EX-99.1 2 a17-12213_1ex99d1.htm EX-99.1

Exhibit 99.1

 

 



 

TELUS CORPORATION

 

CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS

 

(UNAUDITED)

 

MARCH 31, 2017

 



 

condensed interim consolidated statements of income and other comprehensive income

(unaudited)

 

 

 

 

 

Three months

 

Periods ended March 31 (millions except per share amounts)

 

Note

 

2017

 

2016

 

OPERATING REVENUES

 

 

 

 

 

 

 

Service

 

 

 

$

3,027

 

$

2,924

 

Equipment

 

 

 

158

 

172

 

Revenues arising from contracts with customers

 

 

 

3,185

 

3,096

 

Other operating income

 

6

 

13

 

12

 

 

 

 

 

3,198

 

3,108

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Goods and services purchased

 

 

 

1,313

 

1,300

 

Employee benefits expense

 

7

 

624

 

668

 

Depreciation

 

17

 

402

 

385

 

Amortization of intangible assets

 

18

 

130

 

115

 

 

 

 

 

2,469

 

2,468

 

OPERATING INCOME

 

 

 

729

 

640

 

Financing costs

 

8

 

138

 

123

 

INCOME BEFORE INCOME TAXES

 

 

 

591

 

517

 

Income taxes

 

9

 

150

 

139

 

NET INCOME

 

 

 

441

 

378

 

OTHER COMPREHENSIVE INCOME

 

10

 

 

 

 

 

Items that may subsequently be reclassified to income

 

 

 

 

 

 

 

Change in unrealized fair value of derivatives designated as cash flow hedges

 

 

 

(9

)

(10

)

Foreign currency translation adjustment arising from translating financial statements of foreign operations

 

 

 

3

 

(4

)

Change in unrealized fair value of available-for-sale financial assets

 

 

 

(2

)

 

 

 

 

 

(8

)

(14

)

Item never subsequently reclassified to income

 

 

 

 

 

 

 

Employee defined benefit plan re-measurements

 

 

 

68

 

(77

)

 

 

 

 

60

 

(91

)

COMPREHENSIVE INCOME

 

 

 

$

501

 

$

287

 

NET INCOME ATTRIBUTABLE TO:

 

 

 

 

 

 

 

Common Shares

 

 

 

$

433

 

$

378

 

Non-controlling interests

 

 

 

8

 

 

 

 

 

 

$

441

 

$

378

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO:

 

 

 

 

 

 

 

Common Shares

 

 

 

$

491

 

$

287

 

Non-controlling interests

 

 

 

10

 

 

 

 

 

 

$

501

 

$

287

 

NET INCOME PER COMMON SHARE

 

11

 

 

 

 

 

Basic

 

 

 

$

0.73

 

$

0.64

 

Diluted

 

 

 

$

0.73

 

$

0.64

 

 

 

 

 

 

 

 

 

TOTAL WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

 

 

 

Basic

 

 

 

591

 

593

 

Diluted

 

 

 

591

 

594

 

 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

 

 

2



 

condensed interim consolidated statements of financial position

(unaudited)

 

As at (millions)

 

Note

 

March 31,
2017

 

December 31,
2016

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and temporary investments, net

 

 

 

$

794 

 

$

432 

 

Accounts receivable

 

16

 

1,408 

 

1,471 

 

Income and other taxes receivable

 

 

 

105 

 

 

Inventories

 

1(b)

 

327 

 

318 

 

Prepaid expenses

 

 

 

353 

 

233 

 

Current derivative assets

 

4(d)

 

11 

 

11 

 

 

 

 

 

2,998 

 

2,474 

 

Non-current assets

 

 

 

 

 

 

 

Property, plant and equipment, net

 

17

 

10,637 

 

10,464 

 

Intangible assets, net

 

18

 

10,392 

 

10,364 

 

Goodwill, net

 

18

 

3,792 

 

3,787 

 

Other long-term assets

 

20

 

742 

 

640 

 

 

 

 

 

25,563 

 

25,255 

 

 

 

 

 

$

28,561 

 

$

27,729 

 

 

 

 

 

 

 

 

 

LIABILITIES AND OWNERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Short-term borrowings

 

22

 

$

100 

 

$

100 

 

Accounts payable and accrued liabilities

 

23

 

2,084 

 

2,330 

 

Income and other taxes payable

 

 

 

41 

 

37 

 

Dividends payable

 

12

 

283 

 

284 

 

Advance billings and customer deposits

 

24

 

775 

 

737 

 

Provisions

 

25

 

73 

 

124 

 

Current maturities of long-term debt

 

26

 

1,386 

 

1,327 

 

Current derivative liabilities

 

4(d)

 

10 

 

12 

 

 

 

 

 

4,752 

 

4,951 

 

Non-current liabilities

 

 

 

 

 

 

 

Provisions

 

25

 

399 

 

395 

 

Long-term debt

 

26

 

12,291 

 

11,604 

 

Other long-term liabilities

 

27

 

744 

 

736 

 

Deferred income taxes

 

 

 

2,223 

 

2,107 

 

 

 

 

 

15,657 

 

14,842 

 

Liabilities

 

 

 

20,409 

 

19,793 

 

Owners’ equity

 

 

 

 

 

 

 

Common equity

 

28

 

8,122 

 

7,917 

 

Non-controlling interests

 

 

 

30 

 

19 

 

 

 

 

 

8,152 

 

7,936 

 

 

 

 

 

$

28,561 

 

$

27,729 

 

 

 

 

 

 

 

 

 

Contingent Liabilities

 

29

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

 

 

3



 

condensed interim consolidated statements of changes in owners’ equity

(unaudited)

 

 

 

 

 

Common equity

 

 

 

 

 

 

 

 

 

Equity contributed

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common Shares (Note 28)

 

 

 

 

 

other 

 

 

 

Non-

 

 

 

(millions)

 

Note

 

Number
of shares

 

Share
capital

 

Contributed
surplus

 

Retained
earnings

 

comprehensive
income

 

Total

 

controlling
interests

 

Total

 

Balance as at January 1, 2016

 

 

 

594

 

$

5,050

 

$

135

 

$

2,428

 

$

59

 

$

7,672

 

 

 

 

 

Net income

 

 

 

 

 

 

378

 

 

378

 

 

 

 

 

Other comprehensive income

 

10

 

 

 

 

(77

)

(14

)

(91

)

 

 

 

 

Dividends

 

12

 

 

 

 

(261

)

 

(261

)

 

 

 

 

Share option award net-equity settlement feature

 

13(d)

 

 

1

 

(1

)

 

 

 

 

 

 

 

Normal course issuer bid purchase of Common Shares

 

 

 

(1

)

(12

)

 

(38

)

 

(50

)

 

 

 

 

Liability for automatic share purchase plan commitment pursuant to normal course issuer bids for Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reversal of opening liability

 

 

 

 

14

 

 

46

 

 

60

 

 

 

 

 

Recognition of closing liability

 

 

 

 

(10

)

 

(40

)

 

(50

)

 

 

 

 

Balance as at March 31, 2016

 

 

 

593

 

$

5,043

 

$

134

 

$

2,436

 

$

45

 

$

7,658

 

 

 

 

 

Balance as at January 1, 2017

 

 

 

590

 

$

5,029

 

$

372

 

$

2,474

 

$

42

 

$

7,917

 

$

19

 

$

7,936

 

Net income

 

 

 

 

 

 

433

 

 

433

 

8

 

441

 

Other comprehensive income

 

10

 

 

 

 

68

 

(10

)

58

 

2

 

60

 

Dividends

 

12

 

 

 

 

(283

)

 

(283

)

 

(283

)

Share option award net-equity settlement feature

 

13(d)

 

1

 

1

 

(1

)

 

 

 

 

 

Change in ownership interests of subsidiary

 

31(b)

 

 

 

(3

)

 

 

(3

)

1

 

(2

)

Balance as at March 31, 2017

 

 

 

591

 

$

5,030

 

$

368

 

$

2,692

 

$

32

 

$

8,122

 

$

30

 

$

8,152

 

 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

 

 

4



 

condensed interim consolidated statements of cash flows

(unaudited)

 

 

 

 

 

Three months

 

Periods ended March 31 (millions)

 

Note

 

2017

 

2016

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net income

 

 

 

$

441

 

$

378

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

532

 

500

 

Deferred income taxes

 

9

 

93

 

(31

)

Share-based compensation expense, net

 

13(a)

 

16

 

16

 

Net employee defined benefit plans expense

 

14(a)

 

21

 

22

 

Employer contributions to employee defined benefit plans

 

 

 

(22

)

(25

)

Other

 

 

 

(19

)

4

 

Net change in non-cash operating working capital

 

31(a)

 

(353

)

(301

)

Cash provided by operating activities

 

 

 

709

 

563

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

Cash payments for capital assets

 

31(a)

 

(796

)

(646

)

Cash payments for acquisitions

 

 

 

(12

)

(2

)

Real estate joint ventures advances

 

21(c)

 

(5

)

(12

)

Real estate joint venture receipts

 

21(c)

 

3

 

 

Proceeds on dispositions

 

 

 

3

 

 

Other

 

 

 

(15

)

 

Cash used by investing activities

 

 

 

(822

)

(660

)

FINANCING ACTIVITIES

 

31(b)

 

 

 

 

 

Dividends paid to holders of Common Shares

 

12(a)

 

(284

)

(263

)

Purchase of Common Shares for cancellation

 

 

 

 

(60

)

Long-term debt issued

 

26

 

2,518

 

1,246

 

Redemptions and repayment of long-term debt

 

26

 

(1,749

)

(571

)

Other

 

 

 

(10

)

 

Cash provided by financing activities

 

 

 

475

 

352

 

CASH POSITION

 

 

 

 

 

 

 

Increase in cash and temporary investments, net

 

 

 

362

 

255

 

Cash and temporary investments, net, beginning of period

 

 

 

432

 

223

 

Cash and temporary investments, net, end of period

 

 

 

$

794

 

$

478

 

SUPPLEMENTAL DISCLOSURE OF OPERATING CASH FLOWS

 

 

 

 

 

 

 

Interest paid

 

 

 

$

(142

)

$

(123

)

Income taxes paid, net

 

 

 

$

(146

)

$

(273

)

 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

 

 

5



 

notes to condensed interim consolidated financial statements

(unaudited)

 

MARCH 31, 2017

 

TELUS Corporation is one of Canada’s largest telecommunications companies, providing a wide range of telecommunications services and products, including wireless and wireline voice and data. Data services include: Internet protocol; television; hosting, managed information technology and cloud-based services; healthcare solutions; and business process outsourcing.

 

TELUS Corporation was incorporated under the Company Act (British Columbia) on October 26, 1998, under the name BCT.TELUS Communications Inc. (BCT). On January 31, 1999, pursuant to a court-approved plan of arrangement under the Canada Business Corporations Act among BCT, BC TELECOM Inc. and the former Alberta-based TELUS Corporation (TC), BCT acquired all of the shares of BC TELECOM Inc. and TC in exchange for Common Shares and Non-Voting Shares of BCT, and BC TELECOM Inc. was dissolved. On May 3, 2000, BCT changed its name to TELUS Corporation and in February 2005, TELUS Corporation transitioned under the Business Corporations Act (British Columbia), successor to the Company Act (British Columbia). TELUS Corporation maintains its registered office at Floor 7, 510 West Georgia Street, Vancouver, British Columbia, V6B 0M3.

 

The terms “TELUS”, “we”, “us”, “our” or “ourselves” are used to refer to TELUS Corporation and, where the context of the narrative permits or requires, its subsidiaries.

 

Notes to condensed interim consolidated financial statements

 

Page

General application

 

 

1.   Condensed interim consolidated financial statements

 

6

2.   Accounting policy developments

 

7

3.   Capital structure financial policies

 

9

4.   Financial instruments

 

11

Consolidated results of operations focused

 

 

5.   Segment information

 

15

6.   Other operating income

 

16

7.   Employee benefits expense

 

17

8.   Financing costs

 

17

9.   Income taxes

 

17

10. Other comprehensive income

 

18

11. Per share amounts

 

18

12. Dividends per share

 

19

13. Share-based compensation

 

19

14. Employee future benefits

 

22

15. Restructuring and other costs

 

23

Consolidated financial position focused

 

 

16. Accounts receivable

 

23

17. Property, plant and equipment

 

24

18. Intangible assets and goodwill

 

25

19. Leases

 

26

20. Other long-term assets

 

26

21. Real estate joint ventures

 

26

22. Short-term borrowings

 

28

23. Accounts payable and accrued liabilities

 

29

24. Advance billings and customer deposits

 

29

25. Provisions

 

29

26. Long-term debt

 

30

27. Other long-term liabilities

 

32

28. Common Share capital

 

32

29. Contingent liabilities

 

33

Other

 

 

30. Related party transactions

 

35

31. Additional statement of cash flow information

 

36

 

1                 condensed interim consolidated financial statements

 

(a)         Basis of presentation

 

The notes presented in our condensed interim consolidated financial statements include only significant events and transactions and are not fully inclusive of all matters normally disclosed in our annual audited financial statements; thus, our interim consolidated financial statements are referred to as condensed. Our condensed interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2016.

 

Our condensed interim consolidated financial statements are expressed in Canadian dollars and follow the same accounting policies and methods of their application as set out in our consolidated financial statements for the year ended December 31, 2016, other than as set out in Note 2. The generally accepted accounting principles that we use are International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS-IASB) and Canadian generally accepted accounting principles. Our condensed interim consolidated financial statements comply with International Accounting Standard 34, Interim Financial Reporting and reflect all adjustments (which are of a normal recurring nature) that are, in our opinion, necessary for a fair statement of the results for the interim periods presented.

 

Our condensed interim consolidated financial statements for the three-month period ended March 31, 2017, were authorized by our Board of Directors for issue on May 11, 2017.

 

 

6



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(b)         Inventories

 

Our inventories consist primarily of wireless handsets, parts and accessories (totalling $263 million (December 31, 2016 — totalling $266 million)) and communications equipment held for resale. Costs of goods sold for the three-month period ended March 31, 2017, totalled $408 million (2016 — $403 million).

 

2                 accounting policy developments

 

(a)         Initial application of standards, interpretations and amendments to standards and interpretations in the reporting period

 

Amendments to standards arising from Annual Improvements to IFRSs 2014-2016 Cycle are required to be applied for years beginning on or after January 1, 2017 (for IFRS 12, Disclosure of Interests in Other Entities), and January 1, 2018 (for the balance of the amendments); such application has had no effect on our financial performance or disclosure.

 

(b)         Standards, interpretations and amendments to standards not yet effective and not yet applied

 

·                  IFRS 9, Financial Instruments, is required to be applied for years beginning on or after January 1, 2018. The new standard includes a model for the classification and measurement of financial instruments, a single forward-looking “expected loss” impairment model and a reformed approach to hedge accounting. Based upon current facts and circumstances, we do not expect our financial performance or disclosure to be materially affected by the application of the standard.

 

·                  IFRS 15, Revenue from Contracts with Customers, is required to be applied for years beginning on or after January 1, 2018, such date reflecting the one-year deferral approved by the International Accounting Standards Board on July 22, 2015. The International Accounting Standards Board and the Financial Accounting Standards Board of the United States worked on this joint project to clarify the principles for the recognition of revenue. The new standard was released in May 2014 and supersedes existing standards and interpretations including IAS 18, Revenue. In April 2016, the International Accounting Standards Board issued Clarifications to IFRS 15, Revenue from Contracts with Customers, clarifying application of some of the more complex aspects of the standard. We are currently assessing the impacts and transition provisions of the new standard; however, we expect that we will apply the standard retrospectively to prior reporting periods, subject to permitted and elected practical expedients.

 

The effects of the new standard and the materiality of those effects will vary by industry and entity. Like many other telecommunications companies, we currently expect to be materially affected by its application, primarily in respect of the timing of revenue recognition, the classification of revenue, the capitalization of costs of obtaining a contract with a customer and possibly the capitalization of the costs of contract fulfilment (as defined by the new standard).

 

Revenue — timing of recognition; classification

 

The timing of revenue recognition and the classification of our revenues as either service revenues or equipment revenues will be affected, since the allocation of consideration in multiple element arrangements (solutions for our customers that may involve deliveries of multiple services and products that occur at different points in time and/or over different periods of time) will no longer be affected by the current limitation cap methodology.

 

The effects of the timing of revenue recognition and the classification of revenue are expected to be most pronounced in our wireless segment. Although the measurement of the total revenue recognized over the life of a contract will be largely unaffected by the new standard, the prohibition of the use of the limitation cap methodology will accelerate the recognition of total contract revenue, relative to both the associated cash inflows from customers and our current practice (using the limitation cap methodology). The acceleration of the recognition of contract revenue relative to the associated cash inflows will also result in the recognition of an amount reflecting the resulting difference as a contract asset. Although the underlying transaction economics would not differ, during periods of sustained growth in the number of wireless subscriber connection additions, assuming comparable contract-lifetime per unit cash inflows, revenues would appear to be greater than under the current practice (using the limitation cap methodology). Wireline segment results arising from transactions that include the initial provision of subsidized equipment or promotional pricing plans will be similarly affected.

 

We currently are planning to retrospectively apply the new standard, subject to associated decisions in respect of transitional provisions and permitted practical expedients. The contract asset that will initially be recorded upon transition to the new standard represents revenues that will have not been reflected, at any time, in our periodic results of operations, but, if not for transitioning to the new standard, would have been; the transitional contract asset, net of income tax effects, will be recognized as an adjustment to opening retained earnings.

 

 

7



 

notes to condensed interim consolidated financial statements

(unaudited)

 

Costs of contract acquisition; costs of contract fulfilment — timing of recognition

 

Similarly, the measurement of the total costs of contract acquisition and contract fulfilment over the life of a contract will be unaffected by the new standard, but the timing of recognition will be. The new standard will result in our wireless and wireline segments’ costs of contract acquisition and contract fulfilment, to the extent that they are material, being capitalized and subsequently recognized as an expense over the life of a contract on a rational, systematic basis consistent with the pattern of the transfer of goods or services to which the asset relates. Although the underlying transaction economics would not differ, during periods of sustained growth in the number of customer connection additions, assuming comparable per unit costs of contract acquisition and contract fulfilment, absolute profitability measures would appear to be greater than under the current practice (immediately expensing such costs).

 

Implementation

 

Our operations and associated systems are complex and our accounting for millions of multi-year contracts with our customers will be affected. Significantly, in order to effect the associated accounting, incremental compilation of historical data will be necessary for the millions of already existing multi-year contracts with our customers that are expected to be in-scope for purposes of transitioning to the new standard. Our current estimate of the time and effort necessary to develop and implement the accounting policies, estimates, judgments and processes (including critical incremental requirements of our information technology systems) we will need to have in place in order to comply with the new standard extends into mid/late-2017.

 

Once we have developed and implemented the necessary accounting policies, estimates, judgments and processes, we will commence the incremental compilation of historical data, as well as the accounting for that data, which is necessary to transition to, and to make reasonable quantitative estimates (which will also be subject to associated incremental internal controls over financial reporting) of the effects of, the new standard. As a result, at this time, it is not possible to make reasonable quantitative estimates of the effects of the new standard, and we may not be able to do so prior to completing our December 31, 2017, annual consolidated financial statements.

 

The forgoing discussion of the implications of the new standard should be read in conjunction with the Illustrative example in Note 2(b) — Accounting policy developments in our audited consolidated financial statements for the year ended December 31, 2016.

 

·                  In January 2016, the International Accounting Standards Board released IFRS 16, Leases, which is required to be applied for years beginning on or after January 1, 2019, and which supersedes IAS 17, Leases; earlier application is allowed, but not before the application of IFRS 15, Revenue from Contracts with Customers. The International Accounting Standards Board and the Financial Accounting Standards Board of the United States worked together to modify the accounting for leases, generally by eliminating lessees’ classification of leases as either operating leases or finance leases and, for IFRS-IASB, introducing a single lessee accounting model.

 

The most significant effect of the new standard will be the lessee’s recognition of the initial present value of unavoidable future lease payments as lease assets and lease liabilities on the statement of financial position, including those for most leases that would be currently accounted for as operating leases. Both leases with durations of 12 months or less and leases for low-value assets may be exempted.

 

The measurement of the total lease expense over the term of a lease will be unaffected by the new standard. However, the new standard will result in the timing of lease expense recognition being accelerated for leases which would be currently accounted for as operating leases; the International Accounting Standards Board expects that this effect may be muted by a lessee having a portfolio of leases with varying maturities and lengths of term. The presentation on the statement of income and other comprehensive income required by the new standard will result in most lease expenses being presented as amortization of lease assets and financing costs arising from lease liabilities rather than as a part of goods and services purchased, thus reported operating income would be higher under the new standard.

 

Relative to the results of applying the current standard, although the actual cash flows will be unaffected, the lessee’s statement of cash flows will reflect increases in cash flows from operating activities offset equally by decreases in cash flows from financing activities. This is due to the payment of the “principal” component of leases that would be currently accounted for as operating leases being presented as a cash flow use within financing activities under the new standard.

 

We are currently assessing the impacts and transition provisions of the new standard; however, we expect that we will apply the standard retrospectively to prior reporting periods, subject to permitted and elected practical expedients; our current intention is to apply the new standard concurrent with our initial application of IFRS 15, Revenue from Contracts with Customers. Our current estimate of the time and effort necessary to develop and

 

 

8



 

notes to condensed interim consolidated financial statements

(unaudited)

 

implement the accounting policies, estimates and processes (including incremental requirements of our information technology systems) we will need to have in place in order to comply with the new standard extends into late 2017. We expect that our Consolidated statement of financial position will be materially affected, as will those financial metrics related to both debt and results of operations; however, at this time it is not possible to make reasonable quantitative estimates of the effects of the new standard.

 

3                 capital structure financial policies

 

Our objective when managing capital is to maintain a flexible capital structure that optimizes the cost and availability of capital at acceptable risk.

 

In the management of capital and in its definition, we include common equity (excluding accumulated other comprehensive income), long-term debt (including long-term credit facilities, commercial paper backstopped by long-term credit facilities and any hedging assets or liabilities associated with long-term debt items, net of amounts recognized in accumulated other comprehensive income), cash and temporary investments, and short-term borrowings arising from securitized trade receivables.

 

We manage our capital structure and make adjustments to it in light of changes in economic conditions and the risk characteristics of our telecommunications infrastructure. In order to maintain or adjust our capital structure, we may adjust the amount of dividends paid to holders of Common Shares, purchase Common Shares for cancellation pursuant to normal course issuer bids, issue new shares, issue new debt, issue new debt to replace existing debt with different characteristics and/or increase or decrease the amount of trade receivables sold to an arm’s-length securitization trust.

 

We monitor capital utilizing a number of measures, including: net debt to earnings before interest, income taxes, depreciation and amortization (EBITDA*) — excluding restructuring and other costs; and dividend payout ratios.

 

Net debt to EBITDA — excluding restructuring and other costs is calculated as net debt at the end of the period divided by 12-month trailing EBITDA — excluding restructuring and other costs. This measure, historically, is substantially similar to the leverage ratio covenant in our credit facilities. Net debt, EBITDA — excluding restructuring and other costs and adjusted net earnings are measures that do not have any standardized meanings prescribed by IFRS-IASB and are therefore unlikely to be comparable to similar measures presented by other companies. The calculation of these measures is as set out in the following table. Net debt is one component of a ratio used to determine compliance with debt covenants.

 

The dividend payout ratio presented is a historical measure calculated as the sum of the last four quarterly dividends declared per Common Share, as recorded in the financial statements, divided by the sum of basic earnings per share for the most recent four quarters for interim reporting periods (divided by annual basic earnings per share if the reported amount is in respect of a fiscal year). The dividend payout ratio of adjusted net earnings presented, also a historical measure, differs in that it excludes the gain on exchange of wireless spectrum licences, net gains and equity income from real estate joint ventures, long-term debt prepayment premium and income tax-related adjustments.

 

During 2017, our financial objectives, which are reviewed annually and which were unchanged from 2016 included the financial objectives set out in the following table. We believe that our financial objectives are supportive of our long-term strategy.

 

As at, or for the12-month periods ended, March 31 ($ in millions)

 

Objective

 

2017

 

2016

 

Components of debt and coverage ratios

 

 

 

 

 

 

 

Net debt 1

 

 

 

$

13,054 

 

$

12,374 

 

EBITDA — excluding restructuring and other costs 2

 

 

 

$

4,785 

 

$

4,524 

 

Net interest cost 3

 

 

 

$

564 

 

$

494 

 

Debt ratio

 

 

 

 

 

 

 

Net debt to EBITDA — excluding restructuring and other costs

 

2.00 – 2.50 4

 

2.73

 

2.74

 

Coverage ratios

 

 

 

 

 

 

 

Earnings coverage 5

 

 

 

4.1

 

4.6

 

EBITDA — excluding restructuring and other costs interest coverage 6

 

 

 

8.5

 

9.2

 

Other measures

 

 

 

 

 

 

 

Dividend payout ratio of adjusted net earnings 7

 

 

 

76

%

76

%

Dividend payout ratio

 

65%–75% 8

 

87

%

76

%

 


* EBITDA does not have any standardized meaning prescribed by IFRS-IASB and is therefore unlikely to be comparable to similar measures presented by other issuers; we define EBITDA as operating revenues less goods and services purchased and employee benefits expense. We have issued guidance on, and report, EBITDA because it is a key measure that management uses to evaluate the performance of our business, and it is also utilized in measuring compliance with certain debt covenants.

 

 

9



 

notes to condensed interim consolidated financial statements

(unaudited)

 


(1)         Net debt is calculated as follows:

 

As at March 31

 

Note

 

2017

 

2016

 

Long-term debt

 

26

 

$

13,677

 

$

12,676

 

Debt issuance costs netted against long-term debt

 

 

 

75

 

50

 

Derivative (assets) liabilities, net

 

 

 

38

 

26

 

Accumulated other comprehensive income amounts arising from financial instruments used to manage interest rate and currency risks associated with U.S. dollar-denominated long-term debt (excluding tax effects)

 

 

 

(42

)

 

Cash and temporary investments, net

 

 

 

(794

)

(478

)

Short-term borrowings

 

22

 

100

 

100

 

Net debt

 

 

 

$

13,054

 

$

12,374

 

 

(2)         EBITDA — excluding restructuring and other costs is calculated as follows:

 

 

 

EBITDA
(Note 5)

 

Restructuring
and other
costs
(Note 15)

 

EBITDA —
excluding
restructuring
and other costs

 

Add

 

 

 

 

 

 

 

Three-month period ended March 31, 2017

 

$

1,261

 

$

4

 

$

1,265

 

Year ended December 31, 2016

 

4,229

 

479

 

4,708

 

Deduct

 

 

 

 

 

 

 

Three-month period ended March 31, 2016

 

(1,140

)

(48

)

(1,188

)

EBITDA — excluding restructuring and other costs

 

$

4,350

 

$

435

 

$

4,785

 

 

(3)         Net interest cost is defined as financing costs, excluding employee defined benefit plans net interest, recoveries on long-term debt prepayment premium and repayment of debt, calculated on a 12-month trailing basis (expenses recorded for long-term debt prepayment premium, if any, are included in net interest cost).

 

(4)         Our long-term objective range for this ratio is 2.00 — 2.50 times. The ratio as at December 31, 2016, is outside the long-term objective range. In the short term, we may permit, and have permitted, this ratio to go outside the objective range (for long-term investment opportunities), but will endeavour to return this ratio to within the objective range in the medium term, as we believe that this range is supportive of our long-term strategy. We are in compliance with our credit facilities leverage ratio covenant, which states that we may not permit our net debt to operating cash flow ratio to exceed 4.00:1.00 (see Note 26(d)); the calculation of the debt ratio is substantially similar to the calculation of the leverage ratio covenant in our credit facilities.

 

(5)         Earnings coverage is defined as net income before borrowing costs and income tax expense, divided by borrowing costs (interest on long-term debt; interest on short-term borrowings and other; long-term debt prepayment premium), and adding back capitalized interest.

 

(6)         EBITDA — excluding restructuring and other costs interest coverage is defined as EBITDA — excluding restructuring and other costs, divided by net interest cost. This measure is substantially similar to the coverage ratio covenant in our credit facilities.

 

(7)         Adjusted net earnings attributable to Common Shares is calculated as follows:

 

12-month periods ended March 31

 

2017

 

2016

 

Net income attributable to Common Shares

 

$

1,278

 

$

1,345

 

Gain on exchange of wireless spectrum licences, after income taxes

 

(13

)

 

Gain and net equity income related to real estate redevelopment project, after income taxes

 

(16

)

 

Business acquisition-related provisions, after income taxes

 

11

 

4

 

Immediately vesting transformative compensation expense, after income taxes

 

224

 

 

Income tax-related adjustments

 

(18

)

2

 

Adjusted net earnings attributable to Common Shares

 

$

1,466

 

$

1,351

 

 

(8)         Our target guideline for the dividend payout ratio is 65%—75% of sustainable earnings on a prospective basis; however we estimate that we are within our target guideline when considered on a prospective basis.

 

Net debt to EBITDA — excluding restructuring and other costs was 2.73 times as at March 31, 2017, slightly down from 2.74 times one year earlier. The increase in net debt was approximately offset by growth in EBITDA — excluding restructuring and other costs. The earnings coverage ratio for the twelve-month period ended March 31, 2017, was 4.1 times, down from 4.6 times one year earlier. Higher borrowing costs reduced the ratio by 0.2 and lower income before borrowing costs and income taxes reduced the ratio by 0.3. The EBITDA — excluding restructuring and other costs interest coverage ratio for the twelve-month period ended March 31, 2017, was 8.5 times, down from 9.2 times one year earlier. Growth in EBITDA — excluding restructuring and other costs increased the ratio by 0.5, while an increase in net interest costs reduced the ratio by 1.2.

 

 

10



 

notes to condensed interim consolidated financial statements

(unaudited)

 

4                 financial instruments

 

(a)         Credit risk

 

Excluding credit risk, if any, arising from currency swaps settled on a gross basis, the best representation of our maximum exposure (excluding income tax effects) to credit risk, which is a worst-case scenario and does not reflect results we expect, is as set out in the following table:

 

As at (millions)

 

March 31,
2017

 

December 31,
2016

 

Cash and temporary investments, net

 

$

794

 

$

432

 

Accounts receivable

 

1,408

 

1,471

 

Derivative assets

 

18

 

17

 

 

 

$

2,220

 

$

1,920

 

 

Cash and temporary investments

 

Credit risk associated with cash and temporary investments is managed by ensuring that these financial assets are placed with: governments; major financial institutions that have been accorded strong investment grade ratings by a primary rating agency; and/or other creditworthy counterparties. An ongoing review is performed to evaluate changes in the status of counterparties.

 

Accounts receivable

 

Credit risk associated with accounts receivable is inherently managed by the size and diversity of our large customer base, which includes substantially all consumer and business sectors in Canada. We follow a program of credit evaluations of customers and limit the amount of credit extended when deemed necessary.

 

The following table presents an analysis of the age of customer accounts receivable for which an allowance had not been made as at the dates of the Consolidated statements of financial position. As at March 31, 2017, the weighted average age of customer accounts receivable was 25 days (December 31, 2016 — 26 days) and the weighted average age of past-due customer accounts receivable was 62 days (December 31, 2016 — 61 days). Any late payment charges are levied at an industry-based market or negotiated rate on outstanding non-current customer account balances.

 

As at (millions)

 

Note

 

March 31,
2017

 

December 31,
2016

 

Customer accounts receivable, net of allowance for doubtful accounts

 

 

 

 

 

 

 

Less than 30 days past billing date

 

 

 

$

826

 

$

897

 

30-60 days past billing date

 

 

 

156

 

176

 

61-90 days past billing date

 

 

 

24

 

35

 

More than 90 days past billing date

 

 

 

54

 

55

 

 

 

 

 

$

1,060

 

$

1,163

 

Customer accounts receivable

 

16

 

$

1,110

 

$

1,217

 

Allowance for doubtful accounts

 

 

 

(50

)

(54

)

 

 

 

 

$

1,060

 

$

1,163

 

 

We maintain allowances for potential credit losses related to doubtful accounts. Current economic conditions, historical information, reasons for the accounts being past due and line of business from which the customer accounts receivable arose are all considered when determining whether to make allowances for past-due accounts. The same factors are considered when determining whether to write off amounts charged to the allowance for doubtful accounts against the customer accounts receivable. The doubtful accounts expense is calculated on a specific-identification basis for customer accounts receivable above a specific balance threshold and on a statistically derived allowance basis for the remainder. No customer accounts receivable are written off directly to the doubtful accounts expense.

 

The following table presents a summary of the activity related to our allowance for doubtful accounts.

 

 

 

Three months

 

Periods ended March 31 (millions)

 

2017

 

2016

 

Balance, beginning of period

 

$

54

 

$

52

 

Additions (doubtful accounts expense)

 

17

 

16

 

Net use

 

(21

)

(16

)

Balance, end of period

 

$

50

 

$

52

 

 

Derivative assets (and derivative liabilities)

 

Counterparties to our share-based compensation cash-settled equity forward agreements and foreign exchange derivatives are major financial institutions that have been accorded investment grade ratings by a primary credit rating agency. The dollar amount of credit exposure under contracts with any one financial institution is limited and counterparties’ credit ratings

 

 

11



 

notes to condensed interim consolidated financial statements

(unaudited)

 

are monitored. We do not give or receive collateral on swap agreements and hedging items due to our credit rating and those of our counterparties. While we are exposed to potential credit losses due to the possible non-performance of our counterparties, we consider this risk remote. Our derivative liabilities do not have credit risk-related contingent features.

 

(b)         Liquidity risk

 

As a component of our capital structure financial policies, discussed further in Note 3, we manage liquidity risk by:

 

·                  maintaining a daily cash pooling process that enables us to manage our available liquidity and our liquidity requirements according to our actual needs;

 

·                  maintaining an agreement to sell trade receivables to an arm’s-length securitization trust (Note 22);

 

·                  maintaining bilateral bank facilities (Note 22) and syndicated credit facilities (Note 26(d),(e));

 

·                  maintaining a commercial paper program (Note 26(b));

 

·                  maintaining an in-effect shelf prospectus;

 

·                  continuously monitoring forecast and actual cash flows; and

 

·                  managing maturity profiles of financial assets and financial liabilities.

 

Our debt maturities in future years are as disclosed in Note 26(f). As at March 31, 2017, we could offer $1.2 billion of debt or equity securities pursuant to a shelf prospectus that is in effect until April 2018 (December 31, 2016 — $2.2 billion). We believe that our investment grade credit ratings contribute to reasonable access to capital markets.

 

We closely match the contractual maturities of our derivative financial liabilities with those of the risk exposures they are being used to manage.

 

The expected maturities of our undiscounted financial liabilities do not differ significantly from the contractual maturities, other than as noted below. The contractual maturities of our undiscounted financial liabilities, including interest thereon (where applicable), are as set out in the following tables:

 

 

 

Non-derivative

 

Derivative

 

 

 

 

 

Non-interest

 

 

 

Construction

 

Composite long-term debt

 

 

 

 

 

 

 

 

 

As at March 31,

 

bearing

 

 

 

credit facilities

 

Long-term

 

Currency swap agreement

 

 

 

Currency swap agreement

 

 

 

2017

 

financial

 

Short-term

 

commitment

 

debt 1

 

amounts to be exchanged 3

 

 

 

amounts to be exchanged

 

 

 

(millions)

 

liabilities

 

borrowings 1

 

(Note 21) 2

 

(Note 26)

 

(Receive)

 

Pay

 

Other

 

(Receive)

 

Pay

 

Total

 

2017

 

$

1,578

 

$

1

 

$

88

 

$

1,521

 

$

(1,148

)

$

1,146

 

$

3

 

$

(437

)

$

431

 

$

3,183

 

2018

 

272

 

102

 

 

789

 

(47

)

46

 

 

(131

)

130

 

1,161

 

2019

 

16

 

 

 

1,537

 

(47

)

46

 

 

 

 

1,552

 

2020

 

9

 

 

 

1,486

 

(47

)

46

 

 

 

 

1,494

 

2021

 

9

 

 

 

1,719

 

(47

)

46

 

 

 

 

1,727

 

Thereafter

 

16

 

 

 

13,116

 

(1,733

)

1,725

 

 

 

 

13,124

 

Total

 

$

1,900

 

$

103

 

$

88

 

$

20,168

 

$

(3,069

)

$

3,055

 

$

3

 

$

(568

)

$

561

 

$

22,241

 

 

 

 

 

 

 

 

 

Total (Note 26(f))

 

$

20,154

 

 

 

 

 

 

 

 

 

 


1                   Cash outflows in respect of interest payments on our short-term borrowings, commercial paper and amounts drawn under our credit facilities (if any) have been calculated based upon the interest rates in effect as at March 31, 2017.

2                   The drawdowns on the construction credit facilities are expected to occur as construction progresses through 2018.

3                   The amounts included in undiscounted non-derivative long-term debt in respect of U.S. dollar-denominated long-term debt, and the corresponding amounts in the long-term debt currency swaps receive column, have been determined based upon the currency exchange rates in effect as at March 31, 2017. The hedged U.S. dollar-denominated long-term debt contractual amounts at maturity, in effect, are reflected in the long-term debt currency swaps pay column as gross cash flows are exchanged pursuant to the currency swap agreements.

 

 

 

Non-derivative

 

Derivative

 

 

 

As at

 

Non-interest

 

 

 

Construction

 

Composite long-term debt

 

 

 

 

 

 

 

 

 

December 31,

 

bearing

 

 

 

credit facilities

 

Long-term

 

Currency swap agreement

 

 

 

Currency swap agreement

 

 

 

2016

 

financial

 

Short-term

 

commitment

 

debt 1

 

amounts to be exchanged 3

 

 

 

amounts to be exchanged

 

 

 

(millions)

 

liabilities

 

borrowings 1

 

(Note 21) 2

 

(Note 26)

 

(Receive)

 

Pay

 

Other

 

(Receive)

 

Pay

 

Total

 

2017

 

$

1,949

 

$

1

 

$

93

 

$

1,832

 

$

(634

)

$

634

 

$

3

 

$

(475

)

$

469

 

$

3,872

 

2018

 

227

 

102

 

 

750

 

(23

)

23

 

 

 

 

1,079

 

2019

 

16

 

 

 

1,498

 

(23

)

23

 

 

 

 

1,514

 

2020

 

9

 

 

 

1,447

 

(23

)

23

 

 

 

 

1,456

 

2021

 

9

 

 

 

1,711

 

(23

)

23

 

 

 

 

1,720

 

Thereafter

 

5

 

 

 

11,584

 

(930

)

921

 

 

 

 

11,580

 

Total

 

$

2,215

 

$

103

 

$

93

 

$

18,822

 

$

(1,656

)

$

1,647

 

$

3

 

$

(475

)

$

469

 

$

21,221

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

18,813

 

 

 

 

 

 

 

 

 

 


1                   Cash outflows in respect of interest payments on our short-term borrowings, commercial paper and amounts drawn under our credit facilities (if any) have been calculated based upon the interest rates in effect as at December 31, 2016.

2                   The drawdowns on the construction credit facilities are expected to occur as construction progresses through 2018.

3                   The amounts included in undiscounted non-derivative long-term debt in respect of U.S. dollar-denominated long-term debt, and the corresponding amounts in the long-term debt currency swaps receive column, have been determined based upon the currency exchange rates in effect as at December 31, 2016. The hedged U.S. dollar-denominated long-term debt contractual amounts at maturity, in effect, are reflected in the long-term debt currency swaps pay column as gross cash flows are exchanged pursuant to the currency swap agreements.

 

 

12



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(c)          Market risks

 

Net income and other comprehensive income for the three-month periods ended March 31, 2017 and 2016, could have varied if the Canadian dollar: U.S. dollar exchange rate and our Common Share price varied by reasonably possible amounts from their actual statement of financial position date amounts.

 

The sensitivity analysis of our exposure to currency risk at the reporting date has been determined based upon a hypothetical change taking place at the relevant statement of financial position date. The U.S. dollar-denominated balances and derivative financial instrument notional amounts as at the statement of financial position dates have been used in the calculations.

 

The sensitivity analysis of our exposure to other price risk arising from share-based compensation at the reporting date has been determined based upon a hypothetical change taking place at the relevant statement of financial position date. The relevant notional number of Common Shares at the statement of financial position date, which includes those in the cash-settled equity swap agreements, has been used in the calculations.

 

Income tax expense, which is reflected net in the sensitivity analysis, reflects the applicable statutory income tax rates for the reporting periods.

 

Three-month periods ended March 31

 

Net income

 

Other comprehensive income

 

Comprehensive income

 

(increase (decrease) in millions)

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

Reasonably possible changes in market risks 1

 

 

 

 

 

 

 

 

 

 

 

 

 

10% change in Cdn.$: U.S.$ exchange rate

 

 

 

 

 

 

 

 

 

 

 

 

 

Canadian dollar appreciates

 

$

 

$

(22

)

$

(13

)

$

(11

)

$

(13

)

$

(33

)

Canadian dollar depreciates

 

$

 

$

22

 

$

18

 

$

11

 

$

18

 

$

33

 

25% 2 change in Common Share price 3

 

 

 

 

 

 

 

 

 

 

 

 

 

Price increases

 

$

(9

)

$

(11

)

$

23

 

$

25

 

$

14

 

$

14

 

Price decreases

 

$

7

 

$

6

 

$

(23

)

$

(25

)

$

(16

)

$

(19

)

 


(1)         These sensitivities are hypothetical and should be used with caution. Changes in net income and/or other comprehensive income generally cannot be extrapolated because the relationship of the change in assumption to the change in net income and/or other comprehensive income may not be linear. In this table, the effect of a variation in a particular assumption on the amount of net income and/or other comprehensive income is calculated without changing any other factors; in reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.

The sensitivity analysis assumes that we would realize the changes in exchange rates; in reality, the competitive marketplace in which we operate would have an effect on this assumption.

No consideration has been made for a difference in the notional number of Common Shares associated with share-based compensation awards made during the reporting period that may have arisen due to a difference in the Common Share price.

(2)         To facilitate ongoing comparison of sensitivities, a constant variance of approximate magnitude has been used. Reflecting a three-month data period and calculated on a monthly basis, the volatility of our Common Share price as at March 31, 2017, was 3.8% (2016 — 13.2%).

(3)         The hypothetical effects of changes in the price of our Common Shares are restricted to those which would arise from our share-based compensation awards that are accounted for as liability instruments and the associated cash-settled equity swap agreements.

 

(d)         Fair values

 

General

 

The carrying values of cash and temporary investments, accounts receivable, short-term obligations, short-term borrowings, accounts payable and certain provisions (including restructuring accounts payable) approximate their fair values due to the immediate or short-term maturity of these financial instruments. The fair values are determined directly by reference to quoted market prices in active markets.

 

The carrying values of our investments accounted for using the cost method do not exceed their fair values. The fair values of our investments accounted for as available-for-sale are based on quoted market prices in active markets or other clear and objective evidence of fair value.

 

The fair value of our long-term debt is based on quoted market prices in active markets.

 

The fair values of the derivative financial instruments we use to manage our exposure to currency risks are estimated based upon quoted market prices in active markets for the same or similar financial instruments or on the current rates offered to us for financial instruments of the same maturity, as well as discounted future cash flows determined using current rates for similar financial instruments of similar maturities subject to similar risks (such fair value estimates being largely based on the Canadian dollar: U.S. dollar forward exchange rate as at the statement of financial position dates).

 

The fair values of the derivative financial instruments we use to manage our exposure to increases in compensation costs arising from certain forms of share-based compensation are based upon fair value estimates of the related cash-settled equity forward agreements provided by the counterparty to the transactions (such fair value estimates being largely based on our Common Share price as at the statement of financial position dates).

 

The financial instruments that we measure at fair value on a recurring basis in periods subsequent to initial recognition and the level within the fair value hierarchy at which they are measured are as set out in the following table.

 

 

13



 

notes to condensed interim consolidated financial statements

(unaudited)

 

 

 

 

 

 

 

Fair value measurements at reporting date using

 

 

 

Carrying value

 

Quoted prices in active
markets for identical items
(Level 1)

 

Significant other
observable inputs
(Level 2)

 

Significant unobservable
inputs
(Level 3)

 

As at (millions)

 

Mar. 31,
2017

 

Dec. 31,
2016

 

Mar. 31,
2017

 

Dec. 31,
2016

 

Mar. 31,
2017

 

Dec. 31,
2016

 

Mar. 31,
2017

 

Dec. 31,
2016

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange derivatives

 

$

11

 

$

10

 

$

 

$

 

$

11

 

$

10

 

$

 

$

 

Share-based compensation derivatives

 

7

 

7

 

 

 

7

 

7

 

 

 

Available-for-sale portfolio investments

 

64

 

62

 

 

 

64

 

62

 

 

 

 

 

$

82

 

$

79

 

$

 

$

 

$

82

 

$

79

 

$

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange derivatives

 

$

48

 

$

30

 

$

 

$

 

$

48

 

$

30

 

$

 

$

 

Share-based compensation derivatives

 

3

 

3

 

 

 

3

 

3

 

 

 

 

 

$

51

 

$

33

 

$

 

$

 

$

51

 

$

33

 

$

 

$

 

 

Derivative

 

The derivative financial instruments that we measure at fair value on a recurring basis subsequent to initial recognition are as set out in the following table.

 

 

 

 

 

 

 

March 31, 2017

 

December 31, 2016

 

As at (millions)

 

Designation

 

Maximum
maturity
date

 

Notional
amount

 

Fair value
and carrying
value

 

Notional
amount

 

Fair value
and carrying
value

 

Current Assets 1

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives used to manage

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency risks arising from U.S. dollar-denominated purchases

 

HFT 2

 

2017

 

$

 

$

 

$

8

 

$

 

Currency risks arising from U.S. dollar-denominated purchases

 

HFH 3

 

2018

 

$

309

 

6

 

$

263

 

7

 

Currency risks arising from U.S. dollar revenues

 

HFT 2

 

2017

 

$

4

 

 

$

4

 

 

Changes in share-based compensation costs (Note 13(b))

 

HFH 3

 

2017

 

$

6

 

 

$

6

 

1

 

Currency risks arising from U.S. dollar-denominated long-term debt (Note 26 (b)-(c))

 

HFH 3

 

2017

 

$

494

 

5

 

$

191

 

3

 

 

 

 

 

 

 

 

 

$

11

 

 

 

$

11

 

Other Long-Term Assets 1

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives used to manage

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in share-based compensation costs (Note 13(b))

 

HFH 3

 

2018

 

$

69

 

$

7

 

$

69

 

$

6

 

Current Liabilities 1

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives used to manage

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency risks arising from U.S. dollar-denominated purchases

 

HFH 3

 

2018

 

$

116

 

$

1

 

$

69

 

2

 

Currency risks arising from U.S. dollar revenues

 

HFT 2

 

2018

 

$

132

 

4

 

$

124

 

5

 

Changes in share-based compensation costs (Note 13(b))

 

HFH 3

 

2017

 

$

68

 

2

 

$

65

 

3

 

Currency risks arising from U.S. dollar-denominated long-term debt (Note 26 (b)-(c))

 

HFH 3

 

2017

 

$

628

 

3

 

$

422

 

2

 

 

 

 

 

 

 

 

 

$

10

 

 

 

$

12

 

Other Long-Term Liabilities 1

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives used to manage

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in share-based compensation costs (Note 13(b))

 

HFH 3

 

2019

 

$

66

 

$

1

 

$

 

$

 

Currency risks arising from U.S. dollar-denominated long-term debt (Note 26 (b)-(c))

 

HFH 3

 

2027

 

$

1,933

 

40

 

$

1,036

 

21

 

 

 

 

 

 

 

 

 

$

41

 

 

 

$

21

 

 


(1)         Derivative financial assets and liabilities are not set off.

(2)         Designated as held for trading (HFT) upon initial recognition; hedge accounting is not applied.

(3)         Designated as held for hedging (HFH) upon initial recognition (cash flow hedging item); hedge accounting is applied.

 

 

14



 

notes to condensed interim consolidated financial statements

(unaudited)

 

Non-derivative

 

Our long-term debt, which is measured at amortized cost, and the fair value thereof, are as set out in the following table.

 

 

 

March 31, 2017

 

December 31, 2016

 

As at (millions)

 

Carrying
value

 

Fair value

 

Carrying
value

 

Fair value

 

Long-term debt (Note 26)

 

$

13,677

 

$

14,380

 

$

12,931

 

$

13,533

 

 

(e)          Recognition of derivative gains and losses

 

The following table sets out the gains and losses, excluding income tax effects, on derivative instruments that are classified as cash flow hedging items and their location within the Consolidated statements of income and other comprehensive income. There was no ineffective portion of derivative instruments classified as cash flow hedging items for the periods presented.

 

 

 

Amount of gain (loss)
recognized in other
comprehensive income

 

Gain (loss) reclassified from other comprehensive
income to income (effective portion) (Note 10)

 

 

 

(effective portion) (Note 10)

 

 

 

Amount

 

Three-month periods ended March 31 (millions)

 

2017

 

2016

 

Location

 

2017

 

2016

 

Derivatives used to manage

 

 

 

 

 

 

 

 

 

 

 

Currency risks arising from U.S. dollar-denominated purchases

 

$

(2

)

$

(23

)

Goods and services purchased

 

$

1

 

$

1

 

Changes in share-based compensation costs (Note 13(b))

 

 

18

 

Employee benefits expense

 

1

 

7

 

Currency risks arising from U.S. dollar-denominated long-term debt (Note 26 (b)-(c))

 

(19

)

(38

)

Financing costs

 

(11

)

(38

)

 

 

$

(21

)

$

(43

)

 

 

$

(9

)

$

(30

)

 

The following table sets out the gains and losses arising from derivative instruments that are classified as held for trading and that are not designated as being in a hedging relationship, and their location within the Consolidated statements of income and other comprehensive income.

 

 

 

 

 

Gain (loss) recognized in
income on derivatives

 

Three-month periods ended March 31 (millions)

 

Location

 

2017

 

2016

 

Derivatives used to manage currency risks

 

Financing costs

 

$

 

$

(2

)

 

5                 segment information

 

General

 

Operating segments are components of an entity that engage in business activities from which they earn revenues and incur expenses (including revenues and expenses related to transactions with the other component(s)), the operating results of which are regularly reviewed by a chief operating decision-maker to make resource allocation decisions and to assess performance. The operating segments that are regularly reported to our Chief Executive Officer (our chief operating decision-maker) are wireless and wireline.

 

A significant judgement we make is in respect of distinguishing between our wireless and wireline operations and cash flows, such distinction having been significantly affected by the convergence and integration of our wireless and wireline telecommunications infrastructure and technology. The continued build-out of our technology-agnostic fibre-optic infrastructure, in combination with converged edge technology, has significantly affected this judgment, as has the commercialization of fixed-wireless telecommunications solutions for customers. It has become increasingly impractical and impossible to objectively distinguish between our wireless and wireline operations and cash flows, and the assets from which those cash flows arise. Our judgment as to whether these operations can continue to be judged to be individual components of the business and discrete operating segments may change in the future.

 

As we do not currently aggregate operating segments, our currently reportable segments are also wireless and wireline. The wireless segment includes network revenues (data and voice) and equipment sales arising from mobile technologies. The wireline segment includes data revenues (which include Internet protocol; television; hosting, managed information technology and cloud-based services; business process outsourcing; and certain healthcare solutions), voice and other telecommunications services revenues (excluding wireless arising from mobile technologies), and equipment sales. Segmentation is based on similarities in technology (mobile versus fixed), the technical expertise required to deliver the service and products, customer characteristics, the distribution channels used and regulatory treatment. Intersegment sales are recorded at the exchange value, which is the amount agreed to by the parties.

 

 

15



 

notes to condensed interim consolidated financial statements

(unaudited)

 

The segment information regularly reported to our chief operating decision-maker, and the reconciliations thereof to our revenues and income before income taxes, are as set out in the following table.

 

Three-month periods ended

 

Wireless

 

Wireline

 

Eliminations

 

Consolidated

 

March 31 (millions)

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

Operating revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

$

1,679

 

$

1,580

 

$

1,348

 

$

1,344

 

$

 

$

 

$

3,027

 

$

2,924

 

Equipment

 

102

 

117

 

56

 

55

 

 

 

158

 

172

 

Revenues arising from contracts with customers

 

1,781

 

1,697

 

1,404

 

1,399

 

 

 

3,185

 

3,096

 

Other operating income

 

2

 

5

 

11

 

7

 

 

 

13

 

12

 

 

 

1,783

 

1,702

 

1,415

 

1,406

 

 

 

3,198

 

3,108

 

Intersegment revenues

 

11

 

14

 

52

 

47

 

(63

)

(61

)

 

 

 

 

$

1,794

 

$

1,716

 

$

1,467

 

$

1,453

 

$

(63

)

$

(61

)

$

3,198

 

$

3,108

 

EBITDA 1

 

$

820

 

$

756

 

$

441

 

$

384

 

$

 

$

 

$

1,261

 

$

1,140