EX-99.1 2 a18-14895_1ex99d1.htm EX-99.1

Exhibit 99.1

 



 

TELUS CORPORATION

 

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

(UNAUDITED)

 

JUNE 30, 2018

 



 

condensed interim consolidated statements of income and other comprehensive income

(unaudited)

 

 

 

 

 

Three months

 

Six months

 

Periods ended June 30 (millions except per share amounts)

 

Note

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

(Note 2(c))

 

(adjusted –
Note 2(c))

 

(Note 2(c))

 

(adjusted –
Note 2(c))

 

OPERATING REVENUES

 

 

 

 

 

 

 

 

 

 

 

Service

 

 

 

$

2,953

 

$

2,810

 

$

5,839

 

$

5,572

 

Equipment

 

 

 

487

 

456

 

952

 

864

 

Revenues arising from contracts with customers

 

6

 

3,440

 

3,266

 

6,791

 

6,436

 

Other operating income

 

7

 

13

 

14

 

39

 

27

 

 

 

 

 

3,453

 

3,280

 

6,830

 

6,463

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

Goods and services purchased

 

 

 

1,491

 

1,423

 

2,899

 

2,747

 

Employee benefits expense

 

8

 

711

 

649

 

1,411

 

1,273

 

Depreciation

 

17

 

411

 

391

 

822

 

793

 

Amortization of intangible assets

 

18

 

148

 

135

 

287

 

265

 

 

 

 

 

2,761

 

2,598

 

5,419

 

5,078

 

OPERATING INCOME

 

 

 

692

 

682

 

1,411

 

1,385

 

Financing costs

 

9

 

150

 

142

 

306

 

280

 

INCOME BEFORE INCOME TAXES

 

 

 

542

 

540

 

1,105

 

1,105

 

Income taxes

 

10

 

145

 

144

 

296

 

287

 

NET INCOME

 

 

 

397

 

396

 

809

 

818

 

OTHER COMPREHENSIVE INCOME

 

11

 

 

 

 

 

 

 

 

 

Items that may subsequently be reclassified to income

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

(22

)

19

 

(29

)

10

 

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

 

 

 

(17

)

 

(21

)

3

 

 

 

 

 

(39

)

19

 

(50

)

13

 

Items never subsequently reclassified to income

 

 

 

 

 

 

 

 

 

 

 

Change in measurement of investment financial assets

 

 

 

 

2

 

 

 

Employee defined benefit plan re-measurements

 

 

 

105

 

18

 

62

 

86

 

 

 

 

 

105

 

20

 

62

 

86

 

 

 

 

 

66

 

39

 

12

 

99

 

COMPREHENSIVE INCOME

 

 

 

$

463

 

$

435

 

$

821

 

$

917

 

NET INCOME ATTRIBUTABLE TO:

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

 

$

390

 

$

389

 

$

800

 

$

803

 

Non-controlling interests

 

 

 

7

 

7

 

9

 

15

 

 

 

 

 

$

397

 

$

396

 

$

809

 

$

818

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO:

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

 

$

464

 

$

428

 

$

821

 

$

900

 

Non-controlling interests

 

 

 

(1

)

7

 

 

17

 

 

 

 

 

$

463

 

$

435

 

$

821

 

$

917

 

NET INCOME PER COMMON SHARE

 

12

 

 

 

 

 

 

 

 

 

Basic

 

 

 

$

0.66

 

$

0.66

 

$

1.34

 

$

1.36

 

Diluted

 

 

 

$

0.66

 

$

0.66

 

$

1.34

 

$

1.36

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

596

 

592

 

595

 

591

 

Diluted

 

 

 

596

 

593

 

595

 

592

 

 

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

 

June 30,
2018

 

December 31,
2017

 

January 1,
2017

 

 

 

 

 

(Note 2(c))

 

(adjusted – Note 2(c))

 

(Note 2(c))

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and temporary investments, net

 

 

 

$

683

 

$

509

 

$

432

 

Accounts receivable

 

6(b)

 

1,485

 

1,614

 

1,462

 

Income and other taxes receivable

 

 

 

6

 

96

 

9

 

Inventories

 

1(b)

 

330

 

380

 

320

 

Contract assets

 

6(c)

 

760

 

757

 

700

 

Prepaid expenses

 

20

 

640

 

493

 

443

 

Current derivative assets

 

4(e)

 

29

 

18

 

11

 

 

 

 

 

3,933

 

3,867

 

3,377

 

Non-current assets

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

17

 

11,712

 

11,368

 

10,464

 

Intangible assets, net

 

18

 

10,786

 

10,658

 

10,364

 

Goodwill, net

 

18

 

4,610

 

4,236

 

3,787

 

Contract assets

 

6(c)

 

365

 

396

 

352

 

Other long-term assets

 

20

 

633

 

528

 

733

 

 

 

 

 

28,106

 

27,186

 

25,700

 

 

 

 

 

$

32,039

 

$

31,053

 

$

29,077

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND OWNERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

22

 

$

113

 

$

100

 

$

100

 

Accounts payable and accrued liabilities

 

23

 

2,331

 

2,460

 

2,330

 

Income and other taxes payable

 

 

 

116

 

34

 

37

 

Dividends payable

 

13

 

315

 

299

 

284

 

Advance billings and customer deposits

 

24

 

619

 

632

 

584

 

Provisions

 

25

 

106

 

78

 

124

 

Current maturities of long-term debt

 

26

 

1,009

 

1,404

 

1,327

 

Current derivative liabilities

 

4(e)

 

3

 

33

 

12

 

 

 

 

 

4,612

 

5,040

 

4,798

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

Provisions

 

25

 

702

 

511

 

395

 

Long-term debt

 

26

 

13,136

 

12,256

 

11,604

 

Other long-term liabilities

 

27

 

867

 

847

 

736

 

Deferred income taxes

 

 

 

2,971

 

2,941

 

2,511

 

 

 

 

 

17,676

 

16,555

 

15,246

 

Liabilities

 

 

 

22,288

 

21,595

 

20,044

 

Owners’ equity

 

 

 

 

 

 

 

 

 

Common equity

 

28

 

9,679

 

9,416

 

9,014

 

Non-controlling interests

 

 

 

72

 

42

 

19

 

 

 

 

 

9,751

 

9,458

 

9,033

 

 

 

 

 

$

32,039

 

$

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-

 

 

 

 

 

 

 

Number

 

Share

 

Contributed

 

Retained

 

comprehensive

 

 

 

controlling

 

 

 

(millions)

 

Note

 

of shares

 

capital

 

surplus

 

earnings

 

income

 

Total

 

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)

 

 

 

 

803

 

 

803

 

15

 

818

 

Other comprehensive income

 

11

 

 

 

 

86

 

11

 

97

 

2

 

99

 

Dividends

 

13

 

 

 

 

(576

)

 

(576

)

 

(576

)

Dividends reinvested and optional cash payments

 

 

 

1

 

23

 

 

 

 

23

 

 

23

 

Share option award net-equity settlement feature

 

14(d)

 

 

1

 

(1

)

 

 

 

 

 

Issue of shares in business combination

 

 

 

2

 

100

 

 

 

 

100

 

 

100

 

Change in ownership interests of subsidiary

 

 

 

 

 

(3

)

 

 

(3

)

1

 

(2

)

Other

 

 

 

 

3

 

 

 

 

3

 

 

3

 

Balance as at June 30, 2017

 

 

 

593

 

$

5,156

 

$

368

 

$

3,887

 

$

50

 

$

9,461

 

$

37

 

$

9,498

 

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

 

 

 

 

 

 

800

 

 

800

 

9

 

809

 

Other comprehensive income

 

11

 

 

 

 

62

 

(41

)

21

 

(9

)

12

 

Dividends

 

13

 

 

 

 

(614

)

 

(614

)

 

(614

)

Dividends reinvested and optional cash payments

 

13(b),14(c)

 

1

 

42

 

 

 

 

42

 

 

42

 

Share option award net-equity settlement feature

 

14(d)

 

 

1

 

(1

)

 

 

 

 

 

Change in ownership interests of subsidiary

 

31(a)

 

 

 

14

 

 

 

14

 

30

 

44

 

Balance as at June 30, 2018

 

 

 

596

 

$

5,248

 

$

383

 

$

4,042

 

$

6

 

$

9,679

 

$

72

 

$

9,751

 

 

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

 

Six months

 

Periods ended June 30 (millions)

 

Note

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

(Note 2(c))

 

(adjusted –
Note 2(c))

 

(Note 2(c))

 

(adjusted –
Note 2(c))

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

$

397

 

$

396

 

$

809

 

$

818

 

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

559

 

526

 

1,109

 

1,058

 

Deferred income taxes

 

10

 

14

 

97

 

21

 

183

 

Share-based compensation expense, net

 

14(a)

 

35

 

23

 

53

 

39

 

Net employee defined benefit plans expense

 

15(a)

 

24

 

20

 

49

 

41

 

Employer contributions to employee defined benefit plans

 

 

 

(14

)

(13

)

(35

)

(35

)

Non-current contract assets

 

 

 

12

 

3

 

31

 

6

 

Other

 

 

 

(62

)

18

 

(58

)

6

 

Net change in non-cash operating working capital

 

31(a)

 

241

 

56

 

65

 

(281

)

Cash provided by operating activities

 

 

 

1,206

 

1,126

 

2,044

 

1,835

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Cash payments for capital assets, excluding spectrum licences

 

31(a)

 

(735

)

(754

)

(1,473

)

(1,550

)

Cash payments for acquisitions, net

 

18(b)

 

(47

)

(466

)

(251

)

(478

)

Real estate joint ventures advances

 

21(c)

 

(7

)

(8

)

(13

)

(13

)

Real estate joint venture receipts

 

21(c)

 

1

 

1

 

2

 

4

 

Proceeds on disposition

 

 

 

 

3

 

15

 

6

 

Other

 

 

 

(7

)

3

 

(7

)

(12

)

Cash used by investing activities

 

 

 

(795

)

(1,221

)

(1,727

)

(2,043

)

FINANCING ACTIVITIES

 

31(b)

 

 

 

 

 

 

 

 

 

Dividends paid to holders of Common Shares

 

13(a)

 

(278

)

(260

)

(557

)

(544

)

Issue (repayment) of short-term borrowings, net

 

 

 

13

 

 

7

 

 

Long-term debt issued

 

26

 

1,279

 

1,543

 

3,440

 

4,061

 

Redemptions and repayment of long-term debt

 

26

 

(1,147

)

(1,611

)

(3,042

)

(3,360

)

Issue of shares by subsidiary to non-controlling interests

 

31(a)

 

 

 

24

 

 

Other

 

 

 

(10

)

 

(15

)

(10

)

Cash provided (used) by financing activities

 

 

 

(143

)

(328

)

(143

)

147

 

CASH POSITION

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and temporary investments, net

 

 

 

268

 

(423

)

174

 

(61

)

Cash and temporary investments, net, beginning of period

 

 

 

415

 

794

 

509

 

432

 

Cash and temporary investments, net, end of period

 

 

 

$

683

 

$

371

 

$

683

 

$

371

 

SUPPLEMENTAL DISCLOSURE OF OPERATING CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

 

 

$

(130

)

$

(125

)

$

(280

)

$

(267

)

Interest received

 

 

 

$

3

 

$

1

 

$

5

 

$

1

 

Income taxes paid, net

 

 

 

$

(52

)

$

(33

)

$

(108

)

$

(179

)

 

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

 

 

5



 

notes to condensed interim consolidated financial statements

(unaudited)

 

JUNE 30, 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

 

15

 

4.              Financial instruments

 

17

 

Consolidated results of operations focused

 

 

 

5.              Segment information

 

23

 

6.              Revenue from contracts with customers

 

26

 

7.              Other operating income

 

27

 

8.              Employee benefits expense

 

28

 

9.              Financing costs

 

28

 

10.       Income taxes

 

29

 

11.       Other comprehensive income

 

30

 

12.       Per share amounts

 

32

 

13.       Dividends per share

 

32

 

14.       Share-based compensation

 

32

 

15.       Employee future benefits

 

35

 

16.       Restructuring and other costs

 

36

 

Consolidated financial position focused

 

 

 

17.       Property, plant and equipment

 

37

 

18.       Intangible assets and goodwill

 

38

 

19.       Leases

 

41

 

20.       Other long-term assets

 

42

 

21.       Real estate joint ventures

 

42

 

22.       Short-term borrowings

 

45

 

23.       Accounts payable and accrued liabilities

 

45

 

24.       Advance billings and customer deposits

 

46

 

25.       Provisions

 

47

 

26.       Long-term debt

 

48

 

27.       Other long-term liabilities

 

50

 

28.       Common Share capital

 

51

 

29.       Contingent liabilities

 

51

 

Other

 

 

 

30.       Related party transactions

 

53

 

31.       Additional statement of cash flow information

 

54

 

 

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 and six-month periods ended June 30, 2018, were authorized by our Board of Directors for issue on August 3, 2018.

 

 

6



 

notes to condensed interim consolidated financial statements

(unaudited)

 

(b)         Inventories

 

Our inventories primarily consist of wireless handsets, parts and accessories (totalling $268 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 and six-month periods ended June 30, 2018, totalled $469 million (2017 — $446 million) and $936 million (2017 — $854 million), respectively.

 

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 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 will be 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 June 30 (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

 

$

3,260

 

$

(307

)

$

2,953

 

$

3,091

 

$

(281

)

$

2,810

 

Equipment

 

186

 

301

 

487

 

168

 

288

 

456

 

Revenues arising from contracts with customers

 

3,446

 

(6

)

3,440

 

3,259

 

7

 

3,266

 

Other operating income 1

 

13

 

 

13

 

14

 

 

14

 

 

 

3,459

 

(6

)

3,453

 

3,273

 

7

 

3,280

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Goods and services purchased

 

1,494

 

(3

)

1,491

 

1,433

 

(10

)

1,423

 

Employee benefits expense

 

710

 

1

 

711

 

646

 

3

 

649

 

Depreciation

 

411

 

 

411

 

391

 

 

391

 

Amortization of intangible assets

 

148

 

 

148

 

135

 

 

135

 

 

 

2,763

 

(2

)

2,761

 

2,605

 

(7

)

2,598

 

Operating income

 

696

 

(4

)

692

 

668

 

14

 

682

 

Financing costs

 

150

 

 

150

 

142

 

 

142

 

Income before income taxes

 

546

 

(4

)

542

 

526

 

14

 

540

 

Income taxes

 

146

 

(1

)

145

 

140

 

4

 

144

 

Net income

 

400

 

(3

)

397

 

386

 

10

 

396

 

Other comprehensive income 1

 

66

 

 

66

 

39

 

 

39

 

Comprehensive income 1

 

$

466

 

$

(3

)

$

463

 

$

425

 

$

10

 

$

435

 

Net income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

$

393

 

$

(3

)

$

390

 

$

379

 

$

10

 

$

389

 

Non-controlling interest

 

7

 

 

7

 

7

 

 

7

 

 

 

$

400

 

$

(3

)

$

397

 

$

386

 

$

10

 

$

396

 

Comprehensive income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

$

467

 

$

(3

)

$

464

 

$

418

 

$

10

 

$

428

 

Non-controlling interest

 

(1

)

 

(1

)

7

 

 

7

 

 

 

$

466

 

$

(3

)

$

463

 

$

425

 

$

10

 

$

435

 

Net income per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.66

 

$

 

$

0.66

 

$

0.64

 

$

0.02

 

$

0.66

 

Diluted

 

$

0.66

 

$

 

$

0.66

 

$

0.64

 

$

0.02

 

$

0.66

 

 


(1)         For the three-month period ended June 30, 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)

 

Six-month periods ended June 30 (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

 

$

6,452

 

$

(613

)

$

5,839

 

$

6,118

 

$

(546

)

$

5,572

 

Equipment

 

363

 

589

 

952

 

326

 

538

 

864

 

Revenues arising from contracts with customers

 

6,815

 

(24

)

6,791

 

6,444

 

(8

)

6,436

 

Other operating income 1

 

39

 

 

39

 

27

 

 

27

 

 

 

6,854

 

(24

)

6,830

 

6,471

 

(8

)

6,463

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Goods and services purchased

 

2,900

 

(1

)

2,899

 

2,746

 

1

 

2,747

 

Employee benefits expense

 

 

1,412

 

(1

)

1,411

 

1,270

 

3

 

1,273

 

Depreciation

 

822

 

 

822

 

793

 

 

793

 

Amortization of intangible assets

 

287

 

 

287

 

265

 

 

265

 

 

 

5,421

 

(2

)

5,419

 

5,074

 

4

 

5,078

 

Operating income

 

1,433

 

(22

)

1,411

 

1,397

 

(12

)

1,385

 

Financing costs

 

306

 

 

306

 

280

 

 

280

 

Income before income taxes

 

1,127

 

(22

)

1,105

 

1,117

 

(12

)

1,105

 

Income taxes

 

302

 

(6

)

296

 

290

 

(3

)

287

 

Net income

 

825

 

(16

)

809

 

827

 

(9

)

818

 

Other comprehensive income 1

 

12

 

 

12

 

99

 

 

99

 

Comprehensive income 1

 

$

837

 

$

(16

)

$

821

 

$

926

 

$

(9

)

$

917

 

Net income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

$

816

 

$

(16

)

$

800

 

$

812

 

$

(9

)

$

803

 

Non-controlling interest

 

9

 

 

9

 

15

 

 

15

 

 

 

$

825

 

$

(16

)

$

809

 

$

827

 

$

(9

)

$

818

 

Comprehensive income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

$

837

 

$

(16

)

$

821

 

$

909

 

$

(9

)

$

900

 

Non-controlling interest

 

 

 

 

17

 

 

17

 

 

 

$

837

 

$

(16

)

$

821

 

$

926

 

$

(9

)

$

917

 

Net income per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.37

 

$

(0.03

)

$

1.34

 

$

1.37

 

$

(0.01

)

$

1.36

 

Diluted

 

$

1.37

 

$

(0.03

)

$

1.34

 

$

1.37

 

$

(0.01

)

$

1.36

 

 


(1)         For the six-month period ended June 30, 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.

 

 

11



 

notes to condensed interim consolidated financial statements

(unaudited)

 

The effects of the transition to IFRS 15 on the line items in the preceding tables 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

 

Periods ended June 30

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

THREE-MONTH

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

$

(307

)

$

(281

)

$

 

$

 

$

(307

)

$

(281

)

Equipment

 

$

301

 

$

288

 

$

 

$

 

$

301

 

$

288

 

Goods and services purchased

 

$

 

$

(1

)

$

(3

)

$

(9

)

$

(3

)

$

(10

)

Employee benefits expense

 

$

 

$

 

$

1

 

$

3

 

$

1

 

$

3

 

Income taxes

 

$

(2

)

$

1

 

$

1

 

$

3

 

$

(1

)

$

4

 

Net income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

$

(4

)

$

7

 

$

1

 

$

3

 

$

(3

)

$

10

 

Net income per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

$

0.01

 

$

 

$

0.01

 

$

 

$

0.02

 

Diluted

 

$

 

$

0.01

 

$

 

$

0.01

 

$

 

$

0.02

 

SIX-MONTH

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

$

(613

)

$

(546

)

$

 

$

 

$

(613

)

$

(546

)

Equipment

 

$

589

 

$

538

 

$

 

$

 

$

589

 

$

538

 

Goods and services purchased

 

$

5

 

$

6

 

$

(6

)

$

(5

)

$

(1

)

$

1

 

Employee benefits expense

 

$

 

$

 

$

(1

)

$

3

 

$

(1

)

$

3

 

Income taxes

 

$

(8

)

$

(4

)

$

2

 

$

1

 

$

(6

)

$

(3

)

Net income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

$

(21

)

$

(10

)

$

5

 

$

1

 

$

(16

)

$

(9

)

Net income per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.04

)

$

(0.01

)

$

0.01

 

$

 

$

(0.03

)

$

(0.01

)

Diluted

 

$

(0.04

)

$

(0.01

)

$

0.01

 

$

 

$

(0.03

)

$

(0.01

)

 

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.

 

 

12



 

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)

 

June 30, 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

 

$

683

 

$

 

$

683

 

$

509

 

$

 

$

509

 

$