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 ___May___ 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 May 4, 2005 of the First Quarter Results
______________________________________________________________________________
May 4, 2005
Excellent revenue, earnings and cash flow growth
Revising 2005 guidance upwards
VANCOUVER, May 4 - TELUS Corporation (TSX: T and T.NV / NYSE: TU)
today reported strong financial results for the first quarter of 2005 which
reflect excellent performance ahead of plan at both TELUS Mobility and TELUS
Communications, leading to a significant increase in consolidated earnings and
free cash flow. Consolidated operating revenues of nearly $2.0 billion in the
quarter increased almost 10% from a year ago and operating income was up 46%.
Earnings per share for the first quarter were 67 cents, up 139% compared with
28 cents for the same period a year ago. Earnings per share for the first
quarter benefited from 15 cents in positive tax related adjustments versus
four cents for the first quarter of 2004. Free cash flow increased $123
million to $567 million during the quarter, a 28% improvement from a year ago.
FINANCIAL HIGHLIGHTS
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C$ in millions, except per share amounts 3 months ended
March 31
(unaudited) 2005 2004 % Change
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Operating revenues 1,974.7 1,803.8 9.5
EBITDA(1) 856.2 721.3 18.7
Operating income 454.0 310.9 46.0
Net income 242.2 101.3 139.1
Earnings per share (EPS), basic (2) 0.67 0.28 139.3
Capital expenditures 273.2 309.7 (11.8)
Cash provided by operating activities 728.4 588.1 23.9
Free cash flow (3) 566.6 443.3 27.8
(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 positive tax impacts of 15 cents and four cents for
2005 and 2004 three month periods, respectively.
(3) See Section 11.2 of Management's discussion and analysis.
Darren Entwistle, president and CEO, stated "first quarter results were
exceedingly strong for both TELUS Communications and TELUS Mobility, with
excellent EBITDA growth of 10 and 36 per cent, respectively. Moreover, bottom
line earnings increased 117% year over year after adjusting for non-recurring
tax benefits. These outstanding results are underpinned by TELUS' consistent
execution of our data and wireless growth strategy. We are striving to bring
the collective bargaining process to a positive conclusion for all
stakeholders so that our unionized team members can also share more fully in
our ongoing success."
Robert McFarlane, executive vice president and CFO, commented that "we
are very pleased with the excellent results reported across the board in the
first quarter. These ahead of plan results and improved outlook have led to
our raising guidance for most full year targets in 2005. However, we must
remain cautious about projecting results into the future. Future expectations
should be tempered by the potential impact of ongoing trends of increased
competitive and technological threats, higher restructuring costs in the
remainder of the year and the recognition that we still face an as yet
unresolved labour relations challenge. Regardless, what is clear is that TELUS
is operating at best in class performance levels in the North American telecom
industry. You can be assured that the TELUS Team is striving to build on this
success so the Future continues to be Friendly for all our investors."
OPERATING HIGHLIGHTS
TELUS Mobility
Strong cash flow improvement of $80 million driven by 19% revenue growth
and significant margin expansion
- revenues increased by $121 million or 19% to $758 million in the first
quarter of 2005, when compared with the same period in 2004
- EBITDA increased by $90 million or 36% to $337 million
- EBITDA margin expanded by 6.7 points to 49% of Network revenue and by
5.6 points to 45% of total revenue
- ARPU (average revenue per subscriber unit) increased by $1 to $58,
- cost of acquisition ("COA") per gross subscriber improved to $355 from
$383
- net subscriber additions of 80,200 in the quarter, improved 5% from a
year ago. Notably, higher revenue-generating postpaid subscriber net
additions of 74,800 increased by 16%, representing 93% of total net
additions
- blended monthly churn improved to 1.45% from 1.49% when compared to
the same quarter a year ago. Postpaid churn was 1.12% this quarter,
down from 1.17% a year ago
- cash flow (EBITDA less capital expenditures) increased by $80 million
or 41% to a quarterly record of $278 million
TELUS Communications
Strong cash flow improvement driven by 4% revenue growth with EBITDA
growth of 10%
- revenues increased by $49 million or 4% in the first quarter of 2005,
when compared with the same period in 2004 representing a third
quarter of year-over-year growth
- data revenue increased 11% driven by a 18% increase in the high-speed
Internet subscriber base and non-incumbent growth in Central Canada
- strong 24% increase in non-incumbent revenues in Ontario and Quebec to
$160 million creating another quarter of profitability
- long-distance revenue declined 1%, the second consecutive quarter of a
modest 1% year-over-year decline
- EBITDA increased by $45 million or 10% as a 4% increase in revenues
were offset by only a 1% increase in operations expenses
- high-speed Internet net additions were 22,200 in the first quarter,
bringing TELUS' total high-speed Internet subscriber base to 711,900,
an 18% increase from last year
- network access lines of 4.8 million, declined 15,000 from the end of
2004, down a modest 1.1% from a year ago
- cash flow (EBITDA less capital expenditures) increased by $91 million
or 43% to $305 million in the first quarter of 2005
CORPORATE DEVELOPMENTS
Labour Relations activity
A significant amount of activity has transpired in the first four months
of 2005 as TELUS and the Telecommunications Workers Union (TWU) continue to
attempt to reach a replacement collective agreement. In early February, the
Canada Industrial Relations Board (CIRB) issued a decision overturning its
year old ruling that imposed binding arbitration on TELUS, and returned the
parties to the collective bargaining process while reinstating a narrower
communications ban on the company. The TWU appealed this CIRB decision to the
Federal Court of Appeal and it is scheduled to be heard on May 31, 2005. Since
the release of that decision in February, the parties have been in
negotiations under the supervision of a federally appointed Mediator.
On April 18 the Company, noting that negotiations were at an impasse,
delivered a first notice of lockout and the planned imposition of six specific
lockout measures (suspension of grievance and arbitration processes, joint
Union management committees, scheduling of accumulated time off, payment of
the first day of sickness, and the deferral of wage progression increases and
increases in vacation entitlements). These measures implemented on April 25,
did not include closing any operations and were intended to bring pressure to
bear at the negotiating table. In addition, with the announcement of these
specific lockout measures, the communications ban was lifted and TELUS on
April 21 communicated its comprehensive offer, previously made available to
the TWU at the negotiating table, directly to unionized team members.
Negotiations have continued to date.
After four and half years without a new contract, TELUS is attempting to
bring resolution to the collective bargaining process and reach a replacement
collective agreement for the benefit of team members, customers and investors.
TELUS continues to repurchase shares
During the quarter, TELUS continued to purchase shares under its Normal
Course Issuer Bid. In the first quarter, a total of 4.1 million shares
(2,097,100 common and 2,036,100 non-voting) were purchased, for a total outlay
of $158.3 million.
TELUS commenced the program on December 20, 2004 with the intention to
purchase, from time to time over a 12-month period, up to 14 million of its
outstanding common shares and up to 11.5 million of its outstanding non-voting
shares. This represents approximately seven per cent of the issued and
outstanding shares in each share class. Since the program commenced, a total
of 6.3 million shares (2,852,811 common and 3,487,500 non-voting) have been
purchased, for a total outlay of $236.3 million.
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. All TELUS shares
purchased are cancelled.
Enhanced bank credit facilities of $1.6 billion
TELUS arranged for new credit facilities in May 2005 to replace
$1.6 billion of existing credit facilities. The prior 364 day facility which
was due to expire and a term facility with 3 years remaining to maturity were
replaced with a new 3 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. Notably, the maturity dates for these new bank
facilities extend out past the maturity date of each of TELUS' next two
significant public notes due in June 2006 and 2007.
TELUS partners with province of British Columbia
In April, the Province of B.C. and TELUS announced an initiative to bring
broadband access points to 334 B.C. communities by the end of 2006 and to
consolidate existing competitive telecommunications services contracts into a
master agreement for four years with an option for three more years. This
initiative called Connecting Communities will ensure B.C. communities have
access to broadband connections, opening up new social and economic
opportunities to British Columbians.
The master agreement, which consolidates some 340 existing competitive
service contracts into one, covers 10 broader public sector entities, such as
Crown Corporations and health authorities. This helps secure a large share of
provincial government business projected at more than $245 million for the
next four years and positions TELUS for new revenue growth opportunities.
TELUS will invest an estimated $110 million over four years to connect
119 communities to high speed Internet by the end of 2006 and further expand
broadband services. Many of the unserved communities are small, rural and
remote, and many of them are First Nations communities or communities in
proximity to First Nations. A community, as defined by the Premier's
Technology Council, has a public school, library or healthcare facility.
TELUS signs $30 million agreement to supply services to Intrawest resorts
across Canada
In March, TELUS announced an eight-year, $30 million agreement with
Intrawest Corporation, one of the world's leading destination resort and
adventure-travel companies, to be the exclusive supplier of next generation
Internet protocol and telecommunications services to all Intrawest resorts
across Canada. The contract covers a wide range of services for Intrawest
across Canada, including major resort properties of Whistler Blackcomb and
Panorama Mountain Village in B.C.; Tremblant in Quebec; and Blue Mountain
Resort in Ontario. The partnership highlights TELUS' national capability to
offer integrated data, IP and wireless solutions to meet customer's unique
needs.
TELUS launches innovative communications solution for a friendly future
In May, TELUS launched TELUS Telecommuting to save business customers
thousands of dollars per participating employee while reducing greenhouse gas
emissions and smog, easing strain on transportation infrastructure and
enriching employees' lives. TELUS Telecommuting is a suite of communications
services that allow business clients to work out of their homes. The services -
high speed Internet; virtual private networks; a variety of phone options; and
collaboration services such as web, audio and video conferencing - allow
workers to create virtual offices at home.
Working with businesses, TELUS is creating telecommuting programs
tailored to their unique operations and often passing significant savings and
preferred pricing to participating employees. Programs may include purchase of
residential Internet services through payroll deduction, and employee
discounts on services such as TELUS Home Networking, a wireless LAN solution.
To help businesses measure the impacts of employees working at home,
TELUS partnered with Calgary's Teletrips. They have developed a web-based
system where teleworkers enter information such as their vehicle's make, the
distance they travel to work and then periodically enter the days they
teleworked. The system then automatically calculates the pollution avoided,
time saved and how much money the employee saved in fuel and maintenance
costs, risk mitigation reports, and other value-added information that
corporations want to include in their corporate responsibility reports.
TELUS launches three new security solutions
Growing its slate of state-of-the-art security solutions for business and
government in Canada, TELUS announced in March the launch of three new TELUS
security solutions. Intrusion Prevention Service, Secure Socket Layer VPN and
Distributed Denial of Service - the first of its kind in Canada - are new
additions to TELUS' leading edge IP security services package.
With more and more organizations moving to IP, maximizing this investment
and guaranteeing systems security is a priority for TELUS. These new security
solutions address a reality for business and government today: security must
be considered a priority of daily operations, rather than a distant threat.
TELUS' Distributed Denial of Service (DDoS) prevention is a hardware-
based solution, which continuously monitors customer network traffic for
anomalies and destroys them before they affect legitimate users' services.
The Intrusion Prevention Service (IPS) is a turn-key solution that
insulates a network environment against external attacks.
The Secure Socket Layer (SSL) VPN eliminates the need for client software
deployment, costly maintenance and desktop support by utilizing the Internet's
capacity for data transportation.
TELUS and Telephony(at)Work partner to offer Canada's first fully
integrated on-demand hosted contact centre service
A new partnership between TELUS and Telephony(at)Work is bringing
Canada's first fully integrated on-demand hosted contact centre service to
Canadian business. TELUS has an exclusive agreement with Telephony(at)Work to
provide multi-media contact centre technology to Canadian businesses with as
little as 12 days notice.
The partnership brings together TELUS' leading data and IP technology and
Telephony(at)Work's contact centre software - CallCentreAnywhere - to offer
businesses contact centre systems that place customer contacts from any source
- phone, email, fax, online, or voice mail - into a single IP-based system
that can direct the contact to the most appropriate agent anywhere in the
world, whether they are working from home or at a contact centre office.
As a data and IP leader, TELUS is committed to offering integrated
solutions that give our customers a competitive advantage in the market.
Integrated contact centres reduce traditional technology-related entry costs
while increasing customer satisfaction, giving Canadian business the first
truly flexible, fully integrated, and easy-to-use hosted contact centre
solution.
TELUS Mobility plans high-speed EVDO service in Q1 2006, introduces first
EVDO-capable wireless network card
TELUS Mobility today introduced the Sierra Wireless AirCard(R) 580
wireless wide-area network card, the first in Canada capable of operating on
high-speed EVDO networks. TELUS Mobility plans to introduce EVDO (for
Evolution, Data Optimized) service in selected Canadian markets in the first
quarter of 2006. EVDO is next-generation wireless network technology that
offers data transfer speeds of approximately 400 kilobits per second, at least
six times faster than current wireless data speeds.
Operating on TELUS Mobility's national 1X wireless voice and data network
now, the AirCard 580 offers forward compatibility with EVDO through a simple
software upgrade. The AirCard 580, a follow-up to the popular Sierra Wireless
AirCard 555 offered by TELUS Mobility since 2000, fits a standard Type II PC
Card slot on portable computing devices. It offers improved reception, thanks
to its flip-up, vertically polarized antenna, and lower battery consumption.
Fastap technology boosts TELUS Mobility text messaging
TELUS Mobility has responded to the growing popularity of text messaging
in Canada with the launch of the Fastap LG 6190, a world-exclusive phone that
features text keys integrated around the standard numeric keypad, making
texting and other data input faster and easier. Our analysis has found that
new clients who purchased the Fastap phone sent 120% more text messages than
those with other phones, while existing clients who upgraded to Fastap
increased their texting volumes by 60%. Similar increases were also seen in
the use of picture messaging - the Fastap LG 6190 is also a camera phone -
Wireless Web access and other data services. TELUS Mobility also announced
earlier this year that clients can now send phone-to-phone text messages to
more than 70 countries worldwide for 20 cents per message.
According to the Canadian Wireless Telecom Association, Canada's 15
million wireless subscribers now send more than 3.4 million text messages each
day. They sent 710 million phone-to-phone messages in 2004, up from 352
million the previous year and 300 per cent more than the 174 million in 2002,
when inter-carrier messaging was launched in Canada.
Cool phones from TELUS Mobility
TELUS Mobility introduced several other new phones this quarter that
confirmed its leadership in bringing cool and exclusive phones to the Canadian
wireless market, including a Pocket PC for e-mail and more, a multimedia
"slider" phone, two unique Mike phone designs and two new RIM BlackBerry
devices.
E-mail and more: TELUS Mobility yesterday announced the Audiovox 6600, a
Pocket PC for e-mail and more that features Microsoft(R) Windows Mobile(TM)
software for Smartphone, Bluetooth support for hands-free devices, digital
camera and video capability, a 128 MB memory card and an integrated MP3
player. The Audiovox 6600 is a powerful and compact device for e-mail,
Internet access and multimedia applications in the office or on the go.
New Mike and PCS BlackBerry devices: TELUS Mobility introduced two
Bluetooth-enabled BlackBerry devices to its business solutions portfolio. The
BlackBerry 7250 operates on the company's national 1X network, while the
BlackBerry 7520 powered by Mike features Mike's Direct Connect PTT service.
Both feature enhanced BlackBerry data services and Bluetooth support for
wireless devices such as hands-free headsets and car kits. The BlackBerry 7520
powered by Mike also features a Global Positioning System (GPS) receiver that
allows clients to track and direct mobile fleets and field-service efficiently
and economically.
Multimedia PCS phones: Introduced in March, the much-anticipated LG 535
is a powerful multimedia device packaged in a sliding case, and featuring a
1.3 Megapixel digital camera, video recorder, integrated MP3 player with high-
quality stereo speakers, optional removable 128 MB memory card and Bluetooth
support for hands-free devices such as earpieces and car kits. The LG 535
joins the Motorola V710, another high-end device with similar multimedia and
Bluetooth capabilities launched by TELUS Mobility in December.
Unique Mike designer phones: TELUS Mobility is shaping the lines of
communications with two new Mike phone designs. The Motorola i833 by
Pininfarina was conceived by the same design house behind Ferrari automobiles,
and sports a titanium-coloured finish, translucent internal lens that gives
users a peek under the "hood," a gas tank shaped audio jack cover and a grill-
like bottom connector cover. The Baby Phat by Kimora Lee Simmons i833 by
Motorola is a high-fashion, trend-setting phone crafted by famed hip-hop
designer Kimora Lee Simmons. The pink phone features a quilted texture and 0.4
carats of genuine diamonds encrusting the external display.
TELUS Recognition and Awards
Data product innovation
In April, TELUS was recognized with three key global and national awards
at Cisco Systems 2005 Partner Summit: Global Innovation Partner, Partner of
the Year - Canada, and Western Canada Advance Technology Partner. The Global
Innovation Partner award recognizes partners who have developed an exceptional
set of best practices, brought an innovative new model to market or developed
a unique application to fulfill a customer or market need in 2004. Most
recently, with the support of Cisco, TELUS developed ANGEL, a highly
customized managed security solution that provides network access control for
enterprise accounts. The Partner of the Year - Canada award recognizes
outstanding partnership in achieving revenue growth in the enterprise and
commercial markets, innovation in advanced technology solutions and high
levels of customer satisfaction.
Leadership excellence
In May, Kevin Salvadori, executive vice-president, Business
Transformation and Chief Information Office, was named to Canada's Top 40
Under 40 for 2004. Each year the program honours 40 Canadian leaders under the
age of 40 who have reached a significant level of success. Kevin was selected
from more than 1,400 nominees by an independent advisory board comprised of
business leaders. Recipients are chosen based on five key criteria: vision and
leadership; innovation and achievement; impact; community involvement and
contribution; and strategy for growth.
Investor relations merit
TELUS' Investor Relations team was recognized in February with
nominations for seven of eighteen awards at Investor Relations Magazine's 2005
Canadian award ceremony. These awards are judged by a survey of investment
analysts and institutional investors. TELUS was awarded Best Senior Management
Communications for large cap companies and Best Investor Relations Web Site
for large cap companies. In addition, TELUS received Honourable Mentions in
the following categories: The Canadian Investor Relations Institute Grand Prix
for Best Overall Investor Relations for large cap companies, Best Financial
Media Relations, Best Use of Technology, Best Communications with the Retail
Market, and Best Investor Relations Officer - John Wheeler, vice-president,
Investor Relations.
Learning leadership
TELUS vice-president of Learning and Development, Josh Blair, was named
the Learning Leader of the Year for 2005 at the annual Illuminati Awards
hosted by Thomson NETg. TELUS was the only Canadian recipient in 2005, and the
only company to receive an Illuminati award in two consecutive years. In
addition, TELUS has also been internationally recognized by the American
Society for Training and Development (ASTD) as the sixth-ranked firm for using
learning to drive enterprise performance.
TELUS Mobility prize for international design
TELUS Mobility's corporate retail store at the Scarborough Town Centre
shopping mall has been named Store of the Year by the National Association of
Store Fixture Manufacturers (NASFM). Designed by world-renowned boutique
design firm burdifilek of Toronto, TELUS Mobility won the international award
at GlobalShop's 2005 NASFM Retail Design Awards "not just because it was a
well-designed store, but also because the design evolved the classification of
mobile technology to the next level," according to NASFM.
Creating future friendly communities
TELUS continues to make significant investments in the communities where
we live work and serve. As we progress to become Canada's premier corporate
citizen, TELUS is taking a leadership role in supporting young Canadians by
leveraging our funding, technology and expertise to help make a difference.
Supporting education and learning
In April, The University of British Columbia and TELUS announced a
contribution and strategic alliance with a combined value of $2.4 million for
UBC Robson Square, advanced information technology infrastructure to support
learning and research, and the UBC Learning Exchange.
The partnership will help ensure area residents, non-profit
organizations, businesses and inner city schools will continue to enjoy the
educational and community outreach programs offered in downtown Vancouver.
TELUS partners with science centres across Canada
TELUS has announced five partnerships with science centres across Canada.
TELUS has invested in the future of tomorrow's leaders by supporting Canadian
science centres to promote technological innovation. Following the
announcement of support for the Vancouver Science Centre last October, the
following announcements were made in April and May.
- a $10.1 million, 15-year partnership with the Ontario Science Centre,
which supports the Science Centre's Agents of Change campaign,
including the creation of a dramatic outdoor exploration plaza.
- a $7.5 million, 10-year partnership with the Montreal Science Centre
that will see TELUS become the lead sponsor of the Montreal Science
Centre, an establishment committed to furthering science and
technology education for the leaders of tomorrow.
- Calgary Science Centre partnership with TELUS and a new name - the
TELUS World of Science Calgary. TELUS will invest $9 million over 20
years to the Calgary Science Centre Society to help build a new and
expanded science centre.
- the Odyssium announced an $8.2 million, 20-year partnership that will
expand and enhance exhibits and programming at the facility, to be
re-named 'TELUS World of Science Edmonton'.
TELUS supports BC 2009 World Police and Fire Games
TELUS announced in March support for firefighters, police, corrections
and customs officers who will be participating in the British Columbia 2009
World Police and Fire Games with a five-year, $1.6 million sponsorship. The
games are the second largest in the world after the Olympics, attracting more
than 14,000 athletes from almost 70 countries.
Dividend declaration
The Board of Directors declared a quarterly dividend of twenty cents
($0.20) per share on outstanding Common and Non-Voting Shares payable on
July 1, 2005 to shareholders of record on the close of business on June 10,
2005.
/For further information:
Media Relations: Investor Relations:
Nick Culo, (780) 493-7236, John Wheeler,(780) 493-7310,
nick.culo(at)telus.com; ir(at)telus.com/
(T. T.NV. TU)
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, 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; tax matters; human resources (including the ongoing
impact and outcome of outstanding labour relations issues and collective
bargaining); technology (including reliance on systems and information
technology); regulatory developments; process risks (including conversion
of legacy systems); manmade and natural threats; health and safety;
litigation; business continuity events; 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 Management's discussion and analysis, and updates
included in Section 10 of this first quarter interim report.
The Company disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
==========================================================================
Management's discussion and analysis - May 4, 2005
The following is a discussion of the consolidated financial condition and
results of operations of TELUS Corporation for the periods ended March 31,
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 May 3, 2005 and approved by TELUS'
Board of Directors on May 4, 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. On a consolidated basis, 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, reconciled with their nearest GAAP measure and
be given no more prominence than the closest 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
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Section Contents
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1. Overall performance A summary of 2005 first quarter
consolidated results
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2. Core business, vision and Recent examples of TELUS' activities in
and strategy support of its six strategic imperatives
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3. Key performance drivers Recent examples of TELUS' activities in
support of its key performance drivers
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4. Capability to deliver An update on TELUS' capability to deliver
results results
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5. Results from operations A detailed discussion of operating
results for 2005
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6. Financial condition A discussion of significant changes in
the balance sheet since the beginning
of the year
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7. Liquidity and capital A discussion of cash flow, liquidity,
resources credit facilities, off-balance sheet
arrangements and other disclosures
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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
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9. Revised guidance A discussion of revisions to its
guidance for 2005
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10. Risks and uncertainties A update of risks and uncertainties
facing TELUS
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11. Reconciliation of A description, calculation and
non-GAAP measures and reconciliation of certain measures
definition of key used by management
operating indicators
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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
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($ in millions except margin Quarters ended March 31
and per-share amounts) 2005 2004 Change
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Operating revenues 1,974.7 1,803.8 9.5 %
EBITDA(1) 856.2 721.3 18.7 %
EBITDA margin (%) (2) 43.4 40.0 3.4 pts
Operating income 454.0 310.9 46.0 %
Net income 242.2 101.3 139.1 %
Earnings per share, basic 0.67 0.28 139.3 %
Earnings per share, diluted 0.66 0.28 135.7 %
Cash dividends declared per share 0.20 0.15 33.3 %
Cash provided by operating activities 728.4 588.1 23.9 %
Cash used by investing activities 306.2 298.6 2.5 %
Capital expenditures 273.2 309.7 (11.8)%
Cash used by financing activities 71.4 22.2 -
Free cash flow(3) 566.6 443.3 27.8
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(1) Earnings before interest, taxes, depreciation and amortization 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.
-------------------------------------------------------------------------
Consolidated Operating revenues and EBITDA increased significantly in
first quarter 2005, when compared with the same period in 2004, driven by
revenue growth of 19.0% at TELUS Mobility and 4.1% in TELUS' Communications
segment. EBITDA and EBITDA margins also increased as operations expense growth
rates of 8.1% and 1.4%, respectively, at TELUS Mobility and TELUS
Communications, remained well below revenue growth rates. In addition,
restructuring charges in the Communications segment decreased. For these
reasons, and due to lower amortization of intangible assets, operating income
increased by $143.1 million in the first quarter of 2005, when compared with
the same period in 2004.
Net income and earnings per share increased significantly in the first
quarter of 2005, when compared to the first quarter of 2004, due to improved
Operating income, lower net interest expenses as a result of debt repayments
in 2004. In addition, the favourable impact of the change in tax estimates for
available temporary differences, other tax adjustments and related interest
was approximately $54 million or 15 cents per share in the first quarter of
2005. In the corresponding period of 2004, favourable tax settlements
increased earnings per share by approximately four cents per share.
The increase in cash provided by operating activities was primarily due
to improved EBITDA, while cash used by investing activities was relatively
unchanged; lower capital expenditures in the Communications segment were
offset by an investment made in the first quarter of 2005. Free cash flow
increased primarily due to growth in EBITDA.
2. Core business, vision and strategy
TELUS continues to be guided by its six long-standing strategic
imperatives that serve as a guideline for the Company's actions. Some recent
examples of TELUS' activities in support of these imperatives follow.
2.1 Partnering, acquiring and divesting to accelerate the implementation
of TELUS' strategy
On February 15, 2005, TELUS' international division invested $27.5
million for an effective 49% interest in Ambergris Solutions Inc., a company
with operations in Asia, which provides business process outsourcing solutions
primarily to U.S.-based clients. The new investment resulted in approximately
2,600 new full-time equivalent employees being added to the Communications
segment staff count. TELUS has an option to purchase an additional effective
three and one-half per cent interest in this company, such option expiring in
mid-May, 2005. This investment was made with a view to enhancing the Company's
competitiveness in contact centre offerings.
The acquisition of Ambergris, combined with the acquisition of ADCOM,
Inc. in November 2004 provided incremental data revenues of $18.8 million and
incremental EBITDA of $3.4 million to TELUS' Communications segment in the
first quarter 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 Leveraging investments in high-speed Internet technology through
Future Friendly Home services in B.C., Alberta and Eastern Quebec
In April 2005, TELUS and the B.C. provincial government announced an
initiative, called Connecting Communities. The initiative is two fold. First,
it consolidates some 340 existing competitive services contracts into one
contract with the Province of B.C. The agreement covers 10 broader public
sector entities, such as Crown corporations and health authorities. Second,
TELUS has committed to bring access to high-speed data and voice services to
119 rural communities by the end of 2006, thereby helping fulfill the
Province's commitment to bridge the Digital Divide in 366 communities across
B.C. TELUS is to invest an estimated $110 million over four years to connect
the communities to high speed Internet and expand broadband services. With the
additional 119 communities, a total of 334 communities in B.C. are to be
connected by TELUS.
This agreement satisfies a number of strategic objectives for TELUS. It
secures TELUS' telecommunications business with the government for at least
four years, and up to seven years on a large share of the government's
wireline and wireless telecoms expenditures. It positions TELUS for new
revenue growth opportunities by enabling the Company to deploy innovative
Internet protocol-based (Next Generation Network) technology and services.
TELUS will create a $12 million innovation fund to allow the public sector in
B.C. to develop pilot opportunities in strategic areas of future growth,
including health care and education. The fund can be used for future upgrades
and infrastructure enhancements, subject to certain criteria and approval by
TELUS, as set out in the contract.
3.2 Accelerating wireline performance in Ontario and Quebec business
markets
Non-incumbent operations in TELUS' Communications segment experienced
revenue and EBITDA growth of $31.1 million and $17.0 million, respectively, in
the first quarter of 2005, when compared with the same period in 2004. It is
notable that non-incumbent EBITDA was positive for two consecutive quarters
for the first time, continuing a long-term trend of EBITDA improvement.
3.3 Driving continual improvements in productivity across TELUS
Continued economies of scale at TELUS Mobility, as well as a number of
smaller initiatives such as operational consolidation, rationalization and
integrations within the TELUS' Communications segment, helped drive
improvement in TELUS' consolidated EBITDA and EBITDA margin.
3.4 Reaching a collective agreement
Reaching a collective agreement remains a priority for TELUS in 2005.
On February 2, 2005, the Canada Industrial Relations Board ("CIRB")
overturned its earlier binding arbitration order and returned the parties to
negotiations. Negotiations resumed on February 10 and by April 13 the Company
had completed tabling of its comprehensive offer of settlement with the
Telecommunications Workers Union ("TWU").
On April 18, 2005, the Company, noting that negotiations were at an
impasse, delivered first notice of lockout measures to the TWU. That notice
contained six specific lock-out measures: the suspension of grievance and
arbitration processes, joint Union management committees, scheduling of
accumulated time off, payment for the first day of sickness absence and the
deferral of wage progression increases and increases in vacation entitlements.
These measures were implemented on April 25, did not include the closing of
operations, and were intended to bring pressure to bear at the negotiating
table. Attempts by the TWU at the Federal Court of Appeal and the CIRB to stop
the implementation of these measures were unsuccessful.
The status of two outstanding matters follows:
CIRB Decisions 1004 and 271
The CIRB issued a summary decision on February 2, 2005, overturning its
previous ruling that imposed binding arbitration. In addition, the Board set
aside the April 2004 broad communications ban, and re-instated its narrower
January 2004 ban related to communications with bargaining unit team members
on labour relations issues and negotiations. Subsequently, the
Telecommunications Workers Union filed an application in the Federal Court of
Appeal, scheduled to be heard on May 31 - June 1, 2005, seeking to overturn
the Canada Industrial Relations Board's reconsideration decision and restore
the order that placed the parties in binding arbitration.
Appeal of CIRB Decisions 1088 and 278
The CIRB, in Decisions 1088 and 278, declared that TELUS Mobility's
non-unionized team members, predominantly located in Ontario and Quebec,
performing work similar to their unionized Mobility segment counterparts in
Alberta and British Columbia, should be included in the TWU bargaining unit
without a representational vote. TELUS Mobility applied to the Supreme Court
of Canada for leave to appeal the decision in February 2005. As of the date of
this interim discussion, no decision has yet been rendered on the application
for leave to appeal.
4. Capability to deliver results
4.1 Operational capabilities - TELUS Communications
With agreements such as the one with the Government of B.C., and growth
initiatives in the business markets in Ontario and Quebec, TELUS
Communications is retaining existing customers and positioning itself for
future revenue growth, particularly in the areas of data and IP. This is in
the face of continued competitive pressures including launch this quarter of
local service in Calgary by the cable-TV operator. Measures taken for consumer
services include new Future Friendly Home services last year and the
introduction of a three-year contract option for consumer optional features
bundles. This initiative was launched to help retain customers, lock in
revenues over the contract period, and delay or reduce churn to competitors.
4.2 Operational capabilities - TELUS Mobility
TELUS Mobility continues to execute its plan to grow profitably through
the delivery of excellent customer care, value-added solutions, and superior
network quality. As a result, TELUS Mobility believes it is well positioned to
sustain a pricing premium in the face of new competitive pressures, including
the launch of a new competitor offering prepaid wireless service through
resale during the current quarter. Although the Company has been experiencing
continued ARPU growth, it has slowed and is expected to continue to moderate
in the remainder of the year. Future profitability growth is expected to be
realized from continued subscriber growth and economies of scale through a
well managed client focused organization.
4.3 Liquidity and capital resources
TELUS had more than $1.2 billion of cash at March 31, 2005. With access
to undrawn credit facilities of more than $1.6 billion and expected cash
provided by operating activities, the Company believes it has sufficient
capability to fund its requirements in 2005 and refinancing requirements in
2006. As at March 31, 2005, the Company and its subsidiaries are in compliance
with all of their debt covenants.
TELUS arranged for new credit facilities in May 2005 to replace
$1.6 billion of existing credit facilities. The prior 364-day facility, which
was due to expire, and a term facility with three years remaining to maturity
were replaced with a new three-year facility due in May 2008 and a longer
maturity five-year term facility due in May 2010. The new credit facilities
have no substantial changes in terms and conditions, other than reduced
pricing and the extension of term, which reflect favourable market conditions
and TELUS' strong financial position. See Section 7.5 Credit facilities.
5. Results from operations
5.1 General
The Company's reportable segments, which reflect TELUS' organizational
structure and are used to manage the business, are TELUS Communications
(discussed in Section 5.4 Communications segment results) and TELUS Mobility
(discussed in Section 5.5 Mobility segment results). The two segments are
differentiated based on management, products and services, distribution
channels, technology, and regulatory treatment. Intersegment sales are
recorded at the exchange value. Segmented information may also be found in
Note 17 of the interim consolidated financial statements.
5.2 Quarterly results summary
-------------------------------------------------------------------------
($ in millions,
except per share amounts) 2005 Q1 2004 Q4 2004 Q3 2004 Q2
-------------------------------------------------------------------------
Segmented revenue (external)
Communications segment 1,222.2 1,209.3 1,199.9 1,189.0
Mobility segment 752.5 755.6 747.0 676.6
-------- -------- -------- --------
Operating revenues (consolidated) 1,974.7 1,964.9 1,946.9 1,865.6
Net income 242.2 135.6 156.6 172.3
Per weighted average Common Share
and Non-Voting Share outstanding
- basic 0.67 0.38 0.44 0.48
- diluted 0.66 0.37 0.43 0.48
Dividends declared per Common Share
and Non-Voting Share outstanding 0.20 0.20 0.15 0.15
-------------------------------------------------------------------------
-------------------------------------------------------------------------
($ in millions,
except per share amounts) 2004 Q1 2003 Q4 2003 Q3 2003 Q2
-------------------------------------------------------------------------
Segmented revenue (external)
Communications segment 1,171.1 1,182.4 1,186.3 1,209.2
Mobility segment 632.7 643.2 619.9 564.1
-------- -------- -------- --------
Operating revenues (consolidated) 1,803.8 1,825.6 1,806.2 1,773.3
Net income 101.3 47.8 114.1 73.0
Per weighted average Common Share
and Non-Voting Share outstanding
- basic 0.28 0.13 0.32 0.21
- diluted 0.28 0.13 0.32 0.21
Dividends declared per Common Share
and Non-Voting Share outstanding 0.15 0.15 0.15 0.15
-------------------------------------------------------------------------
The trend in consolidated Operating revenues reflects strong wireless
growth at TELUS Mobility as well as sequential growth in TELUS' Communications
segment revenues for the most recent four quarters. Wireless growth resulted
from increases in the subscriber base and average revenue per subscriber unit
("ARPU"). Notable is that TELUS Communications segment first quarter 2005
revenues increased, when compared with the fourth quarter of 2004, due to a
favourable regulatory adjustment in local revenues as well as growth in data
revenues. Long distance revenue erosion was at a lower rate in the first
quarter of 2005 than in the same period in 2004. Communications segment
revenues also include the impacts of regulatory price cap decisions.
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 increasing cash balances and favourable tax adjustments.
5.3 Consolidated results from operations
-------------------------------------------------------------------------
($ in millions except EBITDA Quarters ended March 31
margin and employees) 2005 2004 Change
-------------------------------------------------------------------------
Operating revenues 1,974.7 1,803.8 9.5 %
Operations expense 1,109.1 1,066.6 4.0 %
Restructuring and workforce reduction costs 9.4 15.9 (40.9)%
-------------------------------------------------------------------------
EBITDA (1) 856.2 721.3 18.7 %
EBITDA margin (%) (2) 43.4 40.0 3.4 pts
Full time equivalent employees,
end of period 27,411 23,892 14.7 %
-------------------------------------------------------------------------
(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
-------------------------------------------------------------------------
Consolidated Operating revenues and EBITDA increased significantly in
first quarter 2005, when compared with same period in 2004, driven by revenue
growth in both TELUS Mobility and TELUS Communications segments. EBITDA and
EBITDA margin also increased as the operations expense growth rate remained
well below the revenue growth rate. In addition, restructuring charges
decreased in the Communications segment. TELUS full time equivalent employees,
measured at March 31, 2005, increased due to two small acquisitions and the
addition of a payroll services contract for the B.C. government, as well as to
support subscriber growth at TELUS Mobility.
For further discussion by segment, see Section 5.4 Communications segment
results and Section 5.5 Mobility segment results.
-------------------------------------------------------------------------
Depreciation and amortization Quarters ended March 31
($ in millions) 2005 2004 Change
-------------------------------------------------------------------------
Depreciation 329.9 321.7 2.5 %
Amortization of intangible assets 72.3 88.7 (18.5)%
-------------------------------------------------------------------------
402.2 410.4 (2.0)%
-------------------------------------------------------------------------
Depreciation increased in the first quarter of 2005, when compared with
the same period in 2004, due primarily to growth in shorter life data and
wireless network assets and a reduction in service lives for ADSL equipment,
partly offset lower depreciation arising from full amortization of cell sites.
Amortization of intangible assets decreased in the first quarter of 2005, when
compared with the same period in 2004, as a result of several software assets
becoming fully depreciated.
-------------------------------------------------------------------------
Other expense, net Quarters ended March 31
($ millions) 2005 2004 Change
-------------------------------------------------------------------------
1.5 1.2 25.0 %
-------------------------------------------------------------------------
Other expense includes accounts receivable securitization expense, gains
and losses on disposal of property, income (loss) or impairments in equity or
portfolio investments, and charitable donations. The accounts receivable
securitization expense was $1.0 million in the first quarter of both 2005 and
2004. See Section 7.6 Accounts receivable sale.
-------------------------------------------------------------------------
Financing costs Quarters ended March 31
($ millions) 2005 2004 Change
-------------------------------------------------------------------------
Interest on Long-term debt, short-term
obligations and other 159.0 165.4 (3.9)%
Foreign exchange losses (gains) 2.5 (0.6) -
Interest income (23.1) (19.8) (16.7)%
-------------------------------------------------------------------------
138.4 145.0 (4.6)%
-------------------------------------------------------------------------
Interest on long-term and short-term debt decreased primarily due to the
repayment of TCI Debentures and Medium-term Notes in the third quarter of
2004. 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
$7,374.9 million at March 31, 2005, when compared with $7,571.3 million one
year earlier. Interest income earned as a result the settlement of various tax
matters was $15.6 million in the first quarter of 2005 (as compared with $17.7
million in the first quarter of 2004). The balance of interest income, earned
primarily from cash and temporary investments, was significant at $7.5 million
in the first quarter of 2005, an increase of $5.4 million from the same period
last year.
-------------------------------------------------------------------------
Income taxes Quarters ended March 31
($ millions, except tax rates) 2005 2004 Change
-------------------------------------------------------------------------
Blended federal and provincial statutory
income tax 108.7 57.1 90.4 %
Changes in estimates of available temporary
differences in prior years (36.0) - -
Tax rate differential on, and consequential
adjustments from, the reassessment of
prior year tax issues (11.3) (1.6) -
Large corporations tax and other 8.9 7.1 25.4 %
-------------------------------------------------------------------------
70.3 62.6 12.3 %
-------------------------------------------------------------------------
Blended federal and provincial statutory
tax rates (%) 34.6 34.7 (0.1) pts
Effective tax rates (%) 22.4 38.0 (15.6) pts
-------------------------------------------------------------------------
Blended federal and provincial statutory income tax increased due to a
$149.4 million increase in income before taxes. Other reductions in tax
included changes in estimates of available temporary differences in prior
years and a tax rate differential (and consequential adjustments from) the
favourable reassessment of prior year's tax issues.
Based on continuation of the rate of TELUS earnings, the Company expects
to be able to fully utilize its non-capital losses before the end of 2006. The
Company's assessment is that the risk of expiry of such non-capital losses is
remote.
-------------------------------------------------------------------------
Non-controlling interest Quarters ended March 31
($ millions) 2005 2004 Change
-------------------------------------------------------------------------
1.6 0.8 100.0 %
-------------------------------------------------------------------------
Non-controlling interest primarily represents minority shareholders'
interests in several small subsidiaries. The increase in the first quarter of
2005, relative to the same period in 2004, is primarily minority shareholders'
interest in TELUS' recent acquisition of Ambergris.
-------------------------------------------------------------------------
Preference and preferred dividends Quarters ended March 31
($ millions) 2005 2004 Change
-------------------------------------------------------------------------
- 0.9 (100.0)%
-------------------------------------------------------------------------
Preference and preferred dividends ended 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
segment Quarters ended March 31
($ millions) 2005 2004 Change
-------------------------------------------------------------------------
Voice local 552.8 528.9 4.5 %
Voice long distance 226.4 229.6 (1.4)%
Data 377.6 339.8 11.1 %
Other 65.4 72.8 (10.2)%
-------------------------------------------------------------------------
External operating revenue 1,222.2 1,171.1 4.4 %
Intersegment revenue 22.6 25.0 (9.6)%
-------------------------------------------------------------------------
Total operating revenue 1,244.8 1,196.1 4.1 %
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Key operating indicators - Communications segment
At March 31
(000s) 2005 2004 Change
-------------------------------------------------------------------------
Residential network access lines 3,033 3,075 (1.4)%
Business network access lines 1,760 1,773 (0.7)%
------- ------- -------
Total network access lines(1) 4,793 4,848 (1.1)%
High-speed Internet subscribers 711.9 605.2 17.6 %
Dial-up Internet subscribers 270.4 309.1 (12.5)%
------- ------- -------
Total Internet subscribers (2) 982.3 914.3 7.4 %
Quarters ended March 31
(000s) 2005 2004 Change
---------------------------
Change in residential network access lines (14) (11) (27.3)%
Change in business network access lines (1) (11) 90.9 %
------- ------- -------
Change in total network access lines (15) (22) 31.8 %
High-speed Internet net additions 22.2 43.6 (49.1)%
Dial-up Internet net reductions (11.2) (10.7) (4.7)%
------- ------- -------
Total Internet subscriber net additions 11.0 32.9 (66.6)%
-------------------------------------------------------------------------
(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.
-------------------------------------------------------------------------
Communications segment revenues increased by $48.7 million in the first
quarter of 2005, when compared with the same period in 2004 as a result of
growth in enhanced and managed data services, new revenues from acquisitions,
as well as a favourable regulatory adjustment. The non-recurring portion of
the regulatory adjustment is $6.4 million.
- Voice local revenue increased by $23.9 million in the first quarter of
2005, when compared with the same period in 2004 due primarily to two
regulatory adjustments and the effect of business rate increases
implemented mid-2004, partly offset by the effect of continued line
losses. Contribution revenue in the first quarter of 2005 included a
positive adjustment of $6.4 million for CRTC Decision 2005-4.
Because TELUS used the liability method for recording price cap
deferrals, a favourable adjustment of $18.4 million, drawn from the
price cap deferral account, was recorded in local revenue in the first
quarter of 2005. This favourable adjustment offset mandated additional
discounts for competitor digital network services (basic data
services) pursuant to CRTC Decision 2005-6. See Section 10.1
Regulatory for further discussion of these and other recent CRTC
decisions.
Residential network access lines continued to decrease as a result of
competitive activity and technological substitution, including
substitution to wireless services. Residential line losses were
primarily to existing resellers and VoIP competitors, in comparison to
losses incurred as a result of introduction of cable telephony in
Calgary. Business lines decreased nominally in the first quarter of
2005, as incumbent local exchange carrier ("ILEC") Centrex line losses
to competition and migration to more efficient ISDN data services were
nearly offset by temporary ILEC line gains for the upcoming May 2005
B.C. provincial election and non-incumbent local exchange carrier
("non-ILEC") gains. It is expected that the trend of declining
residential network access lines will worsen in the future due to new
voice telephony service offers from cable-TV competitors, and
continued competition from other resale and VoIP competitors.
- Voice long distance revenues decreased at an improved rate of 1.4% in
the first quarter of 2005, when compared with the same period in 2004.
The decrease in revenues was due to lower average per-minute prices
for increased minute volumes, including growth in non-incumbent
volumes, partly offset by a $1.00 increase in the monthly long
distance administration fee in certain long distance plans.
- Communications segment data revenues increased by $37.8 million in the
first quarter of 2005, when compared with the same period in 2004.
This included $18.8 million of revenues from two recent acquisitions,
including a portion that is seasonal equipment sales. The increase in
data revenues due to acquisitions was nearly offset by the additional
discounts for competitive digital network services mandated by CRTC
Decision 2005-6, as described under voice local revenues above.
The remaining growth in non-acquired data revenues of $19.0 million
was primarily due to: (i) increased Internet and enhanced data service
revenues of $28.0 million 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 for the
provision of business process outsourcing services provided to
customers; (iii) increased data equipment sales; partly offset by (iv)
the additional discounts for competitive digital network services in
basic data services.
The rate of growth in high-speed Internet subscribers has slowed 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. In addition, in
the first quarter last year we experienced high net additions due to a
very attractive introductory marketing offer.
- Other revenue decreased due mainly to lower voice equipment sales as
well as lower late payment and customer financing revenues.
- 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 $159.5 million in 2005, an increase of $31.1 million or 24.2%,
when compared with the first quarter of 2004. The increase was a result of
growing revenues from the purchase of ADCOM, increased data equipment sales
and as well as other data and voice service revenues.
-------------------------------------------------------------------------
Operations expense - Communications segment Quarters ended March 31
($ millions, except employees) 2005 2004 Change
-------------------------------------------------------------------------
Salaries, benefits and
other employee-related costs 414.1 393.0 5.4 %
Other operations expenses 302.5 313.7 (3.6)%
-------------------------------------------------------------------------
Total operations expense 716.6 706.7 1.4 %
-------------------------------------------------------------------------
Full-time equivalent employees,
end of period 21,519 18,522 16.2 %
-------------------------------------------------------------------------
Operations expenses increased modestly in the first quarter of 2005, when
compared with the same period in 2004, despite structural changes caused by
the addition of two operations in late 2004 (B.C. payroll services and the
acquisition of ADCOM), and a new investment in a business process outsourcing
service provider in February 2005. In aggregate compared to the first quarter
of 2004, these three new operations added approximately 2,825 full-time
equivalent employees, $6.7 million for related salaries, benefits and employee
costs, and $12.9 million for other operations expenses primarily comprised of
cost of sales associated with equipment sales at ADCOM.
- Salaries, benefits and employee-related costs increased by 3.7%, or
$14.4 million, prior to structural changes described above. The
increase was due primarily to increased compensation and increased
full-time equivalent staff. Pension expense for defined benefit and
defined contribution plans was $12.1 million in the first quarter of
2005, a decrease of $3.7 million from the same period in 2004.
- Other operations expenses decreased by 7.7%, or 24.1 million, prior to
structural changes. The reasons for lower other operations expense
included: (i) $10.3 million of reduced facilities, transit and
termination costs associated with moving traffic on-net and to a
lesser extent, discounts from competitor ILECs arising from CRTC
Decision 2005-6; (ii) no payments to Verizon under renegotiated
Software and Related Technology and Service Agreements in the first
quarter of 2005, compared with $8.6 million in the same period in
2004; and (iii) $8.4 million of increased capitalization of labour due
to a higher labour component in capital expenditures in 2005. Contract
and consulting costs and bad debt expenses also decreased in the first
quarter of 2005, offset by increased product and service cost of sales
of $5.2 million and other cost increases.
Included in the total segment expenses discussed above are non-ILEC
operations expenses of $151.6 million in the first quarter of 2005, as
compared with $137.5 million in the same period in 2004. This 10.3% increase
in operations expense supported growth in non-ILEC revenues observed for the
same periods.
-------------------------------------------------------------------------
Restructuring and workforce reduction costs -
Communications segment Quarters ended March 31
($ millions) 2005 2004 Change
-------------------------------------------------------------------------
9.4 15.9 (40.9)%
-------------------------------------------------------------------------
In the first quarter 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 expects that restructuring charges will ramp up during the year and
will be approximately $100 million for the full year of 2005.
-------------------------------------------------------------------------
EBITDA and EBITDA margin - Quarters ended March 31
Communications segment 2005 2004 Change
-------------------------------------------------------------------------
EBITDA ($ millions) 518.8 473.5 9.6 %
EBITDA margin (%) 41.7 39.6 2.1 pts
-------------------------------------------------------------------------
EBITDA and EBITDA margin improved significantly in the first quarter of
2005, when compared with the same period in 2004. These increases were due to
non-ILEC and ILEC revenue growth of 24.2% and 1.6%, respectively, exceeding
the growth rate in the respective operations expenses (non-ILEC operations
expenses increased by only 10.3%, while ILEC operations expenses decreased by
1.8%). Restructuring charges recorded for ILEC operations also decreased.
Non-ILEC EBITDA was $7.9 million in the first quarter of 2005, as compared to
negative $9.1 million in the first quarter of 2004. ILEC EBITDA was
$510.9 million in the first quarter of 2005, up 5.9% as compared to
$482.6 million in the first quarter of 2004.
Communications segment capital expenditures are discussed in Section 7.2
Cash used by investing activities.
5.5 Mobility segment results
-------------------------------------------------------------------------
Operating revenues - Mobility segment Quarters ended March 31
($ millions) 2005 2004 Change
-------------------------------------------------------------------------
Network revenue 695.5 592.4 17.4 %
Equipment revenue 57.0 40.3 41.4 %
-------------------------------------------------------------------------
External operating revenue 752.5 632.7 18.9 %
Intersegment revenue 5.8 4.6 26.1 %
-------------------------------------------------------------------------
Total operating revenue 758.3 637.3 19.0 %
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Key operating indicators - Mobility segment
-------------------------------------------------------------------------
(000s) At March 31
2005 2004 Change
----------------------------
Subscribers - postpaid 3,315.1 2,876.5 15.2 %
Subscribers - prepaid 701.5 623.6 12.5 %
-------- -------- --------
Subscribers - total(1) 4,016.6 3,500.1 14.8 %
Digital POPs(2) covered including
roaming/resale (millions)(3) 30.2 29.5 2.4 %
----------------------------
Quarters ended March 31
(000s) 2005 2004 Change
----------------------------
Subscriber net additions - postpaid 74.8 64.7 15.6 %
Subscriber net additions - prepaid 5.4 11.4 (52.6)%
-------- -------- --------
Subscriber net additions - total 80.2 76.1 5.4 %
Churn, per month (%)(4) 1.45 1.49 (0.04) pts
COA(5) per gross subscriber addition ($)(4) 355 383 (7.3)%
ARPU ($)(4) 58 57 1.8 %
Average minutes of use
per subscriber per month (MOU) 371 362 2.5 %
EBITDA to network revenue (%) 48.5 41.8 6.7 pts
Retention spend to network revenue(4) (%) 5.5 5.0 0.5 pts
EBITDA ($ millions) 337.4 247.8 36.2 %
EBITDA excluding COA ($ millions)(4) 427.2 336.1 27.1 %
-------------------------------------------------------------------------
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 March 31, 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 $103.1 million for the
first quarter of 2005, as compared with the same period last year.
This growth was a result of the continued expansion of the subscriber
base by 14.8% to approximately 4.0 million subscribers combined with
increased average revenue per subscriber unit per month ("ARPU"). As a
result of an overall increase in average minutes of use ("MOU") per
subscriber per month, continued pricing discipline, and increased
usage of data and Internet based products, including picture and text
messaging, ARPU increased to $58 in the first quarter of 2005 as
compared with $57 in 2004.
Average minutes of use per subscriber per month increased by 2.5% in
the first quarter of 2005, when compared with the same period in 2004.
At March 31, 2005, postpaid subscribers represented 82.5% of the total
cumulative subscriber base remaining stable from one-year earlier,
contributing to the significant ARPU premium TELUS Mobility enjoys
over its competitors. Postpaid subscriber net additions of 74,800 for
the first quarter of 2005 represented 93.3% of all net additions as
compared with 64,700 (85.0%) for the corresponding period in 2004.
This was the seventh consecutive quarter of year-over-year increased
post-paid subscriber net additions.
Blended postpaid and prepaid monthly churn improved in the first
quarter of 2005 when compared the same quarter in 2004. Deactivations
were 172,800 for the first quarter of 2005 as compared with 154,200
for the same period last year. The improved monthly churn rate was a
notable accomplishment in a market characterized by vigorous
competition including the commercial launch of a pre-paid wireless
resale service by a new competitor in March 2005. The excellent
monthly churn and deactivation results reflect a continued focus on
customer care including successful loyalty and retention efforts,
value-added solutions and superior network quality for an exceptional
service experience.
- Equipment sales, rental and service revenue increased in the first
quarter ended March 31, 2005 as compared to the corresponding period
in 2004. Handset revenue increased mainly due to subscriber growth
brought about by a strong wireless market as well as increased
promotional, retention, and contracting activity. Gross subscriber
additions grew to 253,000 for the first quarter of 2005 as compared to
230,300 for the same period 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 March 31
($ millions, except employees) 2005 2004 Change
-------------------------------------------------------------------------
Equipment sales expenses 104.6 89.2 17.3 %
Network operating expenses 98.4 102.5 (4.0) %
Marketing expenses 74.3 61.4 21.0 %
General and administration expenses 143.6 136.4 5.3 %
-------------------------------------------------------------------------
Total operations expense 420.9 389.5 8.1 %
-------------------------------------------------------------------------
Full-time equivalent employees, end of period 5,892 5,370 9.7 %
-------------------------------------------------------------------------
TELUS Mobility operations expense increased in the first quarter of 2005,
when compared with the same period last year, to support growth in the
subscriber base. TELUS Mobility has been able to achieve significant economies
of scale as evidenced by the 8.1% increase in total operations expense, when
compared to first quarter Network revenue growth of 17.4% and year-over-year
growth in subscribers of 14.8%.
- Expenses related to equipment sales increased in the first quarter of
2005 when compared with the same period 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 by 4.0% for the first quarter of
2005, as compared with the same period last year. Network roaming
costs decreased by $4.6 million due to improved roaming rates
negotiated with a number of telecommunications carriers and competitor
digital network service discounts arising from savings from CRTC
Decision 2005-6, partially offset by higher volumes related to
successful marketing efforts in rural roaming/resale areas.
Transmission and site-related expenses increased during the first
quarter of 2005 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 March 31, 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 7.3% in the
first quarter to $355 as compared with the same period last year due
to higher gross subscriber additions and lower handset costs. Combined
with the higher ARPU and improved monthly churn, COA per gross
subscriber addition over the lifetime revenue of the subscriber
improved in the first quarter as compared with the same period in
2004.
- General and administration expenses increased by only 5.3% in the
first quarter of 2005, when compared to the same quarter in 2004,
contributing significantly to the bottom line through continued scale
efficiencies. TELUS Mobility increased full-time equivalent employees
to support the significant growth in the subscriber base and continued
expansion of the client care team and company-owned retail stores.
-------------------------------------------------------------------------
EBITDA and EBITDA margin - Quarters ended March 31
Mobility segment 2005 2004 Change
-------------------------------------------------------------------------
EBITDA ($ millions) 337.4 247.8 36.2 %
EBITDA margin (%) 44.5 38.9 5.6 pts
-------------------------------------------------------------------------
Significant growth in TELUS Mobility EBITDA and EBITDA margin was
attributed to its strategic focus on profitable subscriber growth, increased
ARPU, a lower cost of acquisition per gross subscriber addition, a world-class
monthly churn rate, and successful cost containment efforts. The EBITDA
margin, when calculated as a percentage of Network revenue, improved to 48.5%
for the first quarter of 2005, as compared with 41.8% for the same period in
2004, representing a positive increase of 6.7 percentage points. Notably,
incremental Network revenue flowed through to EBITDA at a rate of 86.9% as
compared to 69.0% for the same period in 2004.
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 March 31, 2005.
-------------------------------------------------------------------------
March 31, Dec. 31, Change Explanation
($ millions) 2005 2004
-------------------------------------------------------------------------
Current Assets
Cash and
temporary 1,247.3 896.5 350.8 See Section 7. Liquidity
investments, and capital resources
net
-------------------------------------------------------------------------
Accounts receivable 874.9 863.5 11.4 Related to increased
revenues
-------------------------------------------------------------------------
Income and other 172.7 132.5 40.2 Changes in estimates of
taxes receivable available temporary
differences, reassessments
and interest for prior
years
-------------------------------------------------------------------------
Inventories 111.0 133.3 (22.3) Primarily seasonal
reductions of inventory
-------------------------------------------------------------------------
Prepaid expenses 245.8 183.4 62.4 Prepayment of Mobility
and other licence fees, federal
Canada Pension Plan
contributions and
Employment Insurance
premiums, and maintenance
contracts
-------------------------------------------------------------------------
Current portion 372.0 438.4 (66.4) Decrease in available tax
of future loss pools in the upcoming
income taxes 12 months
-------------------------------------------------------------------------
Current Primarily an increase of
Liabilities accrued interest for
Accounts payable1, 486.9 1,362.6 124.3 semi-annual interest
and accrued payments in June 2005
liabilities
-------------------------------------------------------------------------
Restructuring and 58.4 70.7 (12.3) Decreased as payments
workforce reduction under previous programs
accounts payable exceeded new obligations
and accrued
liabilities
-------------------------------------------------------------------------
Dividends payable 72.3 - 72.3 The first quarter 2005
dividend was payable on
April 1, 2005, while the
dividend for the fourth
quarter of 2004 was
remitted on Dec. 31, 2004
-------------------------------------------------------------------------
Advance billings 532.2 531.5 0.7 -
and customer
deposits
-------------------------------------------------------------------------
Current maturities 4.4 4.3 0.1 Current maturities are
of long-term debt primarily capital leases
-------------------------------------------------------------------------
Working capital (1) 869.5 678.5 191.0 Primarily reflects
accumulation of cash
-------------------------------------------------------------------------
Capital Assets, 11,107.5 11,221.0 (113.5) See Sections 5.3
Net Consolidated results of
operations - Depreciation
and amortization and 7.2
Cash used by investing
activities
-------------------------------------------------------------------------
Other Assets
Deferred charges 746.4 704.4 42.0 Primarily pension plan
contributions in excess
of charges to income.
-------------------------------------------------------------------------
Future income taxes 72.7 99.8 (27.1) Reflects use of loss
carry forward amounts
-------------------------------------------------------------------------
Investments 38.7 38.4 0.3 Consists of a number of
small portfolio
investments
-------------------------------------------------------------------------
Goodwill 3,147.5 3,126.8 20.7 Goodwill of $23.0 million
added for consolidation
of a new investment,
offset in part by foreign
exchange changes since
acquisition
-------------------------------------------------------------------------
Long-Term Debt 6,356.3 6,332.2 24.1 Primarily an increase in
the Canadian dollar value
of U.S. dollar denominated
notes, resulting from a
slight weakening of the
Canadian dollar
-------------------------------------------------------------------------
Other Long-Term 1,486.6 1,506.1 (19.5) Primarily a reduction in
Liabilities the deferred hedging
liability for U.S. dollar
denominated notes,
resulting from a slight
weakening of the Canadian
dollar
-------------------------------------------------------------------------
Future Income Taxes 995.3 991.9 3.4 Increase due to a first
quarter 2005 acquisition
-------------------------------------------------------------------------
Non-Controlling 18.9 13.1 5.8 The increase was from
Interest minority partners' share
of earnings in several
small subsidiaries,
including a first quarter
2005 acquisition
-------------------------------------------------------------------------
Shareholders' Equity
Convertible 8.8 8.8 - Value of the convertible
debentures debentures conversion
option
-------------------------------------------------------------------------
Common equity 7,116.4 7,016.8 99.6 Net income of $242.2
million plus share options
exercised of $92.1 million
less dividends payable of
$72.3 million and normal
course issuer bid costs of
$158.3 million and other
of $4.1 million
-------------------------------------------------------------------------
(1) Current assets subtracting Current liabilities is an indicator of
the ability to finance current operations and meet obligations as
they fall due.
-------------------------------------------------------------------------
7. Liquidity and capital resources
7.1 Cash provided by operating activities
-------------------------------------------------------------------------
($ millions) Quarters ended March 31
2005 2004 Change
-------------------------------------------------------------------------
728.4 588.1 23.9 %
-------------------------------------------------------------------------
Cash provided by operating activities increased in the first quarter of
2005, when compared with the same period in 2004, due to the following:
- EBITDA increased by $134.9 million in 2005, when compared with 2004
- Restructuring and workforce reduction payments decreased by
$46.7 million
- Interest paid decreased by $9.7 million
- Reduced repayments of securitized accounts receivable (no repayments
in the first quarter of 2005; $150 million repayments in the first
quarter of 2004).
Partly offsetting the above increases were:
- Income taxes paid were $1.1 million in the first quarter of 2005,
compared with an income tax recovery of $104.6 million in the same
period in 2004
- Employer contributions to employee defined benefit plans increased by
$8.8 million due to a change in timing of funding
- A decrease in interest received of $7.9 million
- Other changes in non-cash working capital in the first quarter of each
year.
7.2 Cash used by investing activities
-------------------------------------------------------------------------
($ millions) Quarters ended March 31
2005 2004 Change
-------------------------------------------------------------------------
306.2 298.6 2.5 %
-------------------------------------------------------------------------
Investing activity in the first quarter of 2005 included a $27.5 million
investment in a business process outsourcing service provider, located in
Asia. In the first quarter of 2004, proceeds of $12.1 million were received
from the sale of non-strategic assets. Capital expenditures decreased in the
first quarter of 2005, when compared with the same period in 2004, as
discussed below.
-------------------------------------------------------------------------
Capital expenditures by segment Quarters ended March 31
($ in millions, except capital 2005 2004 Change
expenditure intensity)
-------------------------------------------------------------------------
Communications segment 213.6 259.4 (17.7)%
Mobility segment 59.6 50.3 18.5 %
-------------------------------------------------------------------------
TELUS consolidated 273.2 309.7 (11.8)%
-------------------------------------------------------------------------
Capital expenditure intensity (1) (%) 13.8 17.2 (3.4) 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 11.5% to
$192.2 million in the first quarter of 2005, when compared with the
same period in 2004. The decrease primarily reflected lower spending
on network infrastructure and high-speed Internet, partly offset by
significantly increased investment in internal systems and processes.
While expenditures on high-speed Internet decreased by 56% to
approximately $16 million in the first quarter of 2005, when compared
to the same period last year, this generally reflects different
seasonal priorities in 2005, and it is expected that full year
expenditures will be in line with those in 2004.
Non-ILEC capital expenditures decreased by 49.3% to $21.4 million in
the first quarter of 2005, when compared with the same period in 2004.
The decrease was primarily due to lower spending on network
infrastructure, as expenditures in the same period last year included
up-front costs to support certain major new customers.
The Communications segment capital expenditure intensity ratio was
17.2% in the first quarter of 2005, compared with 21.7% in the first
quarter of 2004. As a result of strong EBITDA growth and reduced
capital expenditures, cash flow (EBITDA less capital expenditures)
increased by 42.6% to $305.2 million in the first quarter of 2005,
when compared with the same period in 2004.
- Mobility segment capital expenditures increased by 18.5% in first
quarter of 2005, when compared with the same period in 2004. The
higher capital spending was attributed to continued enhancement of
digital wireless coverage and continued building of microwave
facilities aimed at reducing future leased line transmission costs.
Capital expenditure intensity for TELUS Mobility was unchanged at 7.9%
in the first quarter of 2005, when compared with the same period in
2004, as increased capital expenditures were offset by significant
growth in Network revenues. As a result of continued strong growth in
EBITDA and stable capital expenditure intensity, Mobility generated a
record cash flow (EBITDA less capital expenditures) of $277.8 million
in the first quarter of 2005 as compared with $197.5 million for the
same period in 2004, representing a 40.7% increase.
Consolidated cash flow (EBITDA less capital expenditures) increased by
41.6% to a record $583.0 million in the first quarter of 2005, when compared
with the same period in 2004.
7.3 Cash used by financing activities
-------------------------------------------------------------------------
($ millions) Quarters ended March 31
2005 2004 Change
-------------------------------------------------------------------------
71.4 22.2 -
-------------------------------------------------------------------------
Cash used by financing activities increased in the first quarter of 2005,
when compared with the same period in 2004, due primarily to repurchases of
shares on the market under the normal course issuer bid. Financing activities
included the following:
- Proceeds from Common Shares and Non-Voting Shares issued increased by
$60.9 million in the first quarter of 2005, mainly due to the exercise
of options.
- Cash dividends paid to shareholders were zero in the first quarter of
2005 (2004 - $42.3 million), as the funds for the dividend payable on
January 1, 2005 were remitted in 2004.
- Under the Normal Course Issuer Bid program, TELUS purchased for
cancellation Common Shares and Non-Voting Shares for a total outlay of
$158.3 million in the first quarter of 2005. This total outlay was
comprised of a reduction to share capital of $68.4 million
representing the book value of shares repurchased, and a reduction to
retained earnings of $89.9 million representing the amount in excess
of book value. At March 31, 2005, the total outlay under this program
since inception in December 2004 was $236.3 million.
Normal Course Issuer Bid to March 31, 2005
-------------------------------------------------------------------------
Purchased
and Purchased, Cumulative
Purchased for cancelled but not shares
cancellation in the first cancelled at purchased
in December quarter of March 31, for
shares) 2004 2005 2005 cancellation
-------------------------------------------------------------------------
Common Shares 755,711 1,750,900 346,200 2,852,811
Non-Voting Shares 1,451,400 1,770,800 265,300 3,487,500
-------------------------------------------------------------------------
2,207,111 3,521,700 611,500 6,340,311
-------------------------------------------------------------------------
----------------------------------
Maximum shares
permitted
for
repurchase
under the
shares) program
----------------------------------
Common Shares 14,000,000
Non-Voting Shares 11,500,000
----------------------------------
25,500,000
----------------------------------
- Redemptions and repayments of long-term debt were $1.0 million in the
first quarter of 2005 (2004 - $34.2 million), as there are no
significant debt maturities in 2005.
7.4 Liquidity and capital resource measures
-------------------------------------------------------------------------
March 31, March 31,
Periods ended 2005 2004 Change
-------------------------------------------------------------------------
Components of debt and coverage ratios (1)
------------------------------------------
Net debt ($ millions) 6,127.6 7,297.8 (1,170.2)
Total capitalization - book value
($ millions) 13,271.7 13,847.7 (576.0)
EBITDA (excluding restructuring)
($ millions) 3,271.6 2,910.5 361.1
Net interest cost ($ millions) 606.7 620.0 (13.3)
Debt ratios
-----------
Fixed rate debt as a proportion of
total indebtedness (%) 93.2 95.4 (2.2)
Average term to maturity of debt (years) 5.1 6.0 (0.9)
Net debt to total capitalization (%) (1) 46.2 52.7 (6.5) pts
Net debt to EBITDA (1) 1.9 2.5 (0.6)
Coverage ratios (1)
-------------------
Earnings coverage 2.5 1.9 0.6
EBITDA interest coverage 5.4 4.7 0.7
Other measures
--------------
Free cash flow ($ millions) - quarterly (2) 566.6 443.3 123.3
Free cash flow ($ millions) - 12-month
trailing 1,420.6 1,020.6 400.0
Dividend payout ratio (%) (1) 41 64 (23) pts
-------------------------------------------------------------------------
(1) See Section 11.4 Definition of liquidity and capital resource
measures.
(2) See Section 11.2 Free cash flow.
-------------------------------------------------------------------------
Net debt decreased at the end of the first quarter of 2005, when compared
to one year earlier, as a result of an increase of $973.8 million in cash and
temporary investments (netted against debt for the purposes of this
calculation) and debt reduction in the third quarter of 2004. Total
capitalization also decreased for these reasons; partly offset by a
$585 million increase in common equity over this 12-month period. The net debt
to EBITDA ratio measured at March 31, 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).
The earnings coverage ratio improved by 0.5 because of increased income
before interest and taxes, and improved by 0.1 because of decreased interest
on total debt. The EBITDA interest coverage ratio improved by 0.6 as a result
of higher EBITDA (excluding restructuring), and improved by 0.1 due to lower
net interest costs. Free cash flow for the first quarter of 2005 increased,
when compared with the same period in 2004, primarily due to growth in EBITDA,
since lower restructuring payments, capital expenditures, and net interest
were slightly offset by reduced tax recoveries. The Free cash flow measure for
the 12-month period ended March 31, 2005 increased, when compared with one
year earlier, primarily because of improved EBITDA, lower payments under
restructuring programs, lower capital expenditures and interest payments,
partly offset by lower tax recoveries and lower interest received.
As announced in October 2004, on a prospective basis, the Company has set
a target guideline for the annual dividend payout ratio of 45 to 55% of net
earnings. The dividend payout ratio of 41% for the first quarter of 2005,
representing four-times the current 20 cent quarterly dividend divided by
twelve-month trailing earnings per share, was below the guideline. When
normalized to exclude the current period, non-recurring 15 cents per share
favourable impact of tax adjustments, the dividend payout ratio was 44%. The
implied dividend payout for 2005 ratio is 41% (44% when normalized to exclude
the non-recurring favourable 15-cent tax impact), based on the mid-point of
revised guidance presented in Section 9. The measurement of the dividend
payout ratio was aligned this quarter to be consistent with market practice of
using the annualized current quarterly dividend per share. Consequently, the
dividend payout ratios calculated on this new basis for the full year of 2004
and the fourth quarter of 2004 are both 51%. The dividend payout ratios for
the first three quarters of 2004, and those for 2003, are unchanged as the
quarterly dividend per share was constant in those periods.
7.5 Credit facilities
Including cash of $1,247.3 million and the credit facilities described in
the table below, TELUS had unutilized available liquidity in excess of
$2.8 billion at March 31, 2005. TELUS' credit facilities contain customary
covenants including a requirement that TELUS not permit its consolidated
Leverage Ratio (Funded Debt to trailing 12-month EBITDA) to exceed 4.0:1
(approximately 1.9:1 at March 31, 2005) and not permit its consolidated
Coverage Ratio (EBITDA to Interest Expense on a trailing 12-month basis) to be
less than 2.0:1 (approximately 5.4:1 at March 31, 2005) at the end of any
financial quarter. There are certain minor differences in the calculation of
the Leverage Ratio and Coverage Ratio under the credit agreement as compared
with the calculation of net debt to EBITDA and EBITDA interest coverage. The
calculations are not expected to be materially different. The covenants are
not impacted by revaluation of capital assets, intangible assets and goodwill
for accounting purposes, and continued access to TELUS' credit facilities is
not contingent on the maintenance by TELUS of a specific credit rating.
The following were the credit facilities available to TELUS at March 31,
2005:
-------------------------------------------------------------------------
Outstanding
Credit Facilities undrawn
At March 31, 2005 letters
($ in millions) Expiry Size Drawn of credit
-------------------------------------------------------------------------
Revolving credit
facility (1) May 7, 2008 800.0 - 102.6
364-day revolving
facility (2) May 6, 2005 800.0 - -
Other bank facilities - 74.0 - 4.6
-------------------------------------------------------------------------
Total - 1,674.0 - 107.2
-------------------------------------------------------------------------
(1) Canadian dollars or U.S. dollar equivalent.
(2) Canadian dollars or U.S. dollar equivalent, extendible at the
Company's option on a non-revolving basis for one year for any
amounts outstanding on the May 6, 2005 anniversary date.
-------------------------------------------------------------------------
Subsequent to March 31, 2005, TELUS entered into new $1.6 billion
syndicated credit facilities with a number of Canadian financial institutions.
The new credit facilities consist of: (i) an $800 million(or US dollar
equivalent) three-year revolving facility with a maturity date of May 7, 2008;
and (ii) an $800 million facility (or U.S. dollar equivalent) five-year
revolving facility with a maturity date of May 4, 2010. These facilities
replace existing facilities including an $800 million multiyear revolving
credit facility expiring May 7, 2008, and an $800 million 364-day extendible
facility (with a one year term-out option), which had been available until
May 6, 2005. The credit facilities dated May 4, 2005 are therefore
substantially the same as the prior credit facilities, except for an extension
of term and positive adjustments to the pricing grid. The financial tests
continue to be that the Company may not permit its long-term debt ratio to
operating cash flow to exceed 4.0:1 and may not permit its operating cash flow
to interest expense ratio to be less than 2.0:1, each as defined under the
credit facilities.
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 two levels at
BBB(high) as of May 3, 2005. The proceeds of securitized receivables were $150
million at March 31, 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
On May 3, 2005, the credit ratings for TELUS and TCI remain investment
grade and were unchanged from the ratings reported in TELUS' 2004 annual
report. TELUS has an objective to preserve access to capital markets at a
reasonable cost by maintaining investment grade credit ratings and targeting
improved credit ratings in the range of BBB+ to A-, or the equivalent, in
future.
7.8 Off-balance sheet arrangements and contractual 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 March 31, 2005, the Company had entered into foreign currency
forward contracts that have the effect of fixing the exchange rate on U.S.
$55 million of fiscal 2005 purchase commitments; hedge accounting has been
applied to these foreign currency forward contracts, all of which relate to
the Mobility segment.
The fair values of the Company's long-term debt and convertible
debentures are estimated based on quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the same
maturity as well as the use of discounted future cash flows using current
rates for similar financial instruments subject to similar risks and
maturities. The carrying amount and fair value of long-term debt are as
follows:
As at March 31, As at December 31,
2005 2004
-------------------------------------------------------------------------
Carrying Fair Carrying Fair
($ millions) amount value amount value
-------------------------------------------------------------------------
Long-term debt
Principal 6,369.5 7,258.5 6,345.3 7,342.3
Derivative financial instruments
used to manage interest rate and
currency risks associated with
U.S. dollar denominated debt 1,009.5 1,369.4 1,032.6 1,299.5
Derivative financial instruments
used to manage interest rate
risk associated with Canadian
dollar denominated debt - 2.4 - 1.3
-------------------------------------------------------------------------
7,379.0 8,630.3 7,377.9 8,643.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Commitments and contingent liabilities (Note 14 of the interim
consolidated financial statements)
At March 31, 2005, the Company had $51.1 million in outstanding
commitments for restructuring programs prior to 2005 and $7.3 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
March 31, 2005, had balance of $127.1 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 competitor digital network
services, is not expected to affect the Company's revenues.
There can be no assurance that, with the resumption of collective
bargaining, compensation increases will be as planned or that reduced
productivity will not occur as a result of a 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. The operational and
financial impacts of the outcome of the appeal process on the Company are not
practicably determinable currently.
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 which 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
March 31, 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 March 31, 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 March 31, 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 March 31, 2005 and at April 21, 2005. In addition, for April 21,
2005, the total number of outstanding and issuable shares is presented,
assuming full conversion of convertible debentures, options and warrants.
-------------------------------------------------------------------------
Class of equity security
Common Non-Voting Total
Shares Shares Shares
(millions of shares) outstanding outstanding outstanding
-------------------------------------------------------------------------
At March 31, 2005
Common equity -
Common Shares outstanding 190.9 - 190.9
Common equity - Non-Voting
Shares outstanding - 167.5 167.5
---------- ---------- ----------
190.9 167.5 358.4 (1)
---------- ---------- ----------
At April 21, 2005
Common equity - Common Shares
outstanding 190.9 - 190.9
Common equity - Non-Voting
Shares outstanding - 167.6 167.6
---------- ---------- ----------
190.9 167.6 358.5
---------- ---------- ----------
Outstanding and issuable shares (2)
at April 21, 2005
Common Shares and Non-Voting
Shares outstanding 190.9 167.6 358.5
TELUS Corporation convertible
debentures - 3.8 3.8
Options(3) 2.5 19.4 21.9
Warrants - 0.6 0.6
---------- ---------- ----------
193.4 191.4 384.8
---------- ---------- ----------
---------- ---------- ----------
-------------------------------------------------------------------------
(1) For the purposes of calculating diluted earnings per share for the
first quarter of 2005, the number of shares was 367.9 million.
(2) Assuming full conversion and ignoring exercise prices.
(3) Not reduced by any options that may be forfeited or cancelled during
the period April 1, 2005 to April 21, 2005.
-------------------------------------------------------------------------
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.
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.
9. Revised guidance
Targets for 2005 were announced publicly on December 17, 2004 and the
Company has a practice of reaffirming or adjusting guidance on a quarterly
basis. Accordingly the following updates to guidance were made to reflect
positive developments in the first quarter including: the acquisition of
Ambergris, above expectations non-ILEC profitability, higher expectations for
wireless net additions and positive settlement of tax matters. The original
targets and updated guidance do not consider the impact of a possible work
stoppage resulting from the collective bargaining process.
-------------------------------------------------------------------------
Updated guidance Original targets
for 2005 for 2005 Change
-------------------------------------------------------------------------
Consolidated $7.95 to $7.9 to
Revenues $8.05 billion $8.0 billion $50 million
-------------------------------------------------------------------------
EBITDA(1) $3.25 to $3.2 to $25 to
$3.325 billion $3.3 billion $50 million
-------------------------------------------------------------------------
Earnings per
share - basic $1.85 to $2.05 $1.65 to $1.85 20 cents
-------------------------------------------------------------------------
Capital expenditures Approx. $1.3 to $0 to
$1.4 billion $1.4 billion $100 million
-------------------------------------------------------------------------
Free cash flow(2) $1.25 to $1.2 to
$1.35 billion $1.3 billion $50 million
-------------------------------------------------------------------------
Communications segment
Revenue (external) $4.75 to $4.7 to
$4.8 billion $4.75 billion $50 million
-------------------------------------------------------------------------
Non-ILEC revenue $625 to $600 to $0 to
$650 million $650 million $25 million
-------------------------------------------------------------------------
EBITDA $1.875 to $1.85 to
$1.925 billion $1.9 billion $25 million
-------------------------------------------------------------------------
Non-ILEC EBITDA $15 to $0 to $10 to
$20 million $10 million $15 million
-------------------------------------------------------------------------
Capital expenditures Approx. $950 million $0 to
$1.0 billion to $1.0 billion $50 million
-------------------------------------------------------------------------
High-speed Internet
net additions No change Approx. 100,000 -
-------------------------------------------------------------------------
Mobility segment
Revenue (external) No change $3.2 to -
$3.25 billion
-------------------------------------------------------------------------
EBITDA $1.375 to $1.35 to $0 to
$1.4 billion $1.40 billion $25 million
-------------------------------------------------------------------------
Capital expenditures Approx. $350 to $0 to
$400 million $400 million $50 million
-------------------------------------------------------------------------
Wireless subscriber 475,000 to 425,000 to
net additions 525,000 475,000 50,000
-------------------------------------------------------------------------
(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 uncertainties
The following are significant updates to the risks and uncertainties
described in TELUS' 2004 Annual Report and filings on SEDAR (www.sedar.com)
and filings on EDGAR (www.sec.gov).
10.1 Regulatory
Voice over Internet protocol ("VoIP")
The CRTC is expected to announce the rules for regulation of Internet
telephony services in May 2005. TELUS already provides business VoIP services
nationally and expects to align future residential offers within the terms of
this ruling.
Pricing safeguard review
In Decision 2005-27 (Review of price floor safeguards for retail tariffed
services and related issues), the CRTC made a series of incremental changes to
existing price floor rules. The decision does not represent a fundamental
change to the conceptual framework governing price floors for rate-regulated
services. While the effect of this decision is still under review, it is not
expected to materially impact the Company's 2005 projected financial forecast.
Proceeding on local exchange services forbearance (Telecom Public
Notice CRTC 2005-2)
The CRTC announced 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 will also consider a transitional regime that could provide
ILECs with more regulatory flexibility prior to forbearance. The proceeding is
scheduled to be completed in early October 2005, with a decision expected by
the end of the first quarter of 2006.
Other CRTC decisions
In Decision 2005-4, the CRTC finalized the subsidy requirement for
high-cost areas in the TELUS Quebec incumbent local exchange carrier ("ILEC")
territory for 2003 to 2005. The total positive impact on TELUS Communications'
local revenues in 2005, including the retroactive adjustment and finalization
of the 2003 and 2004 subsidy requirements, are expected to be approximately
$10 million.
In Decision 2005-6, regarding the scope of competitive digital network
service discounts and eligibility, the CRTC finalized interim 2002 to 2004
discount rates and clarified, on a prospective basis, the additional services
available for discounts and made those discounts available to registered
competitive local exchange carriers ("CLECs"), inter-exchange carriers
("IXCs") and wireless service providers. Given the past conservative
accounting treatment adopted by the Company, there will be no material impact
to TELUS Communications ILEC EBITDA in 2005. To the extent that additional
discounts are available in TELUS' non-ILEC operating territory, the Company
anticipates that this will otherwise materially improve these operating
results in 2005. The net favourable impact for the Communications segment is
expected to be approximately $18 million for the full year. To the extent that
additional discounts are available to TELUS Mobility, the benefit expected is
approximately $7 million for the full year.
In Decision 2005-17, Retail Quality of Service Adjustment Plan, the CRTC
finalized the quality of service regime for telephone companies and determined
the conditions that will trigger credits for customers when service falls
below standards set by the CRTC. The CRTC also finalized the quality of
service rate plan for competitors in Decision 2005-20. TELUS believes that the
finalization of retail and wholesale quality of service indicators and
resulting penalties will likely not have a significant impact on TELUS' 2005
financial results.
Wireless number portability
TELUS Mobility is a member of the Canadian Wireless Telecommunications
Association ("CWTA"), which announced on April 21, 2005 that its members have
agreed to implement wireless number portability in Canada. Number portability
will enable wireless customers to keep the same phone number when changing
service providers within the same local serving area. Consistent with the
Government of Canada's definition of wireless number portability, customers
will also be able keep the same phone number when transferring their landline
phone service to wireless service and vice versa.
The CWTA and its members have begun planning efforts that are required to
achieve this result. The plan is expected to be completed in September 2005,
and upon approval of the plan and a common start date, it is the intention of
the CWTA and its members to implement the plan. There is no assurance that
TELUS will be able to implement required changes without incurring significant
additional implementation costs and/or ongoing administration, or that
implementation will not lead to increased subscriber monthly churn, or
additional customer retention costs for TELUS.
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:
-------------------------------------------------------------------------
Quarters ended Mar. 31
($ millions) 2005 2004
-------------------------------------------------------------------------
Net income 242.2 101.3
Other expense 1.5 1.2
Financing costs 138.4 145.0
Income taxes 70.3 62.6
Non-controlling interest 1.6 0.8
-------------------------------------------------------------------------
Operating income 454.0 310.9
Depreciation 329.9 321.7
Amortization of intangible assets 72.3 88.7
-------------------------------------------------------------------------
EBITDA 856.2 721.3
-------------------------------------------------------------------------
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.
-------------------------------------------------------------------------
Quarters ended Mar. 31
($ millions) 2005 2004
-------------------------------------------------------------------------
EBITDA 856.2 721.3
Restructuring and workforce reduction costs,
net of cash payments (12.3) (52.5)
Share-based compensation 3.8 4.7
Cash interest paid (13.1) (22.8)
Cash interest received 6.3 14.2
Income taxes received (paid) (1.1) 104.6
Capital expenditures (capex) (273.2) (309.7)
Investment tax credits received
(reported in current or prior EBITDA or capex,
and in Income taxes received (paid)), and other - (16.5)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Free cash flow 566.6 443.3
-------------------------------------------------------------------------
The following reconciles free cash flow with Cash provided by operating
activities less Cash used by investing activities:
-------------------------------------------------------------------------
Quarters ended Mar. 31
($ millions) 2005 2004
-------------------------------------------------------------------------
Cash provided by operating activities 728.4 588.1
Cash (used) by investing activities (306.2) (298.6)
-------------------------------------------------------------------------
422.2 289.5
Net employee defined benefit plans expense (1.5) (4.9)
Employer contributions to employee defined benefit plans 37.4 28.6
Other net operating activities 4.6 (6.1)
Reduction in securitized accounts receivable - 150.0
Non-cash working capital changes except changes in taxes,
interest and securitized accounts receivable 70.9 (2.7)
Acquisitions 27.5 -
Proceeds from the sale of property and other assets - (12.1)
Other investing activities 5.5 1.0
-------------------------------------------------------------------------
Free cash flow 566.6 443.3
-------------------------------------------------------------------------
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 deactivated 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 customer
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
--------
Defined as Long-term Debt plus current maturities of Long-term Debt
and cheques outstanding less Cash and temporary investments plus
cross currency foreign exchange hedge liability (less cross currency
foreign exchange hedge asset) related to U.S. dollar notes. The
cross currency foreign exchange hedge liability, reflecting 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, was
$1,014.2 million at March 31, 2005 (compared with deferred hedge
liabilities of $700.0 million at March 31, 2004). Net debt is
unaffected by foreign exchange fluctuations because it includes
(deducts) the net deferred hedging liability (asset).
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
$46.1 million and $37.7 million, respectively, for the 12-month
periods ended March 31, 2005 and March 31, 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' target for Net debt to EBITDA is 2.2 times
or less.
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.
Earnings coverage ratio
-----------------------
Calculated on a 12-month trailing basis as Net income before
interest expense on total debt and income tax expense divided by
interest expense on total 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' new credit facilities.
Dividend payout ratio
---------------------
Defined as the current 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 is 45 to 55% of net earnings.
TELUS Corporation
consolidated statements of income
Three months
Periods ended March 31 (unaudited)
(millions except per share amounts) 2005 2004
------------------------------------------------------------------------------
OPERATING REVENUES $ 1,974.7 $ 1,803.8
-------------------------------------------------------------------------
OPERATING EXPENSES
Operations 1,109.1 1,066.6
Restructuring and workforce reduction costs 9.4 15.9
Depreciation 329.9 321.7
Amortization of intangible assets 72.3 88.7
-------------------------------------------------------------------------
1,520.7 1,492.9
-------------------------------------------------------------------------
OPERATING INCOME 454.0 310.9
Other expense, net 1.5 1.2
Financing costs 138.4 145.0
-------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
NON-CONTROLLING INTEREST 314.1 164.7
Income taxes 70.3 62.6
Non-controlling interest 1.6 0.8
-------------------------------------------------------------------------
NET INCOME 242.2 101.3
Preference and preferred share dividends - 0.9
-------------------------------------------------------------------------
COMMON SHARE AND NON-VOTING SHARE INCOME $ 242.2 $ 100.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
INCOME PER COMMON SHARE AND NON-VOTING SHARE
- Basic $ 0.67 $ 0.28
- Diluted $ 0.66 $ 0.28
DIVIDENDS DECLARED PER COMMON SHARE AND
NON-VOTING SHARE $ 0.20 $ 0.15
TOTAL WEIGHTED AVERAGE COMMON SHARES AND
NON-VOTING SHARES OUTSTANDING
- Basic 360.2 353.1
- Diluted 367.9 355.6
TELUS Corporation
consolidated balance sheets
As at As at
March 31, December 31,
(unaudited) (millions) 2005 2004
------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and temporary investments, net $ 1,247.3 $ 896.5
Accounts receivable 874.9 863.5
Income and other taxes receivable 172.7 132.5
Inventories 111.0 133.3
Prepaid expenses and other 245.8 183.4
Current portion of future income taxes 372.0 438.4
-------------------------------------------------------------------------
3,023.7 2,647.6
-------------------------------------------------------------------------
Capital Assets, Net
Property, plant, equipment and other 7,447.3 7,528.2
Intangible assets subject to amortization 695.6 737.0
Intangible assets with indefinite lives 2,964.6 2,955.8
-------------------------------------------------------------------------
11,107.5 11,221.0
-------------------------------------------------------------------------
Other Assets
Deferred charges 746.4 704.4
Future income taxes 72.7 99.8
Investments 38.7 38.4
Goodwill 3,147.5 3,126.8
-------------------------------------------------------------------------
4,005.3 3,969.4
-------------------------------------------------------------------------
$ 18,136.5 $ 17,838.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 1,486.9 $ 1,362.6
Restructuring and workforce reduction
accounts payable and accrued liabilities 58.4 70.7
Dividends payable 72.3 -
Advance billings and customer deposits 532.2 531.5
Current maturities of long-term debt 4.4 4.3
-------------------------------------------------------------------------
2,154.2 1,969.1
-------------------------------------------------------------------------
Long-Term Debt 6,356.3 6,332.2
-------------------------------------------------------------------------
Other Long-Term Liabilities 1,486.6 1,506.1
-------------------------------------------------------------------------
Future Income Taxes 995.3 991.9
-------------------------------------------------------------------------
Non-Controlling Interest 18.9 13.1
-------------------------------------------------------------------------
Shareholders' Equity
Convertible debentures conversion option 8.8 8.8
Common equity 7,116.4 7,016.8
-------------------------------------------------------------------------
7,125.2 7,025.6
-------------------------------------------------------------------------
$ 18,136.5 $ 17,838.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TELUS Corporation
consolidated statements of cash flows
Three months
Periods ended March 31 (unaudited) (millions) 2005 2004
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 242.2 $ 101.3
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 402.2 410.4
Future income taxes 91.7 91.8
Share-based compensation 3.8 4.7
Net employee defined benefit plans expense 1.5 4.9
Employer contributions to employee
defined benefit plans (37.4) (28.6)
Restructuring and workforce reduction
costs, net of cash payments (12.3) (52.5)
Other, net (4.4) 6.1
Net change in non-cash working capital 41.1 50.0
-------------------------------------------------------------------------
Cash provided by operating activities 728.4 588.1
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (273.2) (309.7)
Acquisition (27.5) -
Proceeds from the sale of property
and other assets - 12.1
Other (5.5) (1.0)
-------------------------------------------------------------------------
Cash used by investing activities (306.2) (298.6)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Common Shares and Non-Voting Shares issued 87.9 27.0
Dividends to shareholders - (42.3)
Purchase of Common Shares and Non-Voting
Shares for cancellation (158.3) -
Long-term debt issued - 27.3
Redemptions and repayment of long-term debt (1.0) (34.2)
-------------------------------------------------------------------------
Cash used by financing activities (71.4) (22.2)
-------------------------------------------------------------------------
CASH POSITION
Increase in cash and temporary
investments, net 350.8 267.3
Cash and temporary investments, net,
beginning of period 896.5 6.2
-------------------------------------------------------------------------
Cash and temporary investments, net,
end of period $ 1,247.3 $ 273.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
Interest (paid) $ (13.1) $ (22.8)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest received $ 6.3 $ 14.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Income taxes (inclusive of Investment Tax
Credits) (paid) received, net $ (1.1) $ 104.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TELUS Corporation
Segmented Information
Periods ended March 31 Communications Mobility
(unaudited) (millions) 2005 2004 2005 2004
-------------------------------------------------------------------------
External revenue $ 1,222.2 $ 1,171.1 $ 752.5 $ 632.7
Inter-segment revenue 22.6 25.0 5.8 4.6
-------------------------------------------------------------------------
Total operating revenue 1,244.8 1,196.1 758.3 637.3
Operations expense 716.6 706.7 420.9 389.5
Restructuring and work-force
reduction costs 9.4 15.9 - -
-------------------------------------------------------------------------
EBITDA(1) $ 518.8 $ 473.5 $ 337.4 $ 247.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ 213.6 $ 259.4 $ 59.6 $ 50.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ 305.2 $ 214.1 $ 277.8 $ 197.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Periods ended March 31 Eliminations Consolidated
(unaudited) (millions) 2005 2004 2005 2004
-------------------------------------------------------------------------
External revenue $ - $ - $ 1,974.7 $ 1,803.8
Inter-segment revenue (28.4) (29.6) - -
-------------------------------------------------------------------------
Total operating revenue (28.4) (29.6) 1,974.7 1,803.8
Operations expense (28.4) (29.6) 1,109.1 1,066.6
Restructuring and work-force
reduction costs - - 9.4 15.9
-------------------------------------------------------------------------
EBITDA(1) $ - $ - $ 856.2 $ 721.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $ 273.2 $ 309.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ - $ - $ 583.0 $ 411.6
-------------------------------------------------------------------------
(1) Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") 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").
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: May 4, 2005
TELUS Corporation
/s/ Audrey Ho
_____________________________
Name: Audrey Ho
Title: Vice President, Legal Services and
General Counsel and Corporate Secretary