrued an
estimate of damages, which is included in financing costs for the second
quarter of 2005. Should the assessed damages be significantly different
than management's expectations, a material adjustment could be recorded
in the Company's Statements of income. The Company sought leave to appeal
to the Supreme Court of Canada. This ruling relates to a matter prior to
the 1999 merger of BC TELECOM and TELUS Corporation (Alberta), and does
not impact TELUS' current debt instruments.
11. Reconciliation of non-GAAP measures and definition of key operating
indicators
11.1 Earnings before interest, taxes, depreciation and amortization
(EBITDA)
The Company has issued guidance on and reports EBITDA because it is a key
measure used by management to evaluate performance of business units and
it is utilized in measuring compliance with debt covenants. The Company
also believes EBITDA is a measure commonly reported and widely used by
investors as an indicator of a company's operating performance and
ability to incur and service debt, and as a valuation metric. The Company
believes EBITDA assists investors in comparing a company's performance on
a consistent basis without regard to depreciation and amortization, which
are non-cash in nature and can vary significantly depending upon
accounting methods or non-operating factors such as historical cost.
EBITDA is not a calculation based on Canadian or U.S. GAAP and should not
be considered an alternative to Operating income or Net income in
measuring the Company's performance or used as an exclusive measure of
cash flow because it does not consider the impact of working capital
growth, capital expenditures, debt principal reductions and other sources
and uses of cash, which are disclosed in the interim consolidated
statements of cash flows. Investors should carefully consider the
specific items included in TELUS' computation of EBITDA. While EBITDA has
been disclosed herein to permit a more complete comparative analysis of
the Company's operating performance and debt servicing ability relative
to other companies, investors should be cautioned that EBITDA as reported
by TELUS may not be comparable in all instances to EBITDA as reported by
other companies.
The following is a reconciliation of EBITDA with Net income and Operating
income:
-------------------------------------------------------------------------
Nine-month
Quarters ended periods ended
September 30 September 30
($ millions) 2005 2004 2005 2004
-------------------------------------------------------------------------
Net income 190.1 156.6 621.8 430.2
Other expense (income) 7.1 (3.2) 9.1 -
Financing costs 144.8 158.6 451.4 460.5
Income taxes 86.9 97.2 263.2 204.7
Non-controlling interest 1.6 1.1 4.9 3.0
-------------------------------------------------------------------------
Operating income 430.5 410.3 1,350.4 1,098.4
Depreciation 335.6 327.1 996.4 969.5
Amortization of intangible
assets 73.6 80.5 214.1 256.1
-------------------------------------------------------------------------
EBITDA 839.7 817.9 2,560.9 2,324.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11.2 Free cash flow
The Company has issued guidance on and reports free cash flow because it
is a key measure used by management to evaluate performance of the
consolidated operations. Free cash flow excludes certain working capital
changes, and other sources and uses of cash, which are disclosed in the
interim consolidated statements of cash flows. Free cash flow is not a
calculation based on Canadian or U.S. GAAP and should not be considered
an alternative to the interim consolidated statements of cash flows. Free
cash flow is a measure that can be used to gauge TELUS' performance over
time. Investors should be cautioned that free cash flow as reported by
TELUS may not be comparable in all instances to free cash flow as
reported by other companies. While the closest GAAP measure is Cash
provided by operating activities less Cash used by investing activities,
Free cash flow is relevant because it provides an indication of how much
cash generated by operations is available after capital expenditures, but
before proceeds from divested assets and changes in certain working
capital items (such as trade receivables, which can be significantly
distorted by securitization changes that do not reflect operating
results, and trade payables).
The following shows management's calculation of free cash flow.
-------------------------------------------------------------------------
Nine-month
Quarters ended periods ended
September 30 September 30
($ millions) 2005 2004 2005 2004
-------------------------------------------------------------------------
EBITDA 839.7 817.9 2,560.9 2,324.0
Restructuring and workforce
reduction costs, net of cash
payments (5.7) 6.4 (19.0) (55.1)
Share-based compensation 10.3 7.3 21.2 17.9
Cash interest paid (12.2) (23.1) (319.1) (339.7)
Cash interest received 9.3 2.1 34.4 23.3
Income taxes received (paid) 2.9 11.8 22.2 197.4
Capital expenditures (Capex) (263.0) (319.8) (944.9) (975.6)
Investment tax credits received
(reported in current or prior
EBITDA or Capex, and in
Income taxes received (paid)),
and other - - - (16.8)
-------------------------------------------------------------------------
Free cash flow 581.3 502.6 1,355.7 1,175.4
-------------------------------------------------------------------------
The following reconciles free cash flow with Cash provided by operating
activities less Cash used by investing activities:
-------------------------------------------------------------------------
Nine-month
Quarters ended periods ended
September 30 September 30
($ millions) 2005 2004 2005 2004
-------------------------------------------------------------------------
Cash provided by operating
activities 693.5 847.2 2,109.6 1,924.3
Cash (used) by investing
activities (263.3) (316.5) (979.5) (956.7)
-------------------------------------------------------------------------
430.2 530.7 1,130.1 967.6
Net employee defined benefit
plans expense 0.3 (4.9) (0.8) (14.7)
Employer contributions to
employee defined benefit plans 30.1 25.8 89.8 112.3
Amortization of deferred gains
on sale-leaseback of buildings,
amortization of deferred
charges and other operating
activities, net 3.6 3.9 3.9 (13.7)
Reduction (increase) in
securitized accounts receivable - - - 150.0
Non-cash working capital changes
except changes in taxes,
interest and securitized
accounts receivable 116.8 (49.6) 98.1 (7.2)
Acquisition - - 29.4 -
Proceeds from the sale of
property and other assets (0.1) (1.8) (3.5) (18.2)
Other investing activities 0.4 (1.5) 8.7 (0.7)
-------------------------------------------------------------------------
Free cash flow 581.3 502.6 1,355.7 1,175.4
-------------------------------------------------------------------------
11.3 Definition of key operating indicators
These measures are industry metrics and are useful in assessing the
operating performance of a wireless company.
Churn, per month
----------------
Calculated as the number of subscriber units disconnected during a given
period, divided by the average number of subscriber units on the network
during the period, expressed as a rate per month. A prepaid subscriber is
disconnected when the subscriber has no usage for 90 days following expiry of
the prepaid card.
Cost of acquisition (COA)
-------------------------
Consists of the total of handset subsidies, commissions, and advertising
and promotion expenses related to the initial subscriber acquisition during a
given period. As defined, COA excludes costs to retain existing subscribers
(Retention spend).
COA per gross subscriber addition
---------------------------------
COA divided by gross subscriber activations during the period.
Average revenue per subscriber unit, or ARPU
--------------------------------------------
Calculated as Network revenue divided by the average number of subscriber
units on the network during the period, expressed as a rate per month.
Retention spend to Network revenue
----------------------------------
Represents direct costs associated with marketing and promotional efforts
aimed at the retention of the existing subscriber base, divided by Network
revenue.
EBITDA excluding COA
--------------------
A measure of operational profitability, normalized for the period costs
of adding new customers.
11.4 Definition of liquidity and capital resource measures
Net debt
--------
Net debt is a non-GAAP measure, whose nearest GAAP measure is the sum of
Long-term debt and Current maturities of long-term debt, as reconciled below.
Net debt is one component used to determine compliance with debt covenants
(refer to the description of Net debt to EBITDA below).
-------------------------------------------------------------------------
At September 30
($ millions) 2005 2004
-------------------------------------------------------------------------
Current maturities of long-term debt 1,581.6 4.0
Long-term debt 4,497.3 6,514.0
-------------------------------------------------------------------------
6,078.9 6,518.0
Deferred hedging liability (asset) 1,159.0 853.6
-------------------------------------------------------------------------
Debt 7,237.9 7,371.6
Deduct Cash and temporary investments (1,322.1) (622.2)
-------------------------------------------------------------------------
Net debt 5,915.8 6,749.4
-------------------------------------------------------------------------
The deferred hedging liability in the table above relates to cross
currency interest rate swaps that effectively convert principal
repayments and interest obligations to Canadian dollar obligations in
respect of the U.S. $1,166.5 million debenture maturing June 1, 2007 and
the U.S. $1,925.0 million debenture maturing June 1, 2011. Management
believes that Net debt is a useful measure because it incorporates the
exchange rate impact of cross currency swaps put into place that fix the
value of U.S. dollar-denominated debt, and because it represents the
amount of long-term debt obligations that are not covered by available
cash and temporary investments.
Total capitalization
--------------------
Defined as Net debt plus Non-controlling interest and Shareholders'
equity.
Net debt to total capitalization
--------------------------------
Provides a measure of the proportion of debt used in the Company's
capital structure. The long-term target ratio for Net debt to total
capitalization is 45 to 50%.
EBITDA (excluding restructuring)
--------------------------------
EBITDA (excluding restructuring) is used for the calculation of Net debt
to EBITDA and EBITDA interest coverage, consistent with the calculation
of the Leverage Ratio and the Coverage Ratio in credit facility
covenants. Restructuring and workforce reduction costs were $38.2 million
and $49.0 million, respectively, for the 12-month periods ended September
30, 2005 and 2004.
Net debt to EBITDA
------------------
Defined as Net debt as at the end of the period divided by the 12-month
trailing EBITDA (excluding restructuring). This measure is substantially
the same as the Leverage Ratio covenant in TELUS' credit facilities.
TELUS' revised guideline range for Net debt to EBITDA is from 1.5:1 to
2.0:1.
Net interest cost
-----------------
Defined as Financing costs before gains on redemption and repayment of
debt, calculated on a 12-month trailing basis. No gains on redemption and
repayment of debt were recorded in the respective periods.
Interest coverage on long-term debt
-----------------------------------
Calculated on a 12-month trailing basis as Net income before interest
expense on long-term debt and income tax expense, divided by interest
expense on long-term debt.
EBITDA interest coverage
------------------------
Defined as EBITDA (excluding restructuring) divided by Net interest cost.
This measure is substantially the same as the Coverage Ratio covenant in
TELUS' credit facilities.
Dividend payout ratio
---------------------
Defined as the most recent quarterly dividend declared per share
multiplied by four and divided by basic earnings per share for the 12-
month trailing period. The target guideline for the annual dividend
payout ratio on a prospective basis is 45 to 55% of sustainable net
earnings.
_____________________________________________________________________________
TELUS Corporation
NOTICE OF CASH DIVIDEND
NOTICE IS HEREBY GIVEN that the Board of Directors has declared a
quarterly dividend of twenty-seven and one half cents ($0.275) Canadian per
share on the issued and outstanding Common shares and twenty-seven and one
half cents ($0.275) Canadian per share on the issued and outstanding Non-
Voting shares of the Company payable on January 1, 2006 to holders of record
at the close of business on December 9, 2005.
By order of the Board
Audrey Ho
Vice President, Legal Services and
General Counsel and Corporate Secretary
Vancouver, British Columbia
November 8, 2005
______________________________________________________________________________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 10, 2005
TELUS Corporation
/s/ Audrey Ho
_____________________________
Name: Audrey Ho
Title: Vice President, Legal Services and
General Counsel and Corporate Secretary
______________________________________________________________________________
Contact: Investor Relations, (780) 493-7345, ir(at)telus.com
/For further information: Media Relations: Nick Culo, (780) 493-7236,
nick.culo(at)telus.com; Investor Relations: John Wheeler, (604) 697-8154,
ir(at)telus.com/
(T. T.NV. TU)