Annual report - About TELUS

management discussion and analysis
by higher interest income due to higher average cash and
investment balances.
Financing costs increased by $128.2 million
Financing costs increased mainly because of an increase
in debt balances due to the purchase of QuébecTel,
the purchase of Clearnet and $12.5 million net foreign
exchange losses in 2000 compared with $9.4 million net
foreign exchange gains in 1999. The foreign exchange
losses were attributable to the effects of valuation of
U.S. dollar debt and a comparatively lower Canadian dollar.
Financing costs included $56.5 million of non-cash accreted
interest expense related to Clearnet long term debt from
October 20 onward.
* EBITDA divided by net interest (interest on long-term and short-term
debt, net of interest income, excluding accreted interest expense)
Restructuring costs in 1999
A charge of $466.3 million was recorded in the first quarter
last year for the expected costs in 1999 and 2000 to
complete TELUS/BC TELECOM merger-related restructuring
activities. More than half of this charge was planned
termination costs for management and the costs of various
voluntary early retirement programs. The business
restructuring also included the rationalization of real
estate, the impairment of assets in two start-up businesses
that were reassessed in relation to TELUS’ national
growth plans, national branding expenses and consulting
and salary costs from merger integration activities.
Income taxes increased by $199.2 million
The increase in taxes was caused by an increase in income
and a $66.3 million non-cash expense related to the
> 46
EBITDA INTEREST
COVERAGE*
7.1
9.4
11.1
12.3
10.9
96 97 98 99 00
revaluation of future income tax assets. The accounting
treatment for future income tax assets was consistent with
CICA 3465 and an Emerging Issues Committee abstract
relating to accounting for substantively enacted tax changes,
specifically lower future income tax rates. This had the
effect of reducing the value of the future income tax assets
recorded on the balance sheet and increasing the tax
expense on the income statement. The average effective
tax rate prior to the revaluation of the future income tax
asset was approximately 43% this year (45% in 1999).
Non-controlling interest increased by $4.8 million
The increase in non-controlling interest resulted mainly
from the 30% interest in QuébecTel owned by Verizon.
This was partly offset by reduced non-controlling interest
for ISM-BC since August 2000 due to the purchase of the
remaining 25% by TELUS.
Amortization of goodwill increased by $16.8 million
The increase was primarily amortization of goodwill from
the purchase of QuébecTel ($5.1 million) and Clearnet
($15.3 million), the purchase of independent directory publishing
operations in 1999 and 2000 and the purchase of
the remaining 25% interest in ISM-BC. This was offset by a
$6.9 million reduction in goodwill amortization related to the
reclassification of some goodwill to the future income tax
asset at the beginning of the year.
Preference and preferred dividends (unchanged) and
interest on convertible debentures ($1.5 million)
Preferred dividends were unchanged from the previous
year. The interest on convertible debentures in Clearnet,
recorded net of related taxes, represents the expense
for the October 20 to December 31 period. Because
these debentures are convertible into common non-voting
shares, they are classified as equity on the balance
sheet, and the related interest is classified as a charge
against retained earnings.
Common share income and earnings per share (EPS)
The increase in financing costs, net of taxes, combined
with the future tax asset write-down in 2000, were significantly
lower than the 1999 restructuring charge – providing
a significant increase in income in 2000. EPS on common
share income increased by 39 cents even though the average
shares outstanding increased by over 10 million due to
the new shares issued for the purchase of Clearnet.