TELUS Reports Third Quarter Results
Positive tax recovery contributes to earnings growth Guidance updated to reflect year-to-date results Dividend increased 20%
VANCOUVER, Nov. 2 -- TELUS Corporation today reported that third quarter 2007 revenue increased 4.5 per cent to $2.31 billion from a year ago. The performance was driven by nine per cent growth in both wireless revenue and wireline data revenue, partially offset by declines in local and long distance wireline revenues. Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) increased 3.6 per cent to $987 million due to an increase in wireless EBITDA of eight per cent, while wireline EBITDA decreased by one per cent.
Net income in the quarter was $410 million and earnings per share (EPS) were $1.24, up 28 per cent and 32 per cent respectively. Net income included favourable tax related adjustments of approximately $93 million or 28 cents per share, compared to $30 million or nine cents a year ago, as well as a favourable expense recovery this quarter of $4.9 million or one cent per share after tax for options with a net-cash settlement feature. Also contributing to the increase in EPS were higher EBITDA, lower financing charges and a reduction in shares outstanding as a result of the repurchases pursuant to the normal course issuer bid. Excluding tax related adjustments in both periods and the option expense recovery, net income was $312 million and EPS were $0.95, up 7.7 per cent and 11 per cent, respectively.
Free cash flow remained strong at $503 million, down three per cent due to timing of cash interest payments and higher wireless capital expenditures. During the third quarter TELUS continued to repurchase shares under its normal course issuer bid program, completing $232 million of share buy backs. Average shares outstanding were three per cent lower than a year ago.
Full year 2007 guidance has been updated and includes a slightly lower consolidated revenue range of $9.125 to $9.175 billion, a narrowing of the consolidated EBITDA range (as adjusted) - now at $3.725 to $3.775 billion, as well as an increase in the EPS (as adjusted) range to $3.55 to $3.65. Capital expenditure guidance remains unchanged.
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
C$ in millions, except per share amounts 3 months ended
September 30
%
(unaudited) 2007 2006 Change
-------------------------------------------------------------------------
Operating revenues 2,309.9 2,210.7 4.5%
EBITDA(1) 987.0 952.4 3.6%
EBITDA (as adjusted)(2) 979.8 952.4 2.9%
Income before income taxes and
non-controlling interest 490.2 448.5 9.3%
Net income(3) 409.9 319.6 28.3%
Earnings per share (EPS), basic(3) 1.24 0.94 31.9%
Cash provided by operating activities 831.8 570.4 45.8%
Capital expenditures 434.1 423.9 2.4%
Free cash flow(4) 502.9 519.8 (3.3%)
(1) Earnings before interest, taxes, depreciation and amortization
(EBITDA) is defined as Operating revenues less Operations expense
less Restructuring costs. See Section 11.1 of Management's discussion
and analysis.
(2) Excludes a non-cash expense recovery of $7.2 million to Operations
expense in 2007 for introducing a net cash settlement feature for
share option awards granted prior to 2005.
(3) Net income and EPS for the three month period in 2007 includes
favourable tax related adjustments of $93 million or 28 cents per
share, compared to $30 million or 9 cents for the same period in
2006.
(4) See Section 11.2 of Management's discussion and analysis.
Darren Entwistle, TELUS president and CEO, said "The third quarter results are a marked improvement compared to the second quarter due to TELUS' continued strength in wireless and data combined with improved efficiency of wireless marketing and retention. Also encouraging was a reduction in incremental costs and improved performance associated with the new wireline billing and client care system in Alberta."
Mr. Entwistle stated "We experienced a sequential quarterly increase of 17,000 high speed customer additions, as improved order fulfillment and system stability allowed us to renew our marketing efforts in Alberta during the third quarter. I was also pleased to observe that we generated higher wireless gross additions, whilst maintaining stable customer loyalty and retention and strong net customer additions of 135,000. This was achieved with reduced marketing costs of acquisition."
Mr. Entwistle also noted "We remain committed to returning capital to our shareholders as evidenced by our announcement today of a 20 per cent increase to the next quarterly dividend - the fourth year in a row of sizeable increases."
Robert McFarlane, executive vice president and CFO, noted, "TELUS continues to demonstrate considerable financial strength and strong cash flow. Our financial policies have been reviewed and remain consistent. The strong balance sheet of TELUS along with strong operating performance enables TELUS to invest appropriately for future growth in our core telecom businesses while returning significant capital to investors in the form of growing dividends and substantial share repurchases. We now have a three year track record for significant ongoing share repurchases, which in the past year alone has led to a three per cent reduction in average shares outstanding. Notably, we intend to again renew in December our normal course issuer bid share repurchase program for 2008."
"Further reflecting the financial strength of TELUS is the company's healthy investment grade credit ratings, the successful mid-year refinancing of $1.5 billion at much lower interest rates, and having no major maturities of debt until 2011," McFarlane noted. "Furthermore, TELUS has no exposure to asset backed commercial paper, either corporately or in our defined benefit pension plans."
-------------------------------------------------------------------------
This news release contains statements about expected future events and
financial and operating results of TELUS that are forward-looking. By
their nature, forward-looking statements require the Company to make
assumptions and are subject to inherent risks and uncertainties. There is
significant risk that the forward-looking statements will not prove to be
accurate. Readers are cautioned not to place undue reliance on forward-
looking statements as a number of factors could cause actual future
results and events to differ materially from that expressed in the
forward-looking statements. Accordingly this news release is subject to
the disclaimer and qualified by the assumptions (including assumptions
for 2007 guidance and share purchases), qualifications and risk factors
referred to in the Management's discussion and analysis - October 31,
2007.
-------------------------------------------------------------------------
OPERATING HIGHLIGHTS
TELUS wireless
- Net subscriber additions remained strong at 134,500, a small 2.0%
decrease from the same quarter in 2006. Postpaid additions were
98,200, down 9.6%, while prepaid loading increased by 27% to 36,300
- Revenues increased by $95 million or 9.4% to $1.1 billion in the
third quarter of 2007, when compared with the same period in 2006
- Wireless data revenue increased $42 million or 56% due to migration
to full function personal data devices and increased text messaging
- ARPU (average revenue per subscriber unit per month) decreased by
1.3% to $64.80 as a result of increased voice re-price due to
competitive pressures. The data component continued to increase, up
by 41% to $7.20
- EBITDA (as adjusted) increased by $40 million over the third quarter
of 2006, representing 8.3% growth, due to network revenue growth
- Cost of acquisition per gross addition decreased 1.8% year-over-year
and 11% sequentially to $379
- Blended monthly subscriber churn increased to 1.43% from 1.36% a year
ago but was slightly lower than 1.45% in the second quarter. Postpaid
churn remained low at 1.05%.
- Cash flow (EBITDA as adjusted less capital expenditures) increased
$21 million or 5.7% to $391.5 million in the quarter due to an
increase in EBITDA. Capital expenditures also increased with
continued investments in higher speed wireless networks.
TELUS wireline
- Revenues increased by $4 million or 0.4% to $1.2 billion in the third
quarter of 2007, when compared with the same period in 2006. Strong
data growth offset declines in local and long distance revenues
- Data revenues increased by $36 million or 8.7% due to strong year-
over-year high-speed Internet growth and enhanced data and hosting
services
- EBITDA (as adjusted) decreased by $13 million or 2.7%, due to higher
expenses including $8 million of additional expenses related to the
new billing and client care system implemented in Alberta in the
second quarter
- TELUS added 31,300 net high-speed Internet subscribers, building
TELUS' high-speed base to 994,000, a 14% increase from a year ago.
High-speed Internet net additions recovered from the second quarter
as improved system stability allowed Internet marketing efforts to be
renewed in the third quarter
- Network access lines (NALs) declined by 35,000 in the quarter. Total
NALs were down 3.0% from a year ago, reflecting continued residential
line losses from ongoing competitive activity and wireless
substitution partially mitigated by an increase in business access
lines
- Cash flow (EBITDA as adjusted less capital expenditures) declined
2.5% to $154 million, due to the decrease in EBITDA
Corporate Developments
Local phone service deregulated
The CRTC accepted TELUS' application for deregulation of residential and business phone service in several communities across British Columbia, Alberta, and Quebec in the quarter. Residential phone service in Vancouver, Victoria, Calgary, Edmonton, and Rimouski was deregulated, as was local business service in all major centres in TELUS' operating territory.
TELUS has applied for deregulation of residential phone service in several dozen additional communities, and expects decisions from the CRTC in the coming months.
The rules announced by Industry Canada in the spring allow incumbent telecommunications carriers to apply to the CRTC for deregulation in any community where customers have a choice between service providers and where they meet specific quality of service measures for six months. The new rules state that local business services will be deregulated where there is a choice of at least two phone providers with their own network infrastructure. Deregulation for consumer services will occur where there is a choice of at least three service providers with their own network infrastructure, one of which can be a wireless provider.
TELUS continues share repurchases
During the third quarter, TELUS continued to purchase shares under its Normal Course Issuer Bid (NCIB). Repurchases in the quarter totaled approximately 4.3 million shares for a total outlay of $232 million. For nine months this year, the total outlay has been $602 million. Since commencing in December 2004, TELUS has repurchased a total of 49.9 million shares for $2.37 billion under three NCIB programs, resulting in an 8.7 per cent reduction in shares outstanding.
Yellow Pages Group selects TELUS as IT provider in west
TELUS announced on October 31 that the Yellow Pages Group (YPG) has selected it to provide support services and manage information technology infrastructure for their Western Canada-based operations. The long-term contract with Canada's largest directory publisher is valued at approximately $90 million.
Under the agreement, TELUS will provide a range of services including IT infrastructure operations, IP applications development, wireless services, document services, and managed network services ranging from help desk to desktop to computing operations. TELUS will also provide facilities and managed services for YPG's online directory system in TELUS Internet Data Centres.
TELUS signs eight-year deal with Western Canada Lottery Corporation
TELUS signed an eight-year contract with the Western Canada Lottery Corporation to implement an Alberta-wide secure IP-based network. The network will support approximately 2,350 on-line lottery ticket terminals, connecting the machines throughout Alberta with the company's central computer system in Winnipeg.
The TELUS IP network will also provide the communications infrastructure needed to support any network growth plans over the coming years.
TELUS launches online assessment tool
In September, TELUS launched a new strategic online assessment tool, the TELUS Online Wireless Solutions Roadmap. The tool helps businesses evaluate their plans for strategic wireless investments and ensure they will drive business performance.
The Wireless Solutions Roadmap addresses an anticipated shift in the market. New research from TELUS and IDC Canada shows Canadian business is on the cusp of a new wave of adoption in wireless business technology as firms move beyond the basics of mobile email and web access. More than 90 per cent of Canadian firms now have mobile email and web access.
TELUS first in North America to launch two HTC smartphones
TELUS and High Tech Computer Corp. (HTC), the world's leading provider of Microsoft Windows Mobile-based smart devices, announced the first North American availability of the HTC Touch and the HTC S640. The HTC Touch is a deceptively small and stylish smartphone that ushers in an innovative new concept in intuitive touch screen navigation. The HTC S640, with a full QWERTY-keypad, is a smartphone that brings a variety of productivity and entertainment solutions to clients. Both devices feature a variety of Windows Mobile services and operate on the EVDO network, Canada's fastest coast-to-coast mobile network.
Wireless data add-on plan, sliver BlackBerry Pearl cater to consumer
customers
Today, TELUS introduced the BlackBerry Pearl 8130 with its silver-coloured finish and a new $15 add-on wireless data plan delivering up to two megabytes of email usage to consumers.
The BlackBerry Pearl 8130 is tailored for consumers looking for email and web access along with multimedia services in a single device. The Pearl gives customers the ability to listen to music, record video, take photos and store up to eight gigabytes of data. It is also the first smartphone in Canada preloaded with the popular social network application Facebook.
Complementing the Pearl, TELUS also introduced a new consumer wireless data plan that can be added to existing packages. Email 15 provides up to two megabytes of email monthly - the equivalent of 600 emails, perfect for clients that want to stay connected while on the go.
Led Zeppelin makes mobile debut only at TELUS in Canada
TELUS and Led Zeppelin have partnered to provide wireless customers with an entirely new way to access the legendary rock band's music. Starting November 13, TELUS will be the exclusive wireless service provider in Canada for the band's ring tones, wallpapers, and wireless song downloads.
TELUS first to bring Canadians the LG Shine
TELUS is the first Canadian company to offer the LG Shine mobile phone. Part of LG's iconic series of phones has been a favourite of Canadian fashion leaders. The LG Shine is the latest in phone fashion with a sleek metal casing, cool reflective look and high definition screen. This phone also features a high quality camera and full line-up of SPARK entertainment and messaging services including access to TELUS Mobile Music, TELUS Mobile TV, TELUS Mobile Radio and Instant Messaging.
TELUS and ZTE launch award winning wireless phone
In August, TELUS and ZTE announced the exclusive availability of the ZTE D90, featuring Digit Wireless' Fastap keypad. The first mobile handset in the world to feature both Zi Corporation's eZiType software for increased data input speed and accuracy, and the Digit Wireless Fastap keyboard, the ZTE D90 is ideal for heavy messengers. With the announcement, ZTE became the first wireless phone manufacturer from mainland China to directly offer a device for sale in Canada.
The Ontario College of Art & Design partnership fostering innovative
phone design
TELUS and the Ontario College of Art & Design (OCAD) have partnered to introduce an innovative new design course that will help the school's third-year students explore and develop their talents in wireless phone design. Reflecting TELUS' commitment to delivering innovative products and services, and to giving where we live, the OCAD/TELUS Handset Project is unique in Canada, and aims to foster innovation in mobile phone design.
To further assist in the development of Canadian design talent, one deserving student will be offered a four-month summer internship with TELUS working in product development.
TELUS TV comes to Quebec
TELUS TV was launched in several Quebec communities during the quarter, including Saint-Georges-de-Beauce, Rimouski, Mont-Joli, Luceville, Sainte-Luce and Sainte-Blandine. TELUS TV is a 100 per cent digital service bringing customers exceptional sound and video quality for hundreds of TV channels, video-on-demand, and other services. It is also available in an increasing number of neighbourhoods of greater Vancouver, Calgary, and Edmonton.
TELUS Day of Service
On September 29, more than 6,000 TELUS team members took a day out of their schedules to give where they live during the TELUS Day of Service. TELUS employees, retirees, relatives and friends took part in a nation-wide volunteer drive making a difference in the communities where they live and work.
Team members participated in more than 225 volunteer activities through 150 charitable organizations in 17 communities across Quebec, Ontario, Alberta and B.C. TELUS Day of Service volunteer efforts included environmentally themed projects such as clean-up efforts at Stanley Park in Vancouver, the River Valley in Edmonton and the Soverdi in Montreal. Other volunteer projects included stocking shelves at the Daily Bread Food Bank in Toronto, supporting Habitat for Humanity and regional youth soccer clinics for underprivileged children.
On this day alone, more than 18,000 volunteer hours were logged in support of worthwhile causes.
TELUS executive Robert McFarlane named Canada's Top CFO by Canadian
Business
Robert McFarlane, executive vice-president and chief financial officer, was named Top CFO by Canadian Business magazine at the All-Star awards luncheon in Toronto in October. The All-Star Execs are drawn by Canadian Business from a pool of Canada's largest publicly traded firms. To be eligible for consideration for this program, a company must meet certain financial performance measures including three-year revenue growth, three-year net income growth and three-year total shareholder return. Robert was chosen from among an exclusive group of business leaders as Canada's Top CFO by an independent panel of experts. An interview with Robert is featured in the current issue of Canadian Business, which hit newsstands on November 1.
TELUS recognized for one of the best annual reports in world
The 2006 TELUS annual report ranked among the top one percent in the world by the Annual Report on Annual Reports, the only organization in the world that compares, rates and ranks annual reports globally. TELUS is one of three Canadian companies and the only telecommunications company to achieve one of the top ratings.
An independent panel evaluates more than 500 annual reports from a selection of more than 1,000 listed corporations worldwide. The survey is regarded as the most comprehensive and authoritative by evaluating each report on 50 aspects of corporate reporting including financial, performance, business and investor measures.
TELUS named to global Dow Jones Sustainability Index for seventh straight
year
In September, the Dow Jones Sustainability World Index, a corporate sustainability ranking, recognized TELUS as an economic, environmental and social leader for the seventh consecutive year. TELUS is the only North American telecommunications company and one of just 10 Canadian businesses across all sectors included in the global index. TELUS' total score improved this year and was among the highest awarded in the telecom sector. The judges gave TELUS high marks for corporate governance, risk and crisis management, privacy protection, environmental reporting, human capital development and stakeholder engagement.
TELUS helping kids with diabetes live better lives and partners to find a
cure
The 2007 TELUS President's Invitational Golf Tournament donated $115,000 to an innovative centre that helps kids with diabetes live healthier lives. The Charles H. Best Diabetes Centre is the only registered charity in Canada dedicated to making life better for kids with Type 1 diabetes. The donation was raised at the TELUS Business Solutions annual charity golf event, which is also a thank you from TELUS to some of its top Ontario customers for their loyalty and business.
TELUS in October announced a three-year partnership with the Juvenile Diabetes Research Foundation (JDRF). The partnership will provide the JDRF with $1.2 million to fund Canadian-based research programs hunting for a cure for Type 1 diabetes. TELUS also announced its three-year title sponsorship of the JDRF's primary fundraising event - the TELUS Walk to Cure Diabetes. This partnership is an excellent representation of TELUS' community investment approach, which is focused on youth, technology, and health and wellness.
Support of Quebec Major Junior Hockey League delivers excitement of
hockey to clients
TELUS and the Quebec Major Junior Hockey League renewed their partnership with a five-year deal in the quarter. Reflecting TELUS' continued support of Canadian athletes and amateur sport, the agreement includes the webcasting of all 630 games of the '07-'08 QMJHL season, a first in the history of the league. All playoff games will also be webcast for the fans. In addition, nearly 250 QMJHL-based ringtones, theme songs, pictures, interviews and videos are being offered exclusively to TELUS subscribers for download to mobile handsets during the season.
Partnership greens Montreal
The City of Montreal, Societe de verdissement du Montreal metropolitain (SOVERDI) and TELUS announced the completion of the first step in the greening of Montreal. Thanks to a three-way partnership announced in 2006, more than 5,800 trees, shrubs and perennials have been planted in alleys and schoolyards, in front of housing cooperatives, and along riverbanks and highways throughout the Island of Montreal this year.
TELUS Open raises $110,000 for Operation Enfant Soleil
More than 250 TELUS clients, partners, and employees donated a total of $109,718 to Operation Enfant Soleil during the TELUS Open on September 20. The money raised will help improve the quality of paediatric care for thousands of children across Quebec.
TELUS renews Shelf Prospectus
On August 3, TELUS filed a preliminary short form base shelf prospectus with securities regulators in Canada and the United States. This enables TELUS to sell up to C$3 billion of debt, equity and/or warrants should the Company decide to issue such securities at any time during the next two years. The shelf prospectus replaced an existing C$3 billion shelf prospectus that expired on September 24, 2007. TELUS has no immediate intention to offer securities pursuant to the shelf prospectus.
Dividend Declaration raises level by 20%
Board of Directors has declared a quarterly dividend of forty-five cents ($0.45) Canadian per share on the issued and outstanding Common shares and forty-five cents ($0.45) Canadian per share on the issued and outstanding Non-Voting shares of the Company payable on January 1, 2008 to holders of record at the close of business on December 11, 2007.
The dividends above are designated as "eligible" dividends for the purposes of the Income Tax Act (Canada) and any similar provincial legislation.
This quarterly dividend represents a 7.5 cent increase or 20 per cent from the $0.375 quarterly dividend paid on October 1, 2007 and the dividend paid a year earlier on January 1, 2007.
About TELUS
TELUS (TSX: T, T.A; NYSE: TU) is a leading national telecommunications company in Canada, with $9.0 billion of annual revenue and 11.0.million customer connections including 5.4 million wireless subscribers, 4.4 million wireline network access lines and 1.2 million Internet subscribers. TELUS provides a wide range of communications products and services including data, Internet protocol (IP), voice, entertainment and video. Committed to being Canada's premier corporate citizen, we give where we live. Since 2000, TELUS and our team members have contributed more than $91 million to charitable and non-profit organizations and volunteered more than 1.7 million hours of service to local communities. Eight TELUS Community Boards across Canada lead our local philanthropic initiatives. For more information about TELUS, please visit telus.com.
TELUS Corporation
interim consolidated statements of income (unaudited)
Periods ended September 30 Three months Nine months
(millions except per
share amounts) 2007 2006 2007 2006
-------------------------------------------------------------------------
(restated) (restated)
OPERATING REVENUES $2,309.9 $2,210.7 $6,743.6 $6,426.4
-------------------------------------------------------------------------
OPERATING EXPENSES
Operations 1,316.5 1,245.8 4,093.4 3,654.3
Restructuring costs 6.4 12.5 14.3 59.9
Depreciation 332.5 325.8 968.5 1,000.2
Amortization of intangible
assets 70.1 57.5 192.2 168.3
-------------------------------------------------------------------------
1,725.5 1,641.6 5,268.4 4,882.7
-------------------------------------------------------------------------
OPERATING INCOME 584.4 569.1 1,475.2 1,543.7
Other expense, net 8.0 4.0 30.3 17.9
Financing costs 86.2 116.6 331.0 371.1
-------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES
AND NON-CONTROLLING INTEREST 490.2 448.5 1,113.9 1,154.7
Income taxes 78.6 126.5 251.6 261.3
Non-controlling interests 1.7 2.4 4.5 7.1
-------------------------------------------------------------------------
NET INCOME AND COMMON SHARE
AND NON-VOTING SHARE INCOME 409.9 319.6 857.8 886.3
OTHER COMPREHENSIVE INCOME
Change in unrealized fair
value of derivatives
designated as cash flow
hedges 8.5 - 64.3 -
Foreign currency translation
adjustment arising from
translating financial
statements of self-
sustaining foreign operations (1.1) 0.4 (4.9) 1.2
Change in unrealized fair
value of available-for-sale
financial assets (0.2) - (0.3) -
-------------------------------------------------------------------------
7.2 0.4 59.1 1.2
-------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 417.1 $ 320.0 $ 916.9 $ 887.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NET INCOME PER COMMON SHARE
AND NON-VOTING SHARE
- Basic $ 1.24 $ 0.94 $ 2.57 $ 2.57
- Diluted $ 1.23 $ 0.92 $ 2.55 $ 2.54
DIVIDENDS DECLARED PER COMMON
SHARE AND NON-VOTING SHARE $ 0.375 $ 0.275 $ 1.125 $ 0.825
TOTAL WEIGHTED AVERAGE COMMON
SHARES AND NON-VOTING SHARES
OUTSTANDING
- Basic 330.1 341.4 333.5 345.2
- Diluted 332.8 346.0 336.2 348.8
TELUS Corporation
interim consolidated balance sheets (unaudited)
September 30, December 31,
As at (millions) 2007 2006
-------------------------------------------------------------------------
(restated)
ASSETS
Current Assets
Cash and temporary investments, net $ 1.0 $ -
Short-term investments 44.1 110.2
Accounts receivable 590.7 707.2
Income and other taxes receivable 269.0 95.4
Inventories 170.6 196.4
Prepaid expenses and other 209.0 195.3
Current portion of derivative assets 16.4 40.4
-------------------------------------------------------------------------
1,300.8 1,344.9
-------------------------------------------------------------------------
Capital Assets, Net
Property, plant, equipment and other 7,354.0 7,466.5
Intangible assets subject to amortization 779.0 549.2
Intangible assets with indefinite lives 2,966.5 2,966.4
-------------------------------------------------------------------------
11,099.5 10,982.1
-------------------------------------------------------------------------
Other Assets
Deferred charges 1,098.2 956.6
Investments 30.3 35.2
Goodwill 3,168.5 3,169.5
-------------------------------------------------------------------------
4,297.0 4,161.3
-------------------------------------------------------------------------
$ 16,697.3 $ 16,488.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Cash and temporary investments, net $ - $ 11.5
Accounts payable and accrued liabilities 1,438.5 1,363.6
Income and other taxes payable 5.1 10.3
Restructuring accounts payable and accrued
liabilities 32.1 53.1
Dividends payable 123.4 -
Advance billings and customer deposits 614.5 606.3
Current maturities of long-term debt 6.0 1,433.5
Current portion of derivative liabilities 13.6 165.8
Current portion of future income taxes 426.5 137.2
-------------------------------------------------------------------------
2,659.7 3,781.3
-------------------------------------------------------------------------
Long-Term Debt 4,496.6 3,474.7
-------------------------------------------------------------------------
Other Long-Term Liabilities 1,760.8 1,257.3
-------------------------------------------------------------------------
Future Income Taxes 1,076.8 1,023.3
-------------------------------------------------------------------------
Non-Controlling Interests 23.8 23.6
-------------------------------------------------------------------------
Shareholders' Equity 6,679.6 6,928.1
-------------------------------------------------------------------------
$ 16,697.3 $ 16,488.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TELUS Corporation
interim consolidated statements of cash flows (unaudited)
Three months Nine months
Periods ended September 30
(millions) 2007 2006 2007 2006
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 409.9 $ 319.6 $ 857.8 $ 886.3
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation and amortization 402.6 383.3 1,160.7 1,168.5
Future income taxes 222.7 146.3 393.4 284.8
Share-based compensation (3.3) 14.2 126.4 35.3
Net employee defined benefit
plans expense (24.0) (1.5) (69.0) (4.4)
Employer contributions to
employee defined benefit
plans (18.9) (28.8) (67.5) (104.3)
Restructuring costs, net of
cash payments 3.3 (1.2) (21.0) 2.2
Amortization of deferred gains
on sale-leaseback of
buildings, amortization of
deferred charges and
other, net 5.9 3.9 1.1 12.5
Net change in non-cash
working capital (166.4) (265.4) (27.6) (224.4)
-------------------------------------------------------------------------
Cash provided by operating
activities 831.8 570.4 2,354.3 2,056.5
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (434.1) (423.9) (1,297.8) (1,203.2)
Acquisitions - (25.0) - (44.5)
Proceeds from the sale of
property and other assets 4.1 6.9 5.4 14.9
Change in non-current materials
and supplies, purchase of
investments and other - (9.0) (7.7) (20.4)
-------------------------------------------------------------------------
Cash used by investing
activities (430.0) (451.0) (1,300.1) (1,253.2)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Common Shares and Non-Voting
Shares issued 0.1 37.2 0.7 82.9
Dividends to shareholders - (93.8) (250.9) (284.5)
Purchase of Common Shares and
Non-Voting Shares for
cancellation (232.2) (119.7) (602.4) (600.7)
Long-term debt issued 2,679.9 499.0 4,771.5 1,341.8
Redemptions and repayment of
long-term debt (2,850.8) (448.9) (4,955.4) (1,064.4)
Partial repayment of deferred
hedging liability - - - (309.4)
Dividends paid by a subsidiary
to non-controlling interests - - (4.3) (3.0)
Other - - (0.9) -
-------------------------------------------------------------------------
Cash used by financing
activities (403.0) (126.2) (1,041.7) (837.3)
-------------------------------------------------------------------------
CASH POSITION
Increase (decrease) in cash
and temporary investments, net (1.2) (6.8) 12.5 (34.0)
Cash and temporary investments,
net, beginning of period 2.2 (18.6) (11.5) 8.6
-------------------------------------------------------------------------
Cash and temporary investments,
net, end of period $ 1.0 $ (25.4) $ 1.0 $ (25.4)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF
CASH FLOWS
Interest (paid) $ (41.1) $ (13.0) $ (283.2) $ (297.6)
-------------------------------------------------------------------------
Interest received $ 1.4 $ 0.6 $ 8.9 $ 23.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Income taxes (inclusive of
Investment Tax Credits (paid)
received, net $ (1.7) $ (0.6) $ 0.9 $ 94.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TELUS Corporation
segmented information (unaudited)
Three-month periods ended
September 30 Wireline Wireless
(millions) 2007 2006 2007 2006
-------------------------------------------------------------------------
Operating revenues
External revenue $1,204.6 $1,200.3 $1,105.3 $1,010.4
Intersegment revenue 29.7 23.5 7.0 6.0
-------------------------------------------------------------------------
1,234.3 1,223.8 1,112.3 1,016.4
-------------------------------------------------------------------------
Operating expenses
Operations expense 761.6 742.5 591.6 532.8
Restructuring costs 6.4 11.7 - 0.8
-------------------------------------------------------------------------
768.0 754.2 591.6 533.6
-------------------------------------------------------------------------
EBITDA(1) $ 466.3 $ 469.6 $ 520.7 $ 482.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ 302.6 $ 311.4 $ 131.5 $ 112.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ 163.7 $ 158.2 $ 389.2 $ 370.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating expenses
(as adjusted)(3)
Operations expense
(as adjusted)(3) 771.1 742.5 589.3 532.8
Restructuring costs 6.4 11.7 - 0.8
-------------------------------------------------------------------------
777.5 754.2 589.3 533.6
-------------------------------------------------------------------------
EBITDA (as adjusted)(3) $ 456.8 $ 469.6 $ 523.0 $ 482.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ 302.6 $ 311.4 $ 131.5 $ 112.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA (as adjusted) less
CAPEX $ 154.2 $ 158.2 $ 391.5 $ 370.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three-month periods ended
September 30 Eliminations Consolidated
(millions) 2007 2006 2007 2006
-------------------------------------------------------------------------
Operating revenues
External revenue $ - $ - $2,309.9 $2,210.7
Intersegment revenue (36.7) (29.5) - -
-------------------------------------------------------------------------
(36.7) (29.5) 2,309.9 2,210.7
-------------------------------------------------------------------------
Operating expenses
Operations expense (36.7) (29.5) 1,316.5 1,245.8
Restructuring costs - - 6.4 12.5
-------------------------------------------------------------------------
(36.7) (29.5) 1,322.9 1,258.3
-------------------------------------------------------------------------
EBITDA(1) $ - $ - $ 987.0 $ 952.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $ 434.1 $ 423.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ - $ - $ 552.9 $ 528.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating expenses
(as adjusted)(3)
Operations expense
(as adjusted)(3) (36.7) (29.5) 1,323.7 1,245.8
Restructuring costs - - 6.4 12.5
-------------------------------------------------------------------------
(36.7) (29.5) 1,330.1 1,258.3
-------------------------------------------------------------------------
EBITDA (as adjusted)(3) $ - $ - $ 979.8 $ 952.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $ 434.1 $ 423.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA (as adjusted) less
CAPEX $ - $ - $ 545.7 $ 528.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA (as adjusted)
(from above) $ 979.8 $ 952.4
Incremental charge
(recovery)(3) (7.2) -
--------------------------------------------------
EBITDA (from above) 987.0 952.4
Depreciation 332.5 325.8
Amortization 70.1 57.5
--------------------------------------------------
Operating income 584.4 569.1
Other expense, net 8.0 4.0
Financing costs 86.2 116.6
--------------------------------------------------
Income before income taxes
and non-controlling interests 490.2 448.5
Income taxes 78.6 126.5
Non-controlling interests 1.7 2.4
--------------------------------------------------
Net income $ 409.9 $ 319.6
--------------------------------------------------
--------------------------------------------------
(1) Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") is a measure that does not have any standardized meaning
prescribed by GAAP and is therefore unlikely to be comparable to
similar measures presented by other issuers; EBITDA is defined by the
Company as operating revenues less operations expense and
restructuring costs. The Company has issued guidance on, and reports,
EBITDA because it is a key measure used by management to evaluate
performance of its business segments and is utilized in measuring
compliance with certain debt covenants.
(2) Total capital expenditures ("CAPEX").
(3) Substantially all of the Company's share option awards that were
granted prior to January 1, 2005, and which were outstanding on
January 1, 2007, were amended by adding a net-cash settlement
feature; such amendment resulted in an incremental charge to
(recovery from) operations of $(7.2) and did not result in an
immediate cash outflow (inflow). In respect of 2007 results provided
to the Company's chief operating decision maker, operations expense
and EBITDA are being presented both with, and without, the impact of
such amendment.
TELUS Corporation
segmented information (unaudited)
Nine-month periods ended
September 30 Wireline Wireless
(millions) 2007 2006 2007 2006
-------------------------------------------------------------------------
Operating revenues
External revenue $3,590.3 $3,588.8 $3,153.3 $2,837.6
Intersegment revenue 83.5 71.8 20.0 17.1
-------------------------------------------------------------------------
3,673.8 3,660.6 3,173.3 2,854.7
-------------------------------------------------------------------------
Operating expenses
Operations expense 2,439.1 2,211.5 1,757.8 1,531.7
Restructuring costs 13.6 56.4 0.7 3.5
-------------------------------------------------------------------------
2,452.7 2,267.9 1,758.5 1,535.2
-------------------------------------------------------------------------
EBITDA(1) $1,221.1 $1,392.7 $1,414.8 $1,319.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ 882.0 $ 881.8 $ 415.8 $ 321.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ 339.1 $ 510.9 $ 999.0 $ 998.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating expenses
(as adjusted)(3)
Operations expense (as
adjusted)(3) 2,295.5 2,211.5 1,733.3 1,531.7
Restructuring costs 13.6 56.4 0.7 3.5
-------------------------------------------------------------------------
2,309.1 2,267.9 1,734.0 1,535.2
-------------------------------------------------------------------------
EBITDA (as adjusted)(3) $1,364.7 $1,392.7 $1,439.3 $1,319.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ 882.0 $ 881.8 $ 415.8 $ 321.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA (as adjusted) less
CAPEX $ 482.7 $ 510.9 $1,023.5 $ 998.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine-month periods ended
September 30 Eliminations Consolidated
(millions) 2007 2006 2007 2006
-------------------------------------------------------------------------
Operating revenues
External revenue $ - $ - $6,743.6 $6,426.4
Intersegment revenue (103.5) (88.9) - -
-------------------------------------------------------------------------
(103.5) (88.9) 6,743.6 6,426.4
-------------------------------------------------------------------------
Operating expenses
Operations expense (103.5) (88.9) 4,093.4 3,654.3
Restructuring costs - - 14.3 59.9
-------------------------------------------------------------------------
(103.5) (88.9) 4,107.7 3,714.2
-------------------------------------------------------------------------
EBITDA(1) $ - $ - $2,635.9 $2,712.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $1,297.8 $1,203.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ - $ - $1,338.1 $1,509.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating expenses
(as adjusted)(3)
Operations expense (as
adjusted)(3) (103.5) (88.9) 3,925.3 3,654.3
Restructuring costs - - 14.3 59.9
-------------------------------------------------------------------------
(103.5) (88.9) 3,939.6 3,714.2
-------------------------------------------------------------------------
EBITDA (as adjusted)(3) $ - $ - $2,804.0 $2,712.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $1,297.8 $1,203.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA (as adjusted) less
CAPEX $ - $ - $1,506.2 $1,509.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA (as adjusted)
(from above) $2,804.0 $2,712.2
Incremental charge(3) 168.1 -
--------------------------------------------------
EBITDA (from above) 2,635.9 2,712.2
Depreciation 968.5 1,000.2
Amortization 192.2 168.3
--------------------------------------------------
Operating income 1,475.2 1,543.7
Other expense, net 30.3 17.9
Financing costs 331.0 371.1
--------------------------------------------------
Income before income taxes and
non-controlling interests 1,113.9 1,154.7
Income taxes 251.6 261.3
Non-controlling interests 4.5 7.1
--------------------------------------------------
Net income $ 857.8 $ 886.3
--------------------------------------------------
--------------------------------------------------
(1) Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") is a measure that does not have any standardized meaning
prescribed by GAAP and is therefore unlikely to be comparable to
similar measures presented by other issuers; EBITDA is defined by the
Company as operating revenues less operations expense and
restructuring costs. The Company has issued guidance on, and reports,
EBITDA because it is a key measure used by management to evaluate
performance of its business segments and is utilized in measuring
compliance with certain debt covenants.
(2) Total capital expenditures ("CAPEX").
(3) Substantially all of the Company's share option awards that were
granted prior to January 1, 2005, and which were outstanding on
January 1, 2007, were amended by adding a net-cash settlement
feature; such amendment resulted in an incremental charge to
operations of $168.1 and did not result in an immediate cash outflow.
In respect of 2007 results provided to the Company's chief operating
decision maker, operations expense and EBITDA are being presented
both with, and without, the impact of such amendment.
Caution regarding forward-looking statements
-------------------------------------------------------------------------
This report and 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, assumptions (see below) 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 financial and operating targets,
expectations, estimates or intentions expressed in the forward-looking
statements.
Assumptions for 2007 guidance purposes include: economic growth
consistent with recent provincial and national estimates by the
Conference Board of Canada, including 2007 real GDP (gross domestic
product) growth of approximately 2.6% in Canada; increased wireline
competition in both business and consumer markets, particularly from
cable-TV and voice over Internet Protocol (VoIP) companies; forbearance
for local retail wireline services in major urban incumbent markets by
the second half of 2007; no further price cap mandated consumer price
reductions; a wireless industry market penetration gain of approximately
4.5 to five percentage points (excluding competitors' subscriber write-
offs in the first half of 2007); restructuring expenses of approximately
$25 million; statutory tax rate of 33 to 34%; a discount rate of 5.0% and
an expected long-term average return of 7.25% for pension accounting,
unchanged from 2006; average shares outstanding of 330 to 335 million;
and no prospective significant acquisitions or divestitures. Earnings per
share (EPS), cash balances, net debt and common equity may be affected by
the potential purchases of up to 24 million TELUS shares over a 12-month
period under the normal course issuer bid that commenced December 20,
2006.
Factors that could cause actual results to differ materially include but
are not limited to: competition (including more active price
discounting); economic growth and fluctuations (including pension
performance, funding and expenses); capital expenditure levels (including
possible spectrum asset purchases); financing and debt requirements
(including share repurchases); tax matters (including acceleration or
deferral of required payments of significant amounts of cash taxes);
human resource developments (including possible labour disruptions);
technology (including reliance on systems and information technology);
regulatory developments (including local forbearance, wireless number
portability, the timing, rules, process and cost of future spectrum
auctions, and possible changes to foreign ownership restrictions);
process risks (including internal reorganizations, conversion of legacy
systems and billing system integrations); health, safety and
environmental developments; litigation and legal matters; business
continuity events (including manmade and natural threats); any
prospective acquisitions or divestitures; and other risk factors
discussed herein and listed from time to time in TELUS' public disclosure
documents including its annual report, annual information form, and other
filings with securities commissions in Canada (at www.sedar.com) and
filings in the United States including Form 40-F (on EDGAR at
www.sec.gov).
For further information, see Section 10: Risks and risk management of
TELUS' 2006 annual and 2007 first and second quarter Management's
discussion and analyses, as well as updates reported in Section 10 of
this document.
-------------------------------------------------------------------------
Management's discussion and analysis
October 31, 2007
The following is a discussion of the consolidated financial condition and results of operations of TELUS Corporation for the three-month and nine-month periods ended September 30, 2007 and 2006, 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 19 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 and approved by TELUS' Board of Directors. All amounts are in Canadian Dollars unless otherwise specified.
TELUS has issued guidance on and reports on certain non-GAAP measures that are used by management to evaluate performance of business units, segments and the Company. In addition, non-GAAP measures are used in measuring compliance with debt covenants and are used to manage the capital structure. Because non-GAAP measures do not have a standardized meaning, securities regulations require that non-GAAP measures be clearly defined and qualified, and reconciled with their nearest GAAP measure. For the 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 Description
-------------------------------------------------------------------------
1. Introduction and A summary of TELUS' consolidated results for
performance summary the third quarter and first nine months of
2007
-------------------------------------------------------------------------
2. Core business, vision Examples of TELUS' activities in support of
and strategy its six strategic imperatives
-------------------------------------------------------------------------
3. Key performance drivers TELUS' 2007 priorities
-------------------------------------------------------------------------
4. Capability to deliver An update on TELUS' capability to deliver
results results
-------------------------------------------------------------------------
5. Results from operations A detailed discussion of operating results
for the third quarter and first nine months
of 2007
-------------------------------------------------------------------------
6. Financial condition A discussion of changes in the balance sheet
for the nine-month period ended
September 30, 2007
-------------------------------------------------------------------------
7. Liquidity and capital A discussion of cash flow, liquidity, credit
resources facilities and other disclosures
-------------------------------------------------------------------------
8. Critical accounting A description of accounting estimates and
estimates and changes to accounting policies
accounting policy
developments
-------------------------------------------------------------------------
9. Annual guidance TELUS' revised annual guidance f
