Form 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
For the month of _December_ 2003
(Commission File No. 000-24876)
TELUS Corporation
(Translation of registrant's name into English)
21st Floor, 3777 Kingsway
Burnaby, British Columbia V5H 3Z7
Canada
(Address of principal registered offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F:
X
Form 20-F _____ Form 40-F ___
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
X
Yes _____ No ___
This Form 6-K consists of the following:
TELUS News Release
February 13, 2004
TELUS Reports 2003 Fourth Quarter Results
TELUS Mobility drives strong overall results and TELUS Communications
achieves operational efficiency targets
VANCOUVER, B.C. - TELUS Corporation (TSX: T and T.A / NYSE: TU) today reported
for the fourth quarter of 2003 excellent wireless performance at TELUS
Mobility and a significant increase in net income. Overall operating earnings
(EBITDA excluding restructuring costs) were up 8%. Reported earnings per share
for the quarter and full year were 13 cents and 92 cents, compared to negative
41 cents and negative 75 cents, respectively, for the same periods a year ago.
Free cash flow was $84 million this quarter, a $164 million improvement from
negative $80 million a year ago.
FINANCIAL HIGHLIGHTS
Rounded to nearest C$ Millions,except per share amounts
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3 months ended
December 31
(unaudited) 2003 2002 Change
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Operating revenues 1,825.6 1,794.4 1.7%
EBITDA excluding restructuring(1) 699.0 645.2 8.3%
Restructuring and workforce reduction costs 16.2 241.0 (93.2)%
Net income (loss) 49.6 (139.2) $188.8
Earnings (loss) per share (EPS) 0.13 (0.41) $0.54
Capital expenditures 435.4 416.2 4.6%
Cash provided by operating activities 414.9 359.9 15.3%
Free cash flow(2) 83.8 (80.3) $164.1
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(1) Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) is defined as Operating revenues less Operations expense
and, as defined, excludes Restructuring and workforce reduction
costs.
(2) See note 3 of Results of Operations Highlights table in management's
discussion and analysis.
Darren Entwistle, president and CEO, commented "2003 has been a positive
year for TELUS as we continued our national growth strategy and focused on
core business development in Canada, which we commenced in 2000. As a result
of the crisp execution of this strategy, TELUS has delivered leading financial
and operating results in the global telecom industry, reflected in part by
significant increases in operating margins, earnings and cash flow. These top
echelon results are underpinned by 17% revenue growth and 48% EBITDA growth
this quarter at TELUS Mobility, as well as by the operational efficiency
initiatives at TELUS Communications that have delivered an annualized
reduction of $454 million in our operating costs. These savings are expected
to expand to $550 million in 2004 and beyond. Noteworthy for investors is our
achievement in exceeding five of six consolidated financial targets in 2003,
which bodes well for realizing our 2004 public targets that are calibrated to
once again place TELUS at the forefront amongst its global peer group in
respect of relative financial performance."
Robert McFarlane, executive vice president and CFO, stated "TELUS has
fully achieved our 2003 priority of strengthening our financial position. By
significantly growing earnings and free cash flow, we have paid down net debt
by $872 million in 2003 and reduced the key leverage ratio of net debt to
EBITDA to 2.6 times from 3.3 at the start of the year, well ahead of the
original 3.0 times target. As evidenced by the appreciation of TELUS shares
and notes, our operational execution to plan and financial stewardship is
clearly creating significant value for both equity and debt investors."
OPERATING HIGHLIGHTS
TELUS Communications
All efficiency program targets achieved and strong growth in high-speed
Internet
- total revenue of $1.2 billion in the fourth quarter declined by 5%
or $62 million due primarily to negative regulatory price cap
impacts, lower voice equipment sales, lower long distance
revenues, and reduced application development revenues due to
disposal of certain assets in 2003
- met operational efficiency incremental cost savings target
contributing to a 7% decrease in Operations expense, while
exceeding the net staff reduction target by 200 to reach 1,500
for year
- EBITDA excluding restructuring of $509 million, down $8 million or
2% from the same quarter a year ago with a 1 point increase in the
related margin to 42%
- underlying growth of 5% in EBITDA excluding restructuring when
negative regulatory price cap impacts of $21 million and
non-recurring investment tax credits received in 2002 are excluded
- non-incumbent operations in Central Canada significantly reduced
quarterly EBITDA excluding restructuring loss to only $2 million
- strong high-speed Internet subscriber net additions of 45,500 in
the quarter. For the second consecutive year, TELUS gained the
majority of high-speed Internet net adds in the Alberta/B.C.
market in 2003, leading to a 37% increase in TELUS' high-speed
Internet subscriber base to 562,000.
- network access lines were 4.9 million, a 0.8% decline compared to
a year ago
- cash flow (EBITDA excluding restructuring less capital
expenditures) of $206 million in the quarter, down 9%. For the
full year, cash flow was up 52% to $1.1 billion.
TELUS Mobility
Cash flow improvement of $54 million driven by EBITDA growth of 48%
- strong growth in EBITDA excluding restructuring of $61 million
or 48% to $190 million in the quarter, due to strong ARPU and
subscriber growth combined with reduced churn rate, cost
containment efforts and enhanced economies of scale
- EBITDA excluding restructuring margin of 32%, based on network
revenue, representing a 6 point year-over-year margin expansion
- Canadian industry leading average revenue per unit (ARPU) of
$59 per month for the quarter, up $3 compared to the same period a
year ago
- network service revenue of $588 million, up 20% from same quarter
a year ago
- churn rates of 1.6% and 1.5% in the fourth quarter and for the
year, respectively. An improvement from 1.7% and 1.8% from the
same periods a year ago.
- net subscriber additions of 166,000 bringing total subscribers to
3.4 million, a 14% year-over-year increase. Higher-revenue
generating net postpaid subscriber additions increased by 47% over
the fourth quarter a year ago.
- cost of acquisition per subscriber improved to $452 from $478 in
the fourth quarter of 2002
- cash flow (EBITDA excluding restructuring less capital
expenditures) of $58 million this quarter increased significantly
from $3 million a year ago. For the full year cash flow was up
over 500% to $456 million.
CORPORATE DEVELOPMENTS
TELUS enters binding arbitration
TELUS continued the collective bargaining process with the
Telecommunication Workers Union (TWU) for a new collective agreement. During
2003, the Company participated in an extended conciliation process that was
completed on January 12, 2004 without an agreement being reached.
In January, there were numerous developments that culminated on
January 28 with the Canadian Industrial Relations Board ordering TELUS
Communications to offer binding arbitration to the TWU as an option to reach a
collective agreement. The TWU announced on January 30 acceptance of the offer
of binding arbitration.
Binding arbitration has the following advantages for the parties:
- A collective agreement would be expected to be in place during 2004;
- When changes cannot be agreed to by the negotiating parties,
arbitrator(s) usually make a determination based on terms of
reference and typically include the business circumstances of the
company and the industry; and
- Labour disruption is avoided.
The company, TWU and mediators are now engaged in selecting the
arbitrator(s), determining the process to be used and setting the terms of
reference to be used in arbitration and timelines.
TELUS significantly improves customer service
TELUS has a record for premium customer care as evidenced by the
outstanding churn rate at TELUS Mobility. TELUS Communications overcame the
majority of short-term customer service challenges experienced in its western
wireline business during the third quarter and is now surpassing historical
levels of service on key customer service indicators.
Results illustrate overall improvements in service to levels above where
they were before TELUS Communications implemented its Operational Efficiency
Program. Service issues experienced by TELUS residential customers in the
August to October timeframe were attributable to unprecedented concurrent
events including fires and floods in B.C., a severe cable cut in Vancouver,
computer virus attacks, power outages, delays in hiring and training new
employees and problems with the introduction of a new trouble management
system. These events created delays in addressing customer concerns and a
backlog of work orders.
In December and January, TELUS Communications' contact centres
(residential/business office and 611 repair bureau) were performing better
than at any time since the 1999 merger of TELUS Alberta and BC TELECOM, and
above CRTC standards. In early January, TELUS exceeded industry standards
across Alberta and in urban areas of B.C., including the Lower Mainland,
Vancouver, Victoria and Kelowna. TELUS remains focused on sustaining the
improvements made to date and to raise performance in rural B.C. above service
standard.
TELUS remains committed to ensuring customer service excellence is a
positive differentiator in the competitive marketplace across the company as
indicated by this being a corporate priority both in 2003 and 2004.
Investing in our communities and the environment
TELUS continues to focus on our broad sustainability responsibilities and
our ability to impact, not only the economy, but also the society and the
environment where we operate.
TELUS has a long history of actively supporting the communities in which
we live, work and serve. Through thousands of hours of volunteer time and
millions of dollars of financial and in-kind assistance, TELUS, our team
members and retirees continue to make a significant difference in support of
education, emergency aid, social justice, health, arts, crime prevention and
the environment.
TELUS is a long-time Imagine Caring Company, meaning TELUS donates more
than one per cent of pre-tax profits to charitable organizations on an annual
basis. In 2003, TELUS contributed more than $10 million of financial and
in-kind assistance to education, health, arts and charitable organizations
across Canada.
Our team members also take the responsibility to make a positive
difference very seriously through their active involvement and contributions
to the community. In 2003, team members pledged more than $2.7 million during
our annual TELUS Team Charitable Giving Campaign. With TELUS matching every
pledge dollar-for-dollar, more than $5.4 million will be donated to
approximately 2,000 Canadian charities in 2004.
TELUS also takes a leading role in corporate social responsibility, which
includes our commitment to employing business practices that protect the
environment as well as support our investment in the community.
TELUS was named to the Dow Jones Sustainability Index (DJSI) in 2003 for
the third year in a row. This index is a worldwide ranking of companies that
are economic, environmental and social leaders. Of the 317 companies listed,
TELUS was one of only 14 Canadian companies and the only North American
telecommunications company.
As well, Corporate Knights recognized TELUS as Canada's most
environmentally friendly company in its 2003 Green Machines ranking, providing
evidence of our leadership in environmental stewardship.
TELUS unveils IP-One(TM)
In November, TELUS launched its innovative IP-One telephony service, the
first carrier-grade hosted and managed Internet Protocol (IP) telephony
service in Canada, to business customers in Ontario and Quebec.
TELUS IP-One utilizes TELUS' Next Generation Network (NGN) rather than
the telephone network to route calls and data, providing business customers
with a full suite of IP-based advanced application services and the ability to
integrate voice-mail, e-mail, data and images via a highly intuitive online
Web portal. This flexibility, combined with the added benefits of advanced
application services makes TELUS IP-One a compelling alternative to
traditional customer telephony equipment.
TELUS customers from a wide variety of industries are already reaping the
benefits of this compelling, carrier-class hosted IP telephony solution,
including customers such as Borland Software Corporation, Richter, Usher &
Vineberg, Berlex Canada Inc. and Belron Canada Inc.
TELUS becomes first Canadian ISP to offer legal digital music download
service
In December, TELUS announced it has become Canada's first Internet
Service Provider (ISP) to offer a legal music download service called
Puretracks from TELUS. TELUS has launched this new service through a
partnership with Moontaxi Media Inc., a leading North American online music
distributor dedicated to delivering high quality music content in both
streaming and download formats.
Puretracks from TELUS has built an extensive music catalogue with over
175,000 titles and will continually add new releases and backdated content.
Normally each song costs $0.99 and entire albums cost only $9.99. TELUS is
committed to introducing a wide selection of value-added entertainment
services to our broadband customers.
TELUS Spam Control now included at no additional charge for all TELUS
Internet subscribers
A new service called TELUS Spam Control is now provided at no additional
cost to Internet customers. This service is being offered in response to
increasing customer concerns over the growing amount of e-mail spam and its
irritating and often offensive nature. Spam Control shields customers from
this annoyance, helps protect them from viruses distributed through junk
e-mail and improves customers' overall Internet experience.
TELUS is currently the only Internet service provider in British Columbia
and Alberta to offer customized Spam Control to its customers. The Spam
Control filter is highly accurate, with only one out of one million messages
expected to be falsely identified.
TELUS Spam Control is the newest value-added service offered to TELUS
Internet customers. Last August, TELUS began offering anti-virus protection to
its high-speed Internet customers at no additional cost.
TELUS Mobility clicks with picture messaging, exclusive camera phones
TELUS Mobility's unique picture messaging service, which allows clients
to easily snap, send and save photos with the company's exclusive lineup of
camera phones, was a hit with consumer and business clients right across
Canada in the fourth quarter. Clients have sent more than 400,000 multimedia
messages to colleagues, friends and family across Canada and around the globe.
TELUS Mobility's picture messaging service allows clients to send their
photos and attached voice and text messages instantly to any e-mail address in
the world, to other camera phones or, using an embedded Internet link, to any
wireless phone in North America equipped with text messaging capability for
25 cents per photo. The service also allows clients to send their pictures
directly from their photo albums to more than 2,000 photo finishing retail
locations across Canada. In December, Wal-Mart Canada announced that TELUS
Mobility clients could send their camera phone snapshots to any of Wal-Mart's
211 locations across Canada for printing on more than 20 different kinds of
photo-embossed specialty products, including t-shirts, mugs and holiday
ornaments.
TELUS Mobility offers three exclusive camera phones: the LG 5450 and the
Audiovox 8900 - both fully featured tri-mode phones with built-in 300k pixel
digital cameras and large, high-definition colour displays - and the Samsung
i700, Canada's first fully integrated Windows-based PDA camera phone.
Pigs do fly: TELUS Mobility ads help lead TELUS to top spot in national
awareness
TELUS Mobility's unique picture messaging service and exclusive camera
phones were promoted in a national holiday advertising campaign featuring
Lucie and Sparky, two miniature pot-bellied pigs in a humourous series of
television, print and outdoor ads across Canada.
The campaign helped TELUS to be ranked number one in advertising
awareness across Canada according to a poll by Leger Marketing, a respected
Montreal-based marketing analysis firm. The campaign and ranking were also a
top story in the January issue of prestigious trade magazine Marketing. The
campaign led to a flood of requests for TELUS Mobility posters and other
marketing collateral and multiple newspaper and television stories about the
pigs, and saw approximately 8,000 plush toy pigs sold at TELUS Mobility's
flagship retail stores, with proceeds going to local charities.
New youth-oriented wireless phones, Java games
In December, TELUS Mobility announced an exclusive new wireless phone
with a full-colour screen aimed at youth and other cost-conscious consumers,
as well as downloadable arcade-style mobile games that clients can try, rent
or own.
With an edgy, angular design that appeals to youth, the Kyocera Blade is
an affordable ($129.99, or as little as $24.99 on a three-year contract)
wireless phone that features CDMA2000 1X technology for fast Internet access
and game downloads and a brilliant 4,000-colour display suited for games and
screensavers. It also features polyphonic ring tones, a carabiner-like sport
clip, integrated flashlight and voice-activated dialing.
TELUS Mobility's new line of downloadable multimedia, arcade-style mobile
games with full sound and enhanced colour graphics allow clients the unique
option of trying, renting or buying a wide variety of cool wireless games. The
Try It service allows clients to try games twice, Rent It allows them up to 30
days usage, and Buy It lets them purchase their games outright. New
high-quality wireless games are being added weekly to the TELUS Mobility
downloads Web site, which already hosts thousands of games, ringtones,
screensavers and other images.
TELUS Mobility alliance with Tatara Systems for Wi-Fi,
1X interoperability
In December, TELUS Mobility partnered with Tatara Systems to provide
components for Wi-Fi roaming and 1X interoperability. The alliance will allow
TELUS Mobility to maximize the end user value of its wireless data services by
enabling Wi-Fi roaming and by integrating Wi-Fi and 1X WAN services into a
single end-user offering. The Tatara Wi-Fi Service Delivery Platform allows
carriers to maintain control of their client relationships and extend them
advanced services, while allowing for increased interoperability capability
among wireless carriers. In August 2003, Canada's national wireless carriers,
including TELUS Mobility, announced an agreement to establish common standards
for roaming and interoperability among their public Wi-Fi hotspots and from
their next generation wireless networks, such as 1X, to those hotspots.
TELUS Mobility selects Alcatel for national backbone infrastructure
In December, TELUS Mobility partnered with Alcatel Canada to build a
cross-country microwave-based communications backbone, which will allow TELUS
Mobility to reduce its operational expenses, increase backbone capacity and
reduce its reliance on third-party fibre and other backhaul infrastructure.
Capable of rapid network rollout, the Alcatel microwave technology allows
TELUS Mobility to quickly expand to manage unforeseen capacity requirements.
TELUS recognized for excellence in investor communications and corporate
governance
For the ninth consecutive year, the Canadian Institute of Chartered
Accountants (CICA) recognized TELUS for excellence in corporate reporting and
financial disclosure. At the November Corporate Reporting Awards presentation,
TELUS won the Communications and Media industry sector award. As the winner,
TELUS received high scores across three judging categories: annual reporting,
electronic disclosure and corporate governance.
The CICA judging panel noted, "Overall TELUS has an outstanding report
packed with performance measures, targets, discussion on how TELUS delivered
against these targets, industry and market challenges and TELUS' commitment to
full and fair financial disclosure and best practices in corporate
governance."
The award continues a long history of disclosure excellence at TELUS,
with nine consecutive years of recognition at these annual report awards.
Investors are encouraged to visit a new section on the TELUS investor
Web site launched in January 2004. It centralizes in one place key information
on TELUS' corporate governance practices. Please visit telus.com/governance.
Dividend declaration
The Board of Directors declared a quarterly dividend of (fifteen) cents
($0.15) per share on outstanding Common and Non-Voting Shares payable on
April 1, 2004 to shareholders of record on the close of business on March 11,
2004.
Forward-Looking Statements
==========================================================================
This document and the management discussion and analysis contain
statements about expected future events and financial and operating
results of TELUS Corporation ("TELUS" or the "Company") that are
forward-looking and subject to risks and uncertainties. TELUS' actual
results, performance or achievement could differ materially from those
expressed or implied by such statements. Such statements are qualified in
their entirety by the inherent risks and uncertainties surrounding future
expectations and may not reflect the potential impact of any future
acquisitions, mergers or divestitures. Factors that could cause actual
results to differ materially include but are not limited to: general
business and economic conditions in TELUS' service territories across
Canada and future demand for services; competition in wireline and
wireless services, including voice, data and Internet services and within
the Canadian telecommunications industry generally; re-emergence from
receivership of restructured competitors; levels of capital expenditures;
corporate restructurings; success of operational and capital efficiency
programs including maintenance of customer service levels; amount and
variability of stock-based compensation expense; success of integrating
acquisitions; network upgrades, billing system conversions, and reliance
on legacy systems; implementation of new customer relationship management
software; development and introduction of new products and services;
supplier/vendor reliability and viability; realization of tax savings;
the impact of credit rating changes; availability and cost of capital
including renewal of credit facilities; completion of preferred and
preference share redemptions; financial condition and credit risk of
customers affecting collectibility of receivables; legal and regulatory
compliance of employees and key stakeholders; adverse regulatory action;
attraction and retention of key personnel; collective labour agreement
negotiations and outcome of conciliation and arbitration efforts; future
costs of retirement and pension obligations and returns on invested
pension assets; technological advances; the final outcome of pending or
future litigation; the effect of environmental, health and safety
concerns; man-made and natural disasters; and other risk factors
discussed herein and listed from time to time in TELUS' reports,
comprehensive public disclosure documents, including the Annual
Information Form, and in other filings with securities commissions in
Canada and the U.S.
The Company disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
==========================================================================
Management's Discussion and Analysis
The following is a discussion of the consolidated financial condition and
results of operations of TELUS Corporation for the three-month and
twelve-month periods ended December 31, 2003 and 2002. This discussion
contains forward-looking information that is qualified by reference to, and
should be read together with, the Company's discussion regarding
forward-looking statements (see "Forward-Looking Statements" above). TELUS'
most significant accounting policies are discussed in the annual financial
statements of TELUS. These policies and disclosures are important to the
understanding of the following discussion. The following should also be read
together with the annual consolidated financial statements of TELUS. The
annual consolidated financial statements have been prepared in accordance with
Canadian Generally Accepted Accounting Principles ("GAAP"), which differ in
certain respects from U.S. GAAP.
Management's discussion and analysis is comprised of the following:
1. Vision, Core Business, Strategy
2. Key Performance Drivers
3. Capability to Deliver Results
4. Results
5. Risks and Uncertainties
1. Vision, Core Business and Strategy
TELUS continued to be guided by its six strategic imperatives that were
established in 2000 and are detailed in the 2002 TELUS Annual Report.
2. Key Performance Drivers
TELUS established the following objectives for 2003 that were key to
successful execution of the Company's strategic plan.
Continuing to deliver on our efficiency improvement objectives
TELUS achieved or exceeded all of the objectives of the Operational
Efficiency Program as summarized in the table below.
Operational improvement objectives
Actual results Target(1) Remaining
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2003 Q4 Cumulative(2) Cumulative(2) Anticipated
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Customer contact
centres closed
or consolidated 5 44 43 2 in 2005
Communications
segment phone
store closures - 33 33 -
Net staff reductions 700 7,500 7,300 50 in 2004
Savings ($ millions) 25 454 450 Approx. 96
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(1) as disclosed in management's discussion and analysis in the 2002
TELUS Annual Report.
(2) Cumulative refers to the duration of the Operational Efficiency
Program, 2001 through 2003.
Improving customer service
TELUS Mobility continued to provide superior customer service in 2003 as
evidenced by its very low level of customer disconnects called "churn" - an
average of only 1.5% per month in 2003. This was accomplished through the
reliability of the two digital networks, the expanded coverage of the networks
and excellent customer care provided from regional centres across Canada.
Service improvements introduced by TELUS' Communications segment during
2003 included:
- Launch and roll-out of an interactive voice recognition tool that
directs callers to the appropriate destination for four contact
centre areas (high-speed Internet, Customer Care, Business Billing
and Credit). The number of misdirected calls has been reduced
substantially and productivity and quality of service measures have
improved;
- Integration of the Internet support and online billing information
Web site, TELUS.net, with the Company's portal myTELUS.com, provided
a more seamless customer experience. This single integrated Web site
provides customers with 24 hours per day, 7 days per week access to
support, information and self-serve tools. The benefits to TELUS of
this site include more efficient Web management and customer support
data analysis.
Service levels in most areas have improved in 2003 as compared with 2002,
with most retail Canadian Radio-telephone and Telecommunications Commission
(CRTC) quality of service measures meeting or exceeding targets at
December 31, 2003.
TELUS Communications segment's quality of service became taxed commencing
in July of 2003 as a result of a significant number of concurrent factors
including fires, windstorms, floods, computer viruses, heavy seasonal call
volumes, delays in the process of hiring and training contact centre staff to
replace team members who accepted voluntary departure incentives, and
performance and stability problems with a new trouble management system. The
result was short-term service issues and the creation of a backlog of
troubles, which were reflected in four indicators monitored by the CRTC
namely: "Access to Repair Bureau", "Out-of-Service Cleared in 24 Hours",
"Repair Appointments Met", and "Access to the Business Office".
By the end of December 2003, TELUS was performing well above the CRTC
standards for two of these service areas - "Access to Repair Bureau" and
"Access to the Business Office" results. Efforts to clear the backlog trouble
reports accumulated through the Fall depressed December service results for
"Out-of-Service Cleared in 24 Hours" and "Repair Appointments Met". By late
December and in January 2004, results to standard were being demonstrated in
the urban areas of British Columbia, and throughout Alberta. TELUS remains
focused on sustaining the improvements made to date and to raise performance
in rural British Columbia above service standard. TELUS Call Centres,
including Operator Services, are now outperforming CRTC standards and
historical levels of service.
Enhancing our leadership position in the North American wireless industry
- TELUS Mobility continued to build on its strong performance from the
first three quarters of 2003. Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA) excluding Restructuring and
workforce reduction costs increased by an industry-leading 47.7% and
52.5% for the fourth quarter and full year, respectively, when
compared with the same periods a year ago. As a result of continued
EBITDA growth and reduced capital expenditures, Mobility generated
substantially improved cash flow (EBITDA excluding restructuring less
capital expenditures) of $57.6 million for the fourth quarter as
compared to $3.4 million last year. Cash flow for 2003 was a record
$455.5 million or 20.9% of Network revenue and significantly higher
than $75.1 million in 2002.
- TELUS Mobility continues to lead the Canadian industry with average
revenue per subscriber unit per month (ARPU) of $59 and $57 for the
fourth quarter and full year, respectively, while maintaining a low
churn rate of 1.6% and 1.5% for the same respective periods.
Strengthen our financial position, based on improved operating
performance
- The Company reduced Net debt and continued to improve its financial
ratios in the fourth quarter and year ended December 31, 2003. The
Net debt to EBITDA ratio decreased from 3.3:1 at the end of 2002 to
reach the original 2003 year-end target of 3.0:1 by June 30, 2003,
and was further reduced to 2.6:1 at December 31, 2003.
- During the fourth quarter of 2003, Moody's placed the long-term credit
rating of TELUS Corporation under review for possible upgrade, and
Dominion Bond Rating Service (DBRS) increased the long-term and
preferred ratings for TELUS Communications Inc. to BBB(high) and
Pfd-3(high), respectively, with stable trends. DBRS also confirmed the
long-term ratings for TELUS Corporation and TELUS Communications
(Quebec) Inc. with stable trends. Collectively, the debt rating
agencies have improved their outlooks or trend for TELUS debt to one
'positive' and three 'stable' assessments from four 'negative'
assessments at the beginning of the year. In the bond markets, prices
on TELUS Corporation notes have appreciated by approximately 14%,
while interest rate spreads over the relevant benchmark government
bonds have narrowed over the last year by 72% on average.
Improving the operating and economic fundamentals of TELUS' business
expansion into Ontario and Quebec.
Communications segment Non-ILEC EBITDA excluding Restructuring and
workforce reduction costs improved to losses of $2.1 million and
$28.7 million, respectively, for the fourth quarter and full year of 2003,
exceeding the annual target of a loss of $60 million for 2003. This compares
favourably with losses of $17.6 million and $107.1 million, respectively, for
the same periods in 2002. Operating performance improved as a result of cost
containment efforts and increasing services provided on TELUS facilities
("on-net").
Achieving a settlement with our unionized employees
In 2000, TELUS commenced collective bargaining with Telecommunication
Workers Union (TWU) for a new collective agreement replacing four legacy
agreements from BC TELECOM and Alberta-based TELUS. During 2003, the Company
participated in an extended conciliation process that was completed on
January 12, 2004 without an agreement being reached. The parties then entered
a 21 day cooling off period until February 2, 2004 at which time on 72 hours
notice a legal work stoppage could have occurred.
From January 5 to 26, 2004, the TWU conducted a second strike vote among
its members. On January 15, 2004, the federal Department of Labour appointed
the two conciliators as mediators to continue to work with TELUS and the TWU
towards a possible resolution. On January 19, 2004, TELUS tabled a final offer
to the TWU at a meeting with the mediators. On January 28, 2004, the Canadian
Industrial Relations Board, in response to an unfair labour practice complaint
from the TWU, ordered TELUS Communications to offer binding arbitration to the
TWU as an option to reach a collective agreement. On January 29, 2004, the
Company, given the arbitration offer, withdrew its final offer and on the same
day the TWU announced that they had 86% support from those voting for a strike
mandate. However, on January 30, 2004 the TWU announced that they had accepted
the offer of binding arbitration in order to reach a new collective agreement.
Binding arbitration has the following advantages for the parties:
- A collective agreement should be in place during 2004;
- When issues cannot be agreed to by the negotiating parties, the
arbitrator(s) will usually make a determination based on terms of
reference, and typically include the business circumstances of the
company and the industry; and
- Labour disruption is avoided.
The Company, TWU and mediators are now engaged in selecting the
arbitrator(s), determining the process to be used, setting the terms of
reference to be used in arbitration and timelines.
3. Capability to Deliver Results
Regulatory updates
Telecom Decision 2004-4 - Call-Net Part VII Application - Promotion of
local residential competition
On January 27, 2004, the CRTC issued its decision on a major application
made by Call-Net in May 2003 to obtain improved terms and conditions for local
residential competition. The Commission denied the majority of Call-Net's
application including the request for new service standards and significantly
reduced rates for local loops and loop-related services. The CRTC did grant
the request for an extension to 12 months from three months for the
"no-contact" restriction under residential winback rules, and directed ILECs
not to require field visits for competitive local exchange carrier customers,
except when required. This decision was positive for TELUS in both ILEC and
non-ILEC territories, as it reinforces the facilities-based competition
policy, does not require bill-inserts of competitors to be included in TELUS'
residential bills, and does not prevent TELUS from running general marketing
campaigns aimed at the public. TELUS believes that the 1-year prohibition on
residential winback activity is an unnecessary constraint that should be
phased out as competition evolves.
Telecom Decision 2003-84 - Final 2003 revenue-percent charge and related
matters
On December 19, 2003, the CRTC finalized the revenue-based contribution
charge for 2003 at 1.1% (previously 1.3% on an interim basis) and finalized
the 2003 subsidy per residential network access service in high cost areas.
The decision also set the revenue-based contribution charge at 1.1% on an
interim basis for 2004 and approved the revised 2003 subsidy requirements for
TELUS Communications (Quebec) Inc. on an interim basis. The change in
contribution rate reduced TELUS' consolidated operations expense by
approximately $10 million based on 2003 contribution eligible revenues.
Telecom Decision 2003-78 - Modifications to the Procedures for Telecom
Public Notice 2003-8 - Review of Price Floor Safeguards for Retail
Tariffed Services and Related Issues
On November 20, 2003, the CRTC modified the procedures originally set out
in Public Notice 2003-8, determining that the proposed interim rules should
not go into effect and that the Commission will hold a full proceeding to
consider possible changes to floor price rules. These interim rules would have
had the effect of increasing the floor price that TELUS is subject to when
pricing new tariffed (non-forborne) services and when offering new bundles of
services that include at least one tariffed service. Full evidence was
required to be filed by January 30, 2004 with a full proceeding to follow and
a decision likely before the end of 2004. TELUS intends to fully participate
in these public proceedings and present its perspective on the issues
addressed.
Telecom Decision 2003-49 - CRTC directs incumbent telephone companies to
offer high-speed Internet services to competitors' residential telephone
customers
On July 21, 2003, the CRTC directed the incumbent telephone companies to
provide their retail high-speed Internet services, upon request, to
residential customers receiving primary local telephone service from
competitors. Previously, the provision of high-speed service was directly
linked to the local telephone line. TELUS has determined a plan to reconfigure
numerous automated systems and processes to effect this decision for estimated
capital and operating costs of up to $10 million. In January 2004, TELUS filed
a detailed implementation schedule for process testing and exchange-by-
exchange roll-out of stand-alone high speed service to customers of
competitors. The Company believes that providing high-speed Internet service
to customers of wireline competitors could have a small impact on TELUS
Internet subscriber growth.
4. Results
Accounting Policy Developments
Guarantees
Commencing with the Company's 2003 fiscal year, the new guidelines of the
Canadian Institute of Chartered Accountants (CICA) for the disclosure of
guarantees (CICA Accounting Guideline AcG-14) apply to the Company. The
Guideline elaborates on required disclosures by a guarantor in its financial
statements about obligations under certain types of guarantees that it has
issued.
Asset Retirement Obligations
During the Company's 2003 fiscal year, the Company early adopted the new
recommendations of the CICA for accounting for asset retirement obligations
(CICA Handbook Section 3110). The new section focuses on the recognition and
measurement of liabilities for statutory, contractual or legal obligations,
normally when incurred, associated with the retirement of property, plant and
equipment when those obligations result from the acquisition, construction,
development or normal operation of the assets. All amounts arising from the
application of this accounting policy were not significant.
Employee Future Benefits
During the fourth quarter of 2003, the Company adopted the
recommendations of the CICA dealing with incremental disclosure related to
employee benefit plans (CICA Handbook Section 3461).
Share-Based Compensation
Commencing with the Company's 2004 fiscal year, the amended
recommendations of the CICA for accounting for share-based compensation (such
amendments arising in 2003) (CICA Handbook Section 3870) will apply to the
Company. The amendments will result in the Company no longer being able to use
the intrinsic method of accounting for share options granted to employees. The
Company has selected the modified-prospective transition method (also referred
to as the retroactive application without restatement method), which will be
implemented effective January 1, 2004.
Hedging Relationships
Commencing with the Company's 2004 fiscal year, the new guidelines of the
CICA for accounting for hedging relationships (CICA Accounting Guideline
AcG-13) apply to the Company. The Company's existing hedge accounting policy
is compliant with the new Guideline.
Financial Impact of Price Cap Decisions
On May 30, 2002 and July 31, 2002, the CRTC announced its decisions on
the Regulatory Framework for the Second Price Cap Period for the ILECs
(Incumbent Local Exchange Carriers), or Telecom Decision 2002-34 and Telecom
Decision 2002-43, which established the framework for regulation of ILECs,
including TELUS. These decisions cover a four-year period beginning June 2002
for TELUS Communications Inc. (TCI) and beginning August 2002 for TELUS
Communications (Quebec) Inc. (TCQI). In an effort to foster competition for
residential basic service in non-high cost service areas (non-HCSAs), the
concept of a deferral account mechanism was introduced by the CRTC, as an
alternative to mandating price reductions. The deferral account arises from
the CRTC requiring the Company to defer the income statement recognition of a
portion of the monies received in respect of residential basic services
provided to non-HCSAs. The Company has adopted the liability method of
accounting for the deferral account. Other than for the interest accrued on
the balance of the deferral account, which would be included in financing
costs, all income statement effects of the deferral account are recorded
through operating revenues.
On March 18, 2003, the CRTC issued Telecom Decision 2003-11, which
finalized for the industry the assignment of tariffed services to the service
baskets established in Regulatory Framework for the Second Price Cap Period.
Also on March 18, 2003, the CRTC released Telecom Decision 2003-18, TELUS
Communications Inc. - 2002 Annual price cap filing, in which it approved, on a
final basis, the majority of the applications filed in 2002 by TELUS proposing
rate changes pursuant to Decision 2002-34. On August 27, 2003, the CRTC
released Telecom Order 2003-352 - 2003 Annual Price Cap Filing. This order
approved all of TCI's tariff applications, for implementation on a prospective
basis, to meet its 2003 price cap commitments.
On August 22, 2003, the CRTC issued Telecom Decision 2003-56, which
finalized for TCQI the assignment of tariffed services to the service baskets
established in Decision 2002-43. The assignment was made in a manner very
similar with the assignments for large ILECs in Decision 2003-11. Also on
August 22, 2003, the CRTC issued Telecom Decision 2003-57 which approved, with
changes, applications filed by TCQI for rate changes and directed TCQI to file
further rate changes to meet its 2002 price cap commitment. All other TCQI
rates were approved on a final basis.
The impact of these decisions on TELUS was a decrease in Communications
segment Operating revenues of $19.5 million and $78.2 million, respectively,
for the fourth quarter and year ended December 31, 2003, when compared with
the same periods in 2002. In addition, the Communications segment EBITDA
excluding restructuring decreased by $20.8 million and $78.5 million,
respectively, for the fourth quarter and year ended December 31, 2003, when
compared to the same periods one year earlier.
Performance to 2003 Targets and Guidance
2003 Original Met (y) Final Met (y)
Results Targets Guidance
For 2003 For 2003
(2002 Annual Not Not
Report) met (x) met (x)
==========================================================================
Consolidated
Revenues $7.15 billion $7.2 to $7.1 to
$7.3 billion (x) $7.2 billion (y)
-------------------------------------------------------------------------
EBITDA
excluding
restruc- $2.84 billion $2.7 to $2.8 to
turing(1) $2.8 billion (y) $2.85 billion (y)
-------------------------------------------------------------------------
EBITDA(2) $2.816 billion - - $2.775 to
$2.825 billion (y)
-------------------------------------------------------------------------
Earnings per
share
- basic 92 cents 35 to 55 cents (y) 85 to 95 cents (y)
-------------------------------------------------------------------------
Capital
expend- $1.253 billion Approx. Approx.
itures $1.5 billion (y) $1.25 billion (y)
-------------------------------------------------------------------------
Free cash
flow (2003 $961 million $500 to $915 to
method)(3) $600 million (y) $965 million (y)
-------------------------------------------------------------------------
Free cash
flow after
restructuring
payments
(2004
method)(4) $845 million - - - -
-------------------------------------------------------------------------
Net debt to
EBITDA(5) 2.6 times 3.0 times (y) 2.7 times or less (y)
==========================================================================
Communications
Segment
Revenue $4.79 billion $5.0 to $4.8 to
(external) $5.05 billion (x) $4.85 billion (x)
-------------------------------------------------------------------------
Non-ILEC $555.4 million $575 million (+)(6) Approx.
revenue $555 million (y)
-------------------------------------------------------------------------
EBITDA
excluding
restruct- $2.029 billion $2.075 to $2.025 to
uring(1) $2.15 billion (x) $2.05 billion (y)
-------------------------------------------------------------------------
EBITDA(2) $2.000 billion - - $2.0 to
$2.025 billion (y)
-------------------------------------------------------------------------
Non-ILEC $(28.7) million Approx. Approx.
EBITDA $(60) million (y) $(30) million (y)
-------------------------------------------------------------------------
Capital
expend- $893 million Approx. Approx.
itures $1.05 billion (y) $875 million (x)
-------------------------------------------------------------------------
High-speed
Internet
net 150,000
additions 151,500 to 175,000 (y) Approx. 150,000 (y)
==========================================================================
Mobility Segment
Revenue $2.36 billion $2.2 to $2.3 to
(external) $2.25 billion (y) $2.35 billion (y)
-------------------------------------------------------------------------
EBITDA $815 million $625 to $775 to
$650 million (y) $800 million (y)
-------------------------------------------------------------------------
Capital
expend- $360 million Approx. Approx.
itures $450 million (y) $375 million (y)
-------------------------------------------------------------------------
Wireless
subscriber
net 400,000 to
additions 431,100 450,000 (y) Approx. 400,000 (y)
==========================================================================
(1) EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) excluding Restructuring and workforce reduction costs.
In 2003, the targets were set and actual results were measured based
upon this definition of EBITDA.
(2) The EBITDA target for 2004 includes estimated Restructuring and
workforce reduction costs of $30 million, while the 2003 EBITDA on
the same basis included $28.3 million of Restructuring and workforce
reduction costs. The definition of EBITDA was amended for 2004 to
reflect a change in how the Company measures operating performance.
EBITDA in 2004 is calculated as Operating revenues less Operations
expense less Restructuring and workforce reduction costs. The 2004
target also reflects adoption of CICA Handbook Section 3870 for
Stock-based compensation and other stock-based payments, which is
expected to be approximately $45 million in 2004.
(3) Defined as EBITDA excluding restructuring and workforce reduction
costs less cash interest paid, cash taxes, capital expenditures, and
cash dividends, plus cash interest received. The method for 2003
excludes Restructuring and workforce reduction costs and payments.
(4) Defined as EBITDA excluding restructuring and workforce reduction
costs less cash interest paid, cash taxes, capital expenditures, and
restructuring payments, plus cash interest received and excess stock
compensation expense over stock compensation payments. The definition
for 2004 excludes dividend payments.
(5) Net Debt to EBITDA, where EBITDA excludes Restructuring and workforce
reduction costs. This measure is substantially the same as the
Leverage Ratio covenant in TELUS' credit facilities.
(6) Revised to approximately $555 million for the divestiture of
application development assets.
-------------------------------------------------------------------------
TELUS exceeded or met all of its original targets and final guidance for
Mobility and exceeded or met all of the original targets and final guidance
for consolidated results, except for the original target for consolidated
revenue, which was negatively impacted by performance of the Communications
segment. The Communications segment exceeded or met its original targets for
Non-ILEC EBITDA, capital expenditures and high-speed Internet subscriber net
additions, however, the original targets for Non-ILEC and segment revenue and
segment EBITDA were not achieved. Communications segment results also did not
achieve final guidance for segment revenues and slightly exceeded final
guidance for capital expenditures, while meeting all other final guidance
targets. See the Operational Review for discussion of fourth quarter and
annual 2003 results, as compared with the same periods in 2002.
Results of Operations
Highlights
Quarter ended December 31 2003 2002 Change %
-------------------------------------------------------------------------
($ in millions except
per share amounts)
Operating revenues 1,825.6 1,794.4 31.2 1.7
EBITDA excluding
restructuring(1) 699.0 645.2 53.8 8.3
Restructuring and
workforce reduction costs 16.2 241.0 (224.8) (93.2)
EBITDA(2) 682.8 404.2 278.6 68.9
Net income (loss) 49.6 (139.2) 188.8 -
Earnings (loss) per
share (EPS), basic $ 0.13 $ (0.41) $ 0.54 -
Cash dividends per share $ 0.15 $ 0.15 - -
Capital expenditures 435.4 416.2 19.2 4.6
Cash provided by
operating activities 414.9 359.9 55.0 15.3
Free cash flow(3) 83.8 (80.3) 164.1 -
Free cash flow after
restructuring payments(4) 71.5 (180.8) 252.3 -
Year ended December 31 2003 2002 Change %
-------------------------------------------------------------------------
($ in millions except
per share amounts)
Operating revenues 7,146.0 7,006.7 139.3 2.0
EBITDA excluding
restructuring(1) 2,844.1 2,518.6 325.5 12.9
Restructuring and
workforce reduction costs 28.3 569.9 (541.6) (95.0)
EBITDA(2) 2,815.8 1,948.7 867.1 44.5
Net income (loss) 331.5 (229.0) 560.5 -
Earnings (loss) per
share (EPS), basic $ 0.92 $ (0.75) $ 1.67 -
Cash dividends per share $ 0.60 $ 0.60 - -
Capital expenditures 1,252.7 1,697.9 (445.2) (26.2)
Cash provided by
operating activities 2,144.0 1,741.0 403.0 23.1
Free cash flow(3) 960.6 (1.4) 962.0 -
Free cash flow after
restructuring payments(4) 844.9 (139.6) 984.5 -
-------------------------------------------------------------------------
(1) Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) excluding Restructuring and workforce reduction costs is
calculated as:
($ in millions) Q4 2003 Q4 2002 2003 2002
--------- --------- --------- ---------
Operating revenues 1,825.6 1,794.4 7,146.0 7,006.7
Less Operations
expense 1,126.6 1,149.2 4,301.9 4,488.1
--------- --------- --------- ---------
EBITDA excluding
Restructuring and
workforce reduction
costs 699.0 645.2 2,844.1 2,518.6
The Company has issued guidance on and reports EBITDA excluding
Restructuring and workforce reduction costs because it is a key
measure used by management to evaluate performance of business units
and it is utilized in measuring compliance with debt covenants. The
Company also believes EBITDA is a measure commonly reported and
widely used by investors as an indicator of a company's operating
performance and ability to incur and service debt. The Company
believes EBITDA assists investors in comparing a company's
performance on a consistent basis without regard to depreciation and
amortization, which are non-cash in nature and can vary significantly
depending upon accounting methods or non-operating factors such as
historical cost; and without regard to Restructuring and workforce
reduction costs, which are transitional in nature. EBITDA is not a
calculation based on Canadian or U.S. Generally Accepted Accounting
Principles and should not be considered an alternative to Operating
income or Net income in measuring the Company's performance or used
as an exclusive measure of cash flow because it does not consider the
impact of working capital growth, capital expenditures, debt
principal reductions and other sources and uses of cash which are
disclosed in the Consolidated Statements of Cash Flows. Investors
should carefully consider the specific items included in TELUS'
computation of EBITDA. While EBITDA has been disclosed herein to
permit a more complete comparative analysis of the Company's
operating performance and debt servicing ability relative to other
companies, investors should be cautioned that EBITDA as reported by
TELUS may not be comparable in all instances to EBITDA as reported by
other companies.
(2) Targets for 2004 have been set based upon EBITDA including
Restructuring and workforce reduction costs. The definition of EBITDA
was amended for 2004 to reflect a change in how the Company measures
operating performance as restructuring costs are anticipated to occur
for the foreseeable future. See table above for the calculation. The
2004 target also reflects adoption of CICA Handbook Section 3870 for
Stock-based compensation and other stock-based payments on a
prospective basis, which is expected to be approximately $45 million
in 2004.
(3) Free cash flow excludes Restructuring and workforce reduction costs
and payments, certain working capital changes, and other sources and
uses of cash, which are disclosed in the Consolidated Statements of
Cash Flows. Free cash flow is not a calculation based on Canadian or
U.S. Generally Accepted Accounting Principles and should not be
considered an alternative to Consolidated Statements of Cash Flows.
Free cash flow is a measure that can be used to gauge TELUS'
performance over time. Investors should be cautioned that Free cash
flow as reported by TELUS may not be comparable in all instances to
Free cash flow as reported by other companies. While the closest GAAP
measure is Cash provided by operating activities, Free cash flow is
relevant because it provides an indication of how much cash is
available before changes in working capital (such as trade payables
and receivables) and after funding capital expenditures and
dividends. This measure is useful to reflect ongoing cash flows as
restructuring and workforce reduction costs and payments can change
dramatically and are not indicative of on-going cash flow levels. The
following reconciles Free cash flow with Cash provided by operating
activities:
($ in millions) Q4 2003 Q4 2002 2003 2002
--------- --------- --------- ---------
Cash provided by
operating activities 414.9 359.9 2,144.0 1,741.0
Less Net employee
defined benefit plans
expense (credits) 13.5 2.0 53.0 (9.8)
Less Employer
contributions to
employee defined
benefit plans (29.9) (39.1) (99.8) (75.3)
Less Non-cash working
capital changes,
except change in
taxes and interest (82.9) 159.9 49.2 279.4
Less Other, net
operating activities 7.3 1.7 44.0 (11.6)
--- --- ---- ------
506.9 235.4 2,097.6 1,558.3
Capital expenditures (435.4) (416.2) (1,252.7) (1,697.9)
Free cash flow after
restructuring payments 71.5 (180.8) 844.9 (139.6)
Add back Restructuring
and workforce reduction
cash payments 54.1 139.8 287.7 273.8
Dividends (41.8) (39.3) (172.0) (135.6)
------ ------ ------- -------
Free cash flow 83.8 (80.3) 960.6 (1.4)
Free cash flow and free cash flow after restructuring payments are
calculated below. The measures for 2002 have been restated on a
consistent basis to include interest received primarily for the
settlement of tax matters.
($ in millions) Q4 2003 Q4 2002 2003 2002
--------- --------- --------- ---------
EBITDA excluding
restructuring 699.0 645.2 2,844.1 2,518.6
Cash interest paid (295.0) (282.9) (657.5) (675.8)
Cash interest received 26.6 24.1 41.6 24.5
Income taxes received 130.4 42.6 165.5 18.6
Capital expenditures (435.4) (416.2) (1,252.7) (1,697.9)
Dividends (41.8) (39.3) (172.0) (135.6)
Investment tax credits
received (included in
both EBITDA and cash
income taxes (recovery)) - (53.8) (8.4) (53.8)
--- ------ ----- ------
Free cash flow 83.8 (80.3) 960.6 (1.4)
Restructuring and
workforce reduction
cash payments (54.1) (139.8) (287.7) (273.8)
Add back Dividends 41.8 39.3 172.0 135.6
---- ---- ----- -----
Free cash flow after
restructuring payments(4) 71.5 (180.8) 844.9 (139.6)
(4) Targets for 2004 have been set based upon free cash flow after
restructuring payments and before dividend payments. The definition
of Free cash flow was amended for 2004 to reflect a change in how the
Company measures operating performance as restructuring payments are
anticipated to occur for the foreseeable future and the level of
dividend payments is set after consideration of cash flows before
dividends are paid out.
-------------------------------------------------------------------------
Significant changes included in the fourth quarter 2003 financial
results, when compared with the fourth quarter of 2002, were:
- Communications segment external revenues decreased by $61.8 million
or 5.0%. Normalized for incremental year-over-year $19.5 million
negative regulatory price cap decision impacts, revenues decreased by
$42.3 million or 3.3%, primarily as a result of lower voice equipment
sales, lower long distance revenues from reduced long distance
minutes and prices, and approximately $7 million reduced application
development revenues due to the disposal of certain assets in 2003;
- Communications segment EBITDA excluding restructuring decreased by
$7.6 million or 1.5%, as the decrease in revenues was only partially
offset by a $53.9 million decrease in operations expense. Normalized
for significant non-recurring investment tax credits received in the
fourth quarter of 2002, and price cap impacts, operations expense
decreased by $65.7 million or 8.8%, and EBITDA excluding restructuring
increased by $4.2 million. The decrease in operations expense was
primarily a result of Operational Efficiency Program savings partially
offset by increased pension and other expenses;
- Communications segment high-speed Internet net additions of 45,500
exceeded net additions of 43,200 in the same period in 2002;
- Mobility Network revenue continued its strong growth, increasing
$97.3 million or 19.8%. TELUS Mobility's Canadian industry-leading
ARPU increased $3 to $59;
- Mobility COA improved to $452 from $478 in fourth quarter of 2002.
This is notable given that year over year subscriber growth was
26.7%;
- Mobility EBITDA excluding restructuring increased $61.4 million or
47.7% as a result of strong ARPU and subscriber growth combined with
a reduction in the churn rate, cost containment efforts, and enhanced
economies of scale;
- Mobility EBITDA margin (excluding restructuring) expanded by
6 percentage points to 32.3% of Network revenue (29.4% of total
revenue);
- Mobility cash flow (EBITDA excluding restructuring less capital
expenditures) increased significantly to $57.6 million from
$3.4 million for the same period last year;
- Mobility net subscriber additions for the fourth quarter were 166,000,
an increase of 26.7% continuing the positive trend experienced since
the second quarter of 2003. Notably, higher revenue-generating net
postpaid subscriber additions increased by 47.4% over the fourth
quarter of 2002. Net postpaid additions represented 72.5% of total net
additions as compared to 62.4% for the same period last year;
- Mobility blended postpaid and prepaid churn improved to 1.6% per
month, down from 1.7% per month a year ago, a major achievement
considering significant competitive promotions including the
re-emergence of a fourth wireless competitor;
- Consolidated interest expense on long-term and short-term debt
decreased by $9.2 million as a result of lower debt balances, more
than offset by $18.2 million of lower interest income. Interest
income of $19.6 million was recorded in the fourth quarter of 2002
primarily for the settlement of tax matters;
- Consolidated Cash provided by operating activities, including the
receipt of a cash income tax recovery and related interest of
$162 million and semi-annual interest payments of $257 million,
increased by $55.0 million to $414.9 million; and
- Consolidated Free cash flow of $83.8 million and $960.6 million,
respectively, for the fourth quarter and full year of 2003, exceeded
cash restructuring payments of $54.1 million and $287.7 million,
respectively, for the same periods.
The discussion below for Operating revenues, Operations expense, EBITDA
excluding restructuring, Restructuring and workforce reduction costs and
Capital expenditures is presented on a segmented basis. All other discussion
is presented for the consolidated financial results.
Operating revenues - Communications segment
Quarter ended December 31 2003 2002 Change %
-------------------------------------------------------------------------
($ in millions)
Voice local(1) 513.1 525.6 (12.5) (2.4)
Voice contribution 24.6 26.6 (2.0) (7.5)
Voice long distance(2) 232.3 243.8 (11.5) (4.7)
Data(3) 341.0 339.9 1.1 0.3
Other 71.4 108.3 (36.9) (34.1)
-------------------------------------------------------------------------
External operating revenue 1,182.4 1,244.2 (61.8) (5.0)
Intersegment revenue 23.1 22.8 0.3 1.3
-------------------------------------------------------------------------
Total operating revenue 1,205.5 1,267.0 (61.5) (4.9)
-------------------------------------------------------------------------
Year ended December 31 2003 2002 Change %
-------------------------------------------------------------------------
($ in millions)
Voice local(1) 2,087.5 2,106.5 (19.0) (0.9)
Voice contribution 73.2 89.4 (16.2) (18.1)
Voice long distance(2) 961.1 1,016.0 (54.9) (5.4)
Data(3) 1,368.1 1,366.6 1.5 0.1
Other 296.5 410.8 (114.3) (27.8)
-------------------------------------------------------------------------
External operating revenue 4,786.4 4,989.3 (202.9) (4.1)
Intersegment revenue 94.5 95.3 (0.8) (0.8)
-------------------------------------------------------------------------
Total operating revenue 4,880.9 5,084.6 (203.7) (4.0)
-------------------------------------------------------------------------
(1) Voice local - incremental price cap reductions of $16.0 million for
the fourth quarter and $48.2 million for the year ended December 31,
2003.
(2) Voice long distance - incremental price cap changes of positive
$0.6 million for the fourth quarter and negative $0.6 million for the
year ended December 31, 2003.
(3) Data - incremental price cap reductions of $4.3 million for the
fourth quarter and $29.4 million for the year ended December 31,
2003.
TELUS' Communications segment continued its strategic focus on driving
increased profitability by focusing on operational efficiency and cost control
in the face of declining revenues.
Voice local revenue is generated from access to the Company's network,
which is provided to customers on a monthly subscription basis, and from the
Company's optional and pay-per-use enhanced services. Local access revenue
decreased by $14.8 million and $31.5 million, respectively, for the fourth
quarter and full year of 2003, when compared with the same periods last year,
due to price cap decision impacts and fewer access lines than one year ago -
partly offset by growth in Non-ILEC business. Increased local enhanced
services revenue of $2.3 million and $12.5 million, respectively, for the
fourth quarter and full year, partly offset the decline in local access
revenues. Excluding the negative price cap impacts, voice local revenue
increased by $3.5 million or 0.7% and $29.2 million or 1.4%, respectively, for
the fourth quarter and full year of 2003 as compared to 2002.
Consumer network access lines decreased by 13,000 and 36,000,
respectively, in the fourth quarter and full year of 2003 as compared with
decreases of 4,000 and 32,000, respectively, for the same periods in 2002.
Consumer line losses were a result of technological substitution and
competitive activity. Business network access lines were unchanged and
decreased by 5,000, respectively, in the fourth quarter and full year of 2003
as compared with decreases of 6,000 and 24,000, respectively, for the same
periods in 2002. For 2003, business lines decreased primarily as a result of
continued migration to more efficient ISDN services, offset by gains in
Central and Eastern Canada exceeding competitive losses in Western Canada. The
0.8% decrease in total access lines in 2003 was slightly lower than the 1.1%
decrease in 2002.
Voice contribution revenue, which represents TELUS' share of contribution
pool funds for providing service in high cost rural service areas, decreased
for the quarter and year ended December 31, 2003, when compared with the same
periods one year ago. The decrease was a result of a lower shortfall
calculated according to the methods prescribed by the CRTC for TELUS and other
industry competitors.
Voice long distance revenue decreased for the fourth quarter and year
ended December 31, 2003, when compared with the same periods last year,
primarily as a result of fewer consumer and business minutes and price
competition. Consumer revenues decreased as a result of competitive pressures
including 'dial-around' services; partly offset by an increase in the monthly
long distance plan administration fee from $1.25 to $2.95 in February of 2003.
Business revenues decreased as a result of fewer minutes and lower rates.
Wholesale settlement revenues were relatively unchanged in the fourth quarter
and full year of 2003 as higher volumes were offset by lower prices.
Substitution to alternative technologies such as e-mail, Internet and wireless
contributed to long distance revenue and minute erosion.
Data revenues include Internet access, hosting and applications, LAN/WAN,
gateway service, internetworking and remote access, managed information
technology ("IT") services and legacy data services such as private line,
switched data services, data local access, data settlements and data equipment
sales. Wireless data revenues are included in Mobility segment Network
revenues. Communications segment data revenue growth was relatively flat as
increased Internet-related revenues were offset by price cap impacts and lower
revenues for data equipment sales and other services. This included a
reduction of application development revenues by approximately $7 million and
$21 million, respectively, for the fourth quarter and full year of 2003, when
compared with the prior year, due to the disposal of certain assets during the
second quarter of 2003. Data revenue growth normalized for the disposal of
assets and the negative price cap impacts was $12.5 million or 3.7% and
$51.8 million or 3.8%, respectively, for the fourth quarter and full year of
2003, as compared to 2002. Internet service revenues increased by $9.7 million
and $71.9 million, respectively, for the fourth quarter and full year of 2003
primarily as a result of growth in the Internet subscriber base, partly offset
by lower introductory pricing. TELUS high-speed Internet subscriber additions
were up 5.3% to 45,500 during the fourth quarter of 2003 due in part to the
success of a new introductory offer, as well as strong market demand.
Other revenue decreased for the fourth quarter and full year 2003, when
compared with the same periods in 2002, primarily as a result of lower voice
equipment rental and sales, as well as lower rent from support structures,
lower installation and contract services, and lower individual line service
grants in respect of the conversion of multi-party lines to single lines in
high cost rural areas in Alberta in the early 1990s.
Total external operating revenue discussed above included Non-ILEC
revenues of $137.7 million and $555.4 million, respectively, for the fourth
quarter and year ended December 31, 2003, compared with $152.2 million and
$527.2 million for the same periods in 2002. Non-ILEC revenue decreased by
$14.5 million or 9.5% in the fourth quarter and increased by $28.2 million or
5.3% for the full year, when compared with the same periods in 2002. Growth in
Non-ILEC application development revenues was affected by the disposal of
certain assets discussed in data revenues above, reducing the revenues by
approximately $7 million and $21 million, respectively, for the fourth quarter
and full year of 2003, when compared with the same periods in 2002. Normalized
for such asset disposals, Non-ILEC revenues decreased by approximately
$7.5 million or 5% in the fourth quarter and increased by approximately
$49.2 million or 9% for the full year.
Intersegment revenues represent services provided by the Communications
segment to the Mobility segment. These revenues are eliminated upon
consolidation together with the associated expense from the Mobility segment.
Key operating indicators - Communications segment
(000s for subscribers
and additions) 2003 2002 Change %
-------------------------------------------------------------------------
As at December 31
-----------------
Network access lines,
end of year 4,870 4,911 (41) (0.8)
Total Internet subscribers(1),
end of year 881.4 801.7 79.7 9.9
Dial-up 319.8 391.7 (71.9) (18.4)
High-speed 561.6 410.0 151.6 37.0
Quarter ended December 31
-------------------------
Change in Network access lines (13) (10) (3) (30.0)
Total Internet subscriber
net additions 31.6 18.8 12.8 68.1
Dial-up (13.9) (24.4) 10.5 43.0
High-speed 45.5 43.2 2.3 5.3
Year ended December 31
----------------------
Change in Network access lines (41) (56) 15 26.8
Total Internet subscriber
net additions(1) 79.7 131.8 (52.1) (39.5)
Dial-up (71.9) (63.4) (8.5) (13.4)
High-speed 151.6 195.2 (43.6) (22.3)
-------------------------------------------------------------------------
(1) As a result of a subscriber audit following a billing system
conversion in the third quarter of 2002, Internet subscriber counts
and net additions for 2003 are net of reductions of approximately
13,000 dial-up subscribers and approximately 4,700 high-speed
Internet subscribers.
Operating revenues - Mobility segment
Quarter ended December 31 2003 2002 Change %
-------------------------------------------------------------------------
($ in millions)
Network revenue 587.8 490.5 97.3 19.8
Equipment revenue 55.4 59.7 (4.3) (7.2)
-------------------------------------------------------------------------
External operating revenue 643.2 550.2 93.0 16.9
Intersegment revenue 4.1 4.3 (0.2) (4.7)
-------------------------------------------------------------------------
Total operating revenue 647.3 554.5 92.8 16.7
-------------------------------------------------------------------------
Year ended December 31 2003 2002 Change %
-------------------------------------------------------------------------
($ in millions)
Network revenue 2,183.7 1,852.7 331.0 17.9
Equipment revenue 175.9 164.7 11.2 6.8
-------------------------------------------------------------------------
External operating revenue 2,359.6 2,017.4 342.2 17.0
Intersegment revenue 15.7 17.5 (1.8) (10.3)
-------------------------------------------------------------------------
Total operating revenue 2,375.3 2,034.9 340.4 16.7
-------------------------------------------------------------------------
TELUS Mobility Network revenue is generated from monthly billings for
access fees, incremental airtime charges, prepaid time consumed or expired,
wireless Internet services and fees for value-added services. Network revenue
increased significantly for the fourth quarter and full year ended
December 31, 2003 as compared to the same periods in 2002. The Network revenue
growth was a result of the continued expansion of TELUS Mobility's subscriber
base by 14.3% to approximately 3.4 million subscribers from 3.0 million
subscribers one year ago. In addition, ARPU increased to $59 for the fourth
quarter and $57 for the full year ended December 31, 2003 as compared to $56
and $55, respectively, for the same periods last year.
TELUS Mobility's execution of its strategic focus on profitable revenue
growth and subscriber retention resulted in a higher ARPU and an improved
churn rate year over year. The $3 increase in ARPU for the fourth quarter
continued to build upon the year over year increases experienced in the first
three quarters of 2003. The improved ARPU was a result of increased usage and
disciplined pricing changes including per-minute billing and the reduction of
eligible hours included in certain 'free evening and weekend' rate plan
features. Average minutes of use ("MOU") per subscriber per month were 373 for
the fourth quarter of 2003 and 350 for the full year as compared to 302 and
290, respectively, for the same periods in 2002. At December 31, 2003,
postpaid subscribers accounted for 82.1% of the total cumulative subscriber
base as compared to 83.1% one year earlier and have been stable during the
current year. Net postpaid subscriber additions of 120,400 for the fourth
quarter of 2003 represented 72.5% of all net additions in the period as
compared to 81,700 (62.4%) for the corresponding period one-year ago,
representing a significant increase of 47.4%. This was the second sequential
quarter of positive net postpaid subscriber growth, reversing the trend
experienced since the third quarter of 2002. For the full year of 2003, net
postpaid additions represented 74.5% of all net additions as compared to 72.2%
in the same period one year earlier. Total net subscriber additions of 166,000
for the fourth quarter increased considerably by 26.7% when compared to the
same period last year. This was driven in part by a successful brand campaign
that highlighted TELUS' new camera phones and picture messaging service. The
campaign helped to establish a market leadership position for TELUS Mobility
in the camera phone space.
Blended postpaid and prepaid churn rate averaged 1.6% per month in the
fourth quarter of 2003 as compared to 1.7% for the corresponding period last
year and 1.5% for the third quarter of 2003. The increase in churn since the
third quarter of 2003 was due to more intensive competitor promotions.
Deactivations increased slightly by 6.6% to 157,200 for the fourth quarter
2003 as compared to 147,400 for the same period in 2002, a notable achievement
considering a 14.3% increase in the cumulative subscriber base in the face of
aggressive competition. The churn rate for the full year improved
significantly to 1.5% as compared to 1.8% for the same period last year.
Deactivations for the full year of 2003 were 556,100 as compared to 599,100
for the same period last year representing a 7.2% decline. The decline in
churn can be attributed to improved network quality and coverage, improved
client service levels, client contracting as part of loyalty and retention
programs, and specific grandfathered rate plans related to per-second billing
and the change to certain 'free evening and weekend' rate plan features.
Equipment sales, rental and service revenue in the three-month period
ended December 31, 2003, was $55.4 million as compared to $59.7 million for
the same period in 2002. Revenue declined in the fourth quarter revenue
despite higher gross subscriber additions from 278,400 to 323,200 due to
increased promotional and contracting activity and related subsidies.
Equipment revenue for the twelve months ended December 31, 2003 increased by
$11.2 million or 6.8% to $175.9 million despite a decline in gross subscriber
additions from 1,016,900 to 987,200 principally due to product mix and higher
handset prices.
Intersegment revenues represent services provided by the Mobility segment
to the Communications segment. These revenues are eliminated upon
consolidation together with the associated expense from the Communications
segment.
Key operating indicators - Mobility segment
(000s for subscribers
and additions) 2003 2002 Change %
-------------------------------------------------------------------------
As at December 31
-----------------
Subscribers - postpaid 2,811.8 2,490.6 321.2 12.9
Subscribers - prepaid(1) 612.2 504.9 107.3 21.3
---------- ---------- ---------- ----------
Subscribers - total 3,424.0 2,995.5 428.5 14.3
Total POPs(2) covered
including roaming/resale
(millions)(3) 29.9 27.5 2.4 8.7
Quarter ended December 31
-------------------------
Net subscriber additions
- postpaid 120.4 81.7 38.7 47.4
Net subscriber additions
- prepaid 45.6 49.3 (3.7) (7.5)
---------- ---------- ---------- ----------
Net subscriber additions
- total 166.0 131.0 35.0 26.7
Churn, per month (%)(4a) 1.6 1.7 (0.1) -
Acquisition COA(4b) per
gross subscriber
add. ($)(4c) 452 478 (26) (5.4)
ARPU ($)(4d) 59 56 3 5.4
EBITDA(4e) to network
revenue (%) 32.3 26.2 6.1 -
Retention COA to network
revenue (%) 6.4 3.6 2.8 -
EBITDA(4e) excluding
Acquisition COA
($ millions)(4f) 336.0 261.0 75.0 28.7
Year ended December 31
----------------------
Net subscriber additions
- postpaid 321.2 301.6 19.6 6.5
Net subscriber additions
- prepaid(1) 109.9 116.2 (6.3) (5.4)
---------- ---------- ---------- ----------
Net subscriber additions
- total 431.1 417.8 13.3 3.2
Churn, per month(1) (%) 1.5 1.8 (0.3) -
Acquisition COA per gross
subscriber add. ($)(5) 430 425 5 1.2
ARPU ($)(4d) 57 55 2 3.6
EBITDA(4e) to network
revenue (%) 37.3 28.9 8.4 -
Retention COA to network
revenue (%) 4.7 3.9 0.8 -
EBITDA(4e) excluding
Acquisition COA
($ millions)(4f) 1,240.0 944.0 296.0 31.4
-------------------------------------------------------------------------
(1) Based on an audit of the prepaid platform in the fourth quarter of
2003, a one-time adjustment was made to the prepaid subscriber base.
Cumulative subscribers were reduced by approximately 7,600 in the
period. Of the 7,600, net additions as recorded for 2003 reflected a
5,000 adjustment for current year deactivations. Management believes
the deactivations related to the prior period are immaterial and
therefore net additions have not been restated. Furthermore, 2003
churn was calculated to reflect the 5,000 deactivations in the
current year.
(2) POPs is an abbreviation for Population. A POP refers to one person
living in a population area, which in whole or substantial part is
included in the coverage areas.
(3) TELUS Mobility has not activated all digital-roaming areas. As at
December 31, 2003, TELUS Mobility PCS digital population coverage was
22.2 million and 29.5 million including the roaming/resale agreements
principally with Bell Mobility and Aliant Telecom Wireless.
(4) The following are not measures under accounting principles generally
accepted in Canada and the U.S. These measures are industry metrics
and are useful in assessing the operating performance of a wireless
company. The definitions of these measures are as follows:
a. Churn is calculated as the number of subscriber units
disconnected during the period divided by the average number of
units on the network, expressed as a rate per month.
b. Acquisition COA consists of the total of handset subsidies,
commissions, and advertising & promotion expenses related to
the initial customer acquisition during a given period.
c. Acquisition COA per gross subscriber addition is Acquisition
COA divided by gross subscriber activations during the period.
d. ARPU is calculated as network service revenue divided by the
average number of units on the network during the period,
expressed as a rate per month.
e. Excluding restructuring
f. EBITDA excluding Acquisition COA is a measure for operational
profitability normalized for the period costs of adding new
customers.
(5) For the year ended December 31, 2002, Acquisition COA of $425
excluded the effect of the $21.0 million favourable clarification of
tax legislation by the Ontario Provincial Sales Tax (PST)
authorities, representing a reversal of a cumulative COA liability.
Operations expense - Communications segment
($ in millions) 2003 2002 Change %
-------------------------------------------------------------------------
Quarter ended December 31 696.5 750.4 (53.9) (7.2)
Year ended December 31 2,852.2 3,100.8 (248.6) (8.0)
-------------------------------------------------------------------------
Operations expense for the Communications segment decreased in the fourth
quarter and year ended December 31, 2003, when compared with the same periods
last year, primarily due to the traction of the Operational Efficiency Program
as well as lower Non-ILEC expenses and lower equipment costs of sales, partly
offset by an increased pension expense in 2003. In addition, expenses for the
fourth quarter and full year of 2002 were reduced by significant investment
tax credits as a result of a settlement of tax matters. The significant
changes in operating expenses for the fourth quarter and year ended
December 31, 2003, when compared with the same periods in 2002, were:
Operational Efficiency Program and staffing related changes
Cumulative savings achieved since the inception of the Operational
Efficiency Program in 2001 were $454 million and all of the operational
efficiency program targets for the end of 2003 were attained or exceeded.
- Savings in salaries, benefits, employee-related overhead costs,
contracting and consulting costs, advertising and promotions expense
and other such costs under this program were $25.0 million and
$304.0 million, respectively. Net staff departures in 2003 under this
program were approximately 700 during the fourth quarter and 1,500
for the full year. Staff levels were also reduced by 143 in the
fourth quarter and 200 for the full year from two small divestitures.
Partly offsetting these staff reductions were the addition of 161
staff from a newly formed partnership with the Calgary Health
Authority (TELUS Sourcing Solutions) and the addition of 215 staff to
insource Internet help desk services to a new Montreal call centre.
Neither of these two initiatives were anticipated when the Operational
Efficiency Program was announced. Consequently, Communications Segment
overall staff count decreased by 468 during the fourth quarter and
1,303 for the full year. There were 18,430 full time equivalent
employees at the end of 2003, a decrease of 1,238 when compared with
19,668 at the end of 2002;
- Expenses decreased by $8.1 million as a result of higher labour
capitalization in the fourth quarter in 2003, consistent with higher
capital expenditures in the same period, when compared with 2002.
Conversely, expenses increased by $22.5 million for the full year of
2003 as a result of lower labour capitalization representing lower
capital build activities as a result of Operational Efficiency Program
savings;
Significant non-recurring items
- Expenses for the fourth quarter and year ended December 31, 2002 were
lowered by $10.5 million and $50.5 million, respectively, as a result
of significant non-recurring investment tax credits, partly offset by
$1.3 million of investment tax credits for the full year of 2003. The
investment tax credits were recognized as a result of a settlement
with tax authorities for previous years' claims and were recorded as
a reduction to operations expense;
Other changes
- Transit and termination costs decreased by $18.6 million and
$34.8 million, respectively, as a result of a significant decrease in
the cost per minute on outbound traffic, despite an increase in
traffic;
- Equipment cost of sales decreased by $25.8 million and $71.0 million,
respectively, primarily as a result of lower sales of voice and data
equipment. This included approximately $15 million for the full year
of 2003, of lower high-speed Internet cost of sales as a result of
reduced gross additions of high-speed Internet subscribers, lower
modem prices, and recognition of certain promotional discounts to
customers recorded as an offset against revenues;
- Bad debt expense decreased by $12.5 million and $14.6 million,
respectively, as a result of the effects in 2002 of the unstable
global telecom and high technology industries on non-ILEC results, as
well as reduced exposure in 2003 arising from improved credit and
collections processes;
- Revenue taxes, which are contributions to the national fund for
providing service in high cost rural service areas, decreased by
$10.7 million and $12.5 million, respectively. The decrease was
primarily a result of the December 19, 2003 CRTC Decision that
reduced the 2003 contribution rate from 1.3% to 1.1% of eligible
revenues, compared with a 1.3% final rate for 2002;
- The expense for the Software and Related Technology and Service
Agreements with Verizon Communications Inc. ("Verizon"), was
unchanged for the fourth quarter and $8.1 million lower for the full
year of 2003, primarily because of the appreciation of the Canadian
dollar against the U.S. dollar;
- Pension expense for defined benefit and defined contribution plans
increased by $10.6 million and $49.9 million, respectively.
- Overtime expenses increased by $8.1 million and $11.9 million,
respectively, for the fourth quarter and second half of 2003, as
compared with the same periods in 2002. These costs were incurred
primarily to improve customer service and clear backlogs created by a
number of natural disasters, staffing and system conversion issues in
the third quarter of 2003;
- Additional costs for the new partnership with the Calgary Health
Authority and establishment of the Montreal call centre were
$7.4 million for the fourth quarter and full year of 2003. The
partnership with the Calgary Health Authority was established to
deliver end-to-end human resources solutions to healthcare and other
organizations while the Montreal call centre has been established to
insource Internet help desk services from a third party; and
- Inflation and all other changes increased expenses by $9.3 million
and $54.5 million, respectively.
Included in the total segment expenses discussed above, Non-ILEC
operations expenses for the fourth quarter and year ended December 31, 2003
were $139.8 million and $580.0 million, respectively, compared with
$169.8 million and $634.5 million, respectively, in the same periods in 2002.
This represented decreases of $30 million or 17.7% and $54.5 million or 8.6%,
respectively as a result of increasing the proportion of on-net traffic,
increased competitive data network access discounts and other operating
efficiencies including a lower bad debt expense.
Operations expense - Mobility segment
($ in millions) 2003 2002 Change %
-------------------------------------------------------------------------
Quarter ended December 31 457.3 425.9 31.4 7.4
Year ended December 31 1,559.9 1,500.1 59.8 4.0
-------------------------------------------------------------------------
Mobility operations expense in the fourth quarter increased by
$31.4 million or 7.4% and increased (after normalizing for the $21.0 million
favourable PST ruling in 2002) by $38.8 million or 2.6% for the full year,
when compared with the same periods in 2002. TELUS Mobility has been able to
achieve significant economies of scale as evidenced by growth in subscribers
of 14.3% in 2003 and growth in Network revenue of 19.8% and 17.9% in the
fourth quarter and full year of 2003, respectively, with only a nominal
increase in operating expenses year-over-year.
Expenses related to equipment sales decreased $1.0 million (0.8%) to
$119.5 million in the fourth quarter as compared to $120.5 million for the
same period one year earlier. Despite an increase in gross subscriber
additions in the fourth quarter from 278,400 to 323,200, the decline in
equipment expense was due to improved handset pricing and favourable foreign
exchange rates. For the twelve-month period ended December 31, 2003, equipment
expenses increased by $7.5 million or 2.0% over the same period last year.
However, prior year expenses included a $21.0 million reduction resulting from
a clarification of provincial sales tax legislation related to handset
subsidies, which represented the reversal of a cumulative liability previously
recorded in marketing cost of acquisition ("COA"). Once normalized to exclude
the 2002 provincial sales tax credit, equipment expense for the full year of
2003 decreased $13.5 million or 3.4% as compared with the same period in 2002.
This decrease was principally due to a decline in gross subscriber activations
and improved handset pricing including favourable exchange rates, offset
partially by the introduction of a new suite of products including the camera
phone in the fourth quarter and increased retention activity. Gross subscriber
activations were 987,200 for the full year of 2003 as compared to 1,016,900
for the same period last year. Handset costs are included in marketing cost of
acquisition (COA).
Network operating expenses consist of site-related expenses, transmission
costs, spectrum licence fees, contribution revenue taxes, and other direct
costs related to network operations. Network operating expenses increased to
$96.3 million and $371.0 million for the fourth quarter and full year of 2003,
respectively, as compared to $92.0 million and $366.7 million for the same
periods last year. This occurred as a result of increases in transmission and
site-related expenses to support the increased cell sites, subscriber base,
and improved network quality and coverage. These costs were partially offset
by a reduction in Industry Canada spectrum licence fees. TELUS Mobility has
focused efforts on containing network costs through negotiating improved
leased transmission rates, roaming rates, and maintenance rates with a number
of telecommunications carriers and key vendors. TELUS Mobility also continues
to build-out microwave to continue the reduction in the costs going forward.
Digital PCS population coverage expanded by 7.3 million (principally due to
roaming with Bell - 4.7 million and Aliant - 1.8 million) to 29.5 million
during the year.
Marketing expenses excluding handset subsidies were $109.1 million for
the fourth quarter and $297.4 million for the full year ended December 31,
2003 as compared to $85.2 million and $249.4 million for the same periods in
2002. The increases were primarily due to higher advertising expenses and
dealer compensation costs associated with the expanded cumulative subscriber
base and to increased re-contracting activity. Despite the higher marketing
expenses, acquisition COA improved to $452 for the fourth quarter of 2003 as
compared to $478 for the same period in 2002, and remained relatively flat for
the full year of 2003 at $430 as compared to $425 (excluding any benefit from
the $21.0 million PST clarification) for the same period in 2002. The
extensive fourth quarter promotional campaign and related spending was very
well received as evidenced by subscriber loading in the period, and as a
result, per subscriber acquisition costs were favourable. The year over year
cost remained relatively flat as Mobility continued to grow profitably.
Combined with the improved churn, this indicates COA over the life of the
subscriber continued to improve significantly in 2003 as compared to 2002.
General and Administration ("G&A") expenses consist of employee
compensation and benefits, facilities, client services, bad debt and various
other expenses. G&A expenses increased in the fourth quarter by 3.3% and
remained flat for the full year of 2003 despite a subscriber base growth of
14.3% and Network revenue growth of 19.8% in the fourth quarter. G&A expenses
were $132.4 million and $512.8 million for the fourth quarter and full year of
2003, respectively, as compared to $128.2 million and $512.8 million for the
same periods in 2002. The increase of $4.2 million in the fourth quarter was
primarily due to higher payroll expenses. TELUS Mobility increased full-time
equivalent employees (FTE's) by 4.4% to 5,387 from 5,161 one year earlier to
support the significant growth in the subscriber base and continued expansion
of its company owned retail stores. This increase was offset slightly by lower
bad debts. The improvements in bad debts can be attributed to the completion
of billing system conversions in 2002 and improvement in credit and
collections. TELUS Mobility completed five major billing system conversions by
October 2002 after an 18-month integration period.
EBITDA excluding restructuring by segment
Quarter ended December 31 2003 2002 Change %
-------------------------------------------------------------------------
($ in millions)
Communications segment 509.0 516.6 (7.6) (1.5)
Mobility segment 190.0 128.6 61.4 47.7
-------------------------------------------------------------------------
TELUS Consolidated 699.0 645.2 53.8 8.3
-------------------------------------------------------------------------
Year ended December 31 2003 2002 Change %
-------------------------------------------------------------------------
($ in millions)
Communications segment 2,028.7 1,983.8 44.9 2.3
Mobility segment 815.4 534.8 280.6 52.5
-------------------------------------------------------------------------
TELUS Consolidated 2,844.1 2,518.6 325.5 12.9
-------------------------------------------------------------------------
EBITDA (excluding restructuring) margin percentage(1) by segment (%)
Quarter ended December 31 2003 2002 Change
-------------------------------------------------------------
($ in millions)
Communications segment 42.2 40.8 1.4
Mobility segment(2) 29.4 23.2 6.2
TELUS Consolidated 38.3 36.0 2.3
-------------------------------------------------------------
Year ended December 31 2003 2002 Change
-------------------------------------------------------------
($ in millions)
Communications segment 41.6 39.0 2.6
Mobility segment(2) 34.3 26.3 8.0
TELUS Consolidated 39.8 35.9 3.9
-------------------------------------------------------------
(1) EBITDA excluding restructuring divided by total revenue.
(2) EBITDA excluding restructuring as a percentage of network revenue was
32.3% and 37.3% for the fourth quarter and full year of 2003,
respectively, as compared to 26.2% and 28.9% (27.7% before PST
clarification) for the same periods in 2002.
Communications segment EBITDA excluding restructuring for the fourth
quarter and full year of 2002 was increased by significant non-recurring
investment tax credits of $10.5 million and $50.5 million, respectively.
EBITDA excluding restructuring and the related margin improved in 2003
primarily as a result of:
- Operational Efficiency Program savings of $24 million and
$304 million, respectively;
- Non-ILEC EBITDA excluding restructuring improvements of $15.5 million
and $78.4 million, respectively;
- Partly offset by negative price cap decision impacts, decreasing long
distance and other revenues, and increased pension costs.
Normalized for the 2002 investment tax credits and the price cap decision
impacts, Communications segment EBITDA excluding restructuring increased by
$23.7 million or 4.7% and $173.9 million or 9.0%, respectively, for the fourth
quarter and full year of 2003 as compared to 2002.
TELUS Mobility segment EBITDA excluding restructuring and the related
margin improvement for the fourth quarter and full year of 2003 is
attributable to strong ARPU and subscriber growth combined with a significant
reduction in the churn rate and cost containment.
Strong growth in TELUS Mobility EBITDA excluding restructuring continued
in the fourth quarter. Consequently, EBITDA excluding restructuring for the
full year of 2003 grew by 52.5% to $815.4 million. When the 2002 $21.0 million
favourable PST clarification is excluded, EBITDA excluding restructuring for
the full year of 2003 increased by 58.7%. The EBITDA excluding restructuring
margin, when calculated as a percentage of network revenue, improved to 32.3%
for the fourth quarter and 37.3% for the full year of 2003 as compared to
26.2% and 28.9% (27.7% before the PST clarification), respectively, for the
same periods one year earlier.
Restructuring and workforce reduction costs
Quarter ended December 31 2003 2002 Change %
-------------------------------------------------------------------------
($ in millions)
Communications segment 16.2 234.5 (218.3) (93.1)
Mobility segment - 6.5 (6.5) (100.0)
-------------------------------------------------------------------------
TELUS Consolidated 16.2 241.0 (224.8) (93.3)
-------------------------------------------------------------------------
Year ended December 31 2003 2002 Change %
-------------------------------------------------------------------------
($ in millions)
Communications segment 28.3 563.4 (535.1) (95.0)
Mobility segment - 6.5 (6.5) (100.0)
-------------------------------------------------------------------------
TELUS Consolidated 28.3 569.9 (541.6) (95.0)
-------------------------------------------------------------------------
Restructuring and workforce reduction costs were recorded for initiatives
under the Company's Operational Efficiency Program. In 2001, the Company
initiated the phased Operational Efficiency Program aimed at improving
operating and capital productivity and competitiveness. The second and third
phases commenced in 2002, with the third phase continuing into 2003. The
Company achieved its target for closing or consolidating 44 Communications
segment customer contact centres by the end of 2003. It is currently expected
that two additional call centres will be closed or consolidated in 2005. The
restructuring charge for the full year of 2003 exceeded by $8.3 million the
originally anticipated $20 million, in part for costs associated with
approximately 50 remaining departures under the program during the first
quarter of 2004. As of December 31, 2003, no future costs remain to be
recorded under the Operational Efficiency Program. It is expected that
approximately $30 million of restructuring charges will be recorded in 2004,
primarily in respect of new efficiency initiatives.
Net staff reductions under the Operational Efficiency Program in the
Communications segment were approximately 6,700 between January 2002 and
December 2003. Since the inception of the Operational Efficiency Program in
2001, the Company has reduced its staff count by approximately 7,500,
comprised of 5,500 bargaining unit positions and 2,000 management positions.
There are an additional 50 staff reductions that will occur under this program
during 2004.
Savings in the Communications Segment since inception of the Operational
Efficiency Program have increased to approximately $454 million by the end of
2003. As a result of exceeding targeted staff count reductions, TELUS believes
that the previously announced annual recurring savings from this program will
be met in 2004.
Depreciation and amortization
Quarter ended December 31 2003 2002 Change %
-------------------------------------------------------------------------
($ in millions)
Depreciation 323.4 315.2 8.2 2.6
Amortization of intangible
assets 101.0 94.7 6.3 6.7
-------------------------------------------------------------------------
424.4 409.9 14.5 3.5
-------------------------------------------------------------------------
Year ended December 31 2003 2002 Change %
-------------------------------------------------------------------------
($ in millions)
Depreciation 1,272.9 1,213.7 59.2 4.9
Amortization of intangible
assets 379.9 356.6 23.3 6.5
-------------------------------------------------------------------------
1,652.8 1,570.3 82.5 5.3
-------------------------------------------------------------------------
Depreciation and amortization expenses increased in the fourth quarter
and year ended December 31, 2003, when compared with the same periods in 2002,
primarily as a result of growth in shorter life capital assets, including
billing system and customer relationship management software, and data network
capital assets. This included a write-off of communications segment customer
relationship management software assets of $9.1 million and $25.0 million,
respectively, for the fourth quarter and full year of 2003, partially offset
by lower amortization for fully amortized software assets.
Other expense
($ in millions) 2003 2002 Change %
-------------------------------------------------------------------------
Quarter ended December 31 3.5 24.3 (20.8) (85.6)
Year ended December 31 23.3 42.7 (19.4) (45.4)
-------------------------------------------------------------------------
Other expense includes accounts receivable securitization expense, income
or impairments in portfolio investments including 2002 discontinued
operations, gains and losses on disposal of property, and charitable
donations.
- Accounts receivable securitization expense was $2.0 million and
$13.5 million, respectively, for the fourth quarter and year ended
December 31, 2003 - a decrease of $1.8 million and an increase of
$3.6 million, respectively, when compared with the same periods in
2002. The decrease in the securitization expense for the quarter was a
result of the Company making accounts receivable securitization
reduction payments totalling $181 million during the fourth quarter
of 2003. The increase for the full year of 2003 was a result of
expanding the securitization program in July 2002. While the proceeds
from securitization averaged $453 million in 2003, compared with
$255 million in 2002, the proceeds at the end of 2003 were
$300 million.
- Losses from portfolio investments of $0.2 million and $11.8 million,
respectively, for the fourth quarter and year ended December 31, 2003
were offset by gains from the sale of properties of $1.0 million and
$9.2 million, respectively. For the same periods in 2002, losses from
portfolio investments and properties were $19.3 million and
$27.6 million, respectively.
- Consistent with the Company's objective of contributing 1% or more of
pre-tax income as defined under the Imagine formula, charitable
donations expense increased to $2.3 million and $7.4 million,
respectively, for the fourth quarter and year ended December 31,
2003, compared with $1.5 million and $6.8 million, respectively, in
2002.
Financing costs
($ in millions) 2003 2002 Change %
-------------------------------------------------------------------------
Quarter ended December 31 160.8 150.1 10.7 7.1
Year ended December 31 628.0 604.1 23.9 4.0
-------------------------------------------------------------------------
Financing costs include interest expense on long-term and short-term
debt, gains on debt repurchases, interest income, foreign exchange gains and
losses and amortization of debt issue costs.
- Financing costs for the full year of 2002, were net of an
$82.7 million pre-tax gain on debt redemption. The gain in 2002 arose
from the repurchase of approximately $410 million principal amount of
notes and debentures of TELUS Corporation and TELUS Communications
Inc. for a cash outlay of approximately $318 million including
commissions and net of cross currency swap unwind proceeds.
- Interest on long-term and short-term debt was $162.6 million and
$671.7 million, respectively, for the quarter and year ended
December 31, 2003. This represents decreases of $9.2 million and
$43.2 million, respectively, when compared with the same periods in
2002, primarily a result of debt repurchases and retirements. TELUS
maintains a hedging program using cross-currency swaps, and as a
result, long-term financing costs were generally unaffected by the
appreciation of the Canadian dollar against the U.S. dollar in 2003.
Debt, including long-term debt, current maturities and the deferred
hedging liability (asset), was $7,436 million at December 31, 2003 and
$8,261 million at December 31, 2002. The average debt outstanding for
the fourth quarter and year ended December 31, 2003 was $7,487 million
and $7,872 million, respectively, as compared with $8,283 million and
$8,699 million, respectively, for the same periods in 2002.
- Interest income, which has the effect of reducing financing costs,
decreased by $18.2 million for the fourth quarter and increased by
$17.4 million for the full year of 2003, when compared with the same
periods in 2002. Interest income in 2003 and in 2002 was recognized
primarily as a result of tax refunds received from the settlement of
various tax matters.
Income taxes (recovery)
($ in millions) 2003 2002 Change %
-------------------------------------------------------------------------
Quarter ended December 31 43.9 (41.6) 85.5 -
Year ended December 31 176.9 (42.5) 219.4 -
-------------------------------------------------------------------------
The increase in Income taxes for the fourth quarter and year ended
December 31, 2003, when compared with the same periods in 2002, were primarily
related to increases in income before taxes of $274.2 million and
$780.1 million, respectively. The effective tax rate for the full year of
2003, was significantly impacted by two tax factors: (i) a positive
$47.0 million income tax adjustment for settlement of tax matters relating to
prior years, which had higher tax rates, partly offset by (ii) an increase in
tax expense for an increase in the tax rate in the Province of Ontario.
Non-controlling interest
($ in millions) 2003 2002 Change %
-------------------------------------------------------------------------
Quarter ended December 31 0.6 0.7 (0.1) (14.3)
Year ended December 31 3.3 3.1 0.2 6.5
-------------------------------------------------------------------------
Non-controlling interest primarily represents a partner's interest in a
small foreign subsidiary.
Preferred dividends
($ in millions) 2003 2002 Change %
-------------------------------------------------------------------------
Quarter ended December 31 0.9 0.9 - -
Year ended December 31 3.5 3.5 - -
-------------------------------------------------------------------------
There were no significant changes to quarterly dividends on preferred
shares.
Interest on convertible debentures
($ in millions) 2003 2002 Change %
-------------------------------------------------------------------------
Quarter ended December 31 1.8 1.7 0.1 5.9
Year ended December 31 7.1 6.8 0.3 4.4
-------------------------------------------------------------------------
The interest on convertible debentures is presented net of related income
taxes. As these debentures are convertible into non-voting shares and are
classified as equity on the balance sheet, the related interest is recorded as
a charge to retained earnings rather than an interest expense.
Liquidity and capital resources
Cash provided by operating activities
($ in millions) 2003 2002 Change %
-------------------------------------------------------------------------
Quarter ended December 31 414.9 359.9 55.0 15.3
Year ended December 31 2,144.0 1,741.0 403.0 23.1
-------------------------------------------------------------------------
Cash provided by operating activities increased in the fourth quarter
ended December 31, 2003, when compared with the same period in 2002,
principally due to an increased cash recovery of income taxes, lower
restructuring and workforce reduction payments, and improved operating
profitability, partly offset by accounts receivable securitization reduction
payments. Cash recovery of income taxes associated with settlement of prior
years' tax matters, net of tax installments, was $130.4 million in the fourth
quarter of 2003 compared with $42.6 million in the same period of 2002.
Restructuring payments were $54.1 million in the fourth quarter of 2003
compared with $139.8 million in the same period in 2002, mainly due to the
larger number of staff departures in 2002. EBITDA excluding restructuring
increased by $53.8 million. The Company made accounts receivable
securitization reduction payments of $106 million on October 27, 2003 and
$75 million on December 24, 2003.
Cash provided by operating activities increased for the year ended
December 31, 2003, when compared with 2002, principally due to improvement in
operating profitability, the recovery of income taxes in 2003 associated with
settlement of tax matters, an increase in advance billings and customer
deposits and lower interest, partly offset by the reduction in securitized
account receivables in 2003 compared with an increase securitized account
receivables in 2002. EBITDA excluding restructuring increased by
$325.5 million in 2003. Interest paid decreased by $18.3 million to
$657.5 million in 2003 as a result of debt reduction, while interest received
increased by $17.1 million to $41.6 million in 2003, primarily from the
settlement of tax matters. Cash recovery of income taxes associated with
settlement of prior years' tax matters was $183.5 million or $165.5 million
net of tax installments in 2003, compared $18.6 million net of tax
installments in 2002. Advanced billings and customer deposits increased by
$114.7 million during 2003 due to the continued deferral of revenue under the
price cap regime, and the increase in the Mobility subscriber base. The
Company made accounts receivable securitization reduction payments of
$175 million in 2003, whereas in 2002, the Company increased the amount of
securitized receivables by $150 million. Restructuring payments were
$287.7 million in 2003 as compared with $273.8 million in 2002.
Cash provided (used) by investing activities
($ in millions) 2003 2002 Change %
-------------------------------------------------------------------------
Quarter ended December 31 (421.4) (380.8) (40.6) (10.7)
Year ended December 31 (1,197.8) (1,691.1) 493.3 29.2
-------------------------------------------------------------------------
Cash used by investing activities increased for the fourth quarter and
decreased for the year ended December 31, 2003, when compared with the same
periods last year, primarily as a result of the change in capital
expenditures. During the fourth quarter, the Company also disposed of
properties and an investment for total proceeds of $11.6 million. Earlier in
2003, the Company also disposed of several non-strategic properties and
monetized an investment for net proceeds of $19.0 million and disposed of an
administrative property under the terms of a sale and leaseback transaction,
on which an $8.2 million pre-tax gain, on total cash proceeds of
$19.3 million, was deferred and is being amortized over the term of the lease.
In the third quarter of 2002, the Company disposed of its remaining directory
operations in the U.S. for proceeds of $7.8 million.
Capital expenditures by segment
Quarter ended December 31 2003 2002 Change %
-------------------------------------------------------------------------
($ in millions)
Communications segment 303.0 291.0 12.0 4.1
Mobility segment 132.3 125.1 7.2 5.8
-------------------------------------------------------------------------
Capital expenditures
- general 435.3 416.1 19.2 4.6
Mobility segment
- wireless spectrum 0.1 0.1 - -
-------------------------------------------------------------------------
Total capital expenditures 435.4 416.2 19.2 4.6
-------------------------------------------------------------------------
-------------------------------------------------------------
Capital expenditure
intensity(1)(%) 23.8 23.2 0.6
-------------------------------------------------------------
Year ended December 31 2003 2002 Change %
-------------------------------------------------------------------------
($ in millions)
Communications segment 892.8 1,238.2 (345.4) (27.9)
Mobility segment 358.4 455.1 (96.7) (21.2)
-------------------------------------------------------------------------
Capital expenditures
- general 1,251.2 1,693.3 (442.1) (26.1)
Mobility segment
- wireless spectrum 1.5 4.6 (3.1) (67.4)
-------------------------------------------------------------------------
Total capital expenditures 1,252.7 1,697.9 (445.2) (26.2)
-------------------------------------------------------------------------
-------------------------------------------------------------
Capital expenditure
intensity(1)(%) 17.5 24.2 (6.7)
-------------------------------------------------------------
(1) Capital Intensity is measured by dividing capital expenditures into
operating revenues, expressed as a percentage. This measure provides
a method of comparing the level of capital expenditures to other
companies within the same industry.
Communications segment capital expenditures increased in the fourth
quarter and decreased significantly for the full year of 2003, when compared
with 2002. The decrease for the year was a result of Operational Efficiency
Program initiatives and completion of several national expansion initiatives
in 2002. For the fourth quarter of 2003, Non-ILEC expenditures increased by
$6.1 million to $46.8 million, while for the full year of 2003, Non-ILEC
expenditures decreased by $91.6 million to $122.8 million. The increase for
the fourth quarter was directed primarily toward network sustainment. The
decrease for the full year was a result of the Company concentrating its
deployment activity on meeting growth demands through the use of assets in
place. ILEC capital expenditures increased by $6.0 million to $256.2 million
for the fourth quarter of 2003, and decreased by $253.8 million to
$770.1 million for the full year of 2003, when compared with the same periods
in 2002. The primary changes in ILEC capital expenditures were:
- High-speed Internet ("ADSL") facilities and systems expenditures
increased by $1.3 million to $31.2 million for the fourth quarter of
2003 and decreased by $94.9 million to $97.6 million for the full
year of 2003, when compared to the same periods in 2002. Lower
spending on ADSL in 2003 was due to a focus on higher utilization of
existing facilities, the completion of accelerated facility and
system deployment in 2002, and slower growth in the industry;
- There were no purchases from Verizon in 2003 for software licences
compared with $9.6 million and $65.1 million, respectively, for the
fourth quarter and full year of 2002; and
- Increased spending for new service development was partly offset by
reductions in other spending in the fourth quarter of 2003. For the
full year of 2003, spending on network infrastructure decreased due
to lower demand for facilities, while spending on internal systems
and processes also decreased due to completion of initiatives in
2002, as planned, such as the national long distance and card service
platform and internal web enablement projects, partly offset by
increased spending on new service development.
The Communications segment capital intensity ratios for the fourth
quarter and year ended December 31, 2003 were 25.1% and 18.3%, respectively,
when compared with 23.0% and 24.4%, respectively, for the same periods in
2002, mainly due to the timing and significant reduction of capital
expenditures on relatively flat revenues. For the fourth quarter, the
Communications segment contribution to cash flow (EBITDA excluding
restructuring less capital expenditures) decreased by $19.6 million to
$206.0 million, while for the full year of 2003, the contribution to cash flow
increased by $390.3 million to $1,135.9 million, respectively, when compared
to the same periods last year.
Mobility capital expenditures increased by 5.8% in the fourth quarter and
significantly decreased for the full year of 2003 as compared to the
corresponding periods in 2002. TELUS Mobility continued the enhancement of
digital wireless coverage during the fourth quarter of 2003. In addition,
TELUS Mobility started building out a significant amount of microwave in 2003
aimed at reducing future leased line costs. Capital spending declined
significantly year-over-year principally as a result of:
- Implementation of the 1X digital network in 2002;
- Digital conversion of analogue networks in 2002;
- Reduced coverage expansion costs in 2003 due to operationalized
roaming/resale agreements in 2002 with Bell Mobility and Aliant
Telecom Wireless; and
- Improved infrastructure equipment costs and a stronger Canadian
dollar.
Capital expenditure intensity for TELUS Mobility was 20.5% and 15.2% for
the fourth quarter and full year of 2003, respectively, as compared to 22.6%
for both periods one year ago, due to both lower capital spending (for the
full year) and significant growth in network revenues. As a result of
continued strong EBITDA excluding restructuring growth and reduced capital
expenditure intensity, Mobility generated substantially improved cash flow
(EBITDA excluding restructuring less capital expenditures) of $57.6 million
and $455.5 million, or 9.8% and 20.9% of Network revenue, for the fourth
quarter and full year of 2003, respectively, as compared with $3.4 million and
$75.1 million, or 0.7% and 4.1%, for the same periods in 2002, respectively.
Both segments have contributed to significantly improved consolidated
cash flow (EBITDA excluding restructuring less capital expenditures) of
$1,591.4 million for the full year of 2003, when compared with $820.7 million
in 2002.
Cash provided (used) by financing activities
($ in millions) 2003 2002 Change %
-------------------------------------------------------------------------
Quarter ended December 31 (89.6) 17.2 (106.8) -
Year ended December 31 (931.0) (76.0) (855.0) -
-------------------------------------------------------------------------
Cash used by financing activities increased in the fourth quarter and
year ended December 31, 2003, when compared with the same periods in 2002.
- Common and Non-voting shares issued - Proceeds received from shares
issued from Treasury under the employee share purchase plan and from
share option plans were $24.9 million and $86.6 million, respectively,
for the fourth quarter and year ended December 31, 2003, compared with
proceeds of $18.3 million and $92.2 million, respectively, in the same
periods in 2002 under the same plans, from exercised warrants and from
additional shares purchased by Verizon pursuant to anti-dilutive
rights.
- Public issuance of Non-voting shares - $nil in 2003; $337.4 million
in 2002. In September 2002, a public issuance of 34.25 million
Non-voting shares was offered concurrently in Canada and the U.S. at a
share price of $9.85 (Canadian dollars) for aggregate gross proceeds
of $337.4 million. The net proceeds of $322.9 million were used to
repurchase and repay debt, including bank debt incurred to repurchase
notes of TELUS Corporation and notes and debentures of TELUS
Communications Inc., and for general corporate purposes. The debt was
repurchased at an average discount of 21%, while equity dilution was
limited to 10% from the September 2002 public share issuance.
- Dividends to shareholders - Cash dividends paid to shareholders
increased by $2.5 million and $36.4 million, respectively, for the
fourth quarter and year ended December 31, 2003, when compared with
the same periods in 2002. The increase in cash dividends for the year
resulted from an increased number of shares outstanding, partly
offset by a higher enrolment in dividend reinvestment plans
(approximately 25% for the dividend paid in October 2003, compared
with approximately 21% one year earlier). The 15-cent dividend paid
per Common share and Non-voting share remained unchanged from one
year ago.
- Net debt redemptions (Long-term debt issued net of Redemptions and
repayment of long-term debt and Change in short-term obligations) -
were $63.5 million and $828.7 million, respectively, for the fourth
quarter and year ended December 31, 2003. This compares with
$48.0 million net debt issued in the fourth quarter of 2002 and net
debt repurchases and redemptions of $341.2 million for the full year
2002. Net debt redemptions for the full year of 2003 included
approximately $645 million of bank facilities, $151 million of
medium-term notes, and $30 million of First Mortgage Bonds. In the
second half of 2002, the Company repurchased approximately
$410 million principal amount of notes and bank debt for a cash outlay
of approximately $318 million including commissions and net of
cross-currency swap unwind proceeds.
Liquidity and capital resource measures
Dec. 31, Dec. 31, Sept. 30,
Period ended 2003 2002 Change 2003
-------------------------------------------------------------------------
Components of debt and
----------------------
coverage ratios
---------------
Net debt(1) ($ millions) 7,518.2 8,390.3 (872.1) 7,522.3
Total capitalization(2)
- book value ($ millions) 14,190.9 14,834.1 (643.2) 14,169.5
EBITDA(3) (12-month
trailing, $ millions) 2,844.1 2,518.6 325.5 2,790.3
Net interest cost(4)
(12-month trailing,
$ millions) 628.0 686.8 (58.8) 617.6
Debt ratios
-----------
Fixed rate debt as a
proportion of total
indebtedness (%) 100.0 93.4 6.6 100.0
Average term to maturity
of debt (years) 6.2 6.6 (0.4) 6.4
Net debt to total
capitalization (%) 53.0 56.6 (3.6) 53.1
Net debt to EBITDA(5) 2.6 3.3 (0.7) 2.7
Coverage ratios
---------------
Earnings coverage(6) 1.7 0.6 1.1 1.3
EBITDA(3) interest
coverage(7) 4.5 3.7 0.8 4.5
Other measures
--------------
Free cash flow(8)
(3-month, $ millions) 83.8 (80.3) 164.1 430.8
Free cash flow(8)
(12-month trailing,
$ millions) 960.6 (1.4) 962.0 796.5
-------------------------------------------------------------------------
(1) Net debt is defined as Long-term debt plus current maturities of long-
term debt and cheques outstanding less Cash and temporary investments
and cross-currency foreign exchange hedge asset (plus cross-currency
foreign exchange hedge liability) related to U.S. dollar notes. The
cross-currency foreign exchange hedge liability was $745.8 million as
at December 31, 2003 ($126.8 million hedge asset as at December 31,
2002; $580.8 million hedge liability as at September 30, 2003). Net
Debt as calculated herein, includes a notional amount related to
accounts receivable securitization of approximately $88.1 million at
December 31, 2003 ($120.4 million at December 31, 2002, and $125.5
million as at September 30, 2003), which is required to be included
in the numerator of the Leverage Ratio covenant calculation in TELUS'
credit facilities. Net debt is unaffected by foreign exchange
fluctuations because it includes (deducts) the net deferred hedging
liability (asset).
(2) Total capitalization is defined as Net debt plus Non-controlling
interest and Shareholders' Equity.
(3) Excluding Restructuring and workforce reduction costs.
(4) Net interest cost is defined as Net financing cost before gains on
redemption and repayment of debt, calculated on a 12-month trailing
basis. Gains on redemption and repayment of debt were recorded in the
third and fourth quarters of 2002. Excluding interest income, net
interest cost for the twelve-month periods ended December 31, 2003
and 2002 and September 30, 2003 were $671.3 million, $712.7 million
and $679.1 million, respectively.
(5) Net debt to EBITDA is defined as Net debt as at the end of the period
divided by 12-month trailing EBITDA excluding Restructuring and
workforce reduction costs. This measure is substantially the same as
the Leverage Ratio covenant in TELUS' credit facilities.
(6) Earnings coverage ratio is calculated on a 12-month trailing basis as
Net income before interest expense on total debt and income tax
expense divided by interest expense on total debt.
(7) EBITDA interest coverage is defined as EBITDA excluding Restructuring
and workforce reduction costs divided by Net interest cost. Excluding
interest income, the ratios for the 12-month periods ended
December 31, 2003 and 2002 and September 30, 2003 were 4.2, 3.5, and
4.1, respectively. This measure is substantially the same as the
Coverage Ratio covenant in TELUS' credit facilities.
(8) See Note 3 of the Results of Operations table.
The long-term debt balance, including current maturities, was
$6,691 million as at December 31, 2003, a decrease of $1,697 million from
December 31, 2002. This reduction in the debt balance included an
$872.6 million decrease in the Canadian dollar value of U.S. dollar
denominated Notes as a result of an approximate 21% appreciation of the
Canadian dollar during 2003. TELUS' U.S. dollar debt is fully hedged,
resulting in a corresponding increase of $872.6 million being recorded in the
net Deferred hedging liability (the Deferred hedging asset of $126.8 million
as at December 31, 2002 has become a Deferred hedging liability of
$745.8 million as at December 31, 2003). The remaining reduction was from debt
repayment and repurchases. TELUS expects to continue applying surplus cash
flow to reduce accounts receivable securitization and possible other
repurchases of debt, with the objective of reducing the Net Debt to EBITDA
ratio to 2.5 times or less by the end of 2004, and to 2.2 times or less in the
longer term.
The proportion of debt with fixed interest rates increased as at
December 31, 2003, when compared with one year earlier, as the amount of
utilized bank facilities decreased to $7 million from $655 million one-year
earlier.
The net debt to total capitalization ratio measured at December 31, 2003,
decreased when compared to one-year earlier. The Company's Operational
Efficiency Program, improved Non-ILEC margins, reduced capital expenditures,
improved Mobility cash generation and tax refunds resulted in significant
increased free cash flow allowing for additional debt reduction in 2003. Free
cash flow for the fourth quarter and full year of 2003 exceeded cash payments
for Restructuring and workforce reduction of $54.1 million and $287.7 million,
respectively. The increase in free cash flow in the fourth quarter and full
year of 2003, when compared with 2002, was due primarily to increased EBITDA
excluding restructuring costs and increased cash income tax recoveries, and
lower capital expenditures for the full year.
The net debt to EBITDA ratio measured at December 31, 2003 improved
significantly, when compared with one year earlier, as a result of debt
reduction and an increase in twelve-month trailing EBITDA excluding
restructuring. The earnings coverage ratio improved significantly because of
the improvement in income before interest and taxes in 2003. The EBITDA
interest coverage ratio also improved as a result of higher twelve-month
trailing EBITDA excluding restructuring and lower twelve-month trailing net
interest costs including significant interest income.
Credit Facilities
TELUS' credit facilities at December 31, 2003 consisted of a $1.5 billion
(or U.S. dollar equivalent) revolving credit facility expiring on May 30, 2004
($7 million drawn along with $98.2 million in outstanding undrawn letters of
credit), an undrawn $600 million (or the U.S. dollar equivalent) 364 day
revolving credit facility extendible at TELUS' option for any amount
outstanding as at May 26, 2004 for one year on a non-revolving basis, and
approximately $74 million in other bank facilities ($3.2 million drawn and
approximately $24.0 million in committed and outstanding undrawn letters of
credit). During the fourth quarter, TELUS repaid $63 million drawn against the
$1.5 billion facility. TELUS expects to renew one or both of the revolving
credit facilities in amounts lower than the current amounts, prior to the
availability termination dates of such facilities.
At December 31, 2003, TELUS had unutilized available liquidity well in
excess of $1 billion. TELUS' credit facilities contain customary covenants
including a requirement that TELUS not permit its consolidated Leverage Ratio
(Funded Debt and Asset Securitization Amount to trailing 12-month EBITDA) to
exceed 4.0:1 (approximately 2.6:1 as at December 31, 2003) and not permit its
consolidated Coverage Ratio (EBITDA to Interest Expense and Asset
Securitization Charges on a trailing 12-month basis) to be less than 2.5:1
(approximately 4.3:1 as at December 31, 2003) at the end of any financial
quarter. There are certain minor differences in the calculation of the
Leverage Ratio and Coverage Ratio under the credit agreement as compared with
the calculation of Net debt to EBITDA and EBITDA interest coverage. The
calculations are not expected to be materially different. The covenants are
not impacted by revaluation of capital assets, intangible assets and goodwill
for accounting purposes, and continued access to TELUS' credit facilities is
not contingent on the maintenance by TELUS of a specific credit rating.
Accounts Receivable Sale
TELUS Communications Inc., a wholly owned subsidiary of TELUS, is able to
sell an interest in certain of its receivables up to a maximum of $650 million
and is required to maintain at least a BBB(low) credit rating by Dominion Bond
Rating Service (DBRS), or the purchaser may require the sale program to be
wound down. The necessary credit rating was exceeded by two levels at
BBB(high) as of February 11, 2004. The proceeds of securitized receivables
were $300 million at December 31, 2003.
TELUS' credit facilities require that a portion of sold accounts
receivable be added to debt for purposes of calculating the Leverage Ratio
covenant under the credit agreement. This portion is calculated on a monthly
basis and is a function of the ongoing collection performance of the
receivables pool. At December 31, 2003, this amount, defined as the Asset
Securitization Amount, was $88.1 million.
Credit Ratings
On December 18, 2003, Moody's placed the long-term credit rating of TELUS
Corporation under review for possible upgrade. On December 22, 2003, Dominion
Bond Rating Service (DBRS) increased the long-term and preferred ratings for
TELUS Communications Inc. to BBB(high) and Pfd-3(high), respectively, with
stable trends. DBRS also confirmed the long- term ratings for TELUS
Corporation and TELUS Communications (Quebec) Inc. with stable trends. TELUS
has an objective to preserve access to capital markets at a reasonable cost by
maintaining investment grade credit ratings.
Credit rating summary
DBRS(1) S&P(1) Moody's(2) Fitch(1)
-------------------------------------------------------------------------
TELUS Corporation
Senior bank debt --- --- --- BBB
Notes BBB BBB Ba1 BBB
TELUS Communications Inc.
Debentures BBB(high) BBB --- BBB
Medium-term notes BBB(high) BBB --- BBB
Preferred shares Pfd-3(high) P-3(high) --- ---
TELUS Communications
(Quebec) Inc.
First mortgage bonds BBB A- --- ---
Medium-term notes BBB BBB --- ---
-------------------------------------------------------------------------
(1) Outlook or trend 'stable'
(2) Outlook 'positive'; under review for possible upgrade
Outstanding share data
The following is a summary of the outstanding shares and principal
amounts for each class of equity at December 31, 2003:
Class of equity Outstanding
security shares Amount
(millions) ($ millions)
--------------------------------------------------------
TELUS Communications Inc.
Preference and preferred
shares - non-voting first
preferred, various issues 1.3 69.7
Common equity -
common shares 190.8 2,349.1
Common equity -
non-voting shares 161.0 3,296.6
Channel stock
incentive plan 0.2 0.6
--------------------------------------------------------
On February 12, 2004, TELUS announced its intention to redeem all nine
classes of TELUS Communication Inc.'s outstanding preferred and preference
shares during the third quarter of 2004 for total consideration of
approximately $72.8 million.
Off-Balance Sheet Arrangements and Contractual Liabilities
Financial Instruments
TELUS uses various financial instruments, the fair values of which are
not reflected on the balance sheet, to reduce or eliminate exposure to
interest rate and currency risks. These instruments are accounted for on the
same basis as the underlying exposure being hedged.
The Company is exposed to interest rate risk arising from fluctuations in
interest rates on its temporary investments, short-term obligations and long-
term debt. On October 6, 2003, the Company terminated an interest rate swap
that had the effect of fixing the interest rate on $70 million of floating
rate debt that was repaid.
The Company is exposed to currency risks arising from fluctuations in
foreign exchange rates on its U.S. Dollar denominated long-term debt. Currency
hedging relationships have been established for the related semi-annual
interest payments and principal payments at maturity. The Company's foreign
exchange risk management also includes the use of foreign currency forward
contracts to fix the exchange rates on short-term foreign currency
transactions and commitments. Hedge accounting is applied to these short-term
foreign currency forward contracts on an exception basis only. As at
December 31, 2003, the Company had entered into foreign currency forward
contracts that have the effect of fixing the exchange rates on
U.S.$43.0 million of fiscal 2004 purchase commitments; hedge accounting has
been applied to these foreign currency forward contracts, all of which relate
to the Mobility segment.
As at February 11, 2004 TELUS had not hedged exposure to equity price
movements for share-based compensation arrangements. TELUS intends to hedge
this exposure with respect to restricted stock units issued in 2004 using
cash-settled equity forward transactions.
The Company is exposed to credit risk with respect to its short-term
deposits, accounts receivable, interest rate swap agreements and foreign
exchange hedges. Credit risk associated with short-term deposits is minimized
substantially by ensuring that these financial assets are placed with
governments, well-capitalized financial institutions and other creditworthy
counter parties. An ongoing review is performed to evaluate changes in the
status of counterparties.
The carrying value of cash and temporary investments, bank indebtedness,
accounts receivable, accounts payable, restructuring and workforce reduction
accounts payable, dividends payable and short-term obligations approximates
their fair values due to the immediate or short-term maturity of these
financial instruments.
Commitments and Contingent Liabilities
The Company has a number of commitments and contingent liabilities. The
Company has $141 million in outstanding commitments for its Operational
Efficiency Program as at December 31, 2003. The Company occupies leased
premises in various centres and has land, buildings and equipment under
operating leases. The Company is currently engaged in labour contract
negotiations through the federal arbitration process. In the normal course of
the Company's operations, it enters into commercial agreements that require,
as a part of normal terms, guarantees by the Company. As at December 31, 2003,
the Company's known contractual obligations for 2004 were approximately
$1,057 million, including $221 million for long-term debt maturities,
$163 million for operating lease payments, and $650 million for purchase
commitments. The maximum, undiscounted guarantee amounts for 2004, without
regard for the likelihood of having to make such payment, is $12.3 million.
Targets for 2004
2003 Targets
Results for 2004 Change
==========================================================================
Consolidated $7.45 to $300 to
Revenues $7.15 billion 7.55 billion $400 million
-------------------------------------------------------------------------
EBITDA(1) $2.816 billion $2.95 to $134 to
3.05 billion $234 million
-------------------------------------------------------------------------
Earnings per
share - basic 92 cents $1.05 to $1.25 13 to 33 cents
-------------------------------------------------------------------------
Capital Approx. Approx.
expenditures $1.253 billion $1.225 billion $(28) million
-------------------------------------------------------------------------
Free cash flow $1.0 to $39 to
(2003 method)(2) $961 million $1.1 billion $139 million
-------------------------------------------------------------------------
Free cash flow
after
restructuring
payments $1.13 to $285 to
(2004 method)(3) $845 million $1.23 billion $385 million
-------------------------------------------------------------------------
Net debt to Decrease of
EBITDA(4) 2.6 times 2.5 times or less 0.1 or more
==========================================================================
Communications
Segment $4.8 to $10 to
Revenue (external) $4.79 billion $4.85 billion $60 million
-------------------------------------------------------------------------
Non-ILEC Approx. Approx.
revenue $555 million $610 million $55 million
-------------------------------------------------------------------------
EBITDA $2.000 billion $1.975 to $(25) to
$2.025 billion $25 million
-------------------------------------------------------------------------
Approx. Approx.
Non-ILEC EBITDA $(29) million $5 million $34 million
-------------------------------------------------------------------------
Capital Approx. Approx.
expenditures $893 million $875 million $(18) million
-------------------------------------------------------------------------
High-speed
Internet net
additions 151,500 Approx. 125,000 (26,500)
==========================================================================
Mobility Segment
Revenue $2.65 to $290 to
(external) $2.36 billion $2.7 billion $340 million
-------------------------------------------------------------------------
EBITDA $815 million $975 million to $160 to
$1.025 billion $210 million
-------------------------------------------------------------------------
Capital Approx. Approx.
expenditures $360 million $350 million $(10) million
-------------------------------------------------------------------------
Wireless
subscriber 375,000 to (56,100) to
net additions 431,100 425,000 (6,100)
-------------------------------------------------------------------------
(1) The EBITDA target for 2004 includes estimated Restructuring and
workforce reduction costs of $30 million, while the 2003 EBITDA on
the same basis included $28.3 million of Restructuring and workforce
reduction costs. The definition of EBITDA was amended for 2004 to
reflect a change in how the Company measures operating performance.
EBITDA in 2004 is calculated as Operating revenues less Operations
expense less Restructuring and workforce reduction costs. The 2004
target also reflects adoption of CICA Handbook Section 3870 for
Stock-based compensation and other stock-based payments, which is
expected to be approximately $45 million in 2004. EBITDA for 2003
presented in the table above has been calculated using the new
definition.
(2) Defined as EBITDA excluding restructuring and workforce reduction
costs less cash interest paid, cash taxes, capital expenditures, and
cash dividends, plus cash interest received. The method for 2003
excludes Restructuring and workforce reduction costs and payments.
(3) Defined as EBITDA excluding restructuring and workforce reduction
costs less cash interest paid, cash taxes, capital expenditures, and
restructuring payments, plus cash interest received and excess stock
compensation expense over stock compensation payments. The definition
for 2004 excludes dividend payments.
(4) Net Debt to EBITDA, where EBITDA excludes Restructuring and workforce
reduction costs. This measure is substantially the same as the
Leverage Ratio covenant in TELUS' credit facilities.
For 2004, TELUS public targets reflect the strong cash flow generation
from operations. Free cash flow after restructuring payments is expected to
increase by $285 to $385 million in 2004. TELUS expects to continue applying
surplus cash flow to reduce its accounts receivable securitization program and
to the retirement of approximately $220 million of debt with the objective of
reducing the Net Debt to EBITDA ratio to 2.5 times or less by the end of 2004,
and to 2.2 times or less in the longer term. TELUS has also set a long-term
leverage policy target range for net debt to total capital of 45 to 50%,
compared with the year-end 2003 rate of 53%.
TELUS expects earnings per share to improve significantly primarily as a
result of an expected $160 to $210 million increase in Mobility segment
EBITDA.
The Communications segment revenue growth in 2004 is expected to range
between 0% and 1.2%. Communications segment EBITDA is expected to be
relatively unchanged as additional Operating Efficiency Program savings and
improvement in Non-ILEC operating efficiency are expected to be offset by
further negative price cap decision impacts and inclusion of stock-based
compensation expense as adopted from recently confirmed recommendations in
CICA Handbook Section 3870. Capital expenditure levels are expected to
decrease modestly in 2004 with similar levels of investment for Non-ILEC
areas, high-speed Internet ("ADSL"), and other initiatives. Communications
segment cash flow (EBITDA excluding restructuring less capital expenditures)
is expected to be $1.13 to $1.18 billion in 2004, compared with $1.14 billion
in 2003.
For TELUS Mobility, targeted 2004 revenue growth is 12 to 14% and
targeted EBITDA growth is 20 to 26%. Both revenue and EBITDA are being driven
by wireless subscriber growth expectations of 11 to 12% and continued margin
expansion from improved scale efficiencies. TELUS Mobility 2004 capital
expenditures are expected to be focused on capacity improvements as well as
network and efficiency enhancements. TELUS Mobility cash flow (EBITDA
excluding restructuring less capital expenditures) is expected to increase to
$625 to $675 million in 2004, compared with $456 million in 2003.
Key Assumptions and Sensitivities for 2004 Targets
The Company publicly set certain estimated financial and operational
targets for 2004 on December 18, 2003. For projection purposes, the following
assumptions were made: economic growth consistent with provincial and national
estimates by the Conference Board of Canada that were available in November
2003; continued softness in wireline demand; no material change in pension
expense; 3.5% to 4.0% wireless market penetration gain; and approximately 15%
industry growth in high speed Internet subscribers in TELUS incumbent
territories in B.C., Alberta and Quebec. Commencing in 2004, TELUS is adopting
recently confirmed recommendations in CICA Handbook Section 3870 for Stock-
based compensation and other stock-based payments, estimated to be a $45
million expense. No impact has been assumed for the possibility of a work
stoppage resulting from ongoing collective bargaining negotiations in Alberta
and B.C.
Investors are encouraged to review the Forward-Looking Statements section
and Risks and Uncertainties for the various economic, competitive, regulatory
and company factors that could cause actual future financial and operating
results to differ from those currently expected.
4. Risks and Uncertainties
A comprehensive discussion of the risks and uncertainties can be found in
Management's Discussion and Analysis in TELUS' Annual Information Form, TELUS'
Annual Report, and filings on www.sedar.com and on Edgar at www.sec.gov.
consolidated statements of income
Three months Twelve months
Periods ended December 31
(unaudited) (millions) 2003 2002 2003 2002
-------------------------------------------------------------------------
OPERATING REVENUES $ 1,825.6 $ 1,794.4 $ 7,146.0 $ 7,006.7
-------------------------------------------------------------------------
OPERATING EXPENSES
Operations 1,126.6 1,149.2 4,301.9 4,488.1
Depreciation 323.4 315.2 1,272.9 1,213.7
Amortization of intangible
assets 101.0 94.7 379.9 356.6
Restructuring and workforce
reduction costs 16.2 241.0 28.3 569.9
-------------------------------------------------------------------------
1,567.2 1,800.1 5,983.0 6,628.3
-------------------------------------------------------------------------
OPERATING INCOME (LOSS) 258.4 (5.7) 1,163.0 378.4
Other expense 3.5 24.3 23.3 42.7
Financing costs 160.8 150.1 628.0 604.1
-------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND NON-CONTROLLING INTEREST 94.1 (180.1) 511.7 (268.4)
Income taxes (recovery) 43.9 (41.6) 176.9 (42.5)
Non-controlling interest 0.6 0.7 3.3 3.1
-------------------------------------------------------------------------
NET INCOME (LOSS) 49.6 (139.2) 331.5 (229.0)
Preference and preferred
share dividends 0.9 0.9 3.5 3.5
Interest on convertible
debentures, net of income
taxes 1.8 1.7 7.1 6.8
-------------------------------------------------------------------------
COMMON SHARE AND NON-VOTING
SHARE INCOME (LOSS) $ 46.9 $ (141.8) $ 320.9 $ (239.3)
-------------------------------------------------------------------------
INCOME (LOSS) PER COMMON SHARE
AND NON-VOTING SHARE ($)
- Basic 0.13 (0.41) 0.92 (0.75)
- Diluted 0.13 (0.41) 0.91 (0.75)
DIVIDENDS DECLARED PER COMMON
SHARE AND NON-VOTING SHARE ($) 0.15 0.15 0.60 0.60
TOTAL WEIGHTED AVERAGE COMMON
SHARES AND NON-VOTING SHARES
OUTSTANDING (millions)
- Basic 351.5 345.2 349.3 317.9
- Diluted 354.5 345.2 351.8 317.9
consolidated balance sheets
As at December 31
(unaudited) (millions) 2003 2002
-------------------------------------------------------------------------
ASSETS
Current Assets
Cash and temporary investments, net $ 6.2 $ -
Accounts receivable 723.8 640.4
Income and other taxes receivable 187.4 134.0
Inventories 123.5 96.5
Prepaid expenses and other 172.4 163.5
Current portion of future income taxes 304.0 138.8
-------------------------------------------------------------------------
1,517.3 1,173.2
-------------------------------------------------------------------------
Capital Assets, Net
Property, plant, equipment and other 7,764.3 8,025.9
Intangible assets subject to amortization 844.7 998.5
Intangible assets with indefinite lives 2,954.6 2,950.1
-------------------------------------------------------------------------
11,563.6 11,974.5
-------------------------------------------------------------------------
Other Assets
Deferred charges 610.7 729.1
Future income taxes 626.0 1,170.3
Investments 41.9 48.1
Goodwill 3,118.0 3,124.6
-------------------------------------------------------------------------
4,396.6 5,072.1
-------------------------------------------------------------------------
$ 17,477.5 $ 18,219.8
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Cash and temporary investments, net $ - $ 9.0
Accounts payable and accrued liabilities 1,294.1 1,198.8
Restructuring and workforce reduction
accounts payable and accrued liabilities 141.0 400.4
Dividends payable 53.5 52.2
Advance billings and customer deposits 445.0 330.3
Current maturities of long-term debt 221.1 190.3
-------------------------------------------------------------------------
2,154.7 2,181.0
-------------------------------------------------------------------------
Long-Term Debt 6,469.4 8,197.4
-------------------------------------------------------------------------
Other Long-Term Liabilities 1,173.7 405.3
-------------------------------------------------------------------------
Future Income Taxes 1,007.0 992.3
-------------------------------------------------------------------------
Non-Controlling Interest 10.7 11.2
-------------------------------------------------------------------------
Shareholders' Equity
Convertible debentures 149.6 148.5
Preference and preferred shares 69.7 69.7
Common equity 6,442.7 6,214.4
-------------------------------------------------------------------------
6,662.0 6,432.6
-------------------------------------------------------------------------
$ 17,477.5 $ 18,219.8
==========================================================================
consolidated statements of cash flows
Three months Twelve months
Periods ended December 31
(unaudited) (millions) 2003 2002 2003 2002
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 49.6 $ (139.2) $ 331.5 $ (229.0)
Adjustments to reconcile net
income (loss) to cash provided
by operating activities:
Depreciation and amortization 424.4 409.9 1,652.8 1,570.3
Future income taxes 47.6 47.0 398.6 9.2
Gain on redemption of
long-term debt - (0.3) - (82.7)
Net employee defined benefit
plans expense (credits) 13.5 2.0 53.0 (9.8)
Employer contributions to
employee defined benefit
plans (29.9) (39.1) (99.8) (75.3)
Other, net 7.3 1.7 44.0 (11.6)
Restructuring and workforce
reduction costs, net of
cash payments (37.9) 95.8 (259.4) 290.7
Net change in non-cash
working capital (59.7) (17.9) 23.3 279.2
-------------------------------------------------------------------------
Cash provided by operating
activities 414.9 359.9 2,144.0 1,741.0
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (435.4) (416.2) (1,252.7) (1,697.9)
Proceeds from the sale of
property and other assets 11.6 0.4 51.2 8.2
Other 2.4 35.0 3.7 (1.4)
-------------------------------------------------------------------------
Cash used by investing
activities (421.4) (380.8) (1,197.8) (1,691.1)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Common Shares and Non-Voting
Shares issued 24.9 18.3 86.6 92.2
Public issuance of Non-Voting
Shares - - - 337.4
Cost of public issuance of
Non-Voting Shares - - - (14.5)
Dividends to shareholders (41.8) (39.3) (172.0) (135.6)
Long-term debt issued 7.6 60.2 373.0 644.2
Redemptions and repayment of
long-term debt (71.1) (8.3) (1,201.7) (901.0)
Change in short-term
obligations (commercial paper
and bank borrowings) - (3.9) - (84.4)
Interest on convertible
debentures (5.1) (5.1) (10.2) (10.2)
Other (4.1) (4.7) (6.7) (4.1)
-------------------------------------------------------------------------
Cash provided (used) by
financing activities (89.6) 17.2 (931.0) (76.0)
-------------------------------------------------------------------------
CASH POSITION
Increase (decrease) in cash and
temporary investments, net (96.1) (3.7) 15.2 (26.1)
Cash and temporary investments,
net, beginning of year 102.3 (5.3) (9.0) 17.1
-------------------------------------------------------------------------
Cash and temporary investments,
net, end of year $ 6.2 $ (9.0) $ 6.2 $ (9.0)
-------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE
Interest paid $ 295.0 $ 282.9 $ 657.5 $ 675.8
-------------------------------------------------------------------------
Interest received 26.6 24.1 41.6 24.5
-------------------------------------------------------------------------
Income taxes (inclusive of
Investment Tax Credits
(received) paid $ (130.4) $ (42.6) $ (165.5) $ (18.6)
-------------------------------------------------------------------------
TELUS Corporation
Segmented Information
Years ended December 31 Communications Mobility
(millions) 2003 2002 2003 2002
-------------------------------------------------------------------------
External revenue $ 4,786.4 $ 4,989.3 $ 2,359.6 $ 2,017.4
Inter-segment revenue 94.5 95.3 15.7 17.5
-------------------------------------------------------------------------
Total operating revenue 4,880.9 5,084.6 2,375.3 2,034.9
Operations expense 2,852.2 3,100.8 1,559.9 1,500.1
-------------------------------------------------------------------------
EBITDA excluding
restructuring and
workforce reduction costs 2,028.7 1,983.8 815.4 534.8
-------------------------------------------------------------------------
Restructuring and
workforce reduction costs 28.3 563.4 - 6.5
-------------------------------------------------------------------------
EBITDA (a) $ 2,000.4 $ 1,420.4 $ 815.4 $ 528.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX (b) $ 892.8 $ 1,238.2 $ 359.9 $ 459.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA excluding
restructuring and
workforce reduction costs
less CAPEX $ 1,135.9 $ 745.6 $ 455.5 $ 75.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Years ended December 31 Eliminations Consolidated
(millions) 2003 2002 2003 2002
-------------------------------------------------------------------------
External revenue $ - $ - $ 7,146.0 $ 7,006.7
Inter-segment revenue (110.2) (112.8) - -
-------------------------------------------------------------------------
Total operating revenue (110.2) (112.8) 7,146.0 7,006.7
Operations expense (110.2) (112.8) 4,301.9 4,488.1
-------------------------------------------------------------------------
EBITDA excluding
restructuring and
workforce reduction costs - - 2,844.1 2,518.6
-------------------------------------------------------------------------
Restructuring and
workforce reduction costs - - 28.3 569.9
-------------------------------------------------------------------------
EBITDA (a) $ - $ - $ 2,815.8 $ 1,948.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX (b) $ - $ - $ 1,252.7 $ 1,697.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA excluding
restructuring and
workforce reduction costs
less CAPEX $ - $ - $ 1,591.4 $ 820.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months December 31 Communications Mobility
(millions) 2003 2002 2003 2002
-------------------------------------------------------------------------
External revenue $ 1,182.4 $ 1,244.2 $ 643.2 $ 550.2
Inter-segment revenue 23.1 22.8 4.1 4.3
-------------------------------------------------------------------------
Total operating revenue 1,205.5 1,267.0 647.3 554.5
Operations expense 696.5 750.4 457.3 425.9
-------------------------------------------------------------------------
EBITDA excluding
restructuring and
workforce reduction costs 509.0 516.6 190.0 128.6
-------------------------------------------------------------------------
Restructuring and
workforce reduction costs 16.2 234.5 - 6.5
-------------------------------------------------------------------------
EBITDA (a) $ 492.8 $ 282.1 $ 190.0 $ 122.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX (b) $ 303.0 $ 291.0 $ 132.4 $ 125.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA excluding
restructuring and
workforce reduction costs
less CAPEX $ 206.0 $ 225.6 $ 57.6 $ 3.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months December 31 Eliminations Consolidated
(millions) 2003 2002 2003 2002
-------------------------------------------------------------------------
External revenue $ - $ - $ 1,825.6 $ 1,794.4
Inter-segment revenue (27.2) (27.1) - -
-------------------------------------------------------------------------
Total operating revenue (27.2) (27.1) 1,825.6 1,794.4
Operations expense (27.2) (27.1) 1,126.6 1,149.2
-------------------------------------------------------------------------
EBITDA excluding
restructuring and
workforce reduction costs - - 699.0 645.2
-------------------------------------------------------------------------
Restructuring and
workforce reduction costs - - 16.2 241.0
-------------------------------------------------------------------------
EBITDA (a) $ - $ - $ 682.8 $ 404.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CAPEX (b) $ - $ - $ 435.4 $ 416.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA excluding
restructuring and
workforce reduction costs
less CAPEX $ - $ - $ 263.6 $ 229.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(a) Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") is defined by the Company as operating revenues less
operations expense and restructuring and workforce reduction costs.
Previously, the Company defined EBITDA so as to exclude restructuring
and workforce reduction costs; the definition was amended to reflect
a change in how the Company operates. The Company has issued guidance
on, and reports, EBITDA because it is a key measure used by
management to evaluate performance of its business segments and is
utilized in measuring compliance with debt covenants.
(b) Total capital expenditures ("CAPEX").
For further information:
Media Relations: Nick Culo, (780) 493-7236, nick.culo(at)telus.com
Investor Relations: John Wheeler, (780) 493-7310, ir(at)telus.com
Shafiq Jamal, (604) 488-1100;
Robert Mitchell, (416) 279-3219
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: February 13,2004
TELUS Corporation
___"James W. Peters"___
Name: James W. Peters
Title: Corporate Secretary