EX-99.1 2 a18-9521_1ex99d1.htm EX-99.1

Exhibit 99.1

 



 

TELUS CORPORATION

 

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

(UNAUDITED)

 

MARCH 31, 2018

 



 

condensed interim consolidated statements of income and other comprehensive income

(unaudited)

 

 

 

 

 

Three months

 

Periods ended March 31 (millions except per share amounts)

 

Note

 

2018

 

2017

 

 

 

 

 

(Note 2(c))

 

(adjusted –
Note 2(c))

 

OPERATING REVENUES

 

 

 

 

 

 

 

Service

 

 

 

$

2,886

 

$

2,762

 

Equipment

 

 

 

465

 

408

 

Revenues arising from contracts with customers

 

6

 

3,351

 

3,170

 

Other operating income

 

7

 

26

 

13

 

 

 

 

 

3,377

 

3,183

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Goods and services purchased

 

 

 

1,408

 

1,324

 

Employee benefits expense

 

8

 

700

 

624

 

Depreciation

 

17

 

411

 

402

 

Amortization of intangible assets

 

18

 

139

 

130

 

 

 

 

 

2,658

 

2,480

 

OPERATING INCOME

 

 

 

719

 

703

 

Financing costs

 

9

 

156

 

138

 

INCOME BEFORE INCOME TAXES

 

 

 

563

 

565

 

Income taxes

 

10

 

151

 

143

 

NET INCOME

 

 

 

412

 

422

 

OTHER COMPREHENSIVE INCOME

 

11

 

 

 

 

 

Items that may subsequently be reclassified to income

 

 

 

 

 

 

 

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

 

 

 

(7

)

(9

)

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

 

 

 

(4

)

3

 

 

 

 

 

(11

)

(6

)

Items never subsequently reclassified to income

 

 

 

 

 

 

 

Change in measurement of investment financial assets

 

 

 

 

(2

)

Employee defined benefit plan re-measurements

 

 

 

(43

)

68

 

 

 

 

 

(43

)

66

 

 

 

 

 

(54

)

60

 

COMPREHENSIVE INCOME

 

 

 

$

358

 

$

482

 

NET INCOME ATTRIBUTABLE TO:

 

 

 

 

 

 

 

Common Shares

 

 

 

$

410

 

$

414

 

Non-controlling interests

 

 

 

2

 

8

 

 

 

 

 

$

412

 

$

422

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO:

 

 

 

 

 

 

 

Common Shares

 

 

 

$

357

 

$

472

 

Non-controlling interests

 

 

 

1

 

10

 

 

 

 

 

$

358

 

$

482

 

NET INCOME PER COMMON SHARE

 

12

 

 

 

 

 

Basic

 

 

 

$

0.69

 

$

0.70

 

Diluted

 

 

 

$

0.69

 

$

0.70

 

 

 

 

 

 

 

 

 

TOTAL WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

 

 

 

Basic

 

 

 

595

 

591

 

Diluted

 

 

 

595

 

591

 

 

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,
2018

 

December 31,
2017

 

January 1,
2017

 

 

 

 

 

 

 

(adjusted –
Note 2(c))

 

(Note 2(c))

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and temporary investments, net

 

 

 

$

415

 

$

509

 

$

432

 

Accounts receivable

 

6(b)

 

1,449

 

1,614

 

1,462

 

Income and other taxes receivable

 

 

 

15

 

96

 

9

 

Inventories

 

1(b)

 

347

 

380

 

320

 

Contract assets

 

6(c)

 

757

 

757

 

700

 

Prepaid expenses

 

20

 

614

 

493

 

443

 

Current derivative assets

 

4(e)

 

26

 

18

 

11

 

 

 

 

 

3,623

 

3,867

 

3,377

 

Non-current assets

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

17

 

11,482

 

11,368

 

10,464

 

Intangible assets, net

 

18

 

10,754

 

10,658

 

10,364

 

Goodwill, net

 

18

 

4,569

 

4,236

 

3,787

 

Contract assets

 

6(c)

 

377

 

396

 

352

 

Other long-term assets

 

20

 

480

 

528

 

733

 

 

 

 

 

27,662

 

27,186

 

25,700

 

 

 

 

 

$

31,285

 

$

31,053

 

$

29,077

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND OWNERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

22

 

$

100

 

$

100

 

$

100

 

Accounts payable and accrued liabilities

 

23

 

2,054

 

2,460

 

2,330

 

Income and other taxes payable

 

 

 

38

 

34

 

37

 

Dividends payable

 

13

 

299

 

299

 

284

 

Advance billings and customer deposits

 

24

 

624

 

632

 

584

 

Provisions

 

25

 

69

 

78

 

124

 

Current maturities of long-term debt

 

26

 

852

 

1,404

 

1,327

 

Current derivative liabilities

 

4(e)

 

6

 

33

 

12

 

 

 

 

 

4,042

 

5,040

 

4,798

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

Provisions

 

25

 

726

 

511

 

395

 

Long-term debt

 

26

 

13,138

 

12,256

 

11,604

 

Other long-term liabilities

 

27

 

873

 

847

 

736

 

Deferred income taxes

 

 

 

2,926

 

2,941

 

2,511

 

 

 

 

 

17,663

 

16,555

 

15,246

 

Liabilities

 

 

 

21,705

 

21,595

 

20,044

 

Owners’ equity

 

 

 

 

 

 

 

 

 

Common equity

 

28

 

9,508

 

9,416

 

9,014

 

Non-controlling interests

 

 

 

72

 

42

 

19

 

 

 

 

 

9,580

 

9,458

 

9,033

 

 

 

 

 

$

31,285

 

$

31,053

 

$

29,077

 

 

 

 

 

 

 

 

 

 

 

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, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As previously reported

 

 

 

590

 

$

5,029

 

$

372

 

$

2,474

 

$

42

 

$

7,917

 

$

19

 

$

7,936

 

IFRS 9, Financial Instruments transitional amount

 

2(a), 11

 

 

 

 

3

 

(3

)

 

 

 

IFRS 15, Revenue from Contracts with Customers transitional amount

 

2(c)

 

 

 

 

1,097

 

 

1,097

 

 

1,097

 

As adjusted

 

 

 

590

 

5,029

 

372

 

3,574

 

39

 

9,014

 

19

 

9,033

 

Net income

 

2(c)

 

 

 

 

414

 

 

414

 

8

 

422

 

Other comprehensive income

 

11

 

 

 

 

68

 

(10

)

58

 

2

 

60

 

Dividends

 

13

 

 

 

 

(283

)

 

(283

)

 

(283

)

Share option award net-equity settlement feature

 

14(d)

 

1

 

1

 

(1

)

 

 

 

 

 

Change in ownership interests of subsidiary

 

 

 

 

 

(3

)

 

 

(3

)

1

 

(2

)

Balance as at March 31, 2017

 

 

 

591

 

$

5,030

 

$

368

 

$

3,773

 

$

29

 

$

9,200

 

$

30

 

$

9,230

 

Balance as at January 1, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As previously reported

 

 

 

595

 

$

5,205

 

$

370

 

$

2,595

 

$

51

 

$

8,221

 

$

42

 

$

8,263

 

IFRS 9, Financial Instruments transitional amount

 

2(a), 11

 

 

 

 

4

 

(4

)

 

 

 

IFRS 15, Revenue from Contracts with Customers transitional amount

 

2(c)

 

 

 

 

1,195

 

 

1,195

 

 

1,195

 

As adjusted

 

 

 

595

 

5,205

 

370

 

3,794

 

47

 

9,416

 

42

 

9,458

 

Net income

 

 

 

 

 

 

410

 

 

410

 

2

 

412

 

Other comprehensive income

 

11

 

 

 

 

(43

)

(10

)

(53

)

(1

)

(54

)

Dividends

 

13

 

 

 

 

(299

)

 

(299

)

 

(299

)

Dividends reinvested and optional cash payments

 

13(b), 14(c)

 

 

20

 

 

 

 

20

 

 

20

 

Share option award net-equity settlement feature

 

14(d)

 

 

1

 

(1

)

 

 

 

 

 

Change in ownership interests of subsidiary

 

31(a)

 

 

 

14

 

 

 

14

 

29

 

43

 

Balance as at March 31, 2018

 

 

 

595

 

$

5,226

 

$

383

 

$

3,862

 

$

37

 

$

9,508

 

$

72

 

$

9,580

 

 

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

 

2018

 

2017

 

 

 

 

 

 

 

(adjusted –
Note 2(c))

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net income

 

 

 

$

412

 

$

422

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

550

 

532

 

Deferred income taxes

 

10

 

7

 

86

 

Share-based compensation expense, net

 

14(a)

 

18

 

16

 

Net employee defined benefit plans expense

 

15(a)

 

25

 

21

 

Employer contributions to employee defined benefit plans

 

 

 

(21

)

(22

)

Non-current contract assets

 

 

 

19

 

3

 

Other

 

 

 

4

 

(12

)

Net change in non-cash operating working capital

 

31(a)

 

(176

)

(337

)

Cash provided by operating activities

 

 

 

838

 

709

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

Cash payments for capital assets, excluding spectrum licences

 

31(a)

 

(738

)

(796

)

Cash payments for acquisitions, net

 

18(b)

 

(204

)

(12

)

Real estate joint ventures advances

 

21(c)

 

(6

)

(5

)

Real estate joint venture receipts

 

21(c)

 

1

 

3

 

Proceeds on disposition

 

 

 

15

 

3

 

Other

 

 

 

 

(15

)

Cash used by investing activities

 

 

 

(932

)

(822

)

FINANCING ACTIVITIES

 

31(b)

 

 

 

 

 

Dividends paid to holders of Common Shares

 

13(a)

 

(279

)

(284

)

Repayment of short-term borrowings

 

 

 

(6

)

 

Long-term debt issued

 

26

 

2,161

 

2,518

 

Redemptions and repayment of long-term debt

 

26

 

(1,895

)

(1,749

)

Issue of shares by subsidiary to non-controlling interests

 

31(a)

 

24

 

 

Other

 

 

 

(5

)

(10

)

Cash provided (used) by financing activities

 

 

 

 

475

 

CASH POSITION

 

 

 

 

 

 

 

Increase (decrease) in cash and temporary investments, net

 

 

 

(94

)

362

 

Cash and temporary investments, net, beginning of period

 

 

 

509

 

432

 

Cash and temporary investments, net, end of period

 

 

 

$

415

 

$

794

 

SUPPLEMENTAL DISCLOSURE OF OPERATING CASH FLOWS

 

 

 

 

 

 

 

Interest paid

 

 

 

$

(150

)

$

(142

)

Interest received

 

 

 

$

2

 

$

 

Income taxes paid, net

 

 

 

$

(56

)

$

(146

)

 

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, 2018

 

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; business process outsourcing; and home security.

 

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

 

14

 

4.              Financial instruments

 

16

 

Consolidated results of operations focused

 

 

 

5.              Segment information

 

22

 

6.              Revenue from contracts with customers

 

24

 

7.              Other operating income

 

25

 

8.              Employee benefits expense

 

26

 

9.              Financing costs

 

26

 

10.       Income taxes

 

27

 

11.       Other comprehensive income

 

28

 

12.       Per share amounts

 

29

 

13.       Dividends per share

 

29

 

14.       Share-based compensation

 

29

 

15.       Employee future benefits

 

32

 

16.       Restructuring and other costs

 

32

 

Consolidated financial position focused

 

 

 

17.       Property, plant and equipment

 

33

 

18.       Intangible assets and goodwill

 

34

 

19.       Leases

 

37

 

20.       Other long-term assets

 

38

 

21.       Real estate joint ventures

 

38

 

22.       Short-term borrowings

 

40

 

23.       Accounts payable and accrued liabilities

 

41

 

24.       Advance billings and customer deposits

 

41

 

25.       Provisions

 

42

 

26.       Long-term debt

 

43

 

27.       Other long-term liabilities

 

45

 

28.       Common Share capital

 

46

 

29.       Contingent liabilities

 

46

 

Other

 

 

 

30.       Related party transactions

 

48

 

31.       Additional statement of cash flow information

 

49

 

 

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, 2017.

 

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, 2017, other than as set out in Notes 2, 6, 8, 20 and 24. 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, 2018, were authorized by our Board of Directors for issue on May 10, 2018.

 

 

6



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(b)         Inventories

 

Our inventories primarily consist of wireless handsets, parts and accessories (totalling $281 million (December 31, 2017 — totalling $322 million (adjusted — Note 2(c)); January 1, 2017 — $268 million (Note 2(c))) and communications equipment held for resale. Costs of goods sold for the three-month period ended March 31, 2018, totalled $467 million (2017 — $408 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 2015-2017 Cycle were required to be applied for years beginning on or after January 1, 2019; such application has had no effect on our financial performance or disclosure.

 

·                  Amendments to standards arising from Annual Improvements to IFRSs 2014-2016 Cycle were 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.

 

·                  IFRS 9, Financial Instruments, is required to be applied for years beginning on or after January 1, 2018, with retrospective application. 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. Our financial performance is currently not materially affected by the retrospective application of the standard, nor is our financial position, as set out in (c) following.

 

The original measurement category and carrying amount of portfolio investments (see Note 20) determined in accordance with IAS 39, Financial Instruments: Recognition and Measurement of our investments, as set out in Note 20, and the measurement category and carrying amount determined under the new standard are as follows:

 

As at (millions)

 

December 31, 2017

 

January 1, 2017

 

 

 

As previously
reported

 

IFRS 9
effects

 

As currently
reported

 

As previously
reported

 

IFRS 9
effects

 

As currently
reported

 

Classified as

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale financial assets

 

$

41

 

$

(41

)

$

 

$

62

 

$

(62

)

$

 

Fair value through net income 1

 

 

20

 

20

 

 

41

 

41

 

Fair value through other comprehensive income

 

 

21

 

21

 

 

21

 

21

 

 

 

$

41

 

$

 

$

41

 

$

62

 

$

 

$

62

 

 


(1)         Arising from the classification of investments as accounted for at fair value through net income under the new standard, as at December 31, 2017, $4 (January 1, 2017 – $3), net of income tax effects of $1 (January 1, 2017 – $1), has been adjusted to retained earnings from accumulated other comprehensive income.

 

·                  IFRS 15, Revenue from Contracts with Customers, is required to be applied for years beginning on or after January 1, 2018. 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. We have applied 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; the effects on us of our retrospective application are set out in (c) following. Like many other telecommunications companies, we are 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 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 are 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) is no longer affected by the limitation cap methodology previously required by generally accepted accounting principles.

 

 

7



 

notes to condensed interim consolidated financial statements

(unaudited)

 

The effects of the timing of revenue recognition and the classification of revenue are most pronounced in our wireless results. Although the measurement of the total revenue recognized over the life of a contract is largely unaffected by the new standard, the prohibition of the use of the limitation cap methodology accelerates the recognition of total contract revenue, relative to both the associated cash inflows from customers and our previous practice (using the limitation cap methodology). The acceleration of the recognition of contract revenue relative to the associated cash inflows also results in the recognition of an amount reflecting the resulting difference as a contract asset. Although the underlying transaction economics do 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 previous practice (using the limitation cap methodology). Wireline results arising from transactions that include the initial provision of subsidized equipment or promotional pricing plans will be similarly affected.

 

We have retrospectively applied the new standard, such application having been subject to associated decisions in respect of transitional provisions and permitted practical expedients. The contract asset initially recorded upon transition to the new standard represents revenues that will not be, and have not been, reflected, at any time, in our periodic results of operations, but would have been if not for transitioning to the new standard; the effect of this “pulling forward” of revenues is expected to be somewhat muted by the composite ongoing inception, maturation and expiration of millions of multi-year contracts with our customers.

 

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 is unaffected by the new standard, but the timing of recognition is. The new standard results in our 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 previous practice (immediate expensing of such costs).

 

Implementation

 

Our operations and associated systems are complex and our accounting for millions of multi-year contracts with our customers was affected. Significantly, in order to effect the associated accounting, incremental compilation of historical data was necessary for the millions of already existing multi-year contracts with our customers that were in-scope for purposes of transitioning to the new standard.

 

After a multi-year expenditure of time and effort, we developed the necessary accounting policies, estimates, judgments and processes necessary to transition to the new standard. Upon completion of the implementation of these items, including implementation of the critical incremental requirements of our information technology systems, we completed the incremental compilation of historical data, as well as the accounting for that data, all of which is necessary to transition to the new standard.

 

We are using the following practical expedients provided for in, and transitioning to, the new standard:

 

·                  No restatement for contracts which were completed as at January 1, 2017, or earlier.

·                  No restatement for contracts which were modified prior to January 1, 2017. The aggregate effect of all such modifications will be reflected when identifying satisfied and unsatisfied performance obligations and the transaction prices to be allocated thereto and when determining the transaction prices.

·                  No disclosure of the aggregate transaction prices allocated to remaining unfulfilled, or partially unfulfilled, performance obligations for all periods ending prior to January 1, 2018.

 

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

 

·                  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. We are currently assessing the impacts and transition provisions of the new standard. 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.

 

 

8



 

notes to condensed interim consolidated financial statements

(unaudited)

 

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 currently be 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 currently be 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, and we expect that we will be similarly affected. The presentation on the statement of income and other comprehensive income required by the new standard will result in most non-executory lease expenses being presented as depreciation of right-of-use lease assets and financing costs arising from lease liabilities, rather than as a part of goods and services purchased; reported operating income would thus be higher under the new standard.

 

Relative to the results of applying the current standard, although 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 the result of the payments of the “principal” component of leases that would currently be 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 are currently considering applying the standard retrospectively with the cumulative effect of initially applying the new standard recognized at the date of initial application, January 1, 2019, subject to permitted and elected practical expedients; such method of application would not result in retrospective adjustment of amounts reported for fiscal periods prior to fiscal 2019. Our current estimate of the time and effort necessary to develop and 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 the latter half of 2018. 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.

 

Implementation

 

As a transitional practical expedient permitted by the new standard, we do not expect to reassess whether contracts are, or contain, leases as at January 1, 2019, using the criteria of the new standard; as at January 1, 2019, only contracts that were previously identified as leases applying IAS 17, Leases and IFRIC 4, Determining whether an Arrangement contains a Lease, will be a part of the transition to the new standard. Only contracts entered into (or changed) after January 1, 2019, will be assessed for being, or containing, leases applying the criteria of the new standard.

 

 

9



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(c)          Impacts of application of new standards in fiscal 2018

 

IFRS 15, Revenue from Contracts with Customers affected our Consolidated statements of income and other comprehensive income as follows:

 

Three-month periods ended March 31 (millions
except per share amounts)

 

2018

 

2017

 

 

 

Excluding
effects of
IFRS 15

 

IFRS 15
effects

 

As currently
reported

 

Excluding
effects of
IFRS 15

 

IFRS 15
effects

 

As currently
reported

 

Operating revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

$

3,192

 

$

(306

)

$

2,886

 

$

3,027

 

$

(265

)

$

2,762

 

Equipment

 

177

 

288

 

465

 

158

 

250

 

408

 

Revenues arising from contracts with customers

 

3,369

 

(18

)

3,351

 

3,185

 

(15

)

3,170

 

Other operating income 1

 

26

 

 

26

 

13

 

 

13

 

 

 

3,395

 

(18

)

3,377

 

3,198

 

(15

)

3,183

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Goods and services purchased

 

1,406

 

2

 

1,408

 

1,313

 

11

 

1,324

 

Employee benefits expense

 

702

 

(2

)

700

 

624

 

 

624

 

Depreciation

 

411

 

 

411

 

402

 

 

402

 

Amortization of intangible assets

 

139

 

 

139

 

130

 

 

130

 

 

 

2,658

 

 

2,658

 

2,469

 

11

 

2,480

 

Operating income

 

737

 

(18

)

719

 

729

 

(26

)

703

 

Financing costs

 

156

 

 

156

 

138

 

 

138

 

Income before income taxes

 

581

 

(18

)

563

 

591

 

(26

)

565

 

Income taxes

 

156

 

(5

)

151

 

150

 

(7

)

143

 

Net income

 

425

 

(13

)

412

 

441

 

(19

)

422

 

Other comprehensive income 1

 

(54

)

 

(54

)

60

 

 

60

 

Comprehensive income 1

 

$

371

 

$

(13

)

$

358

 

$

501

 

$

(19

)

$

482

 

Net income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

$

423

 

$

(13

)

$

410

 

$

433

 

$

(19

)

$

414

 

Non-controlling interest

 

2

 

 

2

 

8

 

 

8

 

 

 

$

425

 

$

(13

)

$

412

 

$

441

 

$

(19

)

$

422

 

Comprehensive income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

$

370

 

$

(13

)

$

357

 

$

491

 

$

(19

)

$

472

 

Non-controlling interest

 

1

 

 

1

 

10

 

 

10

 

 

 

$

371

 

$

(13

)

$

358

 

$

501

 

$

(19

)

$

482

 

Net income per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.71

 

$

(0.02

)

$

0.69

 

$

0.73

 

$

(0.03

)

$

0.70

 

Diluted

 

$

0.71

 

$

(0.02

)

$

0.69

 

$

0.73

 

$

(0.03

)

$

0.70

 

 


(1)         For the three-month period ended March 31, 2017, other operating income and the change in measurement of investment financial assets included within other comprehensive income was unchanged from the designation of financial assets as being accounted for either at fair value through net income or at fair value through other comprehensive income. Such designation of financial assets is required due to the retrospective implementation of IFRS 9, Financial Instruments.

 

 

10



 

notes to condensed interim consolidated financial statements

(unaudited)

 

The effects of the transition to IFRS 15 on the line items in the preceding table are set out below:

 

 

 

Amount of IFRS 15 effect (increase (decrease) in millions except per share amounts)

 

 

 

Allocation of transaction price (affecting timing of revenue recognition)

 

 

 

 

 

 

 

 

 

 

 

Costs incurred to obtain or fulfill a contract with a customer

 

 

 

 

 

 

 

 

 

 

 

Total

 

Three-month periods ended March 31

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

Operating revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

$

(306

)

$

(265

)

$

 

$

 

$

(306

)

$

(265

)

Equipment

 

$

288

 

$

250

 

$

 

$

 

$

288

 

$

250

 

Goods and services purchased

 

$

5

 

$

7

 

$

(3

)

$

4

 

$

2

 

$

11

 

Employee benefits expense

 

$

 

$

 

$

(2

)

$

 

$

(2

)

$

 

Income taxes

 

$

(6

)

$

(5

)

$

1

 

$

(2

)

$

(5

)

$

(7

)

Net income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

$

(17

)

$

(17

)

$

 

$

(2

)

$

(13

)

$

(19

)

Net income per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.03

)

$

(0.03

)

$

0.01

 

$

 

$

(0.02

)

$

(0.03

)

Diluted

 

$

(0.03

)

$

(0.03

)

$

0.01

 

$

 

$

(0.02

)

$

(0.03

)

 

Previously, costs incurred to obtain or fulfill a contract with a customer were expensed as incurred. The new standard requires that such costs be capitalized and subsequently recognized as an expense over the life of the contract on a rational, systematic basis consistent with the pattern of the transfer of goods or services to which the asset relates.

 

This has the effect of reducing the costs recognized in the period arising from contracts with customers entered into during the period, offset by the amortization of capitalized costs arising from contracts with customers entered into in previous periods.

 

Previously, a “limitation cap” constrained the recognition of revenue in a multiple element arrangement to an amount that was not contingent upon either delivering additional items or meeting other specified performance conditions. The new standard requires that amounts contingently billable and collectible in the future are to be recognized currently as revenue to the extent we have currently satisfied our performance obligations to the customer; this is the new standard’s most significant effect on us.

 

For a contract with a customer, this has the effect of allocating more of the consideration to equipment revenue, which is recognized at the inception of the contract, and less to future service revenue.

 

 

11



 

notes to condensed interim consolidated financial statements

(unaudited)

 

IFRS 15, Revenue from Contracts with Customers affected our Consolidated statements of financial positon as follows:

 

As at (millions)

 

March 31, 2018

 

December 31, 2017 1

 

January 1, 2017

 

 

 

Excluding effects
of IFRS 15

 

IFRS 15
effects

 

As currently
reported

 

Excluding effects
of IFRS 15

 

IFRS 15
effects

 

As currently
reported

 

Excluding effects
of IFRS 15

 

IFRS 15
effects

 

As currently
reported

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and temporary investments, net

 

$

415

 

$

 

$

415

 

$

509

 

$

 

$

509

 

$

432

 

$

 

$

432

 

Accounts receivable

 

1,457

 

(8

)

1,449

 

1,623

 

(9

)

1,614

 

1,471

 

(9

)

1,462

 

Income and other taxes receivable

 

15

 

 

15

 

96

 

 

96

 

9

 

 

9

 

Inventories

 

345

 

2

 

347

 

378

 

2

 

380

 

318

 

2

 

320

 

Contract assets

 

 

757

 

757

 

 

757

 

757

 

 

700

 

700

 

Prepaid expenses

 

377

 

237

 

614

 

260

 

233

 

493

 

233

 

210

 

443

 

Current derivative assets

 

26

 

 

26

 

18

 

 

18

 

11

 

 

11

 

 

 

2,635

 

988

 

3,623

 

2,884

 

983

 

3,867

 

2,474

 

903

 

3,377

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

11,482

 

 

11,482

 

11,368

 

 

11,368

 

10,464

 

 

10,464

 

Intangible assets, net

 

10,754

 

 

10,754

 

10,658

 

 

10,658

 

10,364

 

 

10,364

 

Goodwill, net

 

4,569

 

 

4,569

 

4,236

 

 

4,236

 

3,787

 

 

3,787

 

Contract assets

 

 

377

 

377

 

 

396

 

396

 

 

352

 

352

 

Other long-term assets

 

372

 

108

 

480

 

421

 

107

 

528

 

640

 

93

 

733

 

 

 

27,177

 

485

 

27,662

 

26,683

 

503

 

27,186

 

25,255

 

445

 

25,700

 

 

 

$

29,812

 

$

1,473

 

$

31,285

 

$

29,567

 

$

1,486

 

$

31,053

 

$

27,729

 

$

1,348

 

$

29,077

 

LIABILITIES AND OWNERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

100

 

$

 

$

100

 

$

100

 

$

 

$

100

 

$

100

 

$

 

$

100

 

Accounts payable and accrued liabilities

 

2,054

 

 

2,054

 

2,460

 

 

2,460

 

2,330

 

 

2,330

 

Income and other taxes payable

 

38

 

 

38

 

34

 

 

34

 

37

 

 

37

 

Dividends payable

 

299

 

 

299

 

299

 

 

299

 

284

 

 

284

 

Advance billings and customer deposits

 

769

 

(145

)

624

 

782

 

(150

)

632

 

737

 

(153

)

584

 

Provisions

 

69

 

 

69

 

78

 

 

78

 

124

 

 

124

 

Current maturities of long-term debt

 

852

 

 

852

 

1,404

 

 

1,404

 

1,327

 

 

1,327

 

Current derivative liabilities

 

6

 

 

6

 

33

 

 

33

 

12

 

 

12

 

 

 

4,187

 

(145

)

4,042

 

5,190

 

(150

)

5,040

 

4,951

 

(153

)

4,798

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisions

 

726

 

 

726

 

511

 

 

511

 

395

 

 

395

 

Long-term debt

 

13,138

 

 

13,138

 

12,256

 

 

12,256

 

11,604

 

 

11,604

 

Other long-term liabilities

 

873

 

 

873

 

847

 

 

847

 

736

 

 

736

 

Deferred income taxes

 

2,490

 

436

 

2,926

 

2,500

 

441

 

2,941

 

2,107

 

404

 

2,511

 

 

 

17,227

 

436

 

17,663

 

16,114

 

441

 

16,555

 

14,842

 

404

 

15,246

 

Liabilities

 

21,414

 

291

 

21,705

 

21,304

 

291

 

21,595

 

19,793

 

251

 

20,044

 

Owners’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity

 

8,326

 

1,182

 

9,508

 

8,221

 

1,195

 

9,416

 

7,917

 

1,097

 

9,014

 

Non-controlling interests

 

72

 

 

72

 

42

 

 

42

 

19

 

 

19

 

 

 

8,398

 

1,182

 

9,580

 

8,263

 

1,195

 

9,458

 

7,936

 

1,097

 

9,033

 

 

 

$

29,812

 

$

1,473

 

$

31,285

 

$

29,567

 

$

1,486

 

$

31,053

 

$

27,729

 

$

1,348

 

$

29,077

 

 


(1)    Goodwill and non-current provisions have been adjusted as set out in Note 18(c).

 

 

12



 

notes to condensed interim consolidated financial statements

(unaudited)

 

The effects of the transition to IFRS 15 on the line items in the preceding table are set out below:

 

 

 

Amount of IFRS 15 effect (increase (decrease) in millions)

 

 

 

Allocation of transaction price (affecting timing of revenue recognition)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts incurred to obtain or fulfill a contract with a customer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

As at

 

Mar. 31,
2018

 

Dec. 31,
2017

 

Jan. 1,
2017

 

Mar. 31,
2018

 

Dec. 31,
2017

 

Jan. 1,
2017

 

Mar. 31,
2018

 

Dec. 31,
2017

 

Jan. 1,
2017

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$

(8

)

$

(9

)

$

(9

)

$

 

$

 

$

 

$

(8

)

$

(9

)

$

(9

)

Inventories

 

$

2

 

$

2

 

$

2

 

$

 

$

 

$

 

$

2

 

$

2

 

$

2

 

Contract assets, net

 

$

757

 

$

757

 

$

700

 

$

 

$

 

$

 

$

757

 

$

757

 

$

700

 

Prepaid expenses and other

 

$

 

$

 

$

 

$

237

 

$

233

 

$

210

 

$

237

 

$

233

 

$

210

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract assets, net

 

$

377

 

$

396

 

$

352

 

$

 

$

 

$

 

$

377

 

$

396

 

$

352

 

Other long-term assets

 

$

 

$

 

$

 

$

108

 

$

107

 

$

93

 

$

108

 

$

107

 

$

93

 

Advance billings and customer deposits

 

$

(145

)

$

(150

)

$

(153

)

$

 

$

 

$

 

$

(145

)

$

(150

)

$

(153

)

Deferred income taxes

 

$

343

 

$

349

 

$

322

 

$

93

 

$

92

 

$

82

 

$

436

 

$

441

 

$

404

 

Retained earnings

 

$

930

 

$

947

 

$

876

 

$

252

 

$

248

 

$

221

 

$

1,182

 

$

1,195

 

$

1,097

 

 

Previously, costs incurred to obtain or fulfill a contract with a customer were expensed as incurred. The new standard requires that such costs be capitalized and subsequently recognized as an expense over the life of the contract on a rational, systematic basis consistent with the pattern of the transfer of goods or services to which the asset relates.

 

Increases in the amount of costs capitalized in the period arising from contracts with customers entered into during the period are offset by the amortization of capitalized costs arising from contracts with customers entered into in previous periods.

 

Previously, a “limitation cap” constrained the recognition of revenue in a multiple element arrangement to an amount that was not contingent upon either delivering additional items or meeting other specified performance conditions. The new standard requires that amounts contingently billable and collectible in the future are to be recognized currently as revenue to the extent we have currently satisfied our performance obligations to the customer; this is the new standard’s most significant effect on us.

 

The difference between the revenue recognized currently and the amount currently collected/collectible is recognized on the statement of financial position as a contract asset.

 

The contract asset recorded at January 1, 2017, represents revenues that will not be, and have not been, reflected at any time in our periodic results of operations, but would have been if not for transitioning to the new standard; the effect of this “pulling forward” of revenues is expected to be somewhat muted by the composite ongoing inception, maturation and expiration of millions of multi-year contracts with our customers.

 

IFRS 15, Revenue from Contracts with Customers affected our Consolidated statements of cash flows as follows:

 

Three-month periods ended March 31 (millions
except per share amounts)

 

2018

 

2017

 

 

 

Excluding
effects of
IFRS 15

 

IFRS 15
effects

 

As currently
reported

 

Excluding
effects of
IFRS 15

 

IFRS 15
effects

 

As currently
reported

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income 1

 

$

425

 

$

(13

)

$

412

 

$

441

 

$

(19

)

$

422

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

550

 

 

550

 

532

 

 

532

 

Deferred income taxes

 

12

 

(5

)

7

 

93

 

(7

)

86

 

Share-based compensation expense, net

 

18

 

 

18

 

16

 

 

16

 

Net employee defined benefit plans expense

 

25

 

 

25

 

21

 

 

21

 

Employer contributions to employee defined benefit plans

 

(21

)

 

(21

)

(22

)

 

(22

)

Non-current contract assets

 

 

19

 

19

 

 

3

 

3

 

Other 1

 

5

 

(1

)

4

 

(19

)

7

 

(12

)

Net change in non-cash operating working capital

 

(176

)

 

(176

)

(353

)

16

 

(337

)

Cash provided by operating activities

 

$

838

 

$

 

$

838

 

$

709

 

$

 

$

709

 

 


(1)         For the three-month period ended March 31, 2017, net income and other reflect no change arising from the designation of financial assets as being accounted for either at fair value through net income or at fair value through other comprehensive income. Such designation of financial assets is required due to the retrospective implementation of IFRS 9, Financial Instruments.

 

 

13



 

notes to condensed interim consolidated financial statements

(unaudited)

 

3                 capital structure financial policies

 

General

 

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 business. 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.

 

During 2018, our financial objectives, which are reviewed annually, were unchanged from 2017. We believe that our financial objectives are supportive of our long-term strategy.

 

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 ratio; coverage ratios; and dividend payout ratios. Through the course of fiscal 2018, we will monitor these measures excluding the effects of implementing IFRS 9 and IFRS 15 (see Note 2(a)).

 

Debt and coverage 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 and EBITDA — excluding restructuring and other costs 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.

 

 

 

 

 

2018

 

2017

 

As at, or for the 12-month periods ended, March 31 ($ in millions)

 

Objective

 

As currently
reported

 

Excluding effects of implementing
IFRS 9 and IFRS 15 
1

 

Components of debt and coverage ratios

 

 

 

 

 

 

 

 

 

Net debt 2

 

 

 

$

13,785

 

$

13,785

 

$

13,054 

 

EBITDA — excluding restructuring and other costs 3

 

 

 

$

5,091

 

$

4,973

 

$

4,785 

 

Net interest cost 4

 

 

 

$

582

 

$

582

 

$

564 

 

Debt ratio

 

 

 

 

 

 

 

 

 

Net debt to EBITDA — excluding restructuring and other costs

 

2.00 – 2.50 5

 

2.71

 

2.77

 

2.73

 

Coverage ratios

 

 

 

 

 

 

 

 

 

Earnings coverage 6

 

 

 

4.8

 

4.5

 

4.1

 

EBITDA — excluding restructuring and other costs interest coverage 7

 

 

 

8.8

 

8.5

 

8.5

 

 


(1)         We have not recast comparative amounts for purposes of managing capital; as set out in Note 2(a), a practical expedient that we are using in transitioning to IFRS 15 is that we are not recasting for contracts that were completed as at January 1, 2017, or earlier. Accordingly, amounts prior to fiscal 2017 included in the comparative 12-month period ended March 31, 2017, have not been prepared on a basis including IFRS 9 and IFRS 15. For purposes of assessing results compared to the prior period, we have excluded the effects of implementing IFRS 9 and IFRS 15 from our fiscal 2018 results.

 

* 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.

 

 

14



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(2)         Net debt is calculated as follows:

 

As at March 31

 

Note

 

2018

 

2017

 

Long-term debt

 

26

 

$

13,990

 

$

13,677

 

Debt issuance costs netted against long-term debt

 

 

 

75

 

75

 

Derivative (assets) liabilities, net

 

 

 

59

 

38

 

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)

 

 

 

(24

)

(42

)

Cash and temporary investments, net

 

 

 

(415

)

(794

)

Short-term borrowings

 

22

 

100

 

100

 

Net debt

 

 

 

$

13,785

 

$

13,054

 

 

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

 

 

 

As currently reported

 

Excluding effects of implementing
IFRS 9 and IFRS 15

 

 

 

EBITDA
(Note 5)

 

Restructuring
and other costs
(Note 16)

 

EBITDA –
excluding
restructuring
and other costs

 

EBITDA
(Note 5)

 

Restructuring
and other costs
(Note 16)

 

EBITDA –
excluding
restructuring
and other costs

 

 

 

(adjusted –
Note 2(c))

 

 

 

 

 

 

 

 

 

 

 

Add

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-month period ended March 31, 2018

 

$

1,269

 

$

34

 

$

1,303

 

$

1,287

 

$

38

 

$

1,325

 

Year ended December 31, 2017

 

4,910

 

117

 

5,027

 

4,774

 

139

 

4,913

 

Deduct

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-month period ended March 31, 2017

 

(1,235

)

(4

)

(1,239

)

(1,261

)

(4

)

(1,265

)

 

 

$

4,944

 

$

147

 

$

5,091

 

$

4,800

 

$

173

 

$

4,973

 

 

(4)         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).

(5)         Our long-term objective range for this ratio is 2.00 — 2.50 times. The ratio as at March 31, 2018, is outside the long-term objective range. 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.

(6)         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.

(7)         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.

 

Excluding the effects of implementing IFRS 9 and IFRS 15, net debt to EBITDA — excluding restructuring and other costs was 2.77 times as at March 31, 2018, up from 2.73 times one year earlier. The increase in net debt exceeded the growth in EBITDA — excluding restructuring and other costs. Excluding the effects of implementing IFRS 9 and IFRS 15, the earnings coverage ratio for the twelve-month period ended March 31, 2018, was 4.5 times, up from 4.1 times one year earlier. Higher borrowing costs reduced the ratio by 0.1 and an increase in income before borrowing costs and income taxes increased the ratio by 0.5. Excluding the effects of implementing IFRS 9 and IFRS 15, the EBITDA — excluding restructuring and other costs interest coverage ratio for the twelve-month period ended March 31, 2018, was 8.5 times, unchanged from one year earlier. Growth in EBITDA — excluding restructuring and other costs increased the ratio by 0.3, while an increase in net interest costs reduced the ratio by 0.3.

 

Dividend payout ratio

 

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, provisions related to business combinations, immediately vesting transformative compensation expense, long-term debt prepayment premium and income tax-related adjustments.

 

 

 

 

 

2018

 

2017

 

For the 12-month periods ended March 31 ($ in millions)

 

Objective

 

As currently
reported

 

Excluding effects of implementing
IFRS 9 and IFRS 15

 

Dividend payout ratio

 

65%–75% 1

 

76

%

82

%

87

%

Dividend payout ratio of adjusted net earnings 

 

 

 

76

%

82

%

76

%

 

 

15



 

notes to condensed interim consolidated financial statements

(unaudited)

 


(1)         Our objective range for the dividend payout ratio is 65%—75% of sustainable earnings on a prospective basis; we currently expect that we will be within our target guideline on a prospective basis within the medium term. Adjusted net earnings attributable to Common Shares is calculated as follows:

 

 

 

2018

 

2017

 

12-month periods ended March 31

 

As currently
reported

 

Excluding effects of implementing
IFRS 9 and IFRS 15

 

 

 

(adjusted –
 Note 2(c))

 

 

 

 

 

Net income attributable to Common Shares

 

$

1,555

 

$

1,450

 

$

1,278

 

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

 

(1

)

(1

)

(16

)

Business acquisition-related provisions, after income taxes

 

(22

)

(22

)

11

 

Income tax-related adjustments

 

21

 

21

 

(18

)

Gain on exchange of wireless spectrum licences, after income taxes

 

 

 

(13

)

Immediately vesting transformative compensation expense, after income taxes

 

 

 

224

 

Adjusted net earnings attributable to Common Shares

 

$

1,553

 

$

1,448

 

$

1,466

 

 

4                 financial instruments

 

(a)         Risks — overview

 

Our financial instruments, and the nature of certain risks to which they may be subject, are as set out in the following table.

 

 

 

Risks

 

 

 

 

 

 

 

Market risks

 

Financial instrument

 

Credit

 

Liquidity

 

Currency

 

Interest rate

 

Other price

 

Measured at amortized cost

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

X

 

 

 

X

 

 

 

 

 

Contract assets

 

X

 

 

 

 

 

 

 

 

 

Construction credit facilities advances to real estate joint venture

 

 

 

 

 

 

 

X

 

 

 

Short-term obligations

 

 

 

X

 

X

 

X

 

 

 

Accounts payable

 

 

 

X

 

X

 

 

 

 

 

Provisions (including restructuring accounts payable)

 

 

 

X

 

X

 

 

 

X

 

Long-term debt

 

 

 

X

 

X

 

X

 

 

 

Measured at fair value

 

 

 

 

 

 

 

 

 

 

 

Cash and temporary investments

 

X

 

 

 

X

 

X

 

 

 

Long-term investments (not subject to significant influence) 1

 

 

 

 

 

X

 

 

 

X

 

Foreign exchange derivatives 2

 

X

 

X

 

X

 

 

 

 

 

Share-based compensation derivatives 2

 

X

 

X

 

 

 

 

 

X

 

 


(1)         Long-term investments over which we do not have significant influence are measured at fair value if those fair values can be reliably measured.

(2)         Use of derivative financial instruments is subject to a policy which requires that no derivative transaction is to be entered into for the purpose of establishing a speculative or leveraged position (the corollary being that all derivative transactions are to be entered into for risk management purposes only) and sets criteria for the creditworthiness of the transaction counterparties.

 

Derivative financial instruments

 

We apply hedge accounting to financial instruments used to establish hedge accounting relationships for U.S. dollar-denominated transactions and to fix the cost of some share-based compensation. We believe that our use of derivative financial instruments for hedging or arbitrage assists us in managing our financing costs and/or lessening the uncertainty associated with our financing or other business activities. Uncertainty associated with currency risk and other price risk is lessened through our use of foreign exchange derivatives and share-based compensation derivatives that effectively swap currency exchange rates and share prices from floating rates and prices to fixed rates and prices. When entering into derivative financial instrument contracts, we seek to align the cash flow timing of the hedging items with that of the hedged items. The effects of the risk management strategy and its application are set out in (f) following.

 

 

16



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(b)         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 set out in the following table:

 

As at (millions)

 

March 31,
2018

 

December 31,
2017

 

January 1,
2017

 

 

 

 

 

(adjusted –
Note 2(c))

 

(Note 2(c))

 

Cash and temporary investments, net

 

$

415

 

$

509

 

$

432

 

Accounts receivable

 

1,449

 

1,614

 

1,462

 

Contract assets

 

1,134

 

1,153

 

1,052

 

Derivative assets

 

29

 

24

 

17

 

 

 

$

3,027

 

$

3,300

 

$

2,963

 

 

Cash and temporary investments, net

 

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 evaluates 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.

 

As at March 31, 2018, the weighted average age of customer accounts receivable was 28 days (December 31, 2017 — 26 days; January 1, 2017 — 26 days) and the weighted average age of past-due customer accounts receivable was 59 days (December 31, 2017 — 60 days; January 1, 2017 — 61 days). Accounts are considered past-due (in default) when the customers have failed to make the contractually required payments when due, which is generally within 30 days of the billing date. Any late payment charges are levied at an industry-based market or negotiated rate on outstanding non-current customer account balances.

 

As at (millions)

 

March 31, 2018

 

December 31, 2017

 

January 1, 2017

 

 

 

Gross

 

Allowance

 

Net 1
(Note 6(b))

 

Gross

 

Allowance

 

Net 1
(Note 6(b))

 

Gross

 

Allowance

 

Net 1
(Note 6(b))

 

 

 

 

 

 

 

 

 

 

 

 

 

(adjusted –
Note 2(c))

 

 

 

 

 

(Note 2(c))

 

Customer accounts receivable, net of allowance for doubtful accounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 30 days past billing date

 

$

791

 

$

(10

)

$

781

 

$

900

 

$

(5

)

$

895

 

$

899

 

$

(11

)

$

888

 

30-60 days past billing date

 

234

 

(9

)

225

 

185

 

(8

)

177

 

185

 

(9

)

176

 

61-90 days past billing date

 

71

 

(8

)

63

 

60

 

(8

)

52

 

44

 

(9

)

35

 

More than 90 days past billing date

 

68

 

(20

)

48

 

67

 

(22

)

45

 

80

 

(25

)

55

 

 

 

$

1,164

 

$

(47

)

$

1,117

 

$

1,212

 

$

(43

)

$

1,169

 

$

1,208

 

$

(54

)

$

1,154

 

 


(1)             Net amounts represent customer accounts receivable for which an allowance had not been made as at the dates of the Consolidated statements of financial position.

 

We maintain allowances for lifetime expected credit losses related to doubtful accounts. Current economic conditions (including forward-looking macroeconomic data), historical information (including credit agency reports, if available), 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; written off amounts charged to the customer accounts receivable allowance for doubtful accounts but were still subject to enforcement activity as at March 31, 2018, were $341 million (December 31, 2017 — $298 million; January 1, 2017 — $231 million). 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.

 

 

17



 

notes to condensed interim consolidated financial statements

(unaudited)

 

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

 

 

 

Three months

 

Periods ended March 31 (millions)

 

2018

 

2017

 

Balance, beginning of period

 

$

43

 

$

54

 

Additions (doubtful accounts expense)

 

16

 

17

 

Accounts written off, net of recoveries

 

(14

)

(21

)

Other

 

2

 

 

Balance, end of period

 

$

47

 

$

50

 

 

Contract assets

 

Credit risk associated with contract assets 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.

 

As at (millions)

 

March 31, 2018

 

December 31, 2017

 

January 1, 2017

 

 

 

Gross

 

Allowance

 

Net
(Note 6(c))

 

Gross

 

Allowance

 

Net
(Note 6(c))

 

Gross

 

Allowance

 

Net
(Note 6(c))

 

 

 

 

 

 

 

 

 

 

 

 

 

(Note 2(c))

 

 

 

 

 

(Note 2(c))

 

Contract assets, net of impairment allowance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To be billed and thus reclassified to accounts receivable during:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The 12-month period ending one year hence

 

$

954

 

$

(52

)

$

902

 

$

958

 

$

(51

)

$

907

 

$

901

 

$

(48

)

$

853

 

The 12-month period ending two years hence

 

387

 

(21

)

366

 

407

 

(22

)

385

 

359

 

(21

)

338

 

Thereafter

 

12

 

(1

)

11

 

11

 

 

11

 

15

 

(1

)

14

 

 

 

$

1,353

 

$

(74

)

$

1,279

 

$

1,376

 

$

(73

)

$

1,303

 

$

1,275

 

$

(70

)

$

1,205

 

 

We maintain allowances for lifetime expected credit losses related to contract assets. Current economic conditions, historical information (including credit agency reports, if available), the line of business from which the contract asset arose are all considered when determining impairment allowances. The same factors are considered when determining whether to write off amounts charged to the impairment allowance for contract assets against contract assets

 

The following table presents a summary of the activity related to our contract asset impairment allowance.

 

 

 

Three-month periods ended
March 31

 

Year ended
December 31,

 

(millions)

 

2018

 

2017

 

2017

 

Balance, beginning of period

 

$

73

 

$

 

$

 

Transitional amount

 

 

70

 

70

 

Adjusted opening balance

 

73

 

70

 

70

 

Additions (doubtful accounts expense)

 

12

 

11

 

39

 

Other

 

(11

)

(8

)

(36

)

Balance, end of period

 

$

74

 

$

73

 

$

73

 

 

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 total dollar amount of credit exposure under contracts with any one financial institution is limited and counterparties’ credit ratings 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 the risk of 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.

 

(c)          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 and bilateral bank facilities (Note 22), maintaining a commercial paper program (Note 26(c)) and maintain syndicated credit facilities (Note 26(d),(e));

 

 

18



 

notes to condensed interim consolidated financial statements

(unaudited)

 

·                  maintaining an in-effect shelf prospectus (our shelf prospectus that was in effect as at March, 31, 2018, expired in April 2018; we intend to file a new shelf prospectus during the three-month period ending June 30, 2018);

·                  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, 2018, we could offer $0.5 billion of debt or equity securities pursuant to a shelf prospectus that was in effect until April 2018 (December 31, 2017 — $1.2 billion pursuant to a shelf prospectus that was in effect until April 2018); we intend to file a new shelf prospectus during the three-month period ending June 30, 2018. 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 set out in the following tables:

 

 

 

Non-derivative

 

Derivative

 

 

 

 

 

Non-interest

 

 

 

Construction

 

Composite long-term debt

 

 

 

 

 

 

 

 

 

bearing

 

 

 

credit facilities

 

Long-term

 

Currency swap agreement

 

Currency swap agreement

 

 

 

 

 

financial

 

Short-term

 

commitment 2

 

debt 1

 

 amounts to be exchanged 3

 

amounts to be exchanged

 

 

 

As at March 31, 2018 (millions)

 

liabilities

 

borrowings 1

 

(Note 21)

 

(Note 26)

 

(Receive)

 

Pay

 

(Receive)

 

Pay

 

Total

 

2018

 

$

1,749

 

$

102

 

$

61

 

$

1,256

 

$

(870

)

$

864

 

$

(429

)

$

426

 

$

3,159

 

2019

 

100

 

 

 

1,567

 

(46

)

46

 

(120

)

117

 

1,664

 

2020

 

225

 

 

 

1,516

 

(46

)

46

 

 

 

1,741

 

2021

 

119

 

 

 

1,516

 

(46

)

46

 

 

 

1,635

 

2022

 

18

 

 

 

2,045

 

(46

)

46

 

 

 

2,063

 

Thereafter

 

4

 

 

 

12,526

 

(1,635

)

1,679

 

 

 

12,574

 

Total

 

$

2,215

 

$

102

 

$

61

 

$

20,426

 

$

(2,689

)

$

2,727

 

$

(549

)

$

543

 

$

22,836

 

 

 

 

 

 

 

 

 

Total (Note 26(f))

 

$

20,464

 

 

 

 

 

 

 

 


(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, 2018.

(2)              The drawdowns on the construction credit facilities are expected to occur as construction progresses through 2019.

(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, 2018. 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

 

 

 

 

 

Non-interest

 

 

 

Construction

 

Composite long-term debt

 

 

 

 

 

 

 

 

 

bearing

 

 

 

credit facilities

 

Long-term

 

Currency swap agreement

 

Currency swap agreement

 

 

 

As at December 31, 2017

 

financial

 

Short-term

 

commitment 2

 

debt 1

 

 amounts to be exchanged 3

 

amounts to be exchanged

 

 

 

(millions)

 

liabilities

 

borrowings 1

 

(Note 21)

 

(Note 26)

 

(Receive)

 

Pay

 

(Receive)

 

Pay

 

Total

 

2018

 

$

2,232

 

$

103

 

$

67

 

$

1,928

 

$

(1,188

)

$

1,206

 

$

(545

)

$

557

 

$

4,360

 

2019

 

40

 

 

 

1,531

 

(44

)

46

 

 

 

1,573

 

2020

 

19

 

 

 

1,480

 

(44

)

46

 

 

 

1,501

 

2021

 

95

 

 

 

1,480

 

(44

)

46

 

 

 

1,577

 

2022

 

18

 

 

 

1,913

 

(44

)

46

 

 

 

1,933

 

Thereafter

 

16

 

 

 

11,430

 

(1,591

)

1,679

 

 

 

11,534

 

Total

 

$

2,420

 

$

103

 

$

67

 

$

19,762

 

$

(2,955

)

$

3,069

 

$

(545

)

$

557

 

$

22,478

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

19,876

 

 

 

 

 

 

 

 


(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, 2017

(2)              The drawdowns on the construction credit facilities are expected to occur as construction progresses through 2019.

(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, 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.

 

(d)         Market risks

 

Net income and other comprehensive income for the three-month periods ended March 31, 2018 and 2017, 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

 

 

19



 

notes to condensed interim consolidated financial statements

(unaudited)

 

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)

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

Reasonably possible changes in market risks 1

 

 

 

 

 

 

 

 

 

 

 

 

 

10% change in C$: US$ exchange rate

 

 

 

 

 

 

 

 

 

 

 

 

 

Canadian dollar appreciates

 

$

 

$

 

$

(4

)

$

(13

)

$

(4

)

$

(13

)

Canadian dollar depreciates

 

$

 

$

 

$

4

 

$

18

 

$

4

 

$

18

 

25% 2 change in Common Share price 3

 

 

 

 

 

 

 

 

 

 

 

 

 

Price increases

 

$

(12

)

$

(9

)

$

22

 

$

23

 

$

10

 

$

14

 

Price decreases

 

$

14

 

$

7

 

$

(22

)

$

(23

)

$

(8

)

$

(16

)

 


(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, 2018, was 4.7% (2017 – 3.8%).

 

(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.

 

(e)          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 provisions) 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 fair values of our investment financial assets 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 risk are estimated based on 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 on 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).

 

 

20



 

notes to condensed interim consolidated financial statements

(unaudited)

 

Derivative

 

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

 

As at (millions)

 

March 31, 2018

 

December 31, 2017

 

 

 

Designation

 

Maximum
maturity date

 

Notional
amount

 

Fair value 1 and
carrying value

 

Price or
rate

 

Maximum
maturity date

 

Notional
amount

 

Fair value 1 and
carrying value

 

Price or
rate

 

Current Assets 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives used to manage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

HFH 3

 

2019

 

$

333

 

$

9

 

US$1.00: C$1.25

 

2018

 

$

110

 

$

2

 

US$1.00: C$1.24

 

Currency risks arising from U.S. dollar revenues

 

HFT 4

 

2019

 

$

4

 

 

US$1.00: C$1.29

 

2018

 

$

71

 

1

 

US$1.00: C$1.25

 

Changes in share-based compensation costs (Note 14(b))

 

HFH 3

 

2018

 

$

76

 

10

 

$ 41.08

 

2018

 

$

73

 

14

 

$40.91

 

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

 

HFH 3

 

2018

 

$

472

 

7

 

US$1.00: C$1.27

 

2018

 

$

124

 

1

 

US$1.00: C$1.24

 

 

 

 

 

 

 

 

 

$

26

 

 

 

 

 

 

 

$

18

 

 

 

Other Long-Term Assets 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives used to manage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in share-based compensation costs (Note 14(b))

 

HFH 3

 

2019

 

$

65

 

$

3

 

$ 45.53

 

2019

 

$

63

 

$

6

 

$ 45.46

 

Current Liabilities 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives used to manage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

HFH 3

 

2019

 

$

131

 

$

4

 

US$1.00: C$1.33

 

2018

 

$

376

 

$

14

 

US$1.00: C$1.30

 

Currency risks arising from U.S. dollar revenues

 

HFT 4

 

2019

 

$

74

 

1

 

US$1.00: C$1.29

 

 

$

 

 

 

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

 

HFH 3

 

2018

 

$

368

 

1

 

US$1.00: C$1.29

 

2018

 

$

1,036

 

18

 

US$1.00: C$1.28

 

Interest rate risk associated with planned refinancing of debt maturing

 

HFH 3

 

 

$

 

 

 

2018

 

$

300

 

1

 

2.14%, GOC 10-year term

 

 

 

 

 

 

 

 

 

$

6

 

 

 

 

 

 

 

$

33

 

 

 

Other Long-Term Liabilities 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives used to manage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in share-based compensation costs (Note 14(b))

 

HFH 3

 

2020

 

$

67

 

$

 

$ 48.71

 

 

$

 

$

 

$ —

 

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

 

HFH 3

 

2027

 

$

1,887

 

65

 

US$1.00: C$1.32

 

2027

 

$

1,910

 

76

 

US$1.00: C$1.32

 

 

 

 

 

 

 

 

 

$

65

 

 

 

 

 

 

 

$

76

 

 

 

 


(1)             Fair value measured at reporting date using significant other observable inputs (Level 2).

 

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

 

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

 

Unless otherwise noted, hedge ratio is 1:1 and is established by assessing the degree of matching between the notional amounts of hedging items and the notional amounts of the associated hedged items.

 

(4)             Designated as held for trading (HFT), and classified as fair value through net income, upon initial recognition; hedge accounting is not applied.

 

Non-derivative

 

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

 

As at (millions)

 

March 31, 2018

 

December 31, 2017

 

 

 

Carrying
value

 

Fair value

 

Carrying
value

 

Fair value

 

Long-term debt (Note 26)

 

$

13,990

 

$

14,480

 

$

13,660

 

$

14,255

 

 

 

21



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(f)           Recognition of derivative gains and losses

 

The following table sets out the gains and losses, excluding income tax effects, arising from derivative instruments that are classified as cash flow hedging items and their location within the Consolidated statements of income and other comprehensive income.

 

Credit risk associated with such derivative instruments, as discussed further in (b), would be the primary source of hedge ineffectiveness. 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 11)

 

 

 

 

 

(effective portion) (Note 11)

 

 

 

Amount

 

Three-month periods ended March 31 (millions)

 

Note

 

2018

 

2017

 

Location

 

2018

 

2017

 

Derivatives used to manage currency risks

 

 

 

 

 

 

 

 

 

 

 

 

 

Arising from U.S. dollar-denominated purchases

 

 

 

$

13

 

$

(2

)

Goods and services purchased

 

$

(5

)

$

 

Arising from U.S. dollar-denominated long-term debt

 

26(b)-(c)

 

43

 

(19

)

Financing costs

 

67

 

(11

)

 

 

 

 

56

 

(21

)

 

 

62

 

(10

)

Derivatives used to manage other price risk

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in share-based compensation costs

 

14(b)

 

(9

)

 

Employee benefits expense

 

(3

)

1

 

 

 

 

 

$

47

 

$

(21

)

 

 

$

59

 

$

(9

)

 

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 months

 

Periods ended March 31 (millions)

 

Location

 

2018

 

2017

 

Derivatives used to manage currency risks

 

Financing costs

 

$

(1

)

$

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 operations for which can be clearly distinguished and for which the operating results are regularly reviewed by a chief operating decision-maker to make resource allocation decisions and to assess performance.

 

A significant judgment we make is in respect of distinguishing between our wireless and wireline operations and cash flows (and this extends to allocations of both direct and indirect expenses and of capital expenditures). The clarity of such distinction has been increasingly 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 and the consolidation of our non-customer facing operations. As a result, it has become increasingly impractical and difficult to objectively and clearly distinguish between our wireless and wireline operations and cash flows.

 

As we do not currently aggregate operating segments, our reportable segments as at March 31, 2018, are also wireless and wireline. The wireless segment includes network revenues 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; customer care and business services outsourcing (formerly business process outsourcing); certain healthcare solutions; and home security), voice and other telecommunications services revenues (excluding wireless arising from mobile technologies), and equipment sales. Segmentation has been 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.

 

 

22



 

notes to condensed interim consolidated financial statements

(unaudited)

 

The segment information regularly reported to our Chief Executive Officer (our chief operating decision-maker), and the reconciliations thereof to our products and services view of revenues, revenues and income before income taxes, are set out in the following table.

 

Three-month periods ended

 

Wireless

 

Wireline

 

Eliminations

 

Consolidated

 

March 31 (millions)

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

(adjusted –
Note 2(c))

 

 

 

(adjusted –
Note 2(c))

 

 

 

 

 

 

 

(adjusted –
Note 2(c))

 

Operating revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

$

1,479

 

$

1,421

 

$

1,407

 

$

1,341

 

$

 

$

 

$

2,886

 

$

2,762

 

Equipment

 

404

 

349

 

61

 

59

 

 

 

465

 

408

 

Revenues arising from contracts with customers

 

1,883

 

1,770

 

1,468

 

1,400

 

 

 

3,351

 

3,170

 

Other operating income

 

7

 

2

 

19

 

11

 

 

 

26

 

13

 

 

 

1,890

 

1,772

 

1,487

 

1,411

 

 

 

3,377

 

3,183

 

Intersegment revenues

 

11

 

11

 

52

 

52

 

(63

)

(63

)

 

 

 

 

$

1,901

 

$

1,783

 

$

1,539

 

$

1,463

 

$

(63

)

$

(63

)

$

3,377

 

$

3,183

 

EBITDA 1

 

$

836

 

$

797

 

$

433

 

$

438

 

$

 

$

 

$

1,269

 

$

1,235

 

CAPEX 2

 

$

182

 

$

249

 

$

468

 

$

475

 

$

 

$

 

$

650

 

$

724

 

 

 

 

 

 

 

 

 

 

 

Operating revenues — external (above)

 

$

3,377

 

$

3,183

 

 

 

 

 

 

 

 

 

 

 

Goods and services purchased

 

1,408

 

1,324

 

 

 

 

 

 

 

 

 

 

 

Employee benefits expense

 

700

 

624

 

 

 

 

 

 

 

 

 

 

 

EBITDA (above)

 

1,269

 

1,235

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

411

 

402

 

 

 

 

 

 

 

 

 

 

 

Amortization

 

139

 

130

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

719

 

703

 

 

 

 

 

 

 

 

 

 

 

Financing costs

 

156

 

138

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

$

563

 

$

565

 

 


(1)         Earnings before interest, income taxes, depreciation and amortization (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.

(2)         Total capital expenditures (CAPEX); see Note 31(a) for a reconciliation of capital expenditures to cash payments for capital assets reported in the Consolidated statements of cash flows.

 

 

23



 

notes to condensed interim consolidated financial statements

(unaudited)

 

6                 revenue from contracts with customers

 

(a)         Revenues

 

In the determination of the minimum transaction prices in contracts with customers, amounts are allocated to fulfilling, or completion of fulfilling, future contracted performance obligations. Largely, these unfulfilled, or partially unfulfilled, future contracted performance obligations are in respect of services to be provided over the duration of the contract. The following table sets out our aggregate estimated minimum transaction prices allocated to remaining unfulfilled, or partially unfulfilled, future contracted performance obligations and the timing of when we might expect to recognize the associated revenues; actual amounts could differ from these estimates due to a variety of factors including the unpredictable nature of: customer behaviour, industry regulation; the economic environments in which we operate; and competitor behaviour.

 

As at (millions)

 

March 31,

2018

 

December 31,
2017

 

Estimated minimum transaction price allocated to remaining unfulfilled, or partially unfulfilled, performance obligations to be recognized as revenue in a future period 1, 2

 

 

 

 

 

During the 12-month period ending one year hence

 

$

2,069

 

$

2,075

 

During the 12-month period ending two years hence

 

833

 

856

 

Thereafter

 

23

 

24

 

 

 

$

2,925

 

$

2,955

 

 


(1)         Excludes constrained variable consideration amounts, amounts arising from contracts originally expected to have a duration of one year or less and, as a permitted practical expedient, amounts arising from contracts that are not affected by revenue recognition timing differences arising from transaction price allocation or in which we may recognize and bill revenue in an amount that corresponds directly with our completed performance obligations.

(2)         IFRS-IASB requires the explanation of when we expect to recognize as revenue the amounts disclosed as the estimated minimum transaction price allocated to remaining unfulfilled, or partially unfulfilled, performance obligations. The estimated amounts disclosed are based upon contractual terms and maturities. Actual minimum transaction price revenues recognized, and the timing thereof, will differ from these estimates primarily due to the frequency with which the actual durations of contracts with customers do not match their contractual maturities.

 

Incremental accounting policy disclosure due to initial application of IFRS 15 (see Note 2)

 

We use  the following revenue accounting practical expedients provided for in IFRS 15, Revenue from Contracts with Customers:

 

·      No adjustment of the contracted amount of consideration for the effects of financing components when at the inception of the contract we expect that the effect of the financing component is not significant at the individual contract level.

 

·      No deferral of contract acquisition costs when the amortization period for such costs would be one year or less.

 

·      When estimating minimum transaction prices allocated to remaining unfulfilled, or partially unfulfilled, performance obligations, exclusion of amounts arising from contracts originally expected to have a duration of one year or less as well as amounts arising from contracts in which we may recognize and bill revenue in an amount that corresponds directly with our completed performance obligations.

 

(b)         Accounts receivable

 

As at (millions)

 

Note

 

March 31,
2018

 

December 31,
2017

 

January 1,
2017

 

Customer accounts receivable

 

 

 

 

 

 

 

 

 

As reported

 

 

 

$

1,164

 

$

1,221

 

$

1,217

 

Transitional amount

 

2(c)

 

 

(9

)

(9

)

As adjusted

 

 

 

1,164

 

1,212

 

1,208

 

Accrued receivables — customer

 

 

 

171

 

143

 

131

 

Allowance for doubtful accounts

 

4(b)

 

(47

)

(43

)

(54

)

 

 

 

 

1,288

 

1,312

 

1,285

 

Accrued receivables — other

 

 

 

161

 

302

 

177

 

 

 

 

 

$

1,449

 

$

1,614

 

$

1,462

 

 

 

24



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(c)          Contract assets

 

 

 

 

 

Three-month periods ended
March 31

 

Year ended
December 31,

 

(millions)

 

Note

 

2018

 

2017

 

2017

 

Balance, beginning of period

 

 

 

$

1,303

 

$

 

$

 

Transitional amount

 

2(c)

 

 

1,205

 

1,205

 

Adjusted opening balance

 

 

 

1,303

 

1,205

 

1,205

 

Net additions arising from operations

 

 

 

281

 

256

 

1,270

 

Amounts billed in period and thus reclassified to accounts receivable 1

 

 

 

(304

)

(274

)

(1,166

)

Change in impairment allowance, net

 

4(b)

 

(1

)

(3

)

(3

)

Other

 

 

 

 

 

(3

)

Balance, end of period

 

 

 

$

1,279

 

$

1,184

 

$

1,303

 

To be billed and thus reclassified to accounts receivable during:

 

 

 

 

 

 

 

 

 

The 12-month period ending one year hence

 

 

 

$

902

 

$

834

 

$

907

 

The 12-month period ending two years hence

 

 

 

366

 

336

 

385

 

Thereafter

 

 

 

11

 

14

 

11

 

Balance, end of period

 

 

 

$

1,279

 

$

1,184

 

$

1,303

 

Reconciliation of contract assets presented in the consolidated statement of financial position — current

 

 

 

 

 

 

 

 

 

Gross contract assets

 

 

 

$

902

 

$

834

 

$

907

 

Reclassification to contract liabilities for contracts with contract assets less than contract liabilities

 

24

 

(5

)

(4

)

(4

)

Reclassification from contract liabilities for contracts with contract liabilities less than contract assets

 

24

 

(140

)

(144

)

(146

)

 

 

 

 

$

757

 

$

686

 

$

757

 

 


(1)         For the three-month period ending March 31, 2018, amounts billed in the period for our wireless segment and reclassified to accounts receivable were $280 (2017 – $250; year ended December 31, 2017 – $1,060).

 

Incremental accounting policy disclosure due to initial application of IFRS 15 (see Note 2)

 

Contract assets

 

Many of our multiple element arrangements arise from bundling the sale of equipment (e.g. a wireless handset) with a contracted service period. Although the customer receives the equipment at contract inception and the revenue from the associated completed performance obligation is recognized at that time, the customer’s payment for the equipment will effectively be received rateably over the contracted service period to the extent it is not received as a lump-sum amount at contract inception. The difference between the equipment revenue recognized and the associated amount cumulatively billed to the customer is recognized on the consolidated statements of financial position as a contract asset.

 

Contract assets may also arise in instances where we give consideration to a customer.

 

·      Some forms of consideration given to a customer, effectively at contract inception, such as rebates (including prepaid non-bank cards) and/or equipment, are considered performance obligations in a multiple element arrangement. Although the performance obligation is satisfied at contract inception, the customer’s payment associated with the performance obligation will effectively be received rateably over the associated contracted service period. The difference between revenue arising from the satisfied performance obligation and the associated amount cumulatively reflected in the billings to the customer is recognized on the consolidated statements of financial position as a contract asset.

 

·      Other forms of consideration given to a customer effectively provided at contract inception or over a period of time, such as discounts (including prepaid bank cards), may result in us receiving no identifiable, separable benefit and are not considered performance obligations. Such consideration is recognized as a reduction of revenue rateably over the term of the contract. The difference between the consideration provided and the associated amount recognized as a reduction of revenue is recognized on the consolidated statements of financial position as a contract asset.

 

7                 other operating income

 

 

 

 

 

Three months

 

Periods ended March 31 (millions)

 

Note

 

2018

 

2017

 

Government assistance, including deferral account amortization

 

 

 

$

6

 

$

7

 

Investment income, gain (loss) on disposal of assets and other

 

 

 

19

 

6

 

Interest income

 

21(c)

 

1

 

 

 

 

 

 

$

26

 

$

13

 

 

 

25



 

notes to condensed interim consolidated financial statements

(unaudited)

 

8                 employee benefits expense

 

 

 

 

 

Three months

 

Periods ended March 31(millions)

 

Note

 

2018

 

2017

 

 

 

 

 

 

 

(adjusted –
Note 2(c))

 

Employee benefits expense — gross

 

 

 

 

 

 

 

Wages and salaries

 

 

 

$

683

 

$

634

 

Share-based compensation

 

14

 

27

 

25

 

Pensions — defined benefit

 

15(a)

 

25

 

21

 

Pensions — defined contribution

 

15(b)

 

24

 

23

 

Restructuring costs

 

16(a)

 

28

 

 

Other

 

 

 

40

 

40

 

 

 

 

 

827

 

743

 

Capitalized internal labour costs, net

 

 

 

 

 

 

 

Contract acquisition costs

 

20

 

 

 

 

 

Capitalized

 

 

 

(14

)

(11

)

Amortized

 

 

 

12

 

12

 

Contract fulfilment costs

 

20

 

 

 

 

 

Capitalized

 

 

 

(1

)

(1

)

Amortized

 

 

 

1

 

 

Property, plant and equipment

 

 

 

(84

)

(80

)

Intangible assets subject to amortization

 

 

 

(41

)

(39

)

 

 

 

 

(127

)

(119

)

 

 

 

 

$

700

 

$

624

 

 

Incremental accounting policy disclosure due to initial application of IFRS 15 (see Note 2)

 

Judgments — revenue

 

In respect of revenue-generating transactions, we must make judgments that affect the timing of the recognition of revenue and some associated expenses.

 

·      We compensate third-party re-sellers and our employees for generating revenues, and we must exercise judgment as to whether such sales-based compensation amounts are costs incurred to obtain contracts with customers that should be capitalized (see Note 20). We believe that compensation amounts tangentially attributable to obtaining a contract with the customer, because the amount of such compensation could be affected in ways other than by simply obtaining that contract, should be expensed as incurred; compensation amounts directly attributable to obtaining a contract with a customer should be capitalized and subsequently amortized on a systematic basis consistent with the satisfaction of our associated performance obligations.

 

Judgment must also be exercised in the capitalization of costs incurred to fulfill revenue generating contracts with customers. Such fulfilment costs are those incurred to set-up, activate or otherwise implement services involving access to, or usage of, our telecommunications infrastructure that would not otherwise be capitalized as property, plant and equipment and intangible assets (see Note 20).

 

9                 financing costs

 

 

 

 

 

Three months

 

Periods ended March 31 (millions)

 

Note

 

2018

 

2017

 

Interest expense

 

 

 

 

 

 

 

Interest on long-term debt

 

 

 

$

144

 

$

138

 

Interest on short-term borrowings and other

 

 

 

2

 

1

 

Interest accretion on provisions

 

25

 

4

 

3

 

 

 

 

 

150

 

142

 

Employee defined benefit plans net interest

 

15(a)

 

4

 

1

 

Foreign exchange

 

 

 

4

 

(5

)

 

 

 

 

158

 

138

 

Interest income

 

 

 

(2

)

 

 

 

 

 

$

156

 

$

138

 

 

 

26



 

notes to condensed interim consolidated financial statements

(unaudited)

 

10          income taxes

 

 

 

Three months

 

Periods ended March 31 (millions)

 

2018

 

2017

 

 

 

 

 

(adjusted –
Note 2(c))

 

Current income tax expense

 

 

 

 

 

For the current reporting period

 

$

144

 

$

63

 

Adjustments recognized in the current period for income taxes of prior periods

 

 

(6

)

 

 

144

 

57

 

Deferred income tax expense (recovery)

 

 

 

 

 

Arising from the origination and reversal of temporary differences

 

7

 

80

 

Adjustments recognized in the current period for income taxes of prior periods

 

 

6

 

 

 

7

 

86

 

 

 

$

151

 

$

143

 

 

Our income tax expense and effective income tax rate differ from those calculated by applying the applicable statutory rates for the following reasons:

 

Three-month periods ended March 31 ($ in millions)

 

2018

 

2017

 

 

 

 

 

 

 

(adjusted – Note 2(c))

 

Income taxes computed at applicable statutory rates

 

$

152

 

27.0

%

$

150

 

26.5

%

Other

 

(1

)

(0.2

)

(7

)

(1.2

)

Income tax expense per Consolidated statements of income and other comprehensive income

 

$

151

 

26.8

%

$

143

 

25.3

%

 

 

27



 

notes to condensed interim consolidated financial statements

(unaudited)

 

11          other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Items that may subsequently be reclassified to income

 

Item never
reclassified
to income

 

 

 

Item never
reclassified
to income

 

 

 

 

 

Change in unrealized fair value of derivatives designated as cash flow hedges in current period (Note 4(f))

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives used to manage currency risks

 

Derivatives used to manage other price risk

 

 

 

Cumulative

 

Change in

 

 

 

 

 

 

 

(millions)

 

Gains
(losses)
arising

 

Prior period
(gains) losses
transferred to
net income

 

Total

 

Gains
(losses)
arising

 

Prior period
(gains) losses
transferred to
net income

 

Total

 

Total

 

foreign
currency
translation
adjustment

 

measurement
of investment
financial
assets

 

Accumulated
other
comp. income

 

Employee
defined benefit
plan
re-measurements

 

Other
comp. income

 

Accumulated balance as at January 1, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As previously reported

 

 

 

 

 

$

(22

)

 

 

 

 

$

2

 

$

(20

)

$

48

 

$

16

 

$

44

 

 

 

 

 

IFRS 9, Financial Instruments transitional amount (Note 2(a))

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

(3

)

 

 

 

 

As adjusted

 

 

 

 

 

(22

)

 

 

 

 

2

 

(20

)

48

 

13

 

41

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount arising

 

$

(21

)

$

10

 

 

(11

)

$

 

$

(1

)

 

(1

)

 

(12

)

 

3

 

 

(2

)

 

(11

)

$

92

 

$

81

 

Income taxes

 

$

(4

)

$

1

 

(3

)

$

 

$

 

 

(3

)

 

 

(3

)

24

 

21

 

Net

 

 

 

 

 

(8

)

 

 

 

 

(1

)

(9

)

3

 

(2

)

(8

)

$

68

 

$

60

 

Accumulated balance as at March 31, 2017

 

 

 

 

 

$

(30

)

 

 

 

 

$

1

 

$

(29

)

$

51

 

$

11

 

$

33

 

 

 

 

 

Accumulated balance as at January 1, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As previously reported

 

 

 

 

 

$

(9

)

 

 

 

 

$

8

 

$

(1

)

$

53

 

$

5

 

$

57

 

 

 

 

 

IFRS 9, Financial Instruments transitional amount (Note 2(a))

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

(4

)

 

 

 

 

As adjusted

 

 

 

 

 

(9

)

 

 

 

 

8

 

(1

)

53

 

1

 

53

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount arising

 

$

56

 

$

(62

)

(6

)

$

(9

)

$

3

 

(6

)

(12

)

(4

)

 

(16

)

$

(62

)

$

(78

)

Income taxes

 

$

10

 

$

(13

)

(3

)

$

(3

)

$

1

 

(2

)

(5

)

 

 

(5

)

(19

)

(24

)

Net

 

 

 

 

 

(3

)

 

 

 

 

(4

)

(7

)

(4

)

 

(11

)

$

(43

)

$

(54

)

Accumulated balance as at March 31, 2018

 

 

 

 

 

$

(12

)

 

 

 

 

$

4

 

$

(8

)

$

49

 

$

1

 

$

42

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

37

 

 

 

 

 

Non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

42

 

 

 

 

 

 

 

28


 


 

notes to condensed interim consolidated financial statements

(unaudited)

 

12          per share amounts

 

Basic net income per Common Share is calculated by dividing net income attributable to Common Shares by the total weighted average number of Common Shares outstanding during the period. Diluted net income per Common Share is calculated to give effect to share option awards and restricted stock units.

 

The following table presents the reconciliations of the denominators of the basic and diluted per share computations. Net income was equal to diluted net income for all periods presented.

 

 

 

Three months

 

Periods ended March 31 (millions)

 

2018

 

2017

 

Basic total weighted average number of Common Shares outstanding

 

595

 

591

 

Effect of dilutive securities

 

 

 

 

 

Share option awards

 

 

 

Diluted total weighted average number of Common Shares outstanding

 

595

 

591

 

 

For the three-month periods ended March 31, 2018 and 2017, no outstanding TELUS Corporation share option awards were excluded in the computation of diluted net income per Common Share.

 

13          dividends per share

 

(a)         Dividends declared

 

Three-month periods ended
March 31 (millions except per
share amounts)

 

2018

 

2017

 

 

 

Declared

 

Paid to

 

 

 

Declared

 

Paid to

 

 

 

Common Share dividends

 

Effective

 

Per share

 

shareholders

 

Total

 

Effective

 

Per share

 

shareholders

 

Total

 

Quarter 1 dividend

 

Mar. 9, 2018

 

$

0.5050

 

Apr. 2, 2018

 

$

299

 

Mar. 10, 2017

 

$

0.4800

 

Apr. 3, 2017

 

$

283

 

 

On May 9, 2018, the Board of Directors declared a quarterly dividend of $0.5250 per share on our issued and outstanding Common Shares payable on July 3, 2018, to holders of record at the close of business on June 8, 2018. The final amount of the dividend payment depends upon the number of Common Shares issued and outstanding at the close of business on June 8, 2018.

 

(b)         Dividend Reinvestment and Share Purchase Plan

 

We have a Dividend Reinvestment and Share Purchase Plan under which eligible holders of Common Shares may acquire additional Common Shares by reinvesting dividends and by making additional optional cash payments to the trustee. In respect of Common Shares whose eligible shareholders have elected to participate in the plan, dividends declared during the three-month period ended March 31, 2018, $13 million (2017 – $15 million) were to be reinvested in Common Shares acquired by the trustee from Treasury, with no discount applicable.

 

14          share-based compensation

 

(a)         Details of share-based compensation expense

 

Reflected in the Consolidated statements of income and other comprehensive income as Employee benefits expense and in the Consolidated statements of cash flows are the following share-based compensation amounts:

 

Three-month periods ended March 31 (millions)

 

 

 

2018

 

2017

 

 

 

Note

 

Employee
benefits
expense

 

Associated
operating
cash
outflows

 

Statement
of cash
flows
adjustment

 

Employee
benefits
expense

 

Associated
operating
cash
outflows

 

Statement
of cash
flows
adjustment

 

Restricted stock units

 

(b)

 

$

18

 

$

 

$

18

 

$

16

 

$

 

$

16

 

Employee share purchase plan

 

(c)

 

9

 

(9

)

 

9

 

(9

)

 

 

 

 

 

$

27

 

$

(9

)

$

18

 

$

25

 

$

(9

)

$

16

 

 

For the three-month period ended March 31, 2018, the associated operating cash outflows in respect of restricted stock units were net of cash inflows arising from the cash-settled equity swap agreements of $2 million (2017 – $2 million). For the three-month period ended March 31, 2018, the income tax benefit arising from share-based compensation was $7 million (2017 – $7 million).

 

 

29



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(b)         Restricted stock units

 

TELUS Corporation restricted stock units

 

We also award restricted stock units that largely have the same features as our general restricted stock units, but have a variable payout (0% – 200%) that depends upon the achievement of our total customer connections performance condition (with a weighting of 25%) and the total shareholder return on our Common Shares relative to an international peer group of telecommunications companies (with a weighting of 75%). The grant-date fair value of the notional subset of our restricted stock units affected by the total customer connections performance condition equals the fair market value of the corresponding Common Shares at the grant date, and thus the notional subset has been included in the presentation of our restricted stock units with only service conditions. The recurring estimate, which reflects a variable payout, of the fair value of the notional subset of our restricted stock units affected by the relative total shareholder return performance condition is determined using a Monte Carlo simulation.

 

The following table presents a summary of outstanding TELUS Corporation non-vested restricted stock units.

 

Number of non-vested restricted stock units as at

 

March 31,
2018

 

December 31,
2017

 

Restricted stock units without market performance conditions

 

 

 

 

 

Restricted stock units with only service conditions

 

4,835,889

 

3,327,464

 

Notional subset affected by total customer connections performance condition

 

227,999

 

154,452

 

 

 

5,063,888

 

3,481,916

 

Restricted stock units with market performance conditions

 

 

 

 

 

Notional subset affected by relative total shareholder return performance condition

 

683,997

 

463,357

 

 

 

5,747,885

 

3,945,273

 

 

The following table presents a summary of the activity related to TELUS Corporation restricted stock units without market performance conditions.

 

Period ended March 31, 2018

 

Three months

 

 

 

Number of restricted
stock units
 1

 

Weighted
average
grant-date

 

 

 

Non-vested

 

Vested

 

fair value

 

Outstanding, beginning of period

 

 

 

 

 

 

 

Non-vested

 

3,481,916

 

 

$

41.87

 

Vested

 

 

32,848

 

$

41.00

 

Issued

 

 

 

 

 

 

 

Initial award

 

1,616,557

 

 

$

45.69

 

In lieu of dividends

 

37,058

 

91

 

$

47.20

 

Vested

 

(12,482

)

12,482

 

$

41.69

 

Settled in cash

 

 

(37,067

)

$

41.30

 

Forfeited and cancelled

 

(59,161

)

 

$

39.86

 

Outstanding, end of period

 

 

 

 

 

 

 

Non-vested

 

5,063,888

 

 

$

43.09

 

Vested

 

 

8,354

 

$

40.71

 

 


(1)         Excluding the notional subset of restricted stock units affected by the relative total shareholder return performance condition.

 

With respect to certain issuances of TELUS Corporation restricted stock units, we have entered into cash-settled equity forward agreements that fix our cost; that information, as well as a schedule of non-vested TELUS Corporation restricted stock units outstanding as at March 31, 2018, is set out in the following table.

 

Vesting in years ending December 31

 

Number of
fixed-cost
restricted
stock units

 

Our fixed cost
per restricted
stock unit

 

Number of
variable-cost
restricted stock
units

 

Total number of
non-vested
restricted stock
units
 1

 

2018

 

1,845,970

 

$

41.08

 

27,704

 

1,873,674

 

2019

 

1,439,418

 

$

45.53

 

288,721

 

1,728,139

 

2020

 

1,369,272

 

$

48.71

 

308,497

 

1,677,769

 

 

 

4,654,660

 

 

 

624,922

 

5,279,582

 

 


(1)         Excluding the notional subset of restricted stock units affected by the relative total shareholder return performance condition vesting in years ending December 31, 2018 and 2019.

 

TELUS International (Cda) Inc. restricted stock units

 

We also award restricted stock units that largely have the same features as the TELUS Corporation restricted stock units, but have a variable payout (0% – 150%) that depends upon the achievement of TELUS International (Cda) Inc. financial performance and non-market quality-of-service performance conditions.

 

 

30



 

notes to condensed interim consolidated financial statements

(unaudited)

 

The following table presents a summary of the activity related to TELUS International (Cda) Inc. restricted stock units.

 

Period ended March 31, 2018

 

Three months

 

 

 

US$ denominated

 

Canadian $ denominated

 

 

 

Number of
restricted
stock units

 

Weighted
average
grant-date
fair value

 

Number of
restricted
stock units

 

Weighted
average
grant-date
fair value

 

Outstanding, beginning of period

 

 

 

 

 

 

 

 

 

Non-vested

 

374,786

 

US$

24.45

 

 

$

 

Vested

 

 

US$

 

32,299

 

$

21.36

 

Issued - initial award

 

2,622

 

US$

27.70

 

 

$

 

Forfeited and cancelled

 

(1,350

)

US$

24.10

 

 

$

 

Outstanding, end of period

 

 

 

 

 

 

 

 

 

 

Non-vested

 

376,058

 

US$

24.50

 

 

$

 

Vested

 

 

US$

 

32,299

 

$

21.36

 

 

(c)          Employee share purchase plan

 

We have an employee share purchase plan under which eligible employees up to a certain job classification can purchase our Common Shares through regular payroll deductions. In respect of Common Shares held within employee share purchase plan, Common Share dividends declared during the three-month period ended March 31, 2018, of $8 million (2017 – $7 million) were to be reinvested in Common Shares acquired by the trustee from Treasury, with no discount applicable.

 

(d)         Share option awards

 

TELUS Corporation share options

 

The following table presents a summary of the activity related to the TELUS Corporation share option plan.

 

Period ended March 31, 2018

 

Three months

 

 

 

Number of
share
options

 

Weighted
average share
option price

 

Outstanding, beginning of period

 

740,471

 

$

26.99

 

Exercised 1

 

(278,319

)

$

23.71

 

Forfeited

 

(378

)

$

29.19

 

Expired

 

(9,733

)

$

23.24

 

Outstanding, end of period 2

 

452,041

 

$

29.08

 

 


(1)         The total intrinsic value of share option awards exercised for the three-month period ended March 31, 2018, was $6 million (reflecting a weighted average price at the dates of exercise of $45.68 per share). The difference between the number of share options exercised and the number of Common Shares issued (as reflected in the Consolidated statements of changes in owners’ equity) is the effect of our choosing to settle share option award exercises using the net-equity settlement feature.

(2)         All outstanding TELUS Corporation share options are vested, their range of prices is $24.47 – $31.69 per share and their weighted average remaining contractual life is 1.1 years.

 

TELUS International (Cda) Inc. share options

 

Employees may receive equity share options (equity-settled) to purchase TELUS International (Cda) Inc. common shares at a price equal to, or a multiple of, the fair market value at the time of grant and/or phantom share options (cash-settled) that provide them with exposure to TELUS International (Cda) Inc. common share price appreciation. Share option awards granted under the plan may be exercised over specific periods not to exceed ten years from the time of grant. All equity share option awards and most phantom share option awards have a variable payout (0% – 100%) that depends upon the achievement of TELUS International (Cda) Inc. financial performance and non-market quality-of-service performance conditions.

 

The following table presents a summary of the activity related to the TELUS International (Cda) Inc. share option plan.

 

Three-month period ended March 31

 

2018

 

 

 

US$ denominated

 

Canadian $ denominated

 

 

 

Number of
share
options

 

Weighted
average share
option price 
1

 

Number of
share
options

 

Share option
price 
2

 

Outstanding, beginning

 

748,626

 

US$

30.12

 

53,832

 

$

21.36

 

Forfeited

 

(1,172

)

US$

27.70

 

 

$

 

Outstanding, end of period

 

747,454

 

US$

30.12

 

53,832

 

$

21.36

 

 


(1)         The range of share option prices is US$21.90 – US$40.26 per TELUS International (Cda) Inc. equity share and the weighted average remaining contractual life is 8.8 years.

(2)         The weighted average remaining contractual life is 8.3 years.

 

 

31



 

notes to condensed interim consolidated financial statements

(unaudited)

 

15          employee future benefits

 

(a)         Defined benefit pension plans — details

 

Our defined benefit pension plan expense (recovery) was as follows:

 

Three-month periods ended March 31
(millions)

 

2018

 

2017

 

 

 

Employee

 

 

 

Other

 

 

 

Employee

 

 

 

Other

 

 

 

 

 

benefits

 

Financing

 

comp.

 

 

 

benefits

 

Financing

 

comp.

 

 

 

 

 

expense

 

costs

 

income

 

 

 

expense

 

costs

 

income

 

 

 

Recognized in

 

(Note 8)

 

(Note 9)

 

(Note 11)

 

Total

 

(Note 8)

 

(Note 9)

 

(Note 11)

 

Total

 

Current service cost

 

$

22

 

$

 

$

 

$

22

 

$

19

 

$

 

$

 

$

19

 

Past service costs

 

1

 

 

 

1

 

 

 

 

 

Net interest; return on plan assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense arising from defined benefit obligations accrued

 

 

79

 

 

79

 

 

83

 

 

83

 

Return, including interest income, on plan assets 1

 

 

(76

)

62

 

(14

)

 

(83

)

(134

)

(217

)

Interest effect on asset ceiling limit

 

 

1

 

 

1

 

 

1

 

 

1

 

 

 

 

4

 

62

 

66

 

 

1

 

(134

)

(133

)

Administrative fees

 

2

 

 

 

2

 

2

 

 

 

2

 

Changes in the effect of limiting net defined benefit assets to the asset ceiling

 

 

 

 

 

 

 

42

 

42

 

 

 

$

25

 

$

4

 

$

62

 

$

91

 

$

21

 

$

1

 

$

(92

)

$

(70

)

 


(1)          The interest income on the plan assets portion of the employee defined benefit plans net interest amount included in Financing costs reflects a rate of return on plan assets equal to the discount rate used in determining the defined benefit obligations accrued.

 

(b)         Defined contribution plans — expense

 

Our total defined contribution pension plan costs recognized were as follows:

 

 

 

Three months

 

Periods ended March 31 (millions)

 

2018

 

2017

 

Union pension plan and public service pension plan contributions

 

$

6

 

$

6

 

Other defined contribution pension plans

 

18

 

17

 

 

 

$

24

 

$

23

 

 

16          restructuring and other costs

 

(a)         Details of restructuring and other costs

 

With the objective of reducing ongoing costs, we incur associated incremental, non-recurring restructuring costs, as discussed further in (b) following. We may also incur atypical charges when undertaking: major or transformational changes to our business or operating models; or post-acquisition business integration. We also include incremental external costs incurred in connection with business acquisition or disposition activity, as well as litigation costs, in the context of significant losses or settlements, in other costs.

 

Restructuring and other costs are presented in the Consolidated statements of income and other comprehensive income, as set out in the following table:

 

 

 

Restructuring (b)

 

Other (c)

 

Total

 

Periods ended March 31 (millions)

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

THREE-MONTHS

 

 

 

 

 

 

 

 

 

 

 

 

 

Goods and services purchased

 

$

4

 

$

4

 

$

1

 

$

 

$

5

 

$

4

 

Employee benefits expense

 

28

 

 

1

 

 

29

 

 

 

 

$

32

 

$

4

 

$

2

 

$

 

$

34

 

$

4

 

 

(b)         Restructuring provisions

 

Employee-related provisions and other provisions, as presented in Note 25, include amounts in respect of restructuring activities. In 2018, restructuring activities included ongoing and incremental efficiency initiatives, including personnel-related costs and rationalization of real estate. These initiatives were intended to improve our long-term operating productivity and competitiveness.

 

 

32



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(c)          Other

 

During the three-month period ended March 31, 2018, incremental external costs were incurred in connection with business acquisition activity. In connection with business acquisitions, non-recurring atypical business integration expenditures that would be considered neither restructuring costs nor part of the fair value of the net assets acquired have been included in other costs.

 

17          property, plant and equipment

 

(millions)

 

Note

 

Network
assets

 

Buildings and
leasehold
improvements

 

Other

 

Land

 

Assets under
construction

 

Total

 

At cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at January 1, 2018

 

 

 

$

28,724

 

$

3,077

 

$

1,095

 

$

48

 

$

655

 

$

33,599

 

Additions

 

 

 

237

 

4

 

7

 

 

273

 

521

 

Additions arising from business acquisitions

 

18(b)

 

 

1

 

6

 

 

 

7

 

Dispositions, retirements and other

 

 

 

(328

)

(7

)

18

 

 

 

(317

)

Assets under construction put into service

 

 

 

287

 

28

 

14

 

 

(329

)

 

As at March 31, 2018

 

 

 

$

28,920

 

$

3,103

 

$

1,140

 

$

48

 

$

599

 

$

33,810

 

Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at January 1, 2018

 

 

 

$

19,638

 

$

1,884

 

$

709

 

$

 

$

 

$

22,231

 

Depreciation

 

 

 

354

 

27

 

30

 

 

 

411

 

Dispositions, retirements and other

 

 

 

(325

)

(9

)

20

 

 

 

(314

)

As at March 31, 2018

 

 

 

$

19,667

 

$

1,902

 

$

759

 

$

 

$

 

$

22,328

 

Net book value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at December 31, 2017

 

 

 

$

9,086

 

$

1,193

 

$

386

 

$

48

 

$

655

 

$

11,368

 

As at March 31, 2018

 

 

 

$

9,253

 

$

1,201

 

$

381

 

$

48

 

$

599

 

$

11,482

 

 

As at March 31, 2018, our contractual commitments for the acquisition of property, plant and equipment totalled $179 million over a period ending December 31, 2022 (December 31, 2017 – $184 million over a period ending December 31, 2020).

 

 

33


 


 

notes to condensed interim consolidated financial statements

(unaudited)

 

18          intangible assets and goodwill

 

(a)         Intangible assets and goodwill, net

 

 

 

Intangible assets subject to amortization

 

Intangible
assets with
indefinite lives

 

 

 

 

 

 

 

(millions)

 

Customer contracts,
related customer
relationships and
subscriber base

 

Software

 

Access to
rights-of-way
and other

 

Assets
under
construction

 

Total

 

Spectrum
licences

 

Total
intangible
assets

 

Goodwill 1

 

Total
intangible
assets and
goodwill

 

At cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at January 1, 2018

 

$

558

 

$

4,667

 

$

97

 

$

344

 

$

5,666

 

$

8,693

 

$

14,359

 

$

4,600

 

$

18,959

 

Additions

 

 

17

 

1

 

119

 

137

 

 

137

 

 

137

 

Additions arising from business acquisitions (b)

 

100

 

3

 

 

 

103

 

 

103

 

316

 

419

 

Dispositions, retirements and other

 

(138

)

(34

)

1

 

 

 

(171

)

 

(171

)

 

(171

)

Assets under construction put into service

 

 

213

 

1

 

(214

)

 

 

 

 

 

Net foreign exchange differences

 

 

 

 

 

 

 

 

17

 

17

 

As at March 31, 2018

 

$

520

 

$

4,866

 

$

100

 

$

249

 

$

5,735

 

$

8,693

 

$

14,428

 

$

4,933

 

$

19,361

 

Accumulated amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at January 1, 2018

 

$

310

 

$

3,330

 

$

61

 

$

 

$

3,701

 

$

 

$

3,701

 

$

364

 

$

4,065

 

Amortization

 

7

 

131

 

1

 

 

139

 

 

139

 

 

139

 

Dispositions, retirements and other

 

(131

)

(35

)

 

 

(166

)

 

(166

)

 

(166

)

As at March 31, 2018

 

$

186

 

$

3,426

 

$

62

 

$

 

$

3,674

 

$

 

$

3,674

 

$

364

 

$

4,038

 

Net book value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at December 31, 2017

 

$

248

 

$

1,337

 

$

36

 

$

344

 

$

1,965

 

$

8,693

 

$

10,658

 

$

4,236

 

$

14,894

 

As at March 31, 2018

 

$

334

 

$

1,440

 

$

38

 

$

249

 

$

2,061

 

$

8,693

 

$

10,754

 

$

4,569

 

$

15,323

 

 


(1)         Accumulated amortization of goodwill is amortization recorded prior to 2002; there are no accumulated impairment losses in the accumulated amortization of goodwill. The opening balance for goodwill has been adjusted as set out in (c).

 

As at March 31, 2018, our contractual commitments for the acquisition of intangible assets totalled $41 million over a period ending December 31, 2020 (December 31, 2017 — $36 million over a period ending December 31, 2020).

 

(b)         Business acquisitions

 

AlarmForce Industries

 

On January 4, 2018, we acquired the customers, assets and operations of AlarmForce Industries Inc. in British Columbia, Alberta and Saskatchewan; the primary reason for which is to leverage our telecommunications infrastructure and expertise to continue to enhance connected home, business, security and health services for our customers.

 

The primary factor that contributed to the recognition of goodwill was the earnings capacity of the acquired business in excess of the net tangible and intangible assets acquired (such excess arising from the acquired workforce and the benefits of acquiring an established business). The amount assigned to goodwill is not expected to be deductible for income tax purposes.

 

Xavient Information Systems

 

On February 6, 2018, through our TELUS International (Cda) Inc. subsidiary, we acquired 65% of Xavient Information Systems, a group of information technology consulting and software services companies with facilities in the United States and India. The investment was made with a view to enhancing our ability to provide complex and higher-value information technology services, improving

 

 

34


 


 

notes to condensed interim consolidated financial statements

(unaudited)

 

our related sales and solutioning capabilities and acquiring multi-site redundancy in support of other facilities.

 

In respect of the 65% acquired business, we concurrently provided a written put option to the remaining selling shareholders; the written put option for the remaining 35% of the economic interest would become exercisable no later than December 31, 2020. The acquisition-date fair value of the puttable shares held by the non-controlling shareholders has been recorded as a provision (see Note 25). Also concurrent with our acquisition of the initial 65% interest, the non-controlling shareholders provided us with a purchased call option, which substantially mirrors the written put option.

 

The primary factor that contributed to the recognition of goodwill was the earnings capacity of the acquired business in excess of the net tangible and intangible assets acquired (such excess arising from the acquired workforce and the benefits of acquiring an established business). Not all of the amount assigned to goodwill is expected to be deductible for income tax purposes.

 

Individually immaterial transactions

 

During the three-month period ended March 31, 2018, we acquired 100% ownership of businesses complementary to our existing lines of business. The primary factor that gave rise to the recognition of goodwill was the earnings capacity of the acquired businesses in excess of net tangible and intangible assets acquired (such excess arising from: the low level of tangible assets relative to the earnings capacities of the businesses). A portion of the amount assigned to goodwill may be deductible for income tax purposes.

 

 

35



 

notes to condensed interim consolidated financial statements

(unaudited)

 

Acquisition-date fair values

 

The preliminary acquisition-date fair values assigned to the assets acquired and liabilities assumed are set out in the following table:

 

 

 

Preliminary purchase price allocated

 

As at acquisition-date fair values ($ in millions)

 

AlarmForce
Industries 
1

 

Xavient
Information
Systems 
2

 

Individually
immaterial
acquisitions

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash

 

$

 

$

4

 

$

 

$

4

 

Accounts receivable 3

 

 

35

 

 

35

 

Other

 

1

 

2

 

 

3

 

 

 

1

 

41

 

 

42

 

Non-current assets

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

 

 

 

 

 

Buildings and leasehold improvements

 

 

1

 

 

1

 

Other

 

1

 

5

 

 

6

 

Intangible assets subject to amortization 4

 

 

 

 

 

 

 

 

 

Customer contracts, related customer relationships and leasehold interests

 

13

 

81

 

6

 

100

 

Software

 

 

 

3

 

3

 

Other

 

 

6

 

 

6

 

 

 

14

 

93

 

9

 

116

 

Total identifiable assets acquired

 

15

 

134

 

9

 

158

 

Liabilities

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

6

 

 

6

 

Accounts payable and accrued liabilities

 

 

23

 

 

23

 

Advance billings and customer deposits

 

1

 

 

 

1

 

 

 

1

 

29

 

 

30

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

Other long-term liabilities

 

 

2

 

 

2

 

Deferred income taxes

 

1

 

 

 

1

 

 

 

1

 

2

 

 

3

 

Total liabilities assumed

 

2

 

31

 

 

33

 

Net identifiable assets acquired

 

13

 

103

 

9

 

125

 

Goodwill

 

55

 

250

 

11

 

316

 

Net assets acquired

 

$

68

 

$

353

 

$

20

 

$

441

 

Acquisition effected by way of:

 

 

 

 

 

 

 

 

 

Cash consideration

 

$

68

 

$

125

 

$

13

 

$

206

 

Accounts payable and accrued liabilities

 

 

14

 

3

 

17

 

Provisions

 

 

195

 

4

 

199

 

Issuance of shares by a subsidiary to a non-controlling interest

 

 

19

 

 

19

 

 

 

$

68

 

$

353

 

$

20

 

$

441

 

 


(1)        The purchase price allocation, specifically in respect of customer contracts, related customer relationships and leasehold interests, had not been finalized as of the date of issuance of these condensed interim consolidated financial statements. As is customary in a business acquisition transaction, until the time of acquisition of control, we did not have full access to the relevant portions of AlarmForce Industries’ books and records. Upon having sufficient time to review AlarmForce Industries’ books and records, as well as obtaining new and additional information about the related facts and circumstances as of the acquisition date, we will adjust the provisional amounts for identifiable assets acquired and liabilities assumed and thus finalize our purchase price allocation.

(2)        The purchase price allocation, primarily in respect of customer contracts, related customer relationships and leasehold interests and deferred income taxes, had not been finalized as of the date of issuance of these condensed interim consolidated financial statements. As is customary in a business acquisition transaction, until the time of acquisition of control, we did not have full access to Xavient Information Systems’ books and records. Upon having sufficient time to review Xavient Information Systems’ books and records, we expect to finalize our purchase price allocation.

(3)        The fair value of the accounts receivable is equal to the gross contractual amounts receivable and reflects the best estimates at the acquisition date of the contractual cash flows expected to be collected.

(4)        Customer contracts and customer relationships (including those related to customer contracts) are expected to be amortized over periods of 5 to 8 years; software is expected to be amortized over a period of 5 years.

 

Pro forma disclosures

 

The following pro forma supplemental information represents certain results of operations as if the business acquisitions noted above had been completed at the beginning of the fiscal 2018 year.

 

 

36



 

notes to condensed interim consolidated financial statements

(unaudited)

 

 

 

Three months

 

Period ended March 31, 2018 (millions except per share amounts)

 

As reported 1

 

Pro forma 2

 

Operating revenues

 

$

3,377

 

$

3,389

 

Net income

 

$

412

 

$

411

 

Net income per Common Share

 

 

 

 

 

Basic

 

$

0.69

 

$

0.69

 

Diluted

 

$

0.69

 

$

0.69

 

 


(1)         Operating revenues and net income for the three-month period ended March 31, 2018, include: $4 and $NIL, respectively, in respect of AlarmForce Industries; and $26 and $1, respectively, in respect of Xavient Information Systems.

(2)         Pro forma amounts for the three-month period ended March 31, 2018, reflect the acquired businesses. The results of the acquired businesses have been included in our Consolidated Statements of Income and Other Comprehensive Income effective the dates of acquisition.

 

The pro forma supplemental information is based on estimates and assumptions which are believed to be reasonable. The pro forma supplemental information is not necessarily indicative of our consolidated financial results in future periods or the results that actually would have been realized had the business acquisitions been completed at the beginning of the periods presented. The pro forma supplemental information includes incremental property, plant and equipment depreciation, intangible asset amortization, financing and other charges as a result of the acquisitions, net of the related tax effects.

 

(c)   Business acquisition — prior period

 

On August 31, 2017, we acquired 55% of Voxpro Limited, a business process outsourcing and contact centre services company with facilities in Ireland, the United States and Romania. As at December 31, 2017, the purchase price allocation had not been finalized. During the three-month period ended March 31, 2018, the preliminary acquisition date values assigned to goodwill and provisions were finalized and each increased by $19 million and, as required by IFRS-IASB, comparative amounts have been adjusted so as to reflect such increase effective the acquisition date.

 

19          leases

 

We occupy leased premises in various locations and have the right of use of land, buildings and equipment under operating leases. For the three-month periods ended March 31, 2018, real estate and vehicle operating lease expenses, which are net of the amortization of deferred gains on the sale-leaseback of buildings and the occupancy costs associated with leased real estate, were $48 million (2017 — $48 million); occupancy costs associated with leased real estate totalled $34 million (2017 — $32 million).

 

See Note 2(b) for details of significant changes to IFRS-IASB which are not yet effective and have not yet been applied, but which will significantly affect the timing of the recognition of operating lease expenses and their recognition in the Consolidated statement of financial position, as well as their classification in the Consolidated statement of income and other comprehensive income and the Consolidated statement of cash flows.

 

 

37



 

notes to condensed interim consolidated financial statements

(unaudited)

 

20          other long-term assets

 

As at (millions) 

 

Note

 

March 31,
2018

 

December 31,
2017

 

January 1,
2017

 

 

 

 

 

 

 

(adjusted –
Note 2(c))

 

(Note 2(c))

 

Pension assets

 

 

 

$

98

 

$

156

 

$

358

 

Costs incurred to obtain or fulfill a contract with a customer

 

 

 

108

 

107

 

93

 

Portfolio investments 1

 

 

 

37

 

41

 

62

 

Prepaid maintenance

 

 

 

61

 

57

 

62

 

Real estate joint venture advances

 

21(c)

 

53

 

47

 

21

 

Real estate joint ventures

 

21(c)

 

15

 

15

 

30

 

Other

 

 

 

108

 

105

 

107

 

 

 

 

 

$

480

 

$

528

 

$

733

 

 


(1)   Fair value measured at reporting date using significant other observable inputs (Level 2).

 

Incremental accounting policy disclosure due to initial application of IFRS 15 (see Note 2)

 

Costs of contract acquisition (typically commissions) and contract fulfilment costs are capitalized and recognized as an expense, generally, over the life of the contract on a rational, systematic basis consistent with the pattern of the transfer of goods or services to which the asset relates. The amortization of such costs is included in the Consolidated statements of income and other comprehensive income as a component of Goods and services purchased, with the exception of amounts paid to our employees, which is included as Employee benefits expense.

 

The costs incurred to obtain and fulfill contracts with customers are set out in the following table:

 

 

 

Three-month periods ended March 31

 

 

 

 

 

 

 

(millions)

 

2018

 

2017

 

Year ended December 31, 2017

 

 

 

Costs incurred to

 

 

 

Costs incurred to

 

 

 

Costs incurred to

 

 

 

 

 

Obtain
contracts with
customers

 

Fulfill
contracts with
customers

 

Total

 

Obtain
contracts with
customers

 

Fulfill
contracts with
customers

 

Total

 

Obtain
contracts with
customers

 

Fulfill
contracts with
customers

 

Total

 

Balance, beginning of period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As previously reported

 

$

329

 

$

11

 

$

340

 

$

 

$

 

$

 

$

 

$

 

$

 

Transitional amount

 

 

 

 

295

 

8

 

303

 

295

 

8

 

303

 

As adjusted

 

329

 

11

 

340

 

295

 

8

 

303

 

295

 

8

 

303

 

Addition

 

74

 

2

 

76

 

60

 

1

 

61

 

304

 

4

 

308

 

Amortization

 

(69

)

(2

)

(71

)

(65

)

 

(65

)

(270

)

(1

)

(271

)

Balance, end of period

 

$

334

 

$

11

 

$

345

 

$

290

 

$

9

 

$

299

 

$

329

 

$

11

 

$

340

 

Current 1

 

$

234

 

$

3

 

$

237

 

$

211

 

$

2

 

$

213

 

$

230

 

$

3

 

$

233

 

Non-current

 

100

 

8

 

108

 

79

 

7

 

86

 

99

 

8

 

107

 

 

 

$

334

 

$

11

 

$

345

 

$

290

 

$

9

 

$

299

 

$

329

 

$

11

 

$

340

 

 


(1)       Presented on the Consolidated statements of financial position in prepaid expenses.

 

21          real estate joint ventures

 

(a)         General

 

In 2011, we partnered, as equals, with an arm’s-length party in a residential condominium, retail and commercial real estate redevelopment project, TELUS Garden, in Vancouver, British Columbia. TELUS is a tenant in TELUS Garden, which is now our global headquarters. The new-build office tower received 2009 Leadership in Energy and Environmental Design (LEED) Platinum certification, and the neighbouring new-build residential condominium tower was built to the LEED Gold standard.

 

In 2013, we partnered, as equals, with two arm’s-length parties (one of which is our TELUS Garden partner) in a residential, retail and commercial real estate redevelopment project, TELUS Sky, in Calgary, Alberta. The new-build tower, scheduled for completion in 2019, is to be built to the LEED Platinum standard.

 

 

38



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(b)         Real estate joint ventures — summarized financial information

 

As at (millions)

 

March 31,
2018

 

December 31,
2017

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and temporary investments, net

 

$

18

 

$

20

 

Escrowed deposits for tenant inducements and liens

 

1

 

1

 

Other

 

5

 

4

 

 

 

24

 

25

 

Non-current assets

 

 

 

 

 

Property under development — Investment property

 

215

 

194

 

Investment property

 

220

 

221

 

Other

 

34

 

35

 

 

 

469

 

450

 

 

 

$

493

 

$

475

 

LIABILITIES AND OWNERS’ EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

13

 

$

13

 

Current portion of 3.7% mortgage and senior secured 3.4% bonds

 

5

 

5

 

Construction holdback liabilities

 

11

 

10

 

 

 

29

 

28

 

Non-current liabilities

 

 

 

 

 

Construction credit facilities

 

159

 

141

 

3.7% mortgage due September 2024

 

27

 

27

 

Senior secured 3.4% bonds due July 2025

 

207

 

208

 

 

 

393

 

376

 

Liabilities

 

422

 

404

 

Owners’ equity

 

 

 

 

 

TELUS 1

 

29

 

29

 

Other partners

 

42

 

42

 

 

 

71

 

71

 

 

 

$

493

 

$

475

 

 


(1)         The equity amounts recorded by the real estate joint ventures differ from those recorded by us by the amount of the deferred gains on our real estate contributed and the valuation provision we have recorded in excess of that recorded by the real estate joint venture.

 

 

 

Three months

 

Periods ended March 31 (millions)

 

2018

 

2017

 

Revenue

 

 

 

 

 

From investment property

 

$

8

 

$

9

 

From sale of residential condominiums

 

$

 

$

2

 

Depreciation and amortization

 

$

2

 

$

2

 

Interest expense 1

 

$

2

 

$

2

 

Net income and comprehensive income 2

 

$

1

 

$

2

 

 


(1)         During the three-month period ended March 31, 2018, the real estate joint ventures capitalized $2 (2017 — $1) of financing costs.

(2)         As the real estate joint ventures are partnerships, no provision for income taxes of the partners is made in determining the real estate joint ventures’ net income and comprehensive income.

 

 

39



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(c)          Our real estate joint ventures activity

 

Our real estate joint ventures investment activity is set out in the following table.

 

Three-month periods ended March 31 (millions)

 

2018

 

2017

 

 

 

Loans and
receivables
 1

 

Equity 2

 

Total

 

Loans and
receivables
 1

 

Equity 2

 

Total

 

Related to real estate joint ventures’ statements of income and other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to us 3

 

$

 

$

 

$

 

$

 

$

1

 

$

1

 

Related to real estate joint ventures’ statements of financial position

 

 

 

 

 

 

 

 

 

 

 

 

 

Items not affecting currently reported cash flows

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction credit facilities financing costs charged by us and other (Note 6)

 

1

 

 

1

 

 

 

 

Cash flows in the current reporting period

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction credit facilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts advanced

 

6

 

 

6

 

5

 

 

5

 

Financing costs paid to us

 

(1

)

 

(1

)

 

 

 

Funds repaid to us and earnings distributed

 

 

 

 

 

(3

)

(3

)

Net increase (decrease)

 

6

 

 

6

 

5

 

(2

)

3

 

Real estate joint ventures carrying amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

47

 

15

 

62

 

21

 

30

 

51

 

Balance, end of period

 

$

53

 

$

15

 

$

68

 

$

26

 

$

28

 

$

54

 

 


(1)         Loans and receivables are included in our Consolidated statements of financial position as Real estate joint venture advances and are comprised of advances under construction credit facilities (see (d)).

(2)         We account for our interests in the real estate joint ventures using the equity method of accounting.

(3)         As the real estate joint ventures are partnerships, no provision for income taxes of the partners is made in determining the real estate joint ventures’ net income and comprehensive income; provision for income taxes is made in determining the comprehensive income attributable to us.

 

During the three-month period ended March 31, 2018, the TELUS Garden real estate joint venture recognized $3 million (2017 — $3 million) of revenue from our TELUS Garden office tenancy; of this amount, one-half is due to our economic interest in the real estate joint venture and one-half is due to our partner’s economic interest in the real estate joint venture.

 

(d)         Commitments and contingent liabilities

 

Construction commitments

 

The TELUS Sky real estate joint venture is expected to spend a total of approximately $400 million on the construction of a mixed-use tower. As at March 31, 2018, the real estate joint venture’s construction-related contractual commitments were approximately $62 million through to 2019 (December 31, 2017 — $82 million through to 2019).

 

Construction credit facilities

 

The TELUS Sky real estate joint venture has a credit agreement with three Canadian financial institutions (as 66-2/3% lender) and TELUS Corporation (as 33-1/3% lender) to provide $342 million of construction financing for the project. The construction credit facilities contain customary real estate construction financing representations, warranties and covenants and are secured by demand debentures constituting first fixed and floating charge mortgages over the underlying real estate assets. The construction credit facilities are available by way of bankers’ acceptance or prime loan and bear interest at rates in line with similar construction financing facilities.

 

As at (millions)

 

Note

 

March 31,
2018

 

December 31,
2017

 

Construction credit facilities commitment — TELUS Corporation

 

 

 

 

 

 

 

Undrawn

 

4(c)

 

$

61

 

$

67

 

Advances

 

 

 

53

 

47

 

 

 

 

 

114

 

114

 

Construction credit facilities commitment — other

 

 

 

228

 

228

 

 

 

 

 

$

342

 

$

342

 

 

22          short-term borrowings

 

On July 26, 2002, one of our subsidiaries, TELUS Communications Inc., entered into an agreement with an arm’s-length securitization trust associated with a major Schedule I bank under which it is able to sell an interest in certain trade receivables up to a maximum of $500 million (December 31, 2017 — $500 million). This revolving-period securitization agreement term ends December 31, 2018, and it requires minimum cash proceeds of $100 million from monthly sales of

 

 

40



 

notes to condensed interim consolidated financial statements

 

(unaudited)

 

interests in certain trade receivables. TELUS Communications Inc. is required to maintain a credit rating of at least BB (December 31, 2017 – BB) from Dominion Bond Rating Service or the securitization trust may require the sale program to be wound down prior to the end of the term.

 

When we sell our trade receivables, we retain reserve accounts, which are retained interests in the securitized trade receivables, and servicing rights. As at March 31, 2018, we had sold to the trust (but continued to recognize) trade receivables of $121 million (December 31, 2017 – $119 million). Short-term borrowings of $100 million (December 31, 2017 – $100 million) are comprised of amounts advanced to us by the arm’s-length securitization trust pursuant to the sale of trade receivables.

 

The balance of short-term borrowings (if any) are comprised of amounts drawn on our bilateral bank facilities.

 

23          accounts payable and accrued liabilities

 

As at (millions)

 

March 31,
2018

 

December 31,
2017

 

Accrued liabilities

 

$

969

 

$

1,066

 

Payroll and other employee related liabilities

 

264

 

403

 

Restricted stock units liability

 

67

 

66

 

 

 

1,300

 

1,535

 

Trade accounts payable

 

543

 

717

 

Interest payable

 

137

 

147

 

Other

 

74

 

61

 

 

 

$

2,054

 

$

2,460

 

 

24          advance billings and customer deposits

 

As at (millions)

 

March 31,
2018

 

December 31,
2017

 

January 1,
2017

 

 

 

 

 

(adjusted –
Note 2(c))

 

(Note 2(c))

 

Advance billings

 

$

513

 

$

506

 

$

456

 

Deferred customer activation and connection fees

 

12

 

13

 

17

 

Customer deposits

 

21

 

21

 

15

 

Regulatory deferral accounts

 

1

 

1

 

8

 

Contract liabilities

 

547

 

541

 

496

 

Other

 

77

 

91

 

88

 

 

 

$

624

 

$

632

 

$

584

 

 

Incremental accounting policy disclosure due to initial application of IFRS 15 (see Note 2)

 

Contract liabilities

 

Advance billings are recorded when billing occurs prior to provision of the associated service; such advance billings are recognized as revenue in the period in which the services and/or equipment are provided. Similarly, and as appropriate, upfront customer activation and connection fees are deferred and recognized over the average expected term of the customer relationship.

 

Contract liabilities represent our future performance obligations to customers in respect of services and/or equipment and for which we have received the consideration from the customer or for which the amount is due from the customer. Our contract liability balances, and the changes in those balances, are set out in the following table:

 

 

41



 

notes to condensed interim consolidated financial statements

 

(unaudited)

 

 

 

 

 

Three-month periods ended
March 31

 

Year ended
December 31,

 

(millions)

 

Note

 

2018

 

2017

 

2017

 

Balance, beginning of period

 

 

 

$

780

 

$

732

 

$

732

 

Revenue deferred in previous period and recognized in current period

 

 

 

(689

)

(670

)

(670

)

Net additions arising from operations

 

 

 

696

 

717

 

718

 

Regulatory deferral account drawdown

 

 

 

 

(2

)

(7

)

Additions arising from business combinations

 

 

 

1

 

 

7

 

Balance, end of period

 

 

 

$

788

 

$

777

 

$

780

 

Current

 

 

 

$

692

 

$

694

 

$

691

 

Non-current

 

27

 

 

 

 

 

 

 

Deferred revenues

 

 

 

78

 

61

 

71

 

Deferred customer activation and connection fees

 

 

 

18

 

22

 

18

 

 

 

 

 

$

788

 

$

777

 

$

780

 

Reconciliation of contract liabilities presented in the consolidated statement of financial position — current

 

 

 

 

 

 

 

 

 

Gross contract liabilities

 

 

 

$

692

 

$

694

 

$

691

 

Reclassification to contract assets for contracts with contract liabilities less than contract assets

 

 

 

(140

)

(144

)

(146

)

Reclassification from contract assets for contracts with contract assets less than contract liabilities

 

 

 

(5

)

(4

)

(4

)

 

 

 

 

$

547

 

$

546

 

$

541

 

 

25          provisions

 

(millions)

 

Asset
retirement
obligation

 

Employee
related

 

Written put
options 
1

 

Other

 

Total

 

As at January 1, 2018

 

$

351

 

$

36

 

$

82

 

$

120

 

$

589

 

Additions

 

 

31

 

199

 

2

 

232

 

Reversal

 

 

 

 

(1

)

(1

)

Use

 

(1

)

(28

)

 

(14

)

(43

)

Interest effect 

 

3

 

 

1

 

 

4

 

Effects of foreign exchange, net

 

 

 

14

 

 

14

 

As at March 31, 2018

 

$

353

 

$

39

 

$

296

 

$

107

 

$

795

 

Current

 

$

5

 

$

35

 

$

 

$

29

 

$

69

 

Non-current

 

348

 

4

 

296

 

78

 

726

 

As at March 31, 2018

 

$

353

 

$

39

 

$

296

 

$

107

 

$

795

 

 


(1)         The opening balance for written put options has been adjusted as set out in Note 18(c).

 

Asset retirement obligation

 

We establish provisions for liabilities associated with the retirement of property, plant and equipment when those obligations result from the acquisition, construction, development and/or normal operation of the assets. We expect that the cash outflows in respect of the balance accrued as at the financial statement date will occur proximate to the dates these assets are retired.

 

Employee related

 

The employee related provisions are largely in respect of restructuring activities (as discussed further in Note 16(b)). The timing of the cash outflows in respect of the balance accrued as at the financial statement date is substantially short-term in nature.

 

Written put options

 

In connection with certain business acquisitions, we have established provisions for written put options in respect of non-controlling interests. Provisions for written put options are determined based on net present values of estimated future earnings results and require key economic assumptions about the future. No cash outflows for the written put options are expected prior to their initial exercisability in 2020.

 

Other

 

The provisions for other include: legal claims; non-employee related restructuring activities; and contract termination costs and onerous contracts related to business acquisitions. Other than as set out following, we expect that the cash outflows in respect of the balance accrued as at the financial statement date will occur over an indeterminate multi-year period.

 

 

42



 

notes to condensed interim consolidated financial statements

 

(unaudited)

 

As discussed further in Note 29, we are involved in a number of legal claims and we are aware of certain other possible legal claims. In respect of legal claims, we establish provisions, when warranted, after taking into account legal assessments, information presently available, and the expected availability of recourse. The timing of cash outflows associated with legal claims cannot be reasonably determined.

 

In connection with business acquisitions, we have established provisions for contingent consideration, contract termination costs and onerous contracts acquired. In respect of contract termination costs and onerous contracts acquired, cash outflows are expected to occur through mid-2018.

 

26          long-term debt

 

(a)         Details of long-term debt

 

As at (millions)

 

Note

 

March 31,
2018

 

December 31,
2017

 

TELUS Corporation notes

 

(b)

 

$

12,094

 

$

11,561

 

TELUS Corporation commercial paper

 

(c)

 

843

 

1,140

 

TELUS Communications Inc. debentures

 

 

 

620

 

620

 

TELUS International (Cda) Inc. credit facility

 

(e)

 

433

 

339

 

Long-term debt

 

 

 

$

13,990

 

$

13,660

 

Current

 

 

 

$

852

 

$

1,404

 

Non-current

 

 

 

13,138

 

12,256

 

Long-term debt

 

 

 

$

13,990

 

$

13,660

 

 

(b)         TELUS Corporation notes

 

The notes are senior, unsecured and unsubordinated obligations and rank equally in right of payment with all of our existing and future unsecured, unsubordinated obligations, are senior in right of payment to all of our existing and future subordinated indebtedness, and are effectively subordinated to all existing and future obligations of, or guaranteed by, our subsidiaries. The indentures governing the notes contain certain covenants which, among other things, place limitations on our ability and the ability of certain of our subsidiaries to: grant security in respect of indebtedness; enter into sale-leaseback transactions; and incur new indebtedness.

 

 

 

 

 

 

 

 

 

 

 

Principal face amount

 

Redemption present
value spread

 

Series 1

 

Issued

 

Maturity

 

Issue
price

 

Effective
interest
rate
2

 

Originally
issued

 

Outstanding at
financial
statement date

 

Basis
points

 

Cessation
date

 

5.05% Notes, Series CG

 

December 2009

 

December 2019

 

$

994.19

 

5.13

%

$1.0 billion

 

$1.0 billion

 

45.5 3

 

N/A

 

5.05% Notes, Series CH

 

July 2010

 

July 2020

 

$

997.44

 

5.08

%

$1.0 billion

 

$1.0 billion

 

47 3

 

N/A

 

3.35% Notes, Series CJ

 

December 2012

 

March 2023

 

$

998.83

 

3.36

%

$500 million

 

$500 million

 

40 4

 

Dec. 15, 2022

 

3.35% Notes, Series CK

 

April 2013

 

April 2024

 

$

994.35

 

3.41

%

$1.1 billion

 

$1.1 billion

 

36 4

 

Jan. 2, 2024

 

4.40% Notes, Series CL

 

April 2013

 

April 2043

 

$

997.68

 

4.41

%

$600 million

 

$600 million

 

47 4

 

Oct. 1, 2042

 

3.60% Notes, Series CM

 

November 2013

 

January 2021

 

$

997.15

 

3.65

%

$400 million

 

$400 million

 

35 4

 

N/A

 

5.15% Notes, Series CN

 

November 2013

 

November 2043

 

$

995.00

 

5.18

%

$400 million

 

$400 million

 

50 4

 

May 26, 2043

 

3.20% Notes, Series CO

 

April 2014

 

April 2021

 

$

997.39

 

3.24

%

$500 million

 

$500 million

 

30 4

 

Mar. 5, 2021

 

4.85% Notes, Series CP

 

Multiple 5

 

April 2044

 

$

987.91

5

4.93

%5

$500 million 5

 

$900 million 5

 

46 4

 

Oct. 5, 2043

 

3.75% Notes, Series CQ

 

September 2014

 

January 2025

 

$

997.75

 

3.78

%

$800 million

 

$800 million

 

38.5 4

 

Oct. 17, 2024

 

4.75% Notes, Series CR

 

September 2014

 

January 2045

 

$

992.91

 

4.80

%

$400 million

 

$400 million

 

51.5 4

 

July 17, 2044

 

1.50% Notes, Series CS

 

March 2015

 

March 2018

 

$

999.62

 

1.51

%

$250 million

 

$NIL

 

N/A 6

 

N/A

 

2.35% Notes, Series CT

 

March 2015

 

March 2022

 

$

997.31

 

2.39

%

$1.0 billion

 

$1.0 billion

 

35.5 4

 

Feb. 28, 2022

 

4.40% Notes, Series CU

 

March 2015

 

January 2046

 

$

999.72

 

4.40

%

$500 million

 

$500 million

 

60.5 4

 

July 29, 2045

 

3.75% Notes, Series CV

 

December 2015

 

March 2026

 

$

992.14

 

3.84

%

$600 million

 

$600 million

 

53.5 4

 

Dec. 10, 2025

 

2.80% U.S. Dollar Notes 7

 

September 2016

 

February 2027

 

US$

991.89

 

2.89

%

US$600 million

 

US$600 million

 

20 8

 

Nov. 16, 2026

 

3.70% U.S. Dollar Notes 9

 

March 2017

 

September 2027

 

US$

998.95

 

3.71

%

US$500 million

 

US$500 million

 

20 8

 

June 15, 2027

 

4.70% Notes, Series CW

 

Multiple 10

 

March 2048

 

$

998.06

10

4.71

%10

$325 million

 

$475 million

 

58.5 4

 

Sept. 6, 2047

 

3.625% Notes, Series CX

 

February 2018

 

February 2028

 

$

989.49

 

3.75

%

$600 million

 

$600 million

 

37 4

 

Dec. 1, 2027

 

 


(1)             Interest is payable semi-annually. The notes requires us to make an offer to repurchase the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest to the date of repurchase upon the occurrence of a change in control triggering event, as defined in the supplemental trust indenture.

(2)             The effective interest rate is that which the notes would yield to an initial debt holder if held to maturity.

(3)             The notes are redeemable at our option, in whole at any time, or in part from time to time, on not fewer than 30 and not more than 60 days’ prior notice. The redemption price is equal to the greater of (i) the present value of the notes discounted at the Government of Canada yield plus the redemption present value spread, or (ii) 100% of the principal amount thereof. In addition, accrued and unpaid interest, if any, will be paid to the date fixed for redemption.

(4)             At any time prior to the respective maturity dates set out in the table, the notes are redeemable at our option, in whole at any time, or in part from time to time, on not fewer than 30 and not more than 60 days’ prior notice. The redemption price is equal to the greater of (i) the present value of the notes discounted at

 

 

43



 

notes to condensed interim consolidated financial statements

 

(unaudited)

 

the Government of Canada yield plus the redemption present value spread calculated over the period to maturity, other than in the case of the Series CT, Series CU, Series CW and Series CX notes, where it is calculated over the period to the redemption present value spread cessation date, or (ii) 100% of the principal amount thereof. In addition, accrued and unpaid interest, if any, will be paid to the date fixed for redemption. On or after the respective redemption present value spread cessation dates set out in the table, the notes are redeemable at our option, in whole but not in part, on not fewer than 30 and not more than 60 days’ prior notice, at redemption prices equal to 100% of the principal amount thereof.

(5)             $500 million of 4.85% Notes, Series CP were issued in April 2014 at an issue price of $998.74 and an effective interest rate of 4.86%. This series of notes was reopened in December 2015 and a further $400 million of notes were issued at an issue price of $974.38 and an effective interest rate of 5.02%.

(6)             The notes were not redeemable at our option, other than in the event of certain changes in tax laws.

(7)             We have entered into a foreign exchange derivative (a cross currency interest rate exchange agreement) which effectively converted the principal payments and interest obligations to Canadian dollar obligations with a fixed interest rate of 2.95% and an issued and outstanding amount of $792 million (reflecting a fixed exchange rate of $1.3205).

(8)             At any time prior to the respective maturity dates set out in the table, the notes are redeemable at our option, in whole at any time, or in part from time to time, on not fewer than 30 and not more than 60 days’ prior notice. The redemption price is equal to the greater of (i) the present value of the notes discounted at the U.S. Adjusted Treasury Rate plus the redemption present value spread calculated over the period to the redemption present value spread cessation date, or (ii) 100% of the principal amount thereof. In addition, accrued and unpaid interest, if any, will be paid to the date fixed for redemption. On or after the respective redemption present value spread cessation dates set out in the table, the notes are redeemable at our option, in whole but not in part, on not fewer than 30 and not more than 60 days’ prior notice, at redemption prices equal to 100% of the principal amounts thereof.

(9)             We have entered into a foreign exchange derivative (a cross currency interest rate exchange agreement) which effectively converted the principal payments and interest obligations to Canadian dollar obligations with a fixed interest rate of 3.41% and an issued and outstanding amount of $667 million (reflecting a fixed exchange rate of $1.3348).

(10)        $325 million of 4.70%, Series CW were issued in March 2017 at an issue price of $990.65 and an effective interest rate of 4.76%. This series of notes was reopened in February 2018 and a further $150 million of notes were issued at a price of $1,014.11 and an effective interest rate of 4.61%.

 

(c)          TELUS Corporation commercial paper

 

TELUS Corporation has an unsecured commercial paper program, which is backstopped by our $2.25 billion syndicated credit facility (see (d)) and is to be used for general corporate purposes, including capital expenditures and investments. This program enables us to issue commercial paper, subject to conditions related to debt ratings, up to a maximum aggregate amount at any one time of $1.4 billion (December 31, 2017 – $1.4 billion). Foreign currency forward contracts are used to manage currency risk arising from issuing commercial paper denominated in U.S. dollars. Commercial paper debt is due within one year and is classified as a current portion of long-term debt, as the amounts are fully supported, and we expect that they will continue to be supported, by the revolving credit facility, which has no repayment requirements within the next year. As at March 31, 2018, we had $843 million of commercial paper outstanding, all of which was denominated in U.S. dollars (US$654 million), with an effective weighted average interest rate of 2.42%, maturing through July 2018.

 

(d)         TELUS Corporation credit facility

 

As at March 31, 2018, TELUS Corporation had an unsecured revolving $2.25 billion bank credit facility, expiring on May 31, 2021, with a syndicate of financial institutions, which is to be used for general corporate purposes, including the backstopping of commercial paper. Subsequent to March 31, 2018, the credit facility was renewed at $2.25 billion with an expiry date of May 31, 2023.

 

TELUS Corporation’s credit facility bears interest at prime rate, U.S. Dollar Base Rate, a bankers’ acceptance rate or London interbank offered rate (LIBOR) (all such terms as used or defined in the credit facility), plus applicable margins. The credit facility contains customary representations, warranties and covenants, including two financial quarter-end ratio tests. These tests are that our net debt to operating cash flow ratio must not exceed 4.00:1.00 and our operating cash flow to interest expense ratio must not be less than 2.00:1.00, all as defined under the credit facility.

 

Continued access to TELUS Corporation’s credit facility is not contingent on TELUS Corporation maintaining a specific credit rating.

 

As at (millions)

 

March 31,
2018

 

December 31,
2017

 

Net available

 

$

1,407

 

$

1,110

 

Backstop of commercial paper

 

843

 

1,140

 

Gross available

 

$

2,250

 

$

2,250

 

 

We had $231 million of letters of credit outstanding as at March 31, 2018 (December 31, 2017 — $224 million), issued under various uncommitted facilities; such letter of credit facilities are in addition to the ability to provide letters of credit pursuant to our committed bank credit facility.

 

(e)          TELUS International (Cda) Inc. credit facility

 

As at March 31, 2018, TELUS International (Cda) Inc. had a bank credit facility, secured by its assets, expiring on December 20, 2022, with a syndicate of financial institutions. The credit facility is comprised of a US$350 million (December 31, 2017 — US$350 million) revolving component and an amortizing US$120 million (December 31, 2017 — US$120 million) term loan

 

 

44



 

notes to condensed interim consolidated financial statements

 

(unaudited)

 

component. The credit facility is non-recourse to TELUS Corporation. As at March 31, 2018, $441 million ($433 million net of unamortized issue costs) was outstanding, all of which was denominated in U.S. dollars (US$342 million), with a weighted average interest rate of 3.87%.

 

As at (millions)

 

March 31, 2018

 

December 31, 2017

 

 

 

Revolving
component

 

Term loan
component

 

Total

 

Revolving
component

 

Term loan
component

 

Total

 

Available

 

US$

125

 

US$

N/A

 

US$

125

 

US$

193

 

US$

N/A

 

US$

193

 

Outstanding

 

 

225

 

 

117

 

 

342

 

 

157

 

 

119

 

 

276

 

 

 

US$

350

 

US$

117

 

US$

467

 

US$

350

 

US$

119

 

US$

469

 

 

TELUS International (Cda) Inc.’s credit facility bears interest at prime rate, U.S. Dollar Base Rate, a bankers’ acceptance rate or London interbank offered rate (LIBOR) (all such terms as used or defined in the credit facility), plus applicable margins. The credit facility contains customary representations, warranties and covenants, including two financial quarter-end ratio tests. These tests are that TELUS International (Cda) Inc.’s net debt to operating cash flow ratio must not exceed 3.25:1.00 and its operating cash flow to debt service (interest and scheduled principal repayment) ratio must not be less than 1.50:1.00, all as defined in the credit facility.

 

The term loan is subject to an amortization schedule which requires that 5% of the principal advanced be repaid each year of the term of the agreement, with the balance due at maturity.

 

(f)           Long-term debt maturities

 

Anticipated requirements to meet long-term debt repayments, calculated upon such long-term debts owing as at March 31, 2018, for each of the next five fiscal years are as follows:

 

Long-term debt denominated in

 

Cdn. dollars

 

U.S. dollars

 

 

 

 

 

 

 

 

 

Derivative liability

 

 

 

 

 

Years ending December 31 (millions)

 

Debt

 

Debt

 

(Receive) 1

 

Pay

 

Total

 

Total

 

2018 (balance of year)

 

$

 

$

849

 

$

(843

)

$

840

 

$

846

 

$

846

 

2019

 

1,000

 

8

 

 

 

8

 

1,008

 

2020

 

1,000

 

8

 

 

 

8

 

1,008

 

2021

 

1,075

 

8

 

 

 

8

 

1,083

 

2022

 

1,249

 

412

 

 

 

412

 

1,661

 

Thereafter

 

7,075

 

1,418

 

(1,418

)

1,460

 

1,460

 

8,535

 

Future cash outflows in respect of long-term debt principal repayments

 

11,399

 

2,703

 

(2,261

)

2,300

 

2,742

 

14,141

 

Future cash outflows in respect of associated interest and like carrying costs 2

 

5,821

 

503

 

(428

)

427

 

502

 

6,323

 

Undiscounted contractual maturities (Note 4(c))

 

$

17,220

 

$

3,206

 

$

(2,689

)

$

2,727

 

$

3,244

 

$

20,464

 

 


(1)         Where applicable, principal-related cash flows reflect foreign exchange rates at March 31, 2018.

(2)         Future cash outflows in respect of associated interest and like carrying costs for commercial paper and amounts drawn under our credit facilities (if any) have been calculated based upon the rates in effect at March 31, 2018.

 

27          other long-term liabilities

 

As at (millions)

 

Note

 

March 31,
2018

 

December 31,
2017

 

Contract liabilities

 

24

 

$

78

 

$

71

 

Other

 

 

 

10

 

10

 

Deferred revenues

 

 

 

88

 

81

 

Pension and other post-retirement liabilities

 

 

 

548

 

537

 

Restricted stock unit and deferred share unit liabilities

 

 

 

82

 

68

 

Derivative liabilities

 

 

 

65

 

76

 

Other

 

 

 

72

 

67

 

 

 

 

 

855

 

829

 

Deferred customer activation and connection fees

 

24

 

18

 

18

 

 

 

 

 

$

873

 

$

847

 

 

 

45



 

notes to condensed interim consolidated financial statements

 

(unaudited)

 

28          Common Share capital

 

General

 

Our authorized share capital is as follows:

 

As at

 

March 31,
2018

 

December 31,
2017

 

First Preferred Shares

 

1 billion

 

1 billion

 

Second Preferred Shares

 

1 billion

 

1 billion

 

Common Shares

 

2 billion

 

2 billion

 

 

Only holders of Common Shares may vote at our general meetings, with each holder of Common Shares entitled to one vote per Common Share held at all such meetings so long as not less than 66-2/3% of the issued and outstanding Common Shares are owned by Canadians. With respect to priority in payment of dividends and in the distribution of assets in the event of our liquidation, dissolution or winding-up, whether voluntary or involuntary, or any other distribution of our assets among our shareholders for the purpose of winding up our affairs, preferences are as follows: First Preferred Shares; Second Preferred Shares; and finally Common Shares.

 

As at March 31, 2018, approximately 47 million Common Shares were reserved for issuance, from Treasury, under a share option plan (see Note 14(d)).

 

29          contingent liabilities

 

Claims and lawsuits

 

General

 

A number of claims and lawsuits (including class actions and intellectual property infringement claims) seeking damages and other relief are pending against us and, in some cases, numerous other wireless carriers and telecommunications service providers. As well, we have received notice of, or are aware of, certain possible claims (including intellectual property infringement claims) against us.

 

It is not currently possible for us to predict the outcome of such claims, possible claims and lawsuits due to various factors, including: the preliminary nature of some claims; uncertain damage theories and demands; an incomplete factual record; uncertainty concerning legal theories and procedures and their resolution by the courts, at both the trial and the appeal levels; and the unpredictable nature of opposing parties and their demands.

 

However, subject to the foregoing limitations, management is of the opinion, based upon legal assessments and information presently available, that it is unlikely that any liability, to the extent not provided for through insurance or otherwise, would have a material effect on our financial position and the results of our operations, including cash flows, with the exception of the items enumerated following.

 

Certified class actions

 

Certified class actions against us include the following:

 

Per minute billing class action

 

In 2008 a class action was brought in Ontario against us alleging breach of contract, breach of the Ontario Consumer Protection Act, breach of the Competition Act and unjust enrichment, in connection with our practice of “rounding up” wireless airtime to the nearest minute and charging for the full minute. The action sought certification of a national class. In November 2014, an Ontario class only was certified by the Ontario Superior Court of Justice in relation to the breach of contract, breach of Consumer Protection Act, and unjust enrichment claims; all appeals of the certification decision have now been exhausted. At the same time, the Ontario Superior Court of Justice declined to stay the claims of our business customers notwithstanding an arbitration clause in our customer service agreements with those customers. This latter decision was appealed and on May 31, 2017, the Ontario Court of Appeal dismissed our appeal. The Supreme Court of Canada has granted us leave to appeal this decision.

 

Call set-up time class actions

 

In 2005 a class action was brought against us in British Columbia alleging that we have engaged in deceptive trade practices in charging for incoming calls from the moment the caller connects to the network, and not from the moment the incoming call is connected to the recipient. In 2011, the Supreme Court of Canada upheld a stay of all of

 

 

46



 

notes to condensed interim consolidated financial statements

(unaudited)

 

the causes of action advanced by the plaintiff in this class action, with one exception, based on the arbitration clause that was included in our customer service agreements. The sole exception was the cause of action based on deceptive or unconscionable practices under the British Columbia Business Practices and Consumer Protection Act, which the Supreme Court of Canada declined to stay. In January 2016, the British Columbia Supreme Court certified this class action in relation to the claim under the Business Practices and Consumer Protection Act. The class is limited to residents of British Columbia who contracted wireless services with us in the period from January 21, 1999, to April 2010. We have appealed the certification decision and the appeal hearing is expected to occur in September 2018. A companion class action was brought against us in Alberta at the same time as the British Columbia class action. The Alberta class action duplicates the allegations in the British Columbia action, but has not proceeded to date and is not certified.

 

Uncertified class actions

 

Uncertified class actions against us include:

 

9-1-1 class actions

 

In 2008 a class action was brought in Saskatchewan against us and other Canadian telecommunications carriers alleging that, among other matters, we failed to provide proper notice of 9-1-1 charges to the public, have been deceitfully passing them off as government charges, and have charged 9-1-1 fees to customers who reside in areas where 9-1-1 service is not available. The plaintiffs advance causes of action in breach of contract, misrepresentation and false advertising and seek certification of a national class. A virtually identical class action was filed in Alberta at the same time, but the Alberta Court of Queen’s Bench declared that class action expired against us as of 2009. No steps have been taken in this proceeding since 2016.

 

Electromagnetic field radiation class actions

 

In 2013 a class action was brought in British Columbia against us, other telecommunications carriers, and cellular telephone manufacturers alleging that prolonged usage of cellular telephones causes adverse health effects. The British Columbia class action alleges: strict liability; negligence; failure to warn; breach of warranty; breach of competition, consumer protection and trade practices legislation; negligent misrepresentation, breach of a duty not to market the products in question; and waiver of tort. Certification of a national class is sought. No steps have been taken in this proceeding since 2014. In 2015 a class action was brought in Quebec against us, other telecommunications carriers, and various other defendants alleging that electromagnetic field radiation causes adverse health effects, contravenes the Quebec Environmental Quality Act, creates a nuisance, and constitutes an abuse of right pursuant to the Quebec Civil Code. The authorization hearing for this matter is expected to occur in May 2018.

 

Public Mobile class actions

 

In 2014 class actions were brought against us in Quebec and Ontario on behalf of Public Mobile’s customers, alleging that changes to the technology, services and rate plans made by us contravene our statutory and common law obligations. In particular, the Quebec action alleges that our actions constitute a breach of the Quebec Consumer Protection Act, the Quebec Civil Code, and the Ontario Consumer Protection Act. It has not yet proceeded to an authorization hearing. The Ontario class action alleges negligence, breach of express and implied warranty, breach of the Competition Act, unjust enrichment, and waiver of tort. No steps have been taken in this proceeding since it was filed and served.

 

Handset subsidy class action

 

In 2016 a class action was brought in Quebec against us and other telecommunications carriers alleging that we breached the Quebec Consumer Protection Act and the Civil Code of Quebec by making false or misleading representations relating to the handset subsidy provided to our wireless customers, and by charging our wireless customers inflated rate plan prices and termination fees higher than those permitted under the Act. This action has not yet proceeded to an authorization hearing.

 

Intellectual property infringement claims

 

Claims and possible claims received by us include:

 

4G LTE network patent infringement claim

 

A patent infringement claim was filed in Ontario in 2016 alleging that communications between devices, including cellular telephones, and base stations on our 4G LTE network infringe three third-party patents. This matter is set to be tried in the fourth quarter of 2019.

 

 

47



 

notes to condensed interim consolidated financial statements

(unaudited)

 

Summary

 

We believe that we have good defences to the above matters. Should the ultimate resolution of these matters differ from management’s assessments and assumptions, a material adjustment to our financial position and the results of our operations, including cash flows, could result. Management’s assessments and assumptions include that reliable estimates of any such exposure cannot be made considering the continued uncertainty about: the nature of the damages that may be sought by the plaintiffs; the causes of action that are being, or may ultimately be, pursued; and, in the case of the uncertified class actions, the causes of action that may ultimately be certified.

 

30          related party transactions

 

(a)         Transactions with key management personnel

 

Our key management personnel have authority and responsibility for overseeing, planning, directing and controlling our activities and consist of our Board of Directors and our Executive Leadership Team.

 

Total compensation expense for key management personnel, and the composition thereof, is as follows:

 

 

 

Three months

 

Periods ended March 31 (millions)

 

2018

 

2017

 

Short-term benefits

 

$

3

 

$

3

 

Post-employment pension 1 and other benefits

 

1

 

1

 

Share-based compensation 2

 

3

 

4

 

 

 

$

7

 

$

8

 

 


(1)                   Our Executive Leadership Team members are members of our Pension Plan for Management and Professional Employees of TELUS Corporation and non-registered, non-contributory supplementary defined benefit pension plans.

(2)                   For the three-month period ended March 31, 2018, share-based compensation expense is net of $(1) (2017 — $NIL) of the effects of derivatives used to manage share-based compensation costs (Note 14(b)).

 

As disclosed in Note 14, we made initial awards of share-based compensation in 2018 and 2017, including, as set out in the following table, to our key management personnel. As most of these awards are cliff-vesting or graded-vesting and have multi-year requisite service periods, the expense will be recognized ratably over a period of years and thus only a portion of the 2018 and 2017 initial awards are included in the amounts in the table above.

 

Three-month periods ended March 31

 

2018

 

2017

 

($ in millions)

 

Number of
restricted
stock units

 

Notional
value 
1

 

Grant-date
fair value 
1

 

Number of
restricted
stock units

 

Notional
value 
1

 

Grant-date
fair value 
1

 

Awarded in period

 

608,849

 

$

28

 

$

36

 

686,595

 

$

30

 

$

30

 

 


(1)                   Notional value is determined by multiplying the Common Share price at the time of award by the number of units awarded. The grant-date fair value differs from the notional value because the fair values of some awards have been determined using a Monte Carlo simulation (see Note 14(b)).

 

The liability amounts accrued for share-based compensation awards to key management personnel are as follows:

 

As at (millions)

 

March 31,
2018

 

December 31,
2017

 

Restricted stock units

 

$

42

 

$

40

 

Deferred share units 1

 

23

 

24

 

 

 

$

65

 

$

64

 

 


(1)                   Our Directors’ Deferred Share Unit Plan provides that, in addition to his or her annual equity grant of deferred share units, a director may elect to receive his or her annual retainer and meeting fees in deferred share units, Common Shares or cash. Deferred share units entitle directors to a specified number of, or a cash payment based on the value of, our Common Shares. Deferred share units are paid out when a director ceases to be a director, for any reason, at a time elected by the director in accordance with the Directors’ Deferred Share Unit Plan; during the three-month period ended March 31, 2018, $NIL (2017 — $2) was paid out.

 

Employment agreements with members of the Executive Leadership Team typically provide for severance payments if an executive’s employment is terminated without cause: generally 18–24 months of base salary, benefits and accrual of pension service in lieu of notice and 50% of base salary in lieu of an annual cash bonus. In the event of a change in control, Executive Leadership Team members are not entitled to treatment any different than that given to our other employees with respect to non-vested share-based compensation.

 

(b)         Transactions with defined benefit pension plans

 

During the three-month period ended March 31, 2018, we provided management and administrative services to our defined benefit pension plans; the charges for these services were on a cost recovery basis and amounted to $1 million (2017 — $2 million).

 

 

48



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(c)          Transactions with real estate joint ventures

 

During the three-month periods ended March 31, 2018 and 2017, we had transactions with the real estate joint ventures, which are related parties, as set out in Note 21.

 

31          additional statement of cash flow information

 

(a)         Statements of cash flows — operating activities, investing activities and financing activities

 

 

 

 

 

Three months

 

Periods ended March 31 (millions)

 

Note

 

2018

 

2017

 

 

 

 

 

 

 

(adjusted —
Note 2(c))

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net change in non-cash operating working capital

 

 

 

 

 

 

 

Accounts receivable

 

 

 

$

203

 

$

62

 

Inventories

 

 

 

33

 

(9

)

Contract assets

 

 

 

 

14

 

Prepaid expenses

 

 

 

(121

)

(123

)

Accounts payable and accrued liabilities

 

 

 

(358

)

(181

)

Income and other taxes receivable and payable, net

 

 

 

85

 

(92

)

Advance billings and customer deposits

 

 

 

(9

)

43

 

Provisions

 

 

 

(9

)

(51

)

 

 

 

 

$

(176

)

$

(337

)

INVESTING ACTIVITIES

 

 

 

 

 

 

 

Cash payments for capital assets

 

 

 

 

 

 

 

Capital asset additions

 

 

 

 

 

 

 

Gross capital expenditures

 

 

 

 

 

 

 

Property, plant and equipment

 

17

 

$

(521

)

$

(572

)

Intangible assets

 

18

 

(137

)

(154

)

 

 

 

 

(658

)

(726

)

Additions arising from non-monetary transactions

 

 

 

8

 

2

 

Capital expenditures

 

 

 

(650

)

(724

)

Change in associated non-cash investing working capital

 

 

 

(88

)

(72

)

 

 

 

 

$

(738

)

$

(796

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

Issue of shares by subsidiary to non-controlling interests

 

 

 

 

 

 

 

Issue of shares

 

 

 

$

43

 

$

1

 

Non-monetary issue of shares in business combination

 

18(b)

 

(19

)

 

Cash proceeds on share issuance

 

 

 

24

 

1

 

Transaction costs

 

 

 

 

(1

)

 

 

 

 

$

24

 

$

 

 

 

49



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(b)         Changes in liabilities arising from financing activities

 

 

 

 

 

Statement of cash flows

 

Non-cash changes

 

 

 

(millions)

 

Beginning
of period

 

Issued or
received

 

Redemptions,
repayments or
payments

 

Foreign
exchange
movement
(Note 4(f))

 

Other

 

End of
period

 

THREE-MONTH PERIOD ENDED MARCH 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid to holders of Common Shares

 

$

284

 

$

 

$

(284

)

$

 

$

283

 

$

283

 

Short-term borrowings

 

$

100

 

$

 

$

 

$

 

$

 

$

100

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

TELUS Corporation notes

 

$

11,367

 

$

990

 

$

(700

)

$

(8

)

$

(11

)

$

11,638

 

TELUS Corporation commercial paper

 

613

 

1,528

 

(1,016

)

(3

)

 

1,122

 

TELUS Communications Inc. debentures

 

619

 

 

 

 

 

619

 

TELUS International (Cda) Inc. credit facility

 

332

 

 

(31

)

(3

)

 

298

 

Derivatives used to manage currency risks arising from U.S. dollar denominated long-term debt — liability (asset)

 

20

 

1,016

 

(1,018

)

11

 

9

 

38

 

 

 

12,951

 

3,534

 

(2,765

)

(3

)

(2

)

13,715

 

To eliminate effect of gross settlement of derivatives used to manage currency risks arising from U.S. dollar denominated long-term debt

 

 

(1,016

)

1,016

 

 

 

 

 

 

$

12,951

 

$

2,518

 

$

(1,749

)

$

(3

)

$

(2

)

$

13,715

 

THREE-MONTH PERIOD ENDED MARCH 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid to holders of Common Shares

 

$

299

 

$

 

$

(299

)

$

 

$

299

 

$

299

 

Dividends reinvested in shares from Treasury

 

 

 

20

 

 

(20

)

 

 

 

$

299

 

$

 

$

(279

)

$

 

$

279

 

$

299

 

Short-term borrowings

 

$

100

 

$

 

$

(6

)

$

 

$

6

 

$

100

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

TELUS Corporation notes

 

$

11,561

 

$

750

 

$

(250

)

$

38

 

$

(5

)

$

12,094

 

TELUS Corporation commercial paper

 

1,140

 

1,314

 

(1,644

)

33

 

 

843

 

TELUS Communications Inc. debentures

 

620

 

 

 

 

 

620

 

TELUS International (Cda) Inc. credit facility

 

339

 

97

 

(11

)

10

 

(2

)

433

 

Derivatives used to manage currency risks arising from U.S. dollar denominated long-term debt — liability

 

93

 

1,644

 

(1,634

)

(71

)

27

 

59

 

 

 

13,753

 

3,805

 

(3,539

)

10

 

20

 

14,049

 

To eliminate effect of gross settlement of derivatives used to manage currency risks arising from U.S. dollar denominated long-term debt

 

 

(1,644

)

1,644

 

 

 

 

 

 

$

13,753

 

$

2,161

 

$

(1,895

)

$

10

 

$

20

 

$

14,049

 

 

 

50