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___ 2006
(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 3, 2006 of the First Quarter Results
_______________________________________________________________________________
Attention Business/Financial Editors:
TELUS Reports First Quarter Results@
Strong wireless and high speed Internet results, reiterate 2006 guidance
VANCOUVER, May 3 /CNW/ - TELUS Corporation (TSX: T and T.NV/NYSE: TU)
today reported for the first quarter of 2006 a five per cent increase in
revenues to $2.1 billion from a year ago due to continued strong wireless
performance and excellent high speed Internet and wireless subscriber growth.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
increased 1% due to strong wireless growth largely offset by decreased
wireline profitability this quarter. Earnings per share (EPS) for the first
quarter were 60 cents, compared to 67 cents for the same period a year ago.
EPS for the first quarter of 2005 included favourable tax and regulatory
recoveries totaling 17 cents per share. When normalizing for these items, EPS
this quarter increased by approximately 20% over the same period last year due
primarily to underlying EBITDA growth and lower financing costs. Free cash
flow increased 13% to $640 million during the quarter, a $74 million increase
primarily due to the receipt of a cash tax recovery.
FINANCIAL HIGHLIGHTS
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C$ in millions,
except per share amounts 3 months ended
March 31
(unaudited) 2006 2005 % Change
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Operating revenues 2,080.5 1,974.7 5.4
EBITDA(1) 862.7 856.2 0.8
Operating income 459.6 454.0 1.2
Income before income taxes and
non-controlling interest 328.3 314.1 4.5
Net income(2) 210.1 242.2 (13.3)
Earnings per share (EPS), basic(2) 0.60 0.67 (10.4)
Capital expenditures 320.5 273.2 17.3
Cash provided by operating activities 673.1 728.4 (7.6)
Free cash flow(3) 640.1 566.6 13.0
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(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) Net income and EPS for the three month period in 2005 includes
approximate favourable impacts of $54 million or 15 cents per share
due to tax related adjustments, as well as $8 million or two cents
per share for regulatory decisions.
(3) See Section 11.2 of Management's discussion and analysis.
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Darren Entwistle, president and CEO, stated "Our first quarter results
demonstrate the continued execution of our business strategy, focused on
national data and wireless growth. TELUS achieved strong growth in high-speed
Internet additions of 38,600 reflecting effective marketing programs and
improved customer retention. This bolsters our platform for TELUS Future
Friendly(R) Home initiatives like TELUS TV(R). TELUS' 92,500 wireless
subscriber net additions represent our best first quarter in five years, and
increased average revenue per unit for the thirteenth consecutive quarter
contributed to wireless revenue and EBITDA growth of 17%. During the first
quarter, TELUS undertook a number of initiatives to drive improved
competitiveness and financial growth going forward. This included implementing
our landmark five-year collective labour agreement, merging our wireline and
wireless operations into a single legal operating structure, and expanding our
innovative portfolio of applications. This includes expanding our Wireless
High Speed EVDO service to a dozen cities from five and launching TELUS
Business One(R), a powerful portfolio of technology tools for small
businesses. Our national growth strategy continues to generate strong overall
economic and operating growth for TELUS in a challenging wireline environment
due to leading wireless and data performance."
Robert McFarlane, executive vice president and CFO, said, "I am pleased
to announce that TELUS continues to expect strong growth in 2006 as reflected
by reiterating today all of our original public financial targets for 2006 as
they remain consistent with our internal outlook. Noteworthy, again this
quarter, TELUS returned significant capital to shareholders through a
dividend, which is 37.5% higher versus the dividend for the same period one
year ago and the repurchase of 5.1 million shares for $232 million. With an
expected $1.55 to $1.65 billion of free cash flow in 2006 and EPS growth of
22 to 33%, we are well positioned to continue returning capital to investors
and enhancing shareholder value."
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This news release contains statements about expected future events and
financial and operating results of TELUS that are forward-looking. By
their nature, forward-looking statements require the Company to make
assumptions and are subject to inherent risks and uncertainties. There is
significant risk that the forward-looking statements will not prove to be
accurate. Readers are cautioned not to place undue reliance on forward-
looking statements as a number of factors could cause actual future
results and events to differ materially from that expressed in the
forward-looking statements. Accordingly this news release is subject to
the disclaimer and qualified by the assumptions (including assumptions
for 2006 targets), qualifications and risk factors referred to in the
Management's discussion and analysis - May 03, 2006.
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OPERATING HIGHLIGHTS
TELUS wireless
Strong subscriber, revenue and EBITDA growth
- Revenues increased by $129 million or 17% to $882 million in the first
quarter of 2006, when compared with the same period in 2005
- EBITDA increased by $59 million over the first quarter of 2005
representing 17% growth, despite higher gross additions and cost of
acquisition expenses
- ARPU (average revenue per subscriber unit per month) improved by $2 to
$60. The data component of ARPU increased by 86% to $3.71 as compared
to a year ago
- Cost of acquisition ("COA") per gross addition increased 21% in the
quarter to $429 due to increased promotional and intense competitive
activity
- Quarterly net subscriber additions of 92,500, up 15% from the first
quarter of 2005, driven by strong prepaid growth, and postpaid
additions of 70,400
- Blended monthly churn this quarter improved to 1.33% from 1.45% a year
ago. Postpaid churn was 0.99%
- Cash flow (EBITDA less capital expenditures) increased by $57 million
or 20% to $334 million in the first quarter due to higher EBITDA and
stable capital expenditures
TELUS wireline
Excellent high-speed Internet subscriber growth and increased data
revenues temper increased wireline competition
- Revenues decreased 1.8% when compared to the first quarter of 2005
amid increasing competitive pressures and technological substitution,
and due to a one time regulatory recovery a year ago
- Data revenues increased 4.2% driven by increased Internet and enhanced
data service revenues
- Long-distance revenue declined 8.2% to $208 million, reflecting
industry wide trends of lower volumes and strong price competition and
technological substitution
- EBITDA declined 10%, due to lower revenues combined with higher
wireline expenses partly attributable to increased high-speed internet
additions, and efforts to successfully clear backlogs and improve
customer service
- Non-incumbent revenue in Central Canada increased 2.9% over the first
quarter of 2005.
- High-speed Internet net adds were 38,600, up 74% from a year ago
bringing TELUS' total Internet subscriber base to more than one
million
- Network access lines declined by 28,000 in the quarter, down 2.7% from
a year ago reflecting residential line losses as result of ongoing
competitive activity and wireless substitution
- Cash flow (EBITDA less capital expenditures) was down 32% to
$208 million, compared to the first quarter of 2005, due to lower
EBITDA and higher capital expenditures from investments deferred into
2006 as a result of the extended labour disruption in 2005.
CORPORATE DEVELOPMENTS
TELUS continues share repurchases
During the quarter, TELUS continued to purchase shares under its Normal
Course Issuer Bid. TELUS repurchased a total of 5.1 million shares
(1.8 million common and 3.3 million non-voting), for a total outlay of
$232 million in the first quarter.
TELUS commenced its most recent Normal Course Issuer Bid program on
December 20, 2005 with the intention, if it is considered advisable, to
purchase and cancel, over a 12-month period, up to 12 million of its
outstanding common shares and 12 million of its outstanding non-voting shares
on the Toronto Stock Exchange, or approximately 7% of the issued and
outstanding shares of each class, respectively.
Since this program commenced, a total of 6.4 million shares have been
repurchased, for an outlay of $289 million, representing 27% of the
24.0 million shares authorized under the program. Under its previous program
completed in December 2005, TELUS repurchased approximately 22 million shares,
or 85% of the authorized amount, for $913 million. TELUS believes that such
purchases are in the best interest of TELUS and constitute an attractive
investment opportunity and desirable use of company funds that should enhance
the value of the remaining shares.
Telecom industry regulatory developments
There were several regulatory developments in the first quarter including
the release of the Telecom Policy Review report to the federal government, and
the Canadian Radio-television and Telecommunications Commission's (CRTC)
decision on forbearance from regulation of retail local exchange services. See
section 10.1 Regulatory in Management's discussion and analysis below for more
detail on these and other decisions.
The March recommendations to the Minister of Industry for telecom reform
were encouraging with proposals that were innovative and responsive to the
need to modernize Canada's public policy framework for the telecommunications
sector. Key points included:
- An end to the presumption that telecom services must be regulated and
shift to reliance on market forces
- A proposal to have government direct the CRTC to act as if the reports
major recommendations are in effect, pending the necessary legislative
changes
- A recommendation that foreign ownership restrictions should be
liberalized.
TELUS was generally satisfied with the proposals and publicly urged the
government to move quickly to implement the major recommendations. Our view is
that implementation would help transform the telecom industry and afford
customers the innovation and choice that only a truly competitive environment
can bring.
The April CRTC decision on regulatory forbearance for local exchange
services was seen by TELUS as complex, with built in processes that will
unnecessarily delay deregulation. The one immediate positive aspect was the
relaxation of winback restrictions, reducing the period that incumbent telcos
are prevented from contacting customers lost to competitors.
Key points of the decision included:
- No contact period for winbacks immediately rolled back to 90 days from
one year
- Market share loss threshold of 25% (in contrast to 5% test for cable
TV operators) applied to large geographic areas
- Once the 25% threshold is reached, a lengthy and cumbersome process
follows before forbearance is granted.
TELUS' view is that the CRTC forbearance decision clearly underscores the
need for the reforms proposed in the Telecom Policy Review.
CONSUMER SOLUTIONS
TELUS TV(R) set for continued roll-out this fall, employee trials expand
to BC
Set for targeted commercial roll-out in select cities this year, TELUS TV
will provide consumers in BC and Alberta with 100 per cent digital television
service, television services with hundreds of video and audio stations,
flexible channel packages, on-screen caller ID and the convenience of time
shifting and Video on Demand.
TELUS also announced that team members in BC's Lower Mainland are set to
begin trialing the innovative IP-based TELUS TV service with access to more
than 200 channels (which should grow to more than 300 channels within a year)
and Video on Demand with a large library of blockbuster movies. TELUS TV is
already available in certain neighbourhoods in Calgary and Edmonton.
TELUS TV is part of the TELUS Future Friendly(R) Home strategy, designed
to bring our clients IP and wireless-based services to make their lives richer
and simpler with phone, Internet and TV over a single line and on a single
bill.
Wireless High Speed expands to more cities
TELUS continues to roll-out its Wireless High Speed service out to more
Canadian cities, offering business and consumer clients access to the fastest
mobile data network in the country. Wireless High Speed, or EVDO, offers
consumer and business clients' access to the Internet, e-mail servers and
other data at speeds similar to broadband desktop - typically 400 to 700
kilobits per second.
Since January this year, TELUS has launched Wireless High Speed service
in seven more centres: including Hamilton, Ontario's Golden Horseshoe region,
Ottawa, Quebec City, fast-growing Alberta oiltown Fort McMurray and the resort
centres of Whistler, Mont-Tremblant and Saint-Jovite; the company now serves
12 centres having already introduced service in Vancouver, Calgary, Edmonton,
Toronto and Montreal. TELUS expects to continue to expand Wireless High Speed
to other urban centres throughout 2006.
High-speed music downloads from Canada's broadest catalogue
TELUS Mobile Music(TM) offers clients across the country access to
Canada's largest full-track mobile music catalogue and the only one offering
selections from all the world's biggest record labels - EMI Music, SonyBMG,
Universal Music Group and Warner Music Group.
With the unique and easy-to-navigate TELUS Mobile Music Storefront,
clients can browse, preview and download from hundreds of thousands of songs
to their wireless phones and desktop computers.
The introduction of TELUS Mobile Music is part of the new TELUS SPARK(TM)
line-up of mobile entertainment, information and messaging services for
consumers. SPARK also includes TELUS mobile TV(TM), multimedia messaging,
downloadable images, ringtones, videos and games, and new Web browser
features, including search tools and a broad range of new online content.
Phones for multimedia music and messaging
Alongside TELUS Mobile Music, the company also introduced the new
LG 8100, an ultimate mobile entertainment phone operating on the TELUS
Wireless High Speed network. Exclusive to TELUS, the LG 8100 features a
built-in MP3 player with external controls, stereo speakers for superior sound
quality, TELUS Mobile TV access, video recorder functionality, a 1.3 megapixel
camera, Bluetooth wireless technology for use with hands-free headsets, car
kits and modems and an optional 1GB mini SD memory card for storing a wide
range of music, video, photo and other files.
TELUS also introduced the exclusive Samsung SPHA840, a compact flip phone
that comes in a choice of two flashy colour schemes - black and pink or black
and silver - and cool features such as the ability to create and send
personalized postcards, a built-in digital camera, dual displays, internal
antenna and speakerphone. Wireless postcard allows clients to overlay photos
and text to make personalized postcards, then to send them to friends and
family using TELUS' multimedia messaging services (MMS).
TELUS takes a byte out of spam with second security layer
TELUS introduced a new e-mail security system, powered by BorderWare
Technologies, that is greatly reducing the volume of spam and virus e-mails
received by TELUS Internet subscribers. The system acts as an initial screen
in front of TELUS' existing security systems, using several methods to delete
the most obvious problem e-mails before the reach the core security layer.
The new technology is housed in TELUS' e-mail servers, meaning clients do
not need to download or install it on to their computers. TELUS has
experienced a five-fold increase in the number of e-mails received on its
network since it first introduced spam control three years ago, putting a
strain on current security systems. More than 80 per cent of those e-mails had
been spam and viruses.
Expanded e-mail service
TELUS launched Business Inbox, a secure, two-way e-mail service that
offers mobile professionals instantaneous access to critical corporate
information from their mobile devices. Powered by Visto Mobile, Business Inbox
operates on several TELUS handsets, works with both IBM Lotus Domino and
Microsoft Exchange, and is available for clients ranging from individual users
up to national enterprise clients. TELUS continues to expand its mobile e-mail
service portfolio with sophisticated wireless applications, allowing business
users of all kinds to stay connected and visible, anytime, anywhere.
BUSINESS SOLUTIONS
TELUS launches Business One, simplifying communications and IT for small
business
In March, TELUS introduced TELUS Business One, the only technology
package in Canada that combines voice and high speed Internet with powerful
Internet applications customized exclusively for small business. TELUS
Business One combines telecommunications and high-speed Internet services with
business tools such as customized email, desktop backup, website hosting,
virus protection and Conference on Demand at no extra cost. TELUS Business One
gives small business customers access to these IP-based tools for one price,
on one simple bill, and with one dedicated technical support number for all
services.
Consumer Impact Marketing selects TELUS IP-One(R)
Also in March, TELUS announced it had signed Consumer Impact Marketing
(CIM) to a five-year contract that will see one of the largest third party
outsourcers in North America use TELUS IP-One to increase productivity and
reduce costs. TELUS IP-One uses Internet protocol technology to merge voice,
data and video applications into one communications solution, allowing
businesses to easily manage features such as call forwarding and contact
lists, to access voice-mail as they would e-mail, or conduct ad hoc multi-
party conferences. The service also allows business customers the flexibility
to shift employees and workstations without having to reconfigure network and
telephony services.
TELUS acquires Assurent Secure Technologies
In April, TELUS announced the acquisition of Assurent Secure
Technologies, a Toronto-based electronic security provider. This is consistent
with TELUS' strategy of making "tuck-under" acquisition to augment
capabilities in the growth areas of data, wireless and IP. Assurent's 55
employees are now a key part of our Business Resiliency Services within TELUS
Business Solutions.
Assurent's core business includes security software, vulnerability
research, and related engineering and consulting services. Growing rapidly
since 2002, the company has approximately 90 customers, including many
Fortune 500 companies in Canada, the U.S., Europe and Asia.
TELUS signs five-year hosting contract with Coast Hotels & Resorts
In February, Coast Hotels & Resorts signed a $1.6 million, five-year
contract with TELUS to host its new central reservations and property
management system at TELUS' Calgary Intelligent Data Centre. Hosting important
customer information with TELUS frees Coast Hotels and Resorts from this
critical but non-core function, allowing them to focus on their core operation
while giving them access to cutting-edge data centre technology a mid-sized
business would otherwise be unable to afford. The system began rolling out to
10 Coast locations in Western Canada in March, and is being extended to its
entire 34-hotel network.
OTHER DEVELOPMENTS
TELUS recognized for excellence
In January, KPMG announced TELUS had again made the annual list of
Canada's most respected companies. Of the eight performance categories the
survey measures, TELUS received high marks in the category of 'Innovation and
Product/Service Development.'
TELUS was one of only 22 Canadian companies recognized for global
leadership in corporate sustainability practices by Canadian Business Magazine
in February. The magazine highlighted TELUS' environmental reporting, approach
to sustainability, and a number of key initiatives such as recycling mobile
phones and a pilot project integrating hybrid vehicles into its fleet.
In April, TELUS was awarded three Gold Quill Awards from the
International Association of Business Communicators for excellence in
corporate communications. TELUS' 2004 annual report took an award in the
publications category while TeamVision, an internal news broadcast, took
awards for communications management and communications skills. TELUS' annual
report has a long legacy of excellence, receiving awards from organizations
including the Canadian Institute of Chartered Accountants, Corporate
Essentials, and IR Magazine.
TELUS executive honoured for contribution to her community
In March, the Women's Business Network of Ottawa named TELUS executive
Janet Yale the top businesswoman of the year in their corporate category for
her outstanding contributions in business and the community. Yale, TELUS'
executive vice-president of Corporate Affairs, leads a national team
responsible for public policy, regulation, government relations, law,
corporate governance, and corporate communications. The award also recognized
Ms. Yale's involvement in Ottawa organizations, noting she serves on the
boards of Ashbury College, Ottawa Centre for Research and Innovation, Great
Canadian Theatre Company, the Ottawa Hospital, and the Information Technology
Association of Canada; chairs the United Way/Centraide Ottawa's board of
directors. She is also involved in national organizations including the
Council for Business and the Arts in Canada and the Canadian Film Centre.
Leadership excellence
In May, Karen Radford, President of TELUS Quebec and Partner Solutions,
was named to Canada's Top 40 Under 40 for 2005. Each year the program
recognizes 40 Canadians from the private, public and not-for-profit sectors
who have reached a significant level of success and who are not yet 40 years
of age. Recipients were selected by an independent advisory board of business
leaders across Canada from more than 1,400 nominees. Those named to the list
were chosen for their achievements in five key areas: vision and leadership,
innovation and achievement, impact, community involvement and contribution as
well as strategy for growth.
Creating future friendly communities
TELUS continues to make significant investments in the communities where
its members live, work, and serve. TELUS is committed to becoming Canada's
premier corporate citizen and taking a leadership role in supporting Canadians
by leveraging funding, technology and expertise to help make a difference.
TELUS supported numerous community programs and organizations this
quarter including the B.C. High School Boys' Basketball Association with a
four-year, $260,000 sponsorship agreement announced in January. The
sponsorship will support the association's annual provincial tournament and
includes annual scholarships.
In February, TELUS announced the launch of an innovative new program for
not-for-profit directors - 'Governance Essentials: A Program for Not-for-
Profit Directors'. This is made possible by a partnership between ICD
Corporate Governance College (a partnership between the Institute of Corporate
Directors (ICD) and the University of Toronto's Joseph L. Rotman School of
Management) and TELUS. The program will be offered through the ICD Corporate
Governance College partner universities beginning with the Rotman School in
Toronto on May 7 and thereafter in 2006 in Edmonton, Calgary, Montreal, Ottawa
and Vancouver.
Dividend declaration
The Board of Directors declared a quarterly dividend of twenty-seven and
a half cents ($0.275) per share on outstanding Common and Non-Voting Shares
payable on July 1, 2006 to shareholders of record on the close of business on
June 9, 2006.
For further information:
External Communications: Investor Relations:
Allison Vale, Robert Mitchell,
(416) 629-6425 (416) 279-3219
allison.vale(at)telus.com; ir(at)telus.com
Certain products and services named in this release are trade-marks. The
symbols (TM) and (R) indicate those owned by TELUS Corporation or its
subsidiaries. All other trade-marks are the property of their respective
owners.
_____________________________________________________________________________
TELUS Corporation
consolidated statements of income
Periods ended March 31 (unaudited) Three months
(millions except per share amounts) 2006 2005
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OPERATING REVENUES $ 2,080.5 $ 1,974.7
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OPERATING EXPENSES
Operations 1,201.1 1,109.1
Restructuring and workforce reduction costs 16.7 9.4
Depreciation 339.2 329.9
Amortization of intangible assets 63.9 72.3
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1,620.9 1,520.7
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OPERATING INCOME 459.6 454.0
Other expense, net 4.3 1.5
Financing costs 127.0 138.4
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INCOME BEFORE INCOME TAXES AND
NON-CONTROLLING INTEREST 328.3 314.1
Income taxes 116.1 70.3
Non-controlling interest 2.1 1.6
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NET INCOME AND COMMON SHARE AND
NON-VOTING SHARE INCOME $ 210.1 $ 242.2
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INCOME PER COMMON SHARE AND NON-VOTING SHARE
- Basic $ 0.60 $ 0.67
- Diluted $ 0.60 $ 0.66
DIVIDENDS DECLARED PER COMMON SHARE
AND NON-VOTING SHARE $ 0.275 $ 0.20
TOTAL WEIGHTED AVERAGE COMMON SHARES AND
NON-VOTING SHARES OUTSTANDING
- Basic 349.3 360.2
- Diluted 352.9 367.9
TELUS Corporation
consolidated balance sheets
As at As at
March 31, December 31,
(unaudited) (millions) 2006 2005
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ASSETS
Current Assets
Cash and temporary investments, net $ - $ 8.6
Accounts receivable 610.3 610.3
Income and other taxes receivable - 103.7
Inventories 151.0 138.8
Prepaid expenses and other 243.2 154.7
Current portion of future income taxes 86.9 226.4
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1,091.4 1,242.5
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Capital Assets, Net
Property, plant, equipment and other 7,303.5 7,339.4
Intangible assets subject to amortization 589.9 637.5
Intangible assets with indefinite lives 2,965.8 2,964.6
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10,859.2 10,941.5
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Other Assets
Deferred charges 884.3 850.2
Investments 27.9 31.2
Goodwill 3,155.0 3,156.9
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4,067.2 4,038.3
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$ 16,017.8 $ 16,222.3
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Cash and temporary investments, net $ 1.1 $ -
Accounts payable and accrued liabilities 1,346.0 1,393.7
Income and other taxes payable 8.7 -
Restructuring and workforce reduction
accounts payable and accrued liabilities 41.5 57.1
Advance billings and customer deposits 575.4 571.8
Current maturities of long-term debt 75.5 5.0
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2,048.2 2,027.6
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Long-Term Debt 4,513.4 4,639.9
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Other Long-Term Liabilities 1,636.9 1,635.3
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Future Income Taxes 997.3 1,023.9
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Non-Controlling Interest 27.7 25.6
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Shareholders' Equity 6,794.3 6,870.0
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$ 16,017.8 $ 16,222.3
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TELUS Corporation
consolidated statements of cash flows
Three months
Periods ended March 31 (unaudited) (millions) 2006 2005
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OPERATING ACTIVITIES
Net income $ 210.1 $ 242.2
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 403.1 402.2
Future income taxes 113.1 91.7
Share-based compensation 8.4 3.8
Net employee defined benefit plans expense (1.6) 1.5
Employer contributions to employee defined
benefit plans (30.5) (37.4)
Restructuring and workforce reduction costs,
net of cash payments (15.6) (12.3)
Amortization of deferred gains on sale-
leaseback of buildings, amortization of
deferred charges and other, net 15.9 (4.4)
Net change in non-cash working capital (29.8) 41.1
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Cash provided by operating activities 673.1 728.4
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INVESTING ACTIVITIES
Capital expenditures (320.5) (273.2)
Acquisition - (27.5)
Proceeds from the sale of property
and other assets 7.4 0.7
Change in non-current materials and supplies,
purchase of investments and other (3.0) (6.2)
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Cash used by investing activities (316.1) (306.2)
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FINANCING ACTIVITIES
Common Shares and Non-Voting Shares issued 33.2 87.9
Dividends to shareholders (95.9) -
Purchase of Common Shares and Non-Voting
Shares for cancellation (231.6) (158.3)
Long-term debt issued 180.6 -
Redemptions and repayment of long-term debt (253.0) (1.0)
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Cash used by financing activities (366.7) (71.4)
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CASH POSITION
Increase in cash and temporary investments, net (9.7) 350.8
Cash and temporary investments, net,
beginning of period 8.6 896.5
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Cash and temporary investments, net,
end of period $ (1.1) $ 1,247.3
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SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
Interest (paid) $ (13.1) $ (13.1)
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Interest received $ 22.5 $ 6.3
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Income taxes (inclusive of Investment
Tax Credits) (paid) received, net $ 95.7 $ (1.1)
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TELUS Corporation
Segmented Information
Periods ended March 31 Wireline Wireless
(unaudited) (millions) 2006 2005 2006 2005
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External revenue $ 1,198.6 $ 1,222.2 $ 881.9 $ 752.5
Inter-segment revenue 23.5 22.6 5.9 5.8
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1,222.1 1,244.8 887.8 758.3
Operations expense 740.4 716.6 490.1 420.9
Restructuring and work-force
reduction costs 14.9 9.4 1.8 -
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755.3 726.0 491.9 420.9
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EBITDA(1) $ 466.8 $ 518.8 $ 395.9 $ 337.4
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CAPEX(2) $ 259.0 $ 213.6 $ 61.5 $ 59.6
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EBITDA less CAPEX $ 207.8 $ 305.2 $ 334.4 $ 277.8
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Periods ended March 31 Eliminations Consolidated
(unaudited) (millions) 2006 2005 2006 2005
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External revenue $ - $ - $ 2,080.5 $ 1,974.7
Inter-segment revenue (29.4) (28.4) - -
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(29.4) (28.4) 2,080.5 1,974.7
Operations expense (29.4) (28.4) 1,201.1 1,109.1
Restructuring and work-force
reduction costs - - 16.7 9.4
-------------------------------------------------------------------------
(29.4) (28.4) 1,217.8 1,118.5
-------------------------------------------------------------------------
EBITDA(1) $ - $ - $ 862.7 $ 856.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX(2) $ - $ - $ 320.5 $ 273.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA less CAPEX $ - $ - $ 542.2 $ 583.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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").
Forward-looking statements
___________________________________________________________________________
This report and Management's discussion and analysis contain statements
about expected future events and financial and operating results of TELUS
Corporation ("TELUS" or the "Company") that are forward-looking. By their
nature, forward-looking statements require the Company to make
assumptions and are subject to inherent risks and uncertainties. There is
significant risk that predictions and other forward-looking statements
will not prove to be accurate. Readers are cautioned not to place undue
reliance on forward-looking statements as a number of factors could cause
actual future results, conditions, actions or events to differ materially
from financial and operating targets, expectations, estimates or
intentions expressed in the forward-looking statements.
Assumptions for 2006 guidance purposes include: economic growth
consistent with recent provincial and national estimates by the
Conference Board of Canada, including gross domestic product growth of
3.1% in Canada; increased wireline competition in both business and
consumer markets; a wireless industry market penetration gain similar to
the approximately five percentage point gain in 2005; up to $100 million
of restructuring and workforce reduction expenses; an effective tax rate
of approximately 34%; no prospective significant acquisitions or
divestitures; no change in foreign ownership rules; and maintenance or
improvement of investment-grade credit ratings.
Factors that could cause actual results to differ materially include but
are not limited to: competition; technology (including reliance on
systems and information technology); regulatory developments (including
wireless number portability and possible future changes to the regulatory
environment); human resources (including possible labour disruptions);
business integrations and internal reorganizations; process risks
(including the conversion of legacy systems and security); financing and
debt requirements (including share repurchases and debt redemptions); tax
matters; health, safety and environment developments; litigation and
legal matters; business continuity events (including manmade and natural
threats); economic growth and fluctuations (including pension
performance, funding and expenses); and other risk factors discussed
herein and listed from time to time in TELUS' reports, public disclosure
documents including the Annual Information Form, and other filings with
securities commissions in Canada (filed on SEDAR at sedar.com) and the
United States (filed on EDGAR at sec.gov).
For further information, see Section 10: Risks and risk management of
TELUS' annual 2005 Management's discussion and analysis, and updates
included in Section 10 of this first quarter interim Management's
discussion and analysis.
___________________________________________________________________________
Management's discussion and analysis
May 3, 2006
The following is a discussion of the consolidated financial condition and
results of operations of TELUS Corporation for the three-month periods ended
March 31, 2006 and 2005, 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 and approved by TELUS' Board of
Directors. All amounts are in Canadian dollars unless otherwise specified.
TELUS has issued guidance on and reports on certain non-GAAP measures
that are used by management to evaluate performance of business units,
segments and the Company. In addition, non-GAAP measures are used in measuring
compliance with debt covenants. Because non-GAAP measures do not have a
standardized meaning, securities regulations require that non-GAAP measures be
clearly defined and qualified, and reconciled with their nearest GAAP measure.
For the readers' reference, the definition, calculation and reconciliation of
consolidated non-GAAP measures is provided in Section 11: Reconciliation of
non-GAAP measures and definition of key operating indicators.
Management's discussion and analysis contents
-------------------------------------------------------------------------
Section Contents
-------------------------------------------------------------------------
1. Overall performance A summary of consolidated results for the
first quarter 2006
-------------------------------------------------------------------------
2. Core business, Examples of TELUS' activities in support of
vision and strategy its six strategic imperatives
-------------------------------------------------------------------------
3. Key performance A report on the progress against TELUS' 2006
drivers priorities
-------------------------------------------------------------------------
4. Capability to deliver An update on TELUS' capability to deliver
results results
-------------------------------------------------------------------------
5. Results from A detailed discussion of operating results
operations for the first quarter of 2006
-------------------------------------------------------------------------
6. Financial condition A discussion of significant changes in the
balance sheet at March 31, 2006, as compared
to December 31, 2005
-------------------------------------------------------------------------
7. Liquidity and capital A discussion of cash flow, liquidity, credit
resources facilities, off-balance sheet arrangements
and other disclosures
-------------------------------------------------------------------------
8. Critical accounting A description of accounting estimates and
estimates and changes to accounting policies
accounting policy
developments
-------------------------------------------------------------------------
9. Revised annual A discussion of revisions to TELUS' annual
guidance for 2006 guidance for 2006
-------------------------------------------------------------------------
10. Risks and risk An update of risks and uncertainties facing
management TELUS and how it manages these risks
-------------------------------------------------------------------------
11. Reconciliation of A description, calculation and reconciliation
non-GAAP measures and of certain measures used by management
definition of key
operating indicators
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
($ in millions, except shares, per share Quarters ended March 31
amounts and subscribers) 2006 2005 Change
-------------------------------------------------------------------------
Operating revenues 2,080.5 1,974.7 5.4 %
Operating income 459.6 454.0 1.2 %
Income before income taxes and
non-controlling interest 328.3 314.1 4.5 %
Income taxes 116.1 70.3 65.1 %
Net income and Common Share and
Non-Voting Share income 210.1 242.2 (13.3)%
Earnings per share, basic ($) 0.60 0.67 (10.4)%
Earnings per share, diluted ($) 0.60 0.66 (9.1)%
Cash dividends declared per share ($) 0.275 0.20 37.5 %
Cash provided by operating activities 673.1 728.4 (7.6)%
Cash used by investing activities 316.1 306.2 3.2 %
Capital expenditures 320.5 273.2 17.3 %
Cash used by financing activities 366.7 71.4 n.m.
Subscriber connections(1) (thousands)
as at March 31 10,306 9,792 5.2 %
EBITDA(2) 862.7 856.2 0.8 %
Free cash flow(3) 640.1 566.6 13.0 %
-------------------------------------------------------------------------
pts- percentage points n.m. - not meaningful
(1) The sum of network access lines, wireless subscribers and Internet
subscribers as measured at the end of the respective periods.
(2) EBITDA is a non-GAAP measure. See Section 11.1 Earnings before
interest, taxes, depreciation and amortization (EBITDA).
(3) Free cash flow is a non-GAAP measure. See Section 11.2 Free cash
flow.
-------------------------------------------------------------------------
Highlights, as discussed in Section 5: Results from operations, include
the following (comparing the first quarter of 2006 to the first quarter of
2005):
- Subscriber connections increased by 514,000 in the 12 month period
ended March 31, 2006, as wireless subscribers grew by 14.9% to
4.6 million and Internet subscribers grew by 4.8% to one million,
while network access lines decreased by 2.7% to 4.7 million.
- Operating revenues increased by $105.8 million as the 17% growth in
wireless revenues and 4% growth in wireline data revenues were partly
offset by lower wireline voice revenues.
- EBITDA increased by $6.5 million in the first quarter of 2006. Margins
increased slightly in the wireless segment through subscriber growth
and increased ARPU (average revenue per subscriber unit per month)
despite increased operations expenses. A decrease in margins in the
wireline segment were caused by increased competition for local
services and continued long distance revenue erosion as well as a 4.0%
increase in total wireline expenses. Wireline expenses increased in
part due to increased use of contractors for network support and
maintenance activities to help clear backlogs and free up TELUS staff
to improve customer service, as reflected in improved quality-of-
service metrics defined by the CRTC.
- Operating income increased by $5.6 million for the reasons described
above partly offset by a small increase in depreciation and
amortization expenses.
- Income before income taxes and non-controlling interest increased by
$14.2 million due primarily to lower financing costs as a result of
the early redemption of $1.578 billion of 7.50%, Series CA, Notes on
December 1, 2005, partly offset by lower interest income.
- Income taxes increased by $45.8 million due primarily to one-time tax
recoveries recorded in the first quarter of 2005 leading to an
unusually low effective tax rate in that period. The effective tax
rates for the first quarter of 2006 and 2005 were 35.4% and 22.4%,
respectively. The income tax expense in the first quarter of 2006 was
primarily future income taxes.
- Net income and earnings per share decreased primarily due to one-time
tax recoveries and related interest income net of taxes recorded in
first quarter of 2005 (approximately $54 million or 15 cents per
share). Earnings per share for the first quarter of 2006 increased by
approximately eight cents or 15%, when compared to 2005 earnings
normalized to exclude the one-time tax recovery.
Highlights, as discussed in Section 7: Liquidity and capital resources,
include the following (comparing the first quarter of 2006 to the first
quarter of 2005):
- Cash provided by operating activities decreased by $55.3 million due
mainly to the reduction of securitized accounts receivable by $100
million and reduced accounts payable and accrued liabilities, partly
offset by greater cash tax recoveries and related interest received as
well as reduced trade accounts receivable.
- Cash used by investing activities increased primarily due to greater
capital expenditures.
- Cash used by financing activities increased by $295.3 million due
mainly to increased purchases of Common Shares and Non-Voting Shares
under normal course issuer bids and payment of dividends.
- Free cash flow increased primarily due to greater cash tax recoveries
and related interest received, partly offset by increased capital
expenditures.
2. Core business, vision and strategy
The following discussion is qualified in its entirety by the Forward-
looking statements at the beginning of Management's discussion and analysis,
as well as Section 10: Risks and risk management of TELUS' annual 2005
Management's discussion and analysis and significant updates in Section 10:
Risks and risk management of this report.
TELUS' core business, vision and strategy were detailed in its 2005
annual Management's discussion and analysis. Recent activities in support of
the Company's six strategic imperatives include the following:
Partnering, acquiring and divesting to accelerate the implementation
of TELUS' strategy and focus TELUS' resources on core business
In April 2006, TELUS acquired privately-owned FSC Internet Corp.
operating as Assurent Secure Technologies ("Assurent"), a Toronto-based
provider of information technology security services and products. Assurent's
core business includes security software, vulnerability research, and related
engineering and consulting services provided to some 90 customers in Canada,
the U.S., Europe and Asia. This acquisition, with annual revenues of less than
$10 million, is expected to augment TELUS' existing suite of security
solutions and is also consistent with the imperative of "focusing relentlessly
on the growth markets of data, IP and wireless."
Focusing relentlessly on the growth markets of data, IP and wireless
In 2006 up to mid-April, TELUS has expanded the availability of its
wireless high speed service to Fort McMurray, Mont-Tremblant and Saint-Jovite,
Quebec City, and Whistler. Wireless high speed services have typical download
speeds of 400 to 700 kilobits per second, based on the CMDA 1xEVDO standard,
the newest third generation, or 3G, wireless data technology available. TELUS
also offers a variety of wireless High Speed PCS phones and data devices,
including the LG 8100, the Motorola RAZR V3c, the RIM BlackBerry 7130e, the
UTStarcom Pocket PC 6700, the Kyocera Passport KPC650 and the Sierra Wireless
AirCard 580. Each of these devices are backward compatible, providing
customers with the ability to use them on TELUS' national 1X data network
(which covers more than 90 per cent of the Canadian population) when they're
outside a wireless high-speed coverage area. By uniting wireless broadband
services with new portable computing and entertainment devices, TELUS is
providing business clients and consumers in eleven communities and major
centres across Canada with powerful mobile data solutions.
TELUS introduced its SPARK (TM) line of mobile entertainment, information
and messaging services for consumers, which includes TELUS Mobile Music (TM),
TELUS Mobile TV (TM), multimedia messaging, downloadable images, ring tones,
videos and games, and new Web browser features, including search tools and a
broad range of new online content. TELUS' new mobile music service offers
customers across Canada access to a large mobile music catalogue with
selections from EMI Music, SonyBMG, Universal Music Group and Warner Music
Group. This service operates on both the wireless high speed network and the
1x digital data network - the latter at speeds of up to 144 kilobits per
second.
TELUS continues its targeted launch of TELUS TV (R) service. In January
2006, TELUS announced the construction of a "head end" in B.C. to gather TV
signals from dozens of satellites for transmission to customers in B.C. and
Alberta. When this new facility begins to operate, it will join the existing
centre in Edmonton, both servicing customers in the two provinces and
providing back up capability to each other in the event of an outage. Also in
January, the choice of movies available for TELUS TV video-on-demand service
was expanded with the announcement of a long-term distribution agreement with
Twentieth Century Fox. TELUS has now announced plans to expand from its
targeted launches in Edmonton and Calgary with a trial and targeted launch in
the B.C. lower mainland in the fall of 2006.
3. Key performance drivers
The Company set new priorities for 2006 to advance its strategy; achieve
meaningful commercial differentiation in the markets; capitalize on the
technology convergence of wireless and wireline; and drive continued operating
efficiency and effectiveness.
-------------------------------------------------------------------------
2006 corporate priorities across wireline and wireless
-------------------------------------------------------------------------
Advance TELUS' leadership in the consumer market through:
- TELUS' future friendly suite of data applications for customers at
home and on the move
- Best-in-class customer loyalty through cost-effective customer
experience
- Expanding TELUS' channel partner relationships to strengthen its
distribution.
-------------------------------------------------------------------------
Advance TELUS' position in the business market through:
- Innovative solutions that enhance the competitiveness of TELUS'
customers and deepen their loyalty to TELUS
In April 2006, the Company introduced the TELUS Business One(R)
Bundle, which offers small and medium business customers a choice
of communications tools for one price, a single point of contact for
technical services and one simplified bill. TELUS Business One
includes high-speed Internet, long distance service, up to $30 per
month worth of powerful business tools at no extra cost, exclusive
pricing on upgrades to these business tools, and optional phone and
calling services. Customers also have a dedicated 24 x 7 support for
their business services.
- Increasing the Company's share in the business market by leveraging
TELUS' mobile solutions such as high-speed data
- Improving delivery of managed solutions to small business customers.
-------------------------------------------------------------------------
Advance TELUS' position in the wholesale market through:
- Strengthening the Company's North American reach through innovative IP
solutions
- Establishing creative and preferred partnerships to grow TELUS'
national customer base
- Optimizing the use of partner networks to complement TELUS' network
investments.
-------------------------------------------------------------------------
Drive improvements in productivity and service excellence by:
- Realizing efficiencies from the integration of wireline and wireless
operations
- Driving improvements in enterprise-wide productivity and customer
service excellence to increase competitiveness
- Capturing value from TELUS' investments in technology and innovation
to streamline operations.
-------------------------------------------------------------------------
Strengthen the spirit of the TELUS team and brand, and develop the best
talent in the global communications industry by:
- Continuing to leverage best practices across the Company
- Cultivating a business ownership culture that embraces a philosophy of
"our business, our customers, our team, my responsibility"
- Capitalizing on TELUS' reputation as a progressive, high-performance
Company to attract and retain the best team in Canada
- Providing team members innovative opportunities for growth,
development and employment options.
-------------------------------------------------------------------------
4. Capability to deliver results
4.1 Operational capabilities across wireline and wireless
Integration of wireline and wireless operations
The integration of the wireline and wireless operations continues. One of
the expected benefits of integration is that TELUS will be better able to
serve customers through attractive solutions that combine competitive wireline
services with wireless services. To facilitate this initiative, TELUS combined
its wireline, wireless and broadcasting operations into a single legal entity,
TELUS Communications Company partnership on March 1, 2006. See Section 10.3
Business integration and internal reorganizations.
Development of a new billing system in the wireline segment
The development of a new wireline billing system continued in the first
quarter of 2006, which includes re-engineering processes for order entry, pre-
qualification, service fulfillment and assurance, customer care,
collections/credit, customer contact, and information management. The expected
benefits of this project include streamlined and standardized processes and
the elimination over time of multiple legacy information systems. The Company
plans to implement this project in phases, beginning with a launch for
consumer mass market accounts currently planned for 2006. See Section 10.4
Process risks.
Continued recognition for TELUS' wireless operational excellence
For eight consecutive quarters, TELUS' wireless segment has attained
first or second place in the survey of North American wireless operators
published by N. Moore Capital. TELUS was most recently ranked second across an
array of wireless operating and financial metrics for the fourth quarter of
2005.
4.2 Liquidity and capital resources
The following discussion is qualified in its entirety by the Forward-
looking statements at the beginning of Management's discussion and analysis,
as well as TELUS' annual 2005 Management's discussion and analysis Section 9.3
Financing plan for 2006 and Section 10.7 Financing and debt requirements.
At March 31, 2006, TELUS had access to undrawn credit facilities of
approximately $1.5 billion. These, combined with expected cash flow from
operations and availability under the accounts receivable securitization
program, the Company believes it has sufficient capability to fund its
requirements in 2006. The following table describes the status of TELUS'
financing plan.
-------------------------------------------------------------------------
2006 financing plan and results
-------------------------------------------------------------------------
TELUS' 2006 financing plan was to use free cash flow generated by its
business operations to:
-------------------------------------------------------------------------
- Repurchase TELUS Common Shares and TELUS Non-Voting Shares under the
Normal Course Issuer Bid ("NCIB")
Repurchased approximately 1.8 million Common Shares and 3.3 million
Non-Voting Shares for $231.6 million in the first quarter of 2006.
Between December 20, 2004 and March 31, 2006, the Company repurchased
approximately 28.1 million TELUS shares for $1.2 billion under two
NCIB programs. See Section 7.3 Cash used by financing activities.
--------------------------------------------------------------------------
- Pay dividends
The declared dividend for the first quarter of 2006, payable on
April 1, was 27.5 cents per share, as compared to 20 cents in the
first quarter of 2005. The target dividend payout ratio guideline
continues to be in the range of 45 to 55% of sustainable net earnings.
-------------------------------------------------------------------------
- Retain cash-on-hand for corporate purposes
During the first quarter of 2006, securitized accounts receivable were
reduced by a net $100 million, while bank facilities were reduced by a
net $71 million. At March 31, 2006, the balance of cash and short-term
investments was not significant.
-------------------------------------------------------------------------
Other financing objectives included:
-------------------------------------------------------------------------
- Maintain a minimum $1 billion in unutilized liquidity
TELUS had available liquidity from unutilized credit facilities of
approximately $1.5 billion at March 31, 2006.
-------------------------------------------------------------------------
- Maintain position of fully hedging foreign exchange exposure for
indebtedness
Maintained as planned at March 31, 2006.
-------------------------------------------------------------------------
- Give consideration to refinancing all or a portion of U.S Dollar
denominated Notes due June 1, 2007 in advance of its scheduled
maturity
In contemplation of the planned refinancing of the debt maturing
June 1, 2007, the Company had entered into forward starting interest
rate swap agreements, as at March 31, 2006, that have the effect of
fixing the underlying interest rate on up to $300 million of
replacement debt.
-------------------------------------------------------------------------
- Preserve access to the capital markets at a reasonable cost by
maintaining investment grade credit ratings and targeting improved
credit ratings in the range of BBB+ to A-, or the equivalent, in the
future
Investment grade credit ratings from the four rating agencies that
cover TELUS were maintained in the target range.
-------------------------------------------------------------------------
5. Results from operations
5.1 General
The Company has two reportable segments: wireline and wireless.
Segmentation is based on similarities in technology, the technical expertise
required to deliver the products and services, the distribution channels used
and regulatory treatment. Intersegment sales are recorded at the exchange
value. Segmented information is regularly reported to the Company's Chief
Executive Officer (the chief operating decision maker).
5.2 Quarterly results summary
-------------------------------------------------------------------------
($ in millions, except
per share amounts) 2006 Q1 2005 Q4 2005 Q3 2005 Q2 2005 Q1
-------------------------------------------------------------------------
Segmented revenue
(external)
Wireline segment 1,198.6 1,209.9 1,198.6 1,216.5 1,222.2
Wireless segment 881.9 876.8 864.2 802.0 752.5
-------------------------------------------------------------------------
Operating revenues
(consolidated) 2,080.5 2,086.7 2,062.8 2,018.5 1,974.7
Operations expense 1,201.1 1,316.8 1,221.5 1,146.1 1,109.1
Restructuring and
workforce reduction costs 16.7 35.5 1.6 7.4 9.4
Depreciation 339.2 346.2 335.6 330.9 329.9
Amortization of intangible
assets 63.9 67.0 73.6 68.2 72.3
-------------------------------------------------------------------------
Operating income 459.6 321.2 430.5 465.9 454.0
Other expense (income) 4.3 9.3 7.1 0.5 1.5
Financing costs 127.0 171.7 144.8 168.2 138.4
Income taxes 116.1 58.8 86.9 106.0 70.3
Non-controlling interest 2.1 2.9 1.6 1.7 1.6
-------------------------------------------------------------------------
Net income 210.1 78.5 190.1 189.5 242.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income per weighted average
Common Share and Non-Voting
Share outstanding
- basic 0.60 0.22 0.53 0.53 0.67
- diluted 0.60 0.22 0.53 0.52 0.66
Dividends declared per
Common Share and Non-Voting
Share outstanding 0.275 0.275 0.20 0.20 0.20
-------------------------------------------------------------------------
-------------------------------------------------------
($ in millions, except
per share amounts) 2004 Q4 2004 Q3 2004 Q2
-------------------------------------------------------
Segmented revenue
(external)
Wireline segment 1,209.3 1,199.9 1,189.0
Wireless segment 755.6 747.0 676.6
-------------------------------------------------------
Operating revenues
(consolidated) 1,964.9 1,946.9 1,865.6
Operations expense 1,178.5 1,112.8 1,080.1
Restructuring and
workforce reduction costs 19.8 16.2 0.7
Depreciation 338.3 327.1 320.7
Amortization of intangible
assets 79.2 80.5 86.9
-------------------------------------------------------
Operating income 349.1 410.3 377.2
Other expense (income) 8.7 (3.2) 2.0
Financing costs 152.8 158.6 156.9
Income taxes 50.4 97.2 44.9
Non-controlling interest 1.6 1.1 1.1
-------------------------------------------------------
Net income 135.6 156.6 172.3
-------------------------------------------------------
-------------------------------------------------------
Net income per weighted average
Common Share and Non-Voting
Share outstanding
- basic 0.38 0.44 0.48
- diluted 0.37 0.43 0.48
Dividends declared per
Common Share and Non-Voting
Share outstanding 0.20 0.15 0.15
-------------------------------------------------------
The trend in consolidated Operating revenues reflects strong growth in
wireless revenue, which arose from the combined effects of increased average
revenue per subscriber unit per month ("ARPU") and a growing subscriber base.
The trend also reflects growth in wireline segment data revenue, while
wireline long distance and other revenues have decreased. In the first quarter
of 2006, wireline local revenue decreased when compared to the same period in
2005, due to increasing competition for local services. Wireline revenues
include the generally negative effect of regulatory price cap decisions.
The trend in Operating income was affected by temporary net expenses
leading up to and resulting from a labour disruption in 2005; such temporary
expenses included in Operations expense were estimated to be approximately
$16 million, $65 million and $52 million, respectively for the second, third
and fourth quarter of 2005. In addition, Restructuring and work force
reduction charges varied significantly by quarter, depending on the progress
of initiatives under way at the time. Depreciation is increasing modestly due
to continued investment in shorter-life data and wireless equipment, while
Amortization of intangible assets is decreasing as several software assets
have been fully amortized.
Within Financing costs, interest expenses trended lower, except for two
one-time charges: a second quarter 2005 accrual of $17.5 million for
settlement of a lawsuit related to a 1997 BC TEL bond redemption matter as
well as a fourth quarter 2005 charge of $33.5 million to early redeem
$1.578 billion of Notes. The early redemption of Notes on December 1, 2005,
contributed significantly to lower Financing costs in the first quarter of
2006. Financing costs were also net of varying interest income in each of the
periods shown.
The trend in Net income and earnings per share reflect the items noted
above. In addition, Net income and earnings per share for seven of the
quarters included net favourable impacts for the settlement of prior years'
tax matters and consequential adjustments. The most significant income tax
recoveries and related interest income net of taxes were recorded in the
second quarter of 2004 (approximately $45 million or 13 cents per share) and
the first quarter of 2005 (approximately $54 million or 15 cents per share).
Historically, there is significant fourth quarter seasonality for
wireless subscriber gross additions, related acquisition costs and equipment
sales, and to a lesser extent, for wireline high-speed Internet subscriber
gross additions.
On May 3, 2006, the Board of Directors of TELUS declared a quarterly
dividend of 27.5 cents per share on outstanding Common and Non-Voting Shares
payable on July 1, 2006 to shareholders of record on the close of business on
June 9, 2006.
5.3 Consolidated results from operations
-------------------------------------------------------------------------
($ in millions except EBITDA margin) Quarters ended March 31
2006 2005 Change
-------------------------------------------------------------------------
Operating revenues 2,080.5 1,974.7 5.4 %
Operations expense 1,201.1 1,109.1 8.3 %
Restructuring and workforce reduction
costs 16.7 9.4 77.7 %
-------------------------------------------------------------------------
EBITDA(1) 862.7 856.2 0.8 %
Depreciation 339.2 329.9 2.8 %
Amortization of intangible assets 63.9 72.3 (11.6)%
-------------------------------------------------------------------------
Operating income 459.6 454.0 1.2 %
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA margin(%)(2) 41.5 43.4 (1.9) pts
Total employees, end of period 29,290 28,456 2.9 %
-------------------------------------------------------------------------
(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.
-------------------------------------------------------------------------
The following discussion is for the consolidated results of TELUS.
Further detail by segment is provided for Operating revenues, Operations
expense, Restructuring and workforce reduction costs, EBITDA and capital
expenditures in Section 5.4 Wireline segment results, Section 5.5 Wireless
segment results and Section 7.2 Cash used by investing activities - capital
expenditures.
Operating revenues
Consolidated Operating revenues increased by $105.8 million in the first
quarter of 2006, when compared with the same period in 2005. Revenue and
subscriber growth continued in wireless operations as well as in wireline data
services including enhanced data, managed workplace and high-speed Internet
services. However, wireline revenues declined overall as long distance and
equipment sales revenues continued to erode, and voice local revenue showed a
year-over-year decrease due to the effects of increased competition and a one-
time regulatory recovery in the same period in 2005.
Operations expense
Consolidated operations expense increased by $92.0 million in the first
quarter of 2006, when compared to the same period in 2005. The increase was
primarily in the wireless segment due to higher gross subscriber additions,
higher costs of acquisition ("COA") and increased subscriber retention
activity as well as increased staffing to support the 15% growth in
subscribers over the past twelve months. In addition, increased wireline
segment expenses included network maintenance and support costs to reduce
backlogs and improve quality of service indicators. For TELUS, the net expense
for defined benefit pension plans did not change significantly, as favourable
returns on plan assets in 2005 offset the use of a lower discount rate for
2006.
Restructuring and workforce reduction costs
General
In 2005, the Company undertook a number of smaller initiatives, such as
operational consolidation, rationalization and integrations. These initiatives
aimed to improve the Company's operating and capital productivity. As at March
31, 2006, no future expenses remain to be accrued or recorded under the
smaller initiatives that were substantially completed in 2005, but variances
from estimates currently recorded may be recorded in subsequent periods.
On November 24, 2005, the Company announced the integration of its
wireline and wireless operations, an initiative that will continue into future
years and that is a component of the Company's competitive efficiency program.
For the three-month period ended March 31, 2006, $3.8 million of restructuring
and workforce reduction costs were recorded in respect of this initiative and
were included with general programs initiated in 2006.
In the first quarter of 2006, arising from its competitive efficiency
program, the Company undertook a number of smaller initiatives, such as
operational consolidation, rationalization and integration. These initiatives
are aimed to improve the Company's operating productivity and competitiveness.
Also arising from its competitive efficiency program, the Company
undertook an initiative for a departmental reorganization and reconfiguration,
resulting in integration and consolidation. Approximately 600 bargaining unit
employees may be affected by this initiative and were offered the option of
redeployment or participation in a voluntary departure program (either the
Early Retirement Incentive Plan or the Voluntary Departure Incentive Plan).
Expenses under this initiative are expected to be recorded in the second
quarter of 2006, as affected employees were not required to select an option
until after March 31, 2006 and therefore the associated expenses were not
eligible for recording during the three-month period ended March 31, 2006.
Future costs will be incurred as the initiative continues.
Restructuring and workforce reduction costs recorded in the first quarter
of 2006 totaled $16.7 million, an increase from $9.4 million recorded in the
same period last year. The Company's estimate of restructuring and workforce
reduction costs in 2006, arising from its competitive efficiency program,
which includes the office closures and contracting out and integration of
wireline and wireless operations, is not currently expected to exceed
$100 million.
Office closures and contracting out
In connection with the collective agreement signed in the fourth quarter
of 2005, an accompanying letter of agreement set out the planned closure, on
February 10, 2006, of a number of offices in British Columbia. This initiative
is a component of the Company's competitive efficiency program and is aimed at
improving the Company's operating and capital productivity. The approximately
250 bargaining unit employees affected by these office closures were offered
the option of redeployment or participation in a voluntary departure program
(either the Early Retirement Incentive Plan or the Voluntary Departure
Incentive Plan).
As at March 31, 2006, no future expenses remain to be accrued or recorded
under the letter of agreement setting out the planned closure of a number of
offices in British Columbia, but variances from estimates currently recorded
may be recorded in subsequent periods. Other costs, such as other employee
departures and those associated with real estate, are expected to be incurred
and recorded subsequent to March 31, 2006.
Similarly, an additional accompanying letter of agreement set out that
the Company intends to contract out specific non-core functions over the term
of the collective agreement. This initiative is a component of the Company's
competitive efficiency program and is aimed at allowing the Company to focus
its resources on those core functions that differentiate the Company for its
customers. The approximately 250 bargaining unit employees currently affected
by contracting out initiatives were offered the option of redeployment or
participation in the voluntary departure program (either the Early Retirement
Incentive Plan or the Voluntary Departure Incentive Plan.).
As at March 31, 2006, no future expenses remain to be accrued or recorded
under the letter agreement setting out the contracting out of specific non-
core functions, in respect of the approximately 250 bargaining unit employees
currently affected, but variances from estimates currently recorded may be
recorded in subsequent periods. Future costs will be incurred as the
initiative continues.
EBITDA
EBITDA increased by $6.5 million in the first quarter of 2006, when
compared with the same period in 2005. The increase in EBITDA was due
primarily to wireless segment subscriber growth and increased ARPU, partly
offset by wireless operations expense growth, leading to a slight increase in
the wireless EBITDA margin. Wireline segment EBITDA decreased due primarily to
increased competition for local services, continued long distance revenue
erosion as well as a 4.0% increase in operating expenses due in part due to
increased use of contractors for network support and maintenance. The EBITDA
margin decrease of 1.9 percentage points originated in the wireline segment.
Depreciation and amortization
Depreciation increased by $9.3 million in the first quarter of 2006, when
compared with the same period in 2005. The increase was due primarily to a
reduction in service lives for servers and furniture as well as increased
retirements of network assets, which were partly offset by lower depreciation
for high speed Internet modems that are fully depreciated. Amortization of
intangible assets decreased by $8.4 million in the first quarter of 2006, when
compared with the same period in 2005, as a result of several software assets
becoming fully amortized.
Operating income
Operating income increased by $5.6 million in the first quarter of 2006,
when compared with the same period in 2005, due primarily to the growth in
EBITDA as described above.
Other income statement items
-------------------------------------------------------------------------
Other expense, net Quarters ended March 31
($ millions) 2006 2005 Change
-------------------------------------------------------------------------
4.3 1.5 186.7 %
-------------------------------------------------------------------------
Other expense includes accounts receivable securitization expense,
charitable donations, gains and losses on disposal of property, and income
(loss) or impairments in equity or portfolio investments. The accounts
receivable securitization expense was $3.2 million in first quarter of 2006,
as compared to $1.0 million in the same period in 2005. The increase resulted
primarily from a higher balance of proceeds from securitized accounts
receivable in 2006 (see Section 7.6 Accounts receivable sale).
-------------------------------------------------------------------------
Financing costs Quarters ended March 31
($ millions) 2006 2005 Change
-------------------------------------------------------------------------
Interest on long-term debt, short-term
obligations and other 127.0 159.0 (20.1)%
Foreign exchange losses (gains) 1.1 2.5 (56.0)%
Interest income (1.1) (23.1) 95.2 %
-------------------------------------------------------------------------
127.0 138.4 (8.2)%
-------------------------------------------------------------------------
Interest on long-term debt, short-term obligations and other decreased by
$32.0 million in the first quarter of 2006, when compared with same period in
2005, due primarily to the lower debt levels as a result of early redemption
of $1.578 billion of 7.50%, Series CA, Notes on December 1, 2005, as well as
the conversion/redemption of convertible debentures in the second quarter of
2005. TELUS maintains a hedging program using cross currency swaps, and as a
result, long-term financing costs were generally unaffected by fluctuations in
the value of the Canadian dollar against the U.S. dollar. Debt (the sum of
Long-term Debt, Current maturities and the deferred hedging liability) was
$5,732 million at March 31, 2006, a 22% reduction when compared with
$7,375 million on March 31, 2005.
Interest income decreased by $22.0 million in the first quarter of 2006,
when compared with the same period in 2005. The decrease was due primarily to
one-time interest on tax refunds of $15.6 million recorded in the first
quarter of 2005. Interest income earned primarily from cash and temporary
investments decreased to $1.1 million in the first quarter of 2006 from
$7.5 million in the same period in 2005, as available cash balances were used
for debt redemption.
-------------------------------------------------------------------------
Income taxes Quarters ended March 31
($ millions, except tax rates) 2006 2005 Change
-------------------------------------------------------------------------
Blended federal and provincial
statutory income tax based on
net income before tax 111.5 108.7 2.6 %
Changes in estimates of available
deductible differences in prior years - (36.0) 100.0 %
Tax rate differential on, and
consequential adjustments from, the
reassessment of prior year tax issues (0.3) (11.3) 97.3 %
Large corporations tax and other 4.9 8.9 (44.9)%
-------------------------------------------------------------------------
116.1 70.3 65.1 %
-------------------------------------------------------------------------
Blended federal and provincial statutory
tax rates (%) 34.0 34.6 (0.6) pts
Effective tax rates (%) 35.4 22.4 13.0 pts
-------------------------------------------------------------------------
The increase in the blended federal and provincial statutory income tax
expense was due mainly to the 4.5% increase in income before taxes in the
first quarter of 2006, when compared with the same period in 2005. The blended
federal and provincial tax rate decreased due to a reduction to general
corporate income tax rates on income taxed in B.C, effective July 1, 2005,
partly offset by an increase to general corporate income tax rates in Quebec
beginning January 1, 2006. Reductions in tax in 2005 included changes in
estimates of available deductible differences in prior years and a tax rate
differential and consequential adjustments from the favourable reassessment of
prior years' tax issues. During the first quarter of 2006, the Government of
Alberta announced legislation to reduce the general corporate income tax rate
from 11.5% to 10% for income taxed in Alberta effective April 1, 2006. As the
legislation was not substantively enacted until April 2006, no adjustments
were recorded in the first quarter of 2006; however, management expects to
record a tax recovery of approximately $13 million for the revaluation of
future income tax liabilities in the second quarter of 2006. Management also
expects the effective income tax rate to be approximately 34% for the full
year of 2006. See Forward-looking statements at the beginning of Management's
discussion and analysis.
Based on the assumption of the continuation of the rate of TELUS
earnings, the legal entity structure, and no substantive changes to tax
regulations, the Company expects to be able to fully utilize its non-capital
losses before the end of 2007. The Company's assessment is that the risk of
expiry of such non-capital losses is remote. Current income taxes recorded in
2007 for income not sheltered by remaining tax losses are not expected to
become payable until 2008.
-------------------------------------------------------------------------
Non-controlling interest Quarters ended March 31
($ millions) 2006 2005 Change
-------------------------------------------------------------------------
2.1 1.6 31.3 %
-------------------------------------------------------------------------
Non-controlling interest represents minority shareholders' interests in
several small subsidiaries.
5.4 Wireline segment results
-------------------------------------------------------------------------
Operating revenues - wireline segment Quarters ended March 31
($ millions) 2006 2005 Change
-------------------------------------------------------------------------
Voice local 535.6 552.8 (3.1)%
Voice long distance 207.8 226.4 (8.2)%
Data 393.6 377.6 4.2 %
Other 61.6 65.4 (5.8)%
-------------------------------------------------------------------------
External operating revenue 1,198.6 1,222.4 (1.9)%
Intersegment revenue 23.5 22.6 4.0 %
-------------------------------------------------------------------------
Total operating revenue 1,222.1 1,244.8 (1.8)%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Key operating indicators -
wireline segment
At March 31
(000s) 2006 2005 Change
--------------------------------
Residential network access lines 2,900 3,024 (4.1)%
Business network access lines 1,763 1,769 (0.3)%
--------- ---------- ---------
Total network access lines(1) 4,663 4,793 (2.7)%
High-speed Internet subscribers 801.7 711.9 12.6 %
Dial-up Internet subscribers 227.8 270.4 (15.8)%
--------- ---------- ---------
Total Internet subscribers(2) 1,029.5 982.3 4.8 %
Quarters ended March 31
(000s) 2006 2005 Change
--------------------------------
Change in residential network
access lines (28) (14) (100.0)%
Change in business network access lines - (1) n.m.
--------- ---------- ---------
Change in total network access lines(1) (28) (15) (86.7)%
High-speed Internet net additions 38.6 22.2 73.9 %
Dial-up Internet net reductions (8.3) (11.2) 25.9 %
--------- ---------- ---------
Total Internet subscriber net additions 30.3 11.0 175.5 %
-------------------------------------------------------------------------
(1) Network access lines are measured at the end of the reporting period
based on information in billing and other systems. Consistent with
the presentation for 2006, network access lines for 2005, and for the
end of 2004, include a reclassification of approximately 9,000
between residential and business; no change was recorded in total
access lines.
(2) Internet subscribers are measured at the end of the reporting period
based on Internet access counts from billing and other systems.
-------------------------------------------------------------------------
Wireline revenues decreased by $22.7 million in the first quarter of
2006, when compared with the same period in 2005, as the growth in data
revenues was more than offset by increased competition for local services, a
one-time regulatory recovery in local revenues in the prior year period,
continued erosion of long distance revenues and lower voice equipment sales.
- Voice local revenue decreased by $17.2 million in the first quarter of
2006, when compared with the same period in 2005 due primarily to
lower regulatory recoveries and residential access line losses due to
increased competition. Regulatory recoveries drawn from the price cap
deferral account to offset mandated additional discounts for
competitive digital network services (in basic data services),
pursuant to CRTC Decision 2005-6, were approximately $11 million in
the first quarter of 2006, as compared to approximately $18 million in
the first quarter of 2005 - the amount in 2005 included a one-time
adjustment for prior years. Another regulatory recovery affecting the
first quarter of 2005 was a one-time positive $6.4 million recorded
pursuant to CRTC Decision 2005-4 (pertaining to subsidy requirements
for high cost serving areas in TELUS Quebec ILEC territory for 2003 to
2005).
Residential line losses include the effect of increased competition
from resellers, VoIP competitors including cable-TV companies,
technological substitution to wireless services, and lower numbers of
second lines resulting from migration of dial-up Internet subscribers
to high-speed Internet. In 2006, cable telephony is offered in more
communities in TELUS' incumbent regions including Edmonton, Fort
McMurray, Rimouski, Victoria, and Vancouver and adjacent communities,
compared with only Calgary in the first quarter of 2005. Total
business lines did not change significantly during the first quarter
of 2006 and the first quarter of 2005 as growth in non-incumbent
regions offset competitive losses and migration to more efficient ISDN
(integrated services digital network) services in incumbent local
exchange carrier ("ILEC") regions.
- Voice long distance revenues decreased by $18.6 million in the first
quarter of 2006, when compared with the same period in 2005, due
primarily to lower prices and lower ILEC volumes, which is consistent
with industry wide trends of strong price competition and
technological substitution (Internet and wireless). The 8.2% rate of
decrease in long distance revenue exceeded the 1.4% rate of erosion
from the same period in 2005, and is more consistent with the 7.7%
rate of erosion observed in the fourth quarter of 2005.
- Wireline segment data revenues increased by $16.0 million in the first
quarter of 2006, when compared with the same period in 2005. This
growth was primarily due to: (i) increased Internet, enhanced data and
hosting service revenues as a result of traction from new business
contracts and continued growth in high-speed Internet subscribers
partly offset by a lower average price; (ii) increased managed data
revenues from the provision of business process outsourcing services
to customers and one and one-half months additional call centre
revenues from Ambergris (acquired in mid-February 2005); and (iii)
lower discounts for competitive digital network services. Partially
offsetting this growth were lower data equipment sales in the first
quarter of 2006 as well as continued migration of basic data services
to more efficient enhanced data services
The improvement in high-speed Internet subscriber net additions in the
first quarter of 2006 was due to successful marketing, including
promotions that were not available in the prior year, resulting in
increased gross additions, enhanced by lower deactivations of existing
customers.
- Other revenue decreased by $3.8 million in the first quarter of 2006,
when compared with the same period in 2005, due mainly to lower voice
equipment sales.
- Intersegment revenue represents services provided by the wireline
segment to the wireless segment. These revenues are eliminated upon
consolidation together with the associated expense in the wireless
segment.
Total external operating revenue included non-ILEC revenues of
$164.1 million in the first quarter of 2006, an increase of $4.6 million or
2.9% when compared with same period in 2005. Non-ILEC voice long distance
revenues increased by approximately 13% over the same period last year mainly
as a result of increased volumes, partly offset by lower average rates. Growth
in revenues was partly offset by re-pricing of renewal contracts and
competitive pricing affecting new contracts, as well as lower equipment sales.
-------------------------------------------------------------------------
Operating expenses - wireline segment Quarters ended March 31
($ millions, except employees) 2006 2005 Change
-------------------------------------------------------------------------
Salaries, benefits and
other employee-related costs 413.2 414.1 (0.2)%
Other operations expenses 327.2 302.5 8.2 %
-------------------------------------------------------------------------
Operations expense 740.4 716.6 3.3 %
Restructuring and workforce reduction costs 14.9 9.4 58.5 %
-------------------------------------------------------------------------
Total operating expenses 755.3 726.0 4.0 %
-------------------------------------------------------------------------
Total employees, end of period 22,384 22,172 1.0 %
-------------------------------------------------------------------------
Total operating expenses increased by $29.3 million in first quarter of
2006, when compared with the same period in 2005. Growth in operations
expenses was a result of increased use of contractors for network support and
maintenance activities and computer system development, facilitating clearance
of backlogs and freeing up TELUS staff to improve customer service, as
reflected in improved quality-of-service metrics defined by the CRTC. The 212
increase in total employees included approximately 520 at TELUS' international
call centre operations, and approximately 90 at TELUS Sourcing Solutions to
support the provision of additional human resource outsourcing services to
customers, while staffing elsewhere decreased by 398.
- Salaries, benefits and employee-related expenses were relatively
unchanged in the first quarter of 2006, when compared with the same
period in 2005. Employee-related expenses increased by approximately
$4 million due to increased overtime and travel as well as training
required for new hires, employee back-to-work sessions and TELUS TV
initiatives. This increase was generally offset by a reduction in
other salaries and benefits.
- Other operations expenses increased by $24.7 million in the first
quarter of 2006, when compared with the same period in 2005. The
increase in other expenses was mainly the result of: (i) increased
contractor and consulting costs to support network maintenance and
construction as well as computer system development (ii), increased
facilities, transit and termination charges for higher outbound
traffic volumes including increased international traffic; and (iii)
increased consumer promotions expense for high-speed Internet. These
increases were partly offset by a lower cost of goods sold associated
with lower voice and data equipment sales. Bad debt expenses and
capitalization of labour did not change significantly from the same
period one year ago.
- Restructuring and work force reduction costs applicable to the
wireline segment increased by $5.5 million.
Included in the total wireline segment operations expenses are non-ILEC
operations expenses of $158.8 million in the first quarter of 2006, an
increase of $7.2 million or 4.7%, when compared with the same period in 2005.
Expense increases included higher facilities, transit and termination costs
from increased traffic volumes, increased contract and consulting expenses, as
well as higher salaries, benefits and employee-related costs, party offset by
a lower cost of sales related to lower equipment sales revenue.
-------------------------------------------------------------------------
EBITDA and EBITDA margin -
wireline segment Quarters ended March 31
2006 2005 Change
-------------------------------------------------------------------------
EBITDA ($ millions) 466.8 518.8 (10.0)%
EBITDA margin (%) 38.2 41.7 (3.5) pts
-------------------------------------------------------------------------
EBITDA decreased by $52.0 million in the first quarter of 2006, when
compared with the same period in 2005. The primary causes were lower revenues
from increased competition for local services and continued long distance
revenue erosion, while total wireline operating expenses increased by 4.0%.
Non-ILEC EBITDA was $5.3 million in the first quarter of 2006, a decrease of
$2.6 million when compared with the same period in 2005. The decrease in non-
ILEC EBITDA resulted from competitive pressures on pricing combined with
expense increases for higher traffic volumes as well as increased consulting
costs.
Wireline segment capital expenditures are discussed in Section 7.2 Cash
used by investing activities.
5.5 Wireless segment results
-------------------------------------------------------------------------
Operating revenues - wireless segment Quarters ended March 31
($ millions) 2006 2005 Change
-------------------------------------------------------------------------
Network revenue 824.7 695.5 18.6 %
Equipment revenue 57.2 57.0 0.4 %
-------------------------------------------------------------------------
External operating revenue 881.9 752.5 17.2 %
Intersegment revenue 5.9 5.8 1.7 %
-------------------------------------------------------------------------
Total operating revenue 887.8 758.3 17.1 %
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Key operating indicators - wireless segment
-------------------------------------------------------------------------
(000s) At March 31
2006 2005 Change
--------------------------------
Subscribers - postpaid 3,737.2 3,315.1 12.7 %
Subscribers - prepaid 876.0 701.5 24.9 %
--------- ---------- ---------
Subscribers - total(1) 4,613.2 4,016.6 14.9 %
Digital POPs(2) covered including
roaming/resale (millions)(3) 30.6 30.2 1.3 %
--------------------------------
Quarters ended March 31
(000s) 2006 2005 Change
--------------------------------
Subscriber gross additions - postpaid 179.7 184.9 (2.8)%
Subscriber gross additions - prepaid 95.1 68.3 39.2 %
--------- ---------- ---------
Subscriber gross additions - total 274.8 253.2 8.5 %
Subscriber net additions - postpaid 70.4 74.8 (5.9)%
Subscriber net additions - prepaid 22.1 5.4 309.3 %
--------- ---------- ---------
Subscriber net additions - total 92.5 80.2 15.3 %
Churn, per month (%)(4)(5) 1.33 1.45 (0.12) pts
COA(6) per gross subscriber addition ($)(4) 429 355 20.8 %
ARPU ($)(4) 60 58 3.4 %
Average minutes of use
per subscriber per month (MOU) 386 371 4.0 %
EBITDA to network revenue (%) 48.0 48.5 (0.5) pts
Retention spend to network revenue(4) (%) 6.2 5.5 0.7 pts
EBITDA ($ millions) 395.9 337.4 17.3 %
EBITDA excluding COA ($ millions)(4) 513.8 427.2 20.3 %
-------------------------------------------------------------------------
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, 2006, TELUS' wireless PCS digital population coverage
included 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) Due to a change in business policy requiring postpaid customers to
provide 30 days notice prior to deactivation, a one-time deferral of
approximately 4,800 deactivations. Normalized to exclude this one-
time positive impact, the churn rate was 1.37% in the first quarter
of 2006.
(6) Cost of acquisition.
-------------------------------------------------------------------------
- Wireless segment Network revenue increased by $129.2 million over the
first quarter of 2005 to $824.7 million for the first quarter of 2006,
a record for TELUS. This growth was a result of the 14.9% expansion of
the subscriber base combined with a $2 increase in average revenue per
subscriber unit per month ("ARPU"). The ARPU growth was attributed to
increased data usage as well as higher revenues related to average
minutes of use per subscriber per month ("MOU").
Data revenues increased to 6.2% of Network revenue, or $51.3 million,
in the first quarter of 2006 as compared to 3.5% of Network revenues,
or $24.1 million, in the first quarter of 2005. Data ARPU for the
first quarter of 2006 increased to $3.71 as compared to $2.00 for the
same period in 2005 - an increase of 85.5%. This growth was
principally related to PDA (personal digital assistant) devices, text
messaging, and mobile computing.
At March 31, 2006, postpaid subscribers represented 81.0% of the total
cumulative subscriber base, remaining relatively stable from one year
earlier. Despite the commercial launch by new competitors in the
prepaid market over the last year, TELUS' wireless segment continued
to achieve significant growth in prepaid net subscriber additions
primarily as a result of the successful Talk Away (TM) bundle
offering, which was withdrawn part-way through the first quarter of
2006. The postpaid subscriber gross additions decreased slightly in
the first quarter of 2006, as compared to the same period in 2005.
Consequently, total subscriber net additions increased by 15.3% for
the first quarter of 2006 as compared with the same period last year.
Blended postpaid and prepaid monthly churn rates improved
significantly in the first quarter of 2006 when compared with the same
period in 2005. Effective February 1, 2006, wireless subscribers who
voluntarily deactivate service are required to provide 30 days notice.
Previously, clients were deactivated immediately upon request. As a
result, a one-time deferral of approximately 4,800 deactivations
contributed to the improved churn rate during the first quarter of
2006. Normalized for this impact, the churn rate would have been
1.37%. Despite this, the lower churn rate is a significant
accomplishment and continues to be a primary focus. Deactivations were
182,300 for the first quarter of 2006 as compared with 173,000 for the
same period last year. The churn and deactivation results reflect a
continued focus on customer care including successful loyalty and
retention efforts, enhanced product offerings, and superior network
quality.
- Equipment sales, rental and service revenue for the first quarter of
2006 increased mainly due to continued subscriber growth. Gross
subscriber additions grew to 274,800 in the first quarter of 2006 as
compared with 253,200 in the same quarter last year. Handset revenues
associated with gross subscriber activations are included in COA per
gross subscriber addition.
- Intersegment revenues represent services provided by the wireless
segment to the wireline segment and are eliminated upon consolidation
along with the associated expense in the wireline segment.
-------------------------------------------------------------------------
Operating expenses - wireless segment Quarters ended March 31
($ millions, except employees) 2006 2005 Change
-------------------------------------------------------------------------
Equipment sales expenses 126.2 104.6 20.7 %
Network operating expenses 105.9 98.4 7.6 %
Marketing expenses 93.8 74.3 26.2 %
General and administration expenses 164.2 143.6 14.3 %
-------------------------------------------------------------------------
Operations expense 490.1 420.9 16.4 %
Restructuring and workforce reduction costs 1.8 - n. m.
-------------------------------------------------------------------------
Total operating expenses 491.9 420.9 16.9 %
-------------------------------------------------------------------------
Total employees, end of period 6,906 6,284 9.9 %
-------------------------------------------------------------------------
Wireless segment total operating expenses increased by $71.0 million in
the first quarter of 2006, when compared with the same period in 2005, to
promote and support the 14.9% growth in the subscriber base and 18.6% increase
in Network revenue.
- Expenses related to equipment sales increased by $21.6 million in the
first quarter of 2006, when compared with the same period in 2005,
principally due to an increase in gross subscriber activations, higher
handset costs related to product mix, and increased retention
activity. Handset costs associated with gross subscriber activations
are included in COA per gross subscriber addition. Handset cost
related to Retention are included in the overall retention spend
amount.
- Network operating expenses increased by $7.5 million for the first
quarter of 2006, when compared with the same period in 2005,
principally due to higher roaming volumes within Canada. In addition,
transmission and site-related expenses increased to support the
greater number of cell sites, a larger subscriber base, and improved
network quality and coverage.
- Marketing expenses in the first quarter of 2006 increased by $19.5
million primarily due to increased advertising and promotions costs,
higher dealer compensation costs, and increased re-contracting
activity. COA per gross subscriber addition increased by $74 to $429
for the first quarter of 2006, when compared with the same period in
2005. The increase was related to advertising and promotion spending
(including the launch in the quarter of two advertising campaigns,
SPARK and Broadband on the Fly (TM)) as well as higher subsidies on
certain popular handsets driven by competitive activity. The lower
churn and increased ARPU contributed to improved life-time revenue per
subscriber even though COA per gross subscriber addition increased.
- General and administration expenses increased by $20.6 million in the
first quarter of 2006, when compared to the same quarter in 2005 due
to the increase in employees to support the significant growth in the
subscriber base and continued expansion in the number of Company-owned
retail stores. Other expenses associated with the subscriber base and
staffing level growth included higher bad debts as well as increased
store and building occupancy costs related to expansion.
- Restructuring and workforce reduction expenses were related to staff
reductions associated with the integration of the wireline and
wireless operations. This initiative is expected to continue during
the year and is a component of the Company's competitive efficiency
program.
-------------------------------------------------------------------------
EBITDA and EBITDA margin -
wireless segment Quarters ended March 31
2006 2005 Change
-------------------------------------------------------------------------
EBITDA ($ millions) 395.9 337.4 17.3 %
EBITDA margin (%) 44.6 44.5 0.1 pts
-------------------------------------------------------------------------
Wireless segment EBITDA increased by $58.5 million in the first quarter
of 2006, when compared to the same period in 2005. The increase in EBITDA was
a result of the revenue growth from the 14.9% increase in the subscriber base
and the $2 increase in ARPU that was only partially offset by the higher COA
per gross subscriber addition and operations costs to support the growth. The
EBITDA margin, when calculated as a percentage of Network revenue, was 48.0%
in the first quarter of 2006, compared with 48.5% in the same period in 2005.
Wireless segment capital expenditures are discussed in Section 7.2 Cash
used by investing activities.
6. Financial condition
The following are the significant changes in the consolidated balance
sheets between December 31, 2005 and March 31, 2006.
-------------------------------------------------------------------------
March 31, Dec. 31, Change % Change Explanation
($ millions) 2006 2005
-------------------------------------------------------------------------
Current Assets
Cash and (1.1) 8.6 (9.7) (112.8)% See Section 7.
temporary Liquidity and
investments, net capital resources
-------------------------------------------------------------------------
Accounts 610.3 610.3 - 0.0 % Increased by
receivable $100 million for
the reduction in
proceeds from
securitized
accounts receiv-
able (see Section
7.6 Accounts
receivable sale),
offset by signi-
ficant receipts
from large custo-
mers and lower
seasonal wireless
receivables
-------------------------------------------------------------------------
Income and - 103.7 (103.7) (100.0)% Refunds of
other taxes $122.4 million
receivable including
interest were
received in 2006;
the remaining net
taxes were recla-
ssified to cur-
rent liabilities
-------------------------------------------------------------------------
Inventories 151.0 138.8 12.2 8.8 % Primarily an
increase in wire-
less handset
inventories for
the introduction
of new high-end
products
-------------------------------------------------------------------------
Prepaid expen- 243.2 154.7 88.5 57.2 % Primarily prepay-
ses and other ment of annual
wireless licence
fees, federal
Canada Pension
Plan and Employ-
ment Insurance
premiums, other
licences and
insurance
-------------------------------------------------------------------------
Current portion 86.9 226.4 (139.5) (61.6)% Utilization of
of future losses and chan-
income taxes ges in non-deduc-
tible reserves
-------------------------------------------------------------------------
Current
Liabilities
Accounts 1,346.0 1,393.7 (47.7) (3.4)% Primarily reduced
payable payroll liabili-
and accrued ties and lower
liabilities operating & capi-
tal expenses in
the first quarter
versus the fourth
quarter, partly
offset by an
increase in
accrued interest
payable
-------------------------------------------------------------------------
Income and 8.7 - 8.7 n. m. Net taxes payable
other taxes over the next
payable 12 months
-------------------------------------------------------------------------
Restructuring 41.5 57.1 (15.6) (27.3)% Payments under
and workforce previous programs
reduction exceeded new
accounts payable obligations
and accrued
liabilities
-------------------------------------------------------------------------
Advance 575.4 571.8 3.6 0.6 % Primarily an
billings and increase in price
customer cap deferred
deposits revenues
-------------------------------------------------------------------------
Current 75.5 5.0 70.5 n. m. Includes
maturities of $70.0 million of
long-term debt 7.1%TCI medium-
term Notes,
maturing in
February 2007.
-------------------------------------------------------------------------
Working (956.8) (785.1) (171.7) (21.9)% Includes a reduc-
capital(1) tion of the cur-
rent portion of
future income
taxes receivable
-------------------------------------------------------------------------
Capital 10,859.2 10,941.5 (82.3) (0.8)% See Sections 5.3
Assets, Net Consolidated re-
sults from opera-
tions - Deprecia-
tion and amorti-
zation and 7.2
Cash used by
investing activi-
ties - capital
expenditures
-------------------------------------------------------------------------
Other Assets
Deferred 884.3 850.2 34.1 4.0 % Primarily pension
charges plan contribu-
tions in excess
of charges to
income
-------------------------------------------------------------------------
Investments 27.9 31.2 (3.3) (10.6)% Divestiture of
certain portfolio
investments, net
of new invest-
ments
-------------------------------------------------------------------------
Goodwill 3,155.0 3,156.9 (1.9) (0.1)% A small divesti-
ture by TELUS
International
-------------------------------------------------------------------------
Long-Term Debt 4,513.4 4,639.9 (126.5) (2.7)% Reclassification
to current matur-
ities of
$70.5 million and
repayment of
$71 million of
drawn against
TELUS'
three-year credit
facility. The
Canadian dollar
value of U.S.
dollar Notes inc-
reased by approxi-
mately $15 mil-
lion due to a
slight decline in
the Canadian
dollar.
-------------------------------------------------------------------------
Other Long- 1,636.9 1,635.3 1.6 0.1 % Includes small
Term increases in a
Liabilities number of de-
ferred liabili-
ties, partly off-
set by a $15 mil-
lion decrease in
the deferred hed-
ging liability
for U.S. Dollar
Notes.
-------------------------------------------------------------------------
Future Income 997.3 1,023.9 (26.6) (2.6)% Decrease in temp-
Taxes orary differences
for long-term
assets and liabi-
lities.
-------------------------------------------------------------------------
Non-Controlling 27.7 25.6 2.1 8.2 % The increase
Interest arose from
minority
partners' share
of several small
subsidiaries
-------------------------------------------------------------------------
Shareholders'
Equity
-------------------------------------------------------------------------
Common equity 6,794.3 6,870.0 (75.7) (1.1)% Reduced during
the first quarter
of 2006 primarily
by:
- Normal Course
Issuer Bid ex-
penditures of
$231.6 million;
and
- Dividends of
$95.9 million;
partly offset by
increases from:
- Net income of
$210.1 million;
and
- An increase of
$36.1 million
in Common Share
and Non-Voting
Share capital
for the exer-
cise of
options.
-------------------------------------------------------------------------
(1) Current assets subtracting Current liabilities - an indicator of the
ability to finance current operations and meet obligations as they
fall due.
-------------------------------------------------------------------------
7. Liquidity and capital resources
7.1 Cash provided by operating activities
-------------------------------------------------------------------------
($ millions) Quarters ended March 31
2006 2005 Change
-------------------------------------------------------------------------
673.1 728.4 (7.6)%
-------------------------------------------------------------------------
Cash provided by operating activities decreased by $55.3 million in the
first quarter of 2006, when compared with the same period in 2005. The use of
$100 million to reduce proceeds from securitized accounts receivable during
the first quarter of 2006, was offset by a significant reduction in trade
accounts receivable in the same period.
The decrease in cash provided by operating activities was caused by the
significant reductions in trade accounts payable of approximately $80 million
and accrued payroll liabilities of approximately $70 million in the first
quarter of 2006, as well as the $12.2 million increase in inventories in the
first quarter of 2006 compared to a reduction of $22.3 million in inventories
in the prior year period. Partly offsetting this were: (i) the $96.8 million
increase in income tax recoveries received net of installment payments; (ii)
the $16.2 million increase in interest received, primarily due to one-time
interest on tax refunds received in the first quarter of 2006; and (iii) the
$6.9 million reduction in employer contributions to employee defined benefit
plans due to net acceleration of funding in the first quarter of 2005.
7.2 Cash used by investing activities
-------------------------------------------------------------------------
($ millions) Quarters ended March 31
2006 2005 Change
-------------------------------------------------------------------------
316.1 306.2 3.2 %
-------------------------------------------------------------------------
Cash used by investing activities increased by $9.9 million in first
quarter of 2006, when compared with the same period in 2005. The increase was
primarily due to greater capital expenditures, partly offset by increased
proceeds for sale of properties and other assets as well as the use of
$27.5 million for an acquisition in the same period in 2005. Assets under
construction increased to $628.6 million at March 31, 2006, compared with
$516.4 million at December 31, 2005, due to capitalized costs related to
development of a new billing system in the wireline segment as well as in-
progress costs for new service development and network enhancement.
-------------------------------------------------------------------------
Capital expenditures by segment
($ in millions, Quarters ended March 31
except capital expenditure intensity) 2006 2005 Change
-------------------------------------------------------------------------
Wireline segment 259.0 213.6 21.3 %
Wireless segment 61.5 59.6 3.2 %
-------------------------------------------------------------------------
TELUS consolidated 320.5 273.2 17.3 %
-------------------------------------------------------------------------
Capital expenditure intensity (1) (%) 15.4 13.8 1.6 pts
-------------------------------------------------------------------------
(1) Capital expenditure intensity is 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.
-------------------------------------------------------------------------
- Wireline segment capital expenditures increased by $45.4 million in
the first quarter of 2006, when compared to the same period in 2005.
ILEC capital expenditures increased by approximately $40 million to
$232 million with the increased spending primarily for network access
growth, broadband build and service development, as well as catch-up
on activities deferred in 2005 due to the work stoppage. Wireline non-
ILEC capital expenditures increased by approximately $5 million to
$27 million in the first quarter of 2006, when compared with the same
period in 2005 to support the roll-out of new services.
The wireline segment capital expenditure intensity ratio was 21.2% in
the first quarter of 2006, compared with 17.2% in the first quarter of
2005. Cash flow (EBITDA less capital expenditures) decreased by 31.9%
to $207.8 million due lower EBITDA and increased capital expenditures.
- Wireless segment capital expenditures increased by $1.9 million in the
first quarter of 2006. Capital expenditure intensity for the wireless
segment was a seasonally low 6.9% in the first quarter of 2006, as
compared with 7.9% in the same period last year. Wireless cash flow
(EBITDA less capital expenditures) in the first quarter of 2006
increased to a record $334.4 million for TELUS, representing an
increase of 20.4% over the first quarter of 2005.
TELUS' EBITDA less capital expenditures (see Section 11.1 EBITDA for the
calculation) decreased by 7.0% to $542.2 million, when compared with the same
period in 2005. The decrease resulted primarily from higher wireline capital
expenditures.
7.3 Cash used by financing activities
-------------------------------------------------------------------------
($ millions) Quarters ended March 31
2006 2005 Change
-------------------------------------------------------------------------
366.7 71.4 n. m.
-------------------------------------------------------------------------
Cash used by financing activities increased by $295.3 million in the
first quarter of 2006, when compared with the same period in 2005, primarily
due to larger purchases of shares under NCIB programs and cash dividends paid
to shareholders. Financing activities included:
- Proceeds from Common Shares and Non-Voting Shares issued were
$33.2 million in the first quarter of 2006, a decrease of
$54.7 million when compared with the same period in 2005. The decrease
was mainly due to the exercise of a smaller number of options in 2006.
- Cash dividends paid to shareholders were $95.9 million in the first
quarter of 2006, representing funds remitted on March 31, 2006 for the
dividend payable on April 1, 2006. In 2005, dividends payable on
April 1, 2005 were remitted on April 1 and recorded as paid in the
second quarter of 2005.
- The Company's current NCIB program came into effect on December 20,
2005 and is set to expire on December 19, 2006. In the first quarter
of 2006, approximately 1.8 million TELUS Common shares and 3.3 million
TELUS Non-Voting Shares were purchased for cancellation for a total of
$231.6 million. The following table outlines the shares repurchased
and costs under the second NCIB program for 2006 and cumulatively.
Second normal course issuer bid program
-------------------------------------------------------------------------
Purchased for cancellation
Percen-
----------------------------------- Maximum tage of
In 2005 Q4 permitted maximum
(from for repur-
Shares Dec. 20) In 2006 Q1 Cumulative repurchase chased
-------------------------------------------------------------------------
Common Shares 634,469 1,783,300 2,417,769 12,000,000 20.1 %
Non-Voting
Shares 607,700 3,334,500 3,942,200 12,000,000 32.9 %
-------------------------------------------------------------------------
Total 1,242,169 5,117,800 6,359,969 24,000,000 26.5 %
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cost of repurchase
----------------------------------
In 2005 Q4
(from
$ millions Dec. 20) In 2006 Q1 Cumulative
---------------------------------------------------
Reduction of:
Share capital 20.9 93.3 114.2
Retained earnings 36.6 138.3 174.9
---------------------------------------------------
Total 57.5 231.6 289.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In comparison, during the first quarter of 2005 under the previous NCIB
program, the Company purchased approximately 2.1 million Common Shares and
approximately 2.0 million Non-Voting Shares for total consideration of
$158.3 million. The total repurchases under both NCIB programs, for the period
of December 20, 2004 to March 31, 2006, were approximately 12.7 million Common
Shares and 15.4 million Non-Voting Shares for total consideration of
approximately $1.2 billion.
7.4 Liquidity and capital resource measures
-------------------------------------------------------------------------
As at, or 12-month periods,
ended March 31 2006 2005 Change
-------------------------------------------------------------------------
Components of debt and coverage
-------------------------------
ratios(1)
---------
Net debt ($ millions) 5,732.7 6,127.6 (394.9)
Total capitalization - book value
($ millions) 12,554.7 13,271.7 (717.0)
EBITDA excluding restructuring
($ millions) 3,363.0 3,271.6 91.4
Net interest cost ($ millions) 611.7 606.7 5.0
Debt ratios
-----------
Fixed-rate debt as a proportion of
total indebtedness (%) 98.8 93.2 5.6
Average term to maturity of debt (years) 5.2 5.1 0.1
Net debt to total capitalization (%)(1) 45.7 46.2 (0.5) pts
Net debt to EBITDA(1) 1.7 1.9 (0.2) pts
Coverage ratios(1)
------------------
Interest coverage on long-term debt 2.6 2.5 0.1 pts
EBITDA interest coverage 5.5 5.4 0.1 pts
Other measures
--------------
Free cash flow ($ millions) -
12-month trailing(2) 1,539.0 1,420.6 118.4
Dividend payout ratio (%)(1) 59 41 18 pts
-------------------------------------------------------------------------
(1) See Section 11.4 Definition of liquidity and capital resource
measures.
(2) See Section 11.2 Free cash flow for the definition.
-------------------------------------------------------------------------
Net debt measured at March 31, 2006 decreased when compared to one-year
earlier due to early redemption of $1.578 billion of Notes on December 1, 2005
and the conversion and redemption of $142 million of convertible debentures in
the second quarter of 2005, partly offset by the use of cash and temporary
investments (cash is netted against debt for the purposes of this
calculation). The proportion of fixed-rate debt increased when TELUS
terminated swap agreements concurrent with the early redemption of Notes in
December 2005. Total capitalization also decreased for these reasons as well
as a decrease in common equity due primarily to share repurchases under NCIB
programs. The net debt to EBITDA ratio measured at March 31, 2006 improved as
a result of debt reduction and an increase in 12-month trailing EBITDA
excluding restructuring.
Interest coverage on long-term debt improved because of increased income
before interest and taxes. The EBITDA interest coverage ratio improved as a
result of higher EBITDA (excluding restructuring), while net interest was not
significantly changed. The free cash flow measure for the twelve month period
ending March 31, 2006 increased when compared with the measure one year
earlier, primarily because of improved EBITDA, increased cash tax recoveries
and interest received, partly offset by higher capital expenditures. The
dividend payout ratio for the twelve months ending March 31, 2006 exceeded the
target guideline of 45 to 55% for reported net earnings as a result of the
temporary expenses associated with the work stoppage. When normalized to
exclude the impact of the 2005 work stoppage, the dividend payout ratio
measured for the twelve months ending March 31, 2006 was approximately 52%. In
contrast, the dividend payout ratio for the twelve month period ending March
31, 2005 was lower than the target guideline due to significant one-time tax
recoveries included in net earnings.
Long-term guidelines for certain of TELUS' liquidity measures as defined
in Section 11.4 Definition of liquidity and capital resource measures are:
- Net debt to total capitalization of 45 to 50%
- Net debt to EBITDA of 1.5:1 to 2.0:1
- Dividend payout ratio of 45 to 55% of sustainable net earnings.
7.5 Credit facilities
TELUS had available liquidity from unutilized credit facilities of
approximately $1.5 billion at March 31, 2006.
-------------------------------------------------------------------------
Outstanding
Credit Facilities undrawn
At March 31, 2006 letters of
($ in millions) Expiry Size Drawn credit
-------------------------------------------------------------------------
Five-year revolving
facility(1) May 4 2010 800.0 - -
Three-year revolving
facility(1) May 7 2008 800.0 71.0 100.6
Other bank facilities - 74.0 - 6.4
-------------------------------------------------------------------------
Total - 1,674.0 71.0 107.0
------------------------------------------------------------------------
(1) Canadian dollars or U.S. dollar equivalent.
-------------------------------------------------------------------------
TELUS' credit facilities contain customary covenants including a
requirement that TELUS not permit its consolidated Leverage Ratio (Funded Debt
to trailing 12-month EBITDA) to exceed 4.0:1 (approximately 1.7:1 at March 31,
2006) 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
5.5:1 at March 31, 2006) 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. Historically, the
calculations have not been materially different. The covenants are not
impacted by revaluation of capital assets, intangible assets and goodwill for
accounting purposes and continued access to TELUS' credit facilities is not
contingent on the maintenance by TELUS of a specific credit rating.
7.6 Accounts receivable sale
On July 26, 2002, TCI, a wholly owned subsidiary of TELUS, entered into
an agreement, which was amended September 30, 2002, and March 1, 2006, with an
arm's-length securitization trust under which TCI is able to sell an interest
in certain of its trade receivables up to a maximum of $650 million. TCI is
required to maintain at least a BBB (low) credit rating by Dominion Bond
Rating Service ("DBRS") or the securitization trust may require the sale
program to be wound down. The necessary credit rating was exceeded by three
levels at A (low) as of May 3, 2006. The balance of proceeds from securitized
receivables was reduced from $500 million to $325 million on January 31, 2006,
and subsequently increased to $400 million on March 31, 2006. It is necessary
to retain a minimum of $150 million proceeds under this program to keep it
active.
7.7 Credit ratings
As of May 3, 2006 TELUS and TCI investment grade credit ratings were
unchanged from those reported in TELUS' annual 2005 Management's discussion
and analysis in Section 7.7. On March 1, 2006, Dominion Bond Rating Service
confirmed its ratings for TELUS and TCI. TELUS has an objective to preserve
access to capital markets at a reasonable cost by maintaining and improving
investment grade credit ratings in the range of BBB+ to A- or the equivalent.
7.8 Off-balance sheet arrangements, commitments and contingent
liabilities
Financial instruments (Note 3 of the interim consolidated financial
statements)
During the first quarter of 2006, 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, 2006, the Company had entered into foreign currency
forward contracts that have the effect of fixing the exchange rate on U.S.
$28 million of fiscal 2006 purchase commitments; hedge accounting has been
applied to these foreign currency forward contracts, all of which relate to
the wireless segment.
In contemplation of the planned refinancing of the debt maturing June 1,
2007, the Company had entered into forward starting interest rate swap
agreements, as at March 31, 2006, that have the effect of fixing the
underlying interest rate on up to $300 million of replacement debt. Hedge
accounting has been applied to these forward starting interest rate swap
agreements.
The fair values of the Company's long-term debt are estimated based on
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same maturity as well as the use of
discounted future cash flows using current rates for similar financial
instruments subject to similar risks and maturities. The fair values of the
Company's derivative financial instruments used to manage exposure to interest
rate and currency risks are estimated similarly. The carrying amount and fair
value of long-term debt are as follows:
As at As at
March 31 2006 December 31 2005
-------------------------------------------------------------------------
($ millions) Carrying Fair Carrying Fair
amount value amount value
-------------------------------------------------------------------------
Long-term debt
Principal 4,588.9 5,208.1 4,644.9 5,371.6
Derivative financial
instruments used to manage
interest rate and currency
risks associated with U.S.
dollar denominated debt
(Hedging item maximum
maturity date: June 2011) 1,139.1 1,489.2 1,154.3 1,470.5
-------------------------------------------------------------------------
5,728.0 6,697.3 5,799.2 6,842.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Commitments and contingent liabilities
The Company has a $41.5 million liability recorded for outstanding
commitments under its restructuring programs as at March 31, 2006, most of
which relates to programs initiated prior to 2006. The Company's commitments
and contingent liabilities, which are summarized in Note 14 of the interim
consolidated financial statements, have not changed significantly in the
three-month period ended March 31, 2006, except for the following:
Deferral accounts
On February 16, 2006, the Canadian Radio-television and
Telecommunications Commission issued Decision CRTC 2006-9, "Disposition of
funds in the deferral account". In its decision the Canadian Radio-television
and Telecommunications Commission determined that the majority of the
accumulated liability within the respective incumbent local exchange carrier's
deferral account was to be made available for initiatives to expand broadband
services within their incumbent local exchange carrier operating territories
to rural and remote communities where service is currently not available. In
addition, a minimum of five per cent of the accumulated deferral account
balance must be used for initiatives that enhance accessibility to
telecommunication services for individuals with disabilities. To the extent
that the deferral account balance exceeds the approved initiatives, the
remaining balance will be distributed in the form of a one-time rebate to
local residential service customers in non-high cost serving areas. Finally,
the Canadian Radio-television and Telecommunications Commission indicated that
subsequent to May 31, 2006, no additional amounts are to be added to the
deferral account and, instead, are to be dealt with via prospective rate
reductions.
Pay equity
On December 16, 1994, the Telecommunications Workers Union ("TWU") filed
a complaint against BC TEL, a predecessor of TELUS Communications Inc. (TCI),
with the Canadian Human Rights Commission, alleging that wage differences
between unionized male and female employees in British Columbia were contrary
to the equal pay for work of equal value provisions in the Canadian Human
Rights Act. As a term of the negotiated settlement between TCI and the TWU
that resulted in the collective agreement effective November 20, 2005, the
parties have agreed to settle this complaint without any admission of
liability, on the basis that the Company will establish a pay equity fund of
$10 million to be paid out during the term of the new five-year collective
agreement; the TWU withdrew and discontinued this complaint on December 21,
2005. During the first quarter of 2006, the Canadian Human Rights Commission
advised the Company that it accepted this settlement and that it would close
its file on the complaint.
7.9 Outstanding share information
The following is a summary of the outstanding shares for each class of
equity at March 31 2006 and at April 21, 2006. In addition, for April 21, 2006
the total number of outstanding and issuable shares is presented assuming full
conversion of options including those shares held in reserve, but not yet
issued.
-------------------------------------------------------------------------
Class of equity security
Common Non-Voting Total
Shares Shares Shares
(millions of shares) outstanding outstanding outstanding
-------------------------------------------------------------------------
At March 31, 2006
Common equity - Common Shares
outstanding 181.9 - 181.9
Common equity - Non-Voting
Shares outstanding - 164.4 164.4
----------- ----------- -----------
181.9 164.4 346.3 (1)
----------- ----------- -----------
At April 21, 2006
Common equity - Common Shares
outstanding 181.9 - 181.9
Common equity - Non-Voting
Shares outstanding - 164.5 164.5
----------- ----------- -----------
181.9 164.5 346.4
----------- ----------- -----------
Outstanding and issuable
shares(2) at April 21, 2006
Common Shares and Non-Voting
Shares outstanding 181.9 164.5 346.4
Options(3) 1.3 20.8 22.1
----------- ----------- -----------
183.2 185.3 368.5
----------- ----------- -----------
----------- ----------- -----------
-------------------------------------------------------------------------
(1) For the purposes of calculating diluted earnings per share for the
first quarter of 2006, the number of shares was 352.9.
(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 to April 21.
-------------------------------------------------------------------------
8. Critical accounting estimates and accounting policy developments
8.1 Critical accounting estimates
TELUS' critical accounting estimates that are described Section 8.1 of
its 2005 annual Management's discussion and analysis. 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
Accounting policies are consistent with those described in Note 1 of
TELUS' annual 2005 consolidated financial statements. Commencing with the
Company's 2006 fiscal year, the Company adopted the amended recommendations of
the Canadian Institute of Chartered Accountants ("CICA") for measurement of
non-monetary transactions (CICA Handbook Section 3830). The Company's
operations were not materially affected by the amended recommendations.
Possibly commencing with the Company's 2006 fiscal year, proposed
amendments to the recommendations of the 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. Amendments and proposed amendments commencing in the Company's 2007
fiscal year or later are described in Note 2 of the interim consolidated
financial statements.
9. Revised annual guidance for 2006
The following discussion is qualified in its entirety by the Forward-
looking statements at the beginning of Management's discussion and analysis,
as well as Section 10: Risks and risk management of TELUS' annual 2005
Management's discussion and analysis and significant updates in Section 10:
Risks and risk management of this report.
The Company has a practice of reaffirming or adjusting annual guidance on
a quarterly basis. There is no assurance that these assumptions or the revised
2006 financial and operating targets and projections will turn out to be
accurate. The annual guidance increase for high-speed Internet subscriber net
additions reflects positive results for the first quarter of 2006.
-------------------------------------------------------------------------
Revised guidance Original targets Change
for 2006 for 2006
-------------------------------------------------------------------------
Consolidated
Revenues no change $8.6 to $8.7 billion no change
EBITDA(1) no change $3.5 to $3.6 billion no change
Earnings per share -
basic no change $2.40 to $2.60 no change
Capital expenditures no change $1.5 to $1.55 billion no change
Free cash flow(2) no change $1.55 to $1.65 billion no change
-------------------------------------------------------------------------
Wireline segment
Revenue (external) no change $4.825 to $4.875 billion no change
Non-ILEC revenue no change $650 to $700 million no change
EBITDA no change $1.8 to $1.85 billion no change
Non-ILEC EBITDA no change $25 to $40 million no change
Capital expenditures no change $1.05 to $1.1 billion no change
High-speed Internet More than Approx.
net additions 125,000 More than 100,000 25,000
-------------------------------------------------------------------------
Wireless segment
Revenue (external) no change $3.775 to $3.825 billion no change
EBITDA no change $1.7 to $1.75 billion no change
Capital expenditures no change Approx. $450 million no change
Wireless subscriber
net additions no change More than 550,000 no change
-------------------------------------------------------------------------
(1) See Section 11.1 Earnings before interest taxes depreciation and
amortization (EBITDA).
(2) See Section 11.2 Free cash flow.
-------------------------------------------------------------------------
10. Risks and risk management
TELUS' approach to the management of risk has not changed significantly
from that described in Section 10: Risks and risk management of the Company's
2005 annual Management's discussion and analysis. The following are
significant updates to the risks described in the annual MD&A.
10.1 Regulatory
The outcome of any existing or future regulatory reviews, proceedings,
court appeals, Federal Cabinet appeals or other regulatory developments could
have a material impact on TELUS' operating procedures, costs and revenues.
Price cap regulation - Disposition of funds in the deferral accounts
(Telecom Decision CRTC 2006-9)
On February 16, 2006, the CRTC issued a decision on the use of funds in
the deferral account. One aspect of the Decision is that, prospectively
beginning June 1, 2006, no further amounts are to be added to the deferral
account. The funds that have accumulated in the deferral account over the
second price cap period (2002 to 2006) will be used to expand broadband
facilities (95%) and to improve access to telecommunications services persons
with disabilities (5%). Any remaining balance in the deferral account will be
addressed through and are to be dealt with via prospective residential local
rate reductions. TELUS currently expects that the effect on wireline local
revenues in 2006 will not be significant given the approval and implementation
process as outlined in Telecom Decision CRTC 2006-9. The Company is in the
process of consulting with provincial governments and the CRTC for qualifying
projects that, if approved, would reduce or extinguish the liability in the
deferral account.
Federal review of telecommunications policy and regulatory framework
In 2005, the federal government undertook a review of Canada's
telecommunications policy and regulatory framework. The review panel released
its Telecom Policy Review report of recommendations to the Minister of
Industry in March 2006. Some of the key points of this 350-page report were:
- There should be an end to the presumption that telecom services must
be regulated and a shift to reliance on market forces.
- Where regulation remains, it should be light-handed and flexible and
must be justified in all circumstances.
- There should be new policy objectives and guidelines in the
Telecommunications Act that focus on competition and market forces.
- Government should direct the CRTC to act as if the report's major
recommendations are in effect, pending the necessary legislative
changes.
- There is no recommendation for licensing a fourth wireless carrier.
- There is no obligation on incumbents to subsidize broadband expansion.
There should be a national broadband expansion plan that is publicly-
funded.
- Foreign ownership restrictions in telecommunications should be
liberalized in a two-step process, with the first focusing on
providers with less than 10% market share.
TELUS is generally satisfied with the recommendations and reforms
recommended in the Telecom Policy Review report and encourages the federal
government to move quickly to implement the major recommendations in the
report. There can be no assurance that the federal government will implement
the recommendations in this report, or that the recommendations will be
implemented in the near future.
Forbearance from the regulation of retail local exchange services
(Telecom Decision CRTC 2006-15)
On April 6, 2006, the CRTC set the criteria for deregulation of local
exchange telephony services, following a year-long public process. The process
put into place for achieving forbearance is very complex and an individual
forbearance application could take up to two years to be completed. One
positive aspect of this decision is an immediate relaxation of winback
restrictions. The Company believes that the April 2006 forbearance decision
does not sufficiently align with the recommendations of the March 2006
Telecommunications Policy Review report.
The key aspects of this decision were:
Winback restrictions:
- The current no-contact period for residential is rolled back
immediately to 90 days from one year.
- The no-contact rule is to be completely eliminated when competitors
have gain 20% market share and the ILEC has met its competitor quality
of service indicators in the relevant market for the previous three
months.
The forbearance test:
- The market share loss threshold for forbearance is 25%. The test will
be applied separately to local business and residential markets. In
contrast, the forbearance threshold is a 5% market share loss for the
cable-TV industry.
- In urban and rural markets, the CRTC will use various areas (e.g.
Census Metropolitan Areas and Economic Regions) based on Statistics
Canada data to define the geographic area to which the test will be
applied. The geographic areas are large, which in turn increases the
effective market share loss threshold and the expected dates for
qualifying for forbearance is uncertain.
- Before forbearance is granted, ILECs must meet individual standards
for each of the 14 specified competitor quality-of-service indicators,
on average over a six-month period, and implement access to
operational support systems, prior to an application for forbearance
in the relevant market.
Regulatory framework for mobile television broadcasting services
(Broadcasting Public Notice CRTC 2006-47)
On April 12, 2006, the CRTC ruled that mobile television broadcasting
will not be regulated, as such services are delivered over the Internet and
fall under the existing new media exemption order ("NMEO"). The NMEO is not
subject to any conditions, leaving mobile broadcasting services entirely
unregulated. The exemption order means that TELUS has the flexibility to
develop its mobile TV service to meet market demands without regulatory
impediments.
In addition to the exemption order, the CRTC also initiated a proceeding
to deal with mobile broadcasting that does not fall under the NMEO
(Broadcasting Public Notice CRTC 2006-48). Comments on this proceeding are due
on May 12, 2006.
Implementation of wireless number portability ("WNP") - Telecom
Decision CRTC 2005-72
On December 20, 2005, the CRTC issued Decision 2005-72 and directed Bell
Mobility, Rogers Wireless Inc. and the wireless division of TELUS to implement
wireless number portability in British Columbia, Alberta, Ontario and Quebec
where local exchange carrier-to-local exchange carrier ("LEC-to-LEC") local
number portability is currently in place by March 14, 2007. In other areas and
for other wireless carriers, wireless number portability (where LEC-to-LEC
local number portability is currently in place) for porting-out must be
implemented by March 14, 2007 and for porting-in must be implemented by
September 12, 2007. There is no assurance that TELUS and the other Canadian
wireless carriers will be able to implement wireless number portability in the
required timeframe without incurring significant additional costs and/or
ongoing administration costs. Implementation of wireless number portability
may result in increased migration of network access lines to wireless
services, increased wireless subscriber monthly churn or additional customer
retention costs for TELUS.
WNP, when instituted in the U.S. in 2003, did not cause a large increase
in churn as was initially anticipated. In addition, TELUS believes that WNP
may open up an opportunity to more effectively market into the
business/enterprise market in Central Canada where TELUS has a lower market
share than our wireless competitors and lack of WNP is believed to have
decreased its sales effectiveness. However, there can be no assurance that
this will be the case.
10.2 Human resources
The outcome of outstanding collective bargaining at TELUS Quebec may
result in increased costs, reduced productivity or work disruptions
In March 2006, TELUS Quebec and the Syndicat des agents de maitrise de
TELUS concluded negotiations for a new collective agreement covering 523
professional and supervisory employees. The agreement was ratified by union's
members and came into effect on April 1, 2006. The new agreement is a one-year
contract that includes a 1.75% salary increase.
Negotiations between TELUS Quebec and the Syndicat quebecois des employes
de TELUS continue for the expired collective agreement covering approximately
one thousand office, clerical and technical employees. There can be no
assurance that the negotiated compensation expenses will be as planned, or
that reduced productivity and work disruptions will not occur as a result of
or following these negotiations.
10.3 Business integration and internal reorganizations
On November 24, 2005, TELUS Corporation announced the integration of the
wireline and wireless operations of the business into a single operating
structure. This integration incorporates TELUS' customer-facing business
units, technology infrastructure, operations and shared services. There is no
assurance that this integration will provide the benefits and efficiencies
that are planned and/or that there will not be significant difficulties in
combining the two structures, which could result in a negative impact on
operating and financial results.
10.4 Process risks
TELUS systems and processes could negatively impact financial
results and customer service - Billing/revenue assurance
TELUS continues to develop a new billing system for the wireline segment
of our business, which includes re-engineering processes for order entry,
pre-qualification, service fulfillment and assurance, customer care,
collections/credit, customer contract and information management. This
customer-focused project requires extensive system development and, in itself,
presents implementation risks due to the complexity of the implementation task
and resource constraints. TELUS plans to implement this project in phases
beginning with the implementation of consumer accounts in Alberta, currently
scheduled later in 2006, and followed by implementation of consumer customer
accounts in B.C. There can be no assurance that this undertaking will not
negatively impact TELUS' customer service levels, competitive position and
financial results. As well, significant time delays in implementing this
system could negatively impact TELUS' competitive ability to quickly and
effectively launch new products and services; achieve and maintain a
competitive cost structure; and deliver better information and analytics to
management.
Also, as a result of system changes, staff reduction and training
requirements associated with TELUS' ongoing efficiency improvement efforts,
there is potential for further impact on the operations of TELUS' internal
processes involved with billing that could negatively affect TELUS' earnings.
11. Reconciliation of non-GAAP measures and definition of key operating
indicators
11.1 Earnings before interest taxes depreciation and amortization
(EBITDA)
TELUS has issued guidance on and reports EBITDA because it is a key
measure used by management to evaluate performance of business units, segments
and the Company. EBITDA is also 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, nor should it be 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 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 March 31
($ millions) 2006 2005
-------------------------------------------------------------------------
Net income 210.1 242.2
Other expense (income) 4.3 1.5
Financing costs 127.0 138.4
Income taxes 116.1 70.3
Non-controlling interest 2.1 1.6
-------------------------------------------------------------------------
Operating income 459.6 454.0
Depreciation 339.2 329.9
Amortization of intangible assets 63.9 72.3
-------------------------------------------------------------------------
EBITDA 862.7 856.2
-------------------------------------------------------------------------
In addition to EBITDA, TELUS calculates EBITDA less capital expenditures
as a simple proxy for cash flow in its two reportable segments. EBITDA less
capital expenditures is used for comparison to the reported results for other
telecommunications companies and is subject to the potential comparability
issues of EBITDA described above. EBITDA less capital expenditures is
calculated for TELUS as follows:
-------------------------------------------------------------------------
Quarters ended March 31
($ millions) 2006 2005
-------------------------------------------------------------------------
EBITDA 862.7 856.2
Capital expenditures (Capex) (320.5) (273.2)
-------------------------------------------------------------------------
EBITDA less capital expenditures 542.2 583.0
-------------------------------------------------------------------------
11.2 Free cash flow
The Company has issued guidance on and reports free cash flow because it
is a key measure used by management to evaluate performance of the
consolidated operations. Free cash flow excludes certain working capital
changes and other sources and uses of cash, which are disclosed in the
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 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 reconciles free cash flow with Cash provided by operating
activities less Cash used by investing activities:
-------------------------------------------------------------------------
Quarters ended March 31
($ millions) 2006 2005
-------------------------------------------------------------------------
Cash provided by operating activities 673.1 728.4
Cash (used) by investing activities (316.1) (306.2)
-------------------------------------------------------------------------
357.0 422.2
Net employee defined benefit plans expense 1.6 (1.5)
Employer contributions to employee defined
benefit plans 30.5 37.4
Other operating activities net (15.9) 4.6
Reduction (increase) in securitized accounts
receivable 100.0 -
Non-cash working capital changes except changes in
taxes, interest, and securitized accounts
receivable, and other 171.3 70.9
Acquisition - 27.5
Proceeds from the sale of property and other assets (7.4) (0.7)
Other investing activities 3.0 6.2
-------------------------------------------------------------------------
Free cash flow 640.1 566.6
-------------------------------------------------------------------------
The following shows management's calculation of free cash flow.
-------------------------------------------------------------------------
Quarters ended March 31
($ millions) 2006 2005
-------------------------------------------------------------------------
EBITDA 862.7 856.2
Restructuring and workforce reduction costs net of
cash payments (15.6) (12.3)
Share-based compensation 8.4 3.8
Cash interest paid (13.1) (13.1)
Cash interest received 22.5 6.3
Income taxes received (paid) 95.7 (1.1)
Capital expenditures ("Capex") (320.5) (273.2)
-------------------------------------------------------------------------
Free cash flow 640.1 566.6
-------------------------------------------------------------------------
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 is 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, and expressed as a rate per month. A
prepaid subscriber is disconnected when the subscriber has no usage for 90
days following expiry of the prepaid card.
Cost of acquisition ("COA") consists of the total of handset subsidies,
commissions, and advertising and promotion expenses related to the initial
subscriber acquisition during a given period. As defined, COA excludes costs
to retain existing subscribers (retention spend).
COA per gross subscriber addition is calculated as cost of acquisition
divided by gross subscriber activations during the period.
Average revenue per subscriber unit ("ARPU") is calculated as Network
revenue divided by the average number of subscriber units on the network
during the period and expressed as a rate per month. Data ARPU is a component
of ARPU, calculated on the same basis for revenues derived from services such
text messaging, mobile computing, personal digital assistance devices, browser
activity and downloads.
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 is a measure of operational profitability normalized
for the period costs of adding new customers.
11.4 Definition of liquidity and capital resource measures
The following definitions are presented in the order that they appear in
Section 7.4 Liquidity and capital resource measures.
Net debt is a non-GAAP measure whose nearest GAAP measure is the sum of
Long-term debt and Current maturities of long-term debt, as reconciled below.
Net debt is one component of a ratio used to determine compliance with debt
covenants (refer to the description of Net debt to EBITDA below).
-------------------------------------------------------------------------
At March 31
($ millions) 2006 2005
-------------------------------------------------------------------------
Current maturities of long-term debt 75.5 4.4
Long-term debt 4,513.4 6,356.3
-------------------------------------------------------------------------
4,588.9 6,360.7
Deferred hedging liability 1,142.7 1,014.2
-------------------------------------------------------------------------
Debt 5,731.6 7,374.9
Cash and temporary investments 1.1 (1,247.3)
-------------------------------------------------------------------------
Net debt 5,732.7 6,127.6
-------------------------------------------------------------------------
The deferred hedging liability in the table above relates to cross
currency interest rate swaps that effectively convert principal
repayments and interest obligations to Canadian dollar obligations in
respect of the U.S. $1,166.5 million debenture maturing June 1, 2007 and
the U.S. $1,925.0 million debenture maturing June 1, 2011. Management
believes that Net debt is a useful measure because it incorporates the
exchange rate impact of cross currency swaps put into place that fix the
value of U.S. dollar-denominated debt, and because it represents the
amount of long-term debt obligations that are not covered by available
cash and temporary investments.
Total capitalization is 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 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 $61.2 million and
$46.1 million respectively for the twelve month periods ended March 31, 2006
and 2005.
Net debt to EBITDA is defined as Net debt as at the end of the period
divided by the 12-month trailing EBITDA excluding restructuring. This measure
is substantially the same as the Leverage Ratio covenant in TELUS' credit
facilities. TELUS' revised guideline range for Net debt to EBITDA is from
1.5:1 to 2.0:1.
Net interest cost is 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. Losses recorded on the redemption of long-term debt are included in
net interest cost.
Interest coverage on long-term debt is calculated on a 12-month trailing
basis as Net income before interest expense on long-term debt and income tax
expense divided by interest expense on long-term debt. Interest expense on
long-term debt for the 12-month trailing period ending March 31, 2006 includes
losses on redemption of long-term debt and an accrual for estimated costs to
settle a lawsuit.
EBITDA interest coverage is defined as EBITDA excluding restructuring
divided by Net interest cost. This measure is substantially the same as the
Coverage Ratio covenant in TELUS' credit facilities.
Dividend payout ratio is defined as the most recent quarterly dividend
declared per share multiplied by four and divided by basic earnings per share
for the 12-month trailing period. The target guideline for the annual dividend
payout ratio on a prospective basis, rather than on a trailing basis, is 45 to
55% of sustainable net earnings.
Funded debt, in general terms, is borrowed funds less cash on hand as
defined in the Company's bank agreements.
_____________________________________________________________________________
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 3, 2006
TELUS Corporation
/s/ Audrey Ho
_____________________________
Name: Audrey Ho
Title: Vice President, Legal Services and
General Counsel and Corporate Secretary
______________________________________________________________________________