Exhibit 99.1

 

 

TELUS CORPORATION

 

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

(UNAUDITED)

 

MARCH 31, 2018

 

 

condensed interim consolidated statements of income and other comprehensive income

(unaudited)

 

				Three months
Periods ended March 31 (millions except per share amounts)		Note		2018			2017
				(Note 2(c))			(adjusted – Note 2(c))
OPERATING REVENUES
Service				$	2,886		$	2,762
Equipment				465			408
Revenues arising from contracts with customers		6		3,351			3,170
Other operating income		7		26			13
				3,377			3,183
OPERATING EXPENSES
Goods and services purchased				1,408			1,324
Employee benefits expense		8		700			624
Depreciation		17		411			402
Amortization of intangible assets		18		139			130
				2,658			2,480
OPERATING INCOME				719			703
Financing costs		9		156			138
INCOME BEFORE INCOME TAXES				563			565
Income taxes		10		151			143
NET INCOME				412			422
OTHER COMPREHENSIVE INCOME		11
Items that may subsequently be reclassified to income
Change in unrealized fair value of derivatives designated as cash flow hedges				(7		)	(9		)
Foreign currency translation adjustment arising from translating financial statements of foreign operations				(4		)	3
				(11		)	(6		)
Items never subsequently reclassified to income
Change in measurement of investment financial assets				—			(2		)
Employee defined benefit plan re-measurements				(43		)	68
				(43		)	66
				(54		)	60
COMPREHENSIVE INCOME				$	358		$	482
NET INCOME ATTRIBUTABLE TO:
Common Shares				$	410		$	414
Non-controlling interests				2			8
				$	412		$	422
COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Common Shares				$	357		$	472
Non-controlling interests				1			10
				$	358		$	482
NET INCOME PER COMMON SHARE		12
Basic				$	0.69		$	0.70
Diluted				$	0.69		$	0.70
TOTAL WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic				595			591
Diluted				595			591

 

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

 

 

2

 

condensed interim consolidated statements of financial position

(unaudited)

 

As at (millions)		Note		March 31, 2018			December 31, 2017			January 1, 2017
							(adjusted – Note 2(c))			(Note 2(c))
ASSETS
Current assets
Cash and temporary investments, net				$	415		$	509		$	432
Accounts receivable		6(b)		1,449			1,614			1,462
Income and other taxes receivable				15			96			9
Inventories		1(b)		347			380			320
Contract assets		6(c)		757			757			700
Prepaid expenses		20		614			493			443
Current derivative assets		4(e)		26			18			11
				3,623			3,867			3,377
Non-current assets
Property, plant and equipment, net		17		11,482			11,368			10,464
Intangible assets, net		18		10,754			10,658			10,364
Goodwill, net		18		4,569			4,236			3,787
Contract assets		6(c)		377			396			352
Other long-term assets		20		480			528			733
				27,662			27,186			25,700
				$	31,285		$	31,053		$	29,077
LIABILITIES AND OWNERS’ EQUITY
Current liabilities
Short-term borrowings		22		$	100		$	100		$	100
Accounts payable and accrued liabilities		23		2,054			2,460			2,330
Income and other taxes payable				38			34			37
Dividends payable		13		299			299			284
Advance billings and customer deposits		24		624			632			584
Provisions		25		69			78			124
Current maturities of long-term debt		26		852			1,404			1,327
Current derivative liabilities		4(e)		6			33			12
				4,042			5,040			4,798
Non-current liabilities
Provisions		25		726			511			395
Long-term debt		26		13,138			12,256			11,604
Other long-term liabilities		27		873			847			736
Deferred income taxes				2,926			2,941			2,511
				17,663			16,555			15,246
Liabilities				21,705			21,595			20,044
Owners’ equity
Common equity		28		9,508			9,416			9,014
Non-controlling interests				72			42			19
				9,580			9,458			9,033
				$	31,285		$	31,053		$	29,077
Contingent Liabilities		29

 

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

 

 

3

 

condensed interim consolidated statements of changes in owners’ equity

(unaudited)

 

				Common equity
				Equity contributed											Accumulated
				Common Shares (Note 28)											other						Non-
(millions)		Note		Number of shares		Share capital			Contributed surplus			Retained earnings			comprehensive income			Total			controlling interests			Total
Balance as at January 1, 2017
As previously reported				590		$	5,029		$	372		$	2,474		$	42		$	7,917		$	19		$	7,936
IFRS 9, Financial Instruments transitional amount		2(a), 11		—		—			—			3			(3		)	—			—			—
IFRS 15, Revenue from Contracts with Customers transitional amount		2(c)		—		—			—			1,097			—			1,097			—			1,097
As adjusted				590		5,029			372			3,574			39			9,014			19			9,033
Net income		2(c)		—		—			—			414			—			414			8			422
Other comprehensive income		11		—		—			—			68			(10		)	58			2			60
Dividends		13		—		—			—			(283		)	—			(283		)	—			(283		)
Share option award net-equity settlement feature		14(d)		1		1			(1		)	—			—			—			—			—
Change in ownership interests of subsidiary				—		—			(3		)	—			—			(3		)	1			(2		)
Balance as at March 31, 2017				591		$	5,030		$	368		$	3,773		$	29		$	9,200		$	30		$	9,230
Balance as at January 1, 2018
As previously reported				595		$	5,205		$	370		$	2,595		$	51		$	8,221		$	42		$	8,263
IFRS 9, Financial Instruments transitional amount		2(a), 11		—		—			—			4			(4		)	—			—			—
IFRS 15, Revenue from Contracts with Customers transitional amount		2(c)		—		—			—			1,195			—			1,195			—			1,195
As adjusted				595		5,205			370			3,794			47			9,416			42			9,458
Net income				—		—			—			410			—			410			2			412
Other comprehensive income		11		—		—			—			(43		)	(10		)	(53		)	(1		)	(54		)
Dividends		13		—		—			—			(299		)	—			(299		)	—			(299		)
Dividends reinvested and optional cash payments		13(b), 14(c)		—		20			—			—			—			20			—			20
Share option award net-equity settlement feature		14(d)		—		1			(1		)	—			—			—			—			—
Change in ownership interests of subsidiary		31(a)		—		—			14			—			—			14			29			43
Balance as at March 31, 2018				595		$	5,226		$	383		$	3,862		$	37		$	9,508		$	72		$	9,580

 

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

 

 

4

 

condensed interim consolidated statements of cash flows

(unaudited)

 

				Three months
Periods ended March 31 (millions)		Note		2018			2017
							(adjusted – Note 2(c))
OPERATING ACTIVITIES
Net income				$	412		$	422
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization				550			532
Deferred income taxes		10		7			86
Share-based compensation expense, net		14(a)		18			16
Net employee defined benefit plans expense		15(a)		25			21
Employer contributions to employee defined benefit plans				(21		)	(22		)
Non-current contract assets				19			3
Other				4			(12		)
Net change in non-cash operating working capital		31(a)		(176		)	(337		)
Cash provided by operating activities				838			709
INVESTING ACTIVITIES
Cash payments for capital assets, excluding spectrum licences		31(a)		(738		)	(796		)
Cash payments for acquisitions, net		18(b)		(204		)	(12		)
Real estate joint ventures advances		21(c)		(6		)	(5		)
Real estate joint venture receipts		21(c)		1			3
Proceeds on disposition				15			3
Other				—			(15		)
Cash used by investing activities				(932		)	(822		)
FINANCING ACTIVITIES		31(b)
Dividends paid to holders of Common Shares		13(a)		(279		)	(284		)
Repayment of short-term borrowings				(6		)	—
Long-term debt issued		26		2,161			2,518
Redemptions and repayment of long-term debt		26		(1,895		)	(1,749		)
Issue of shares by subsidiary to non-controlling interests		31(a)		24			—
Other				(5		)	(10		)
Cash provided (used) by financing activities				—			475
CASH POSITION
Increase (decrease) in cash and temporary investments, net				(94		)	362
Cash and temporary investments, net, beginning of period				509			432
Cash and temporary investments, net, end of period				$	415		$	794
SUPPLEMENTAL DISCLOSURE OF OPERATING CASH FLOWS
Interest paid				$	(150	)	$	(142	)
Interest received				$	2		$	—
Income taxes paid, net				$	(56	)	$	(146	)

 

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

 

 

5

 

notes to condensed interim consolidated financial statements

(unaudited)

 

MARCH 31, 2018

 

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

 

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

 

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

 

Notes to condensed interim consolidated financial statements		Page
General application
1.               Condensed interim consolidated financial statements		6
2.               Accounting policy developments		7
3.               Capital structure financial policies		14
4.               Financial instruments		16
Consolidated results of operations focused
5.               Segment information		22
6.               Revenue from contracts with customers		24
7.               Other operating income		25
8.               Employee benefits expense		26
9.               Financing costs		26
10.        Income taxes		27
11.        Other comprehensive income		28
12.        Per share amounts		29
13.        Dividends per share		29
14.        Share-based compensation		29
15.        Employee future benefits		32
16.        Restructuring and other costs		32
Consolidated financial position focused
17.        Property, plant and equipment		33
18.        Intangible assets and goodwill		34
19.        Leases		37
20.        Other long-term assets		38
21.        Real estate joint ventures		38
22.        Short-term borrowings		40
23.        Accounts payable and accrued liabilities		41
24.        Advance billings and customer deposits		41
25.        Provisions		42
26.        Long-term debt		43
27.        Other long-term liabilities		45
28.        Common Share capital		46
29.        Contingent liabilities		46
Other
30.        Related party transactions		48
31.        Additional statement of cash flow information		49

 

1                  condensed interim consolidated financial statements

 

(a)          Basis of presentation

 

The notes presented in our condensed interim consolidated financial statements include only significant events and transactions and are not fully inclusive of all matters normally disclosed in our annual audited financial statements; thus, our interim consolidated financial statements are referred to as condensed. Our condensed interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2017.

 

Our condensed interim consolidated financial statements are expressed in Canadian dollars and follow the same accounting policies and methods of their application as set out in our consolidated financial statements for the year ended December 31, 2017, other than as set out in Notes 2, 6, 8, 20 and 24 . The generally accepted accounting principles that we use are International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS-IASB) and Canadian generally accepted accounting principles. Our condensed interim consolidated financial statements comply with International Accounting Standard 34,  Interim Financial Reporting and reflect all adjustments (which are of a normal recurring nature) that are, in our opinion, necessary for a fair statement of the results for the interim periods presented.

 

Our condensed interim consolidated financial statements for the three-month period ended March 31, 2018, were authorized by our Board of Directors for issue on May 10, 2018.

 

 

6

 

notes to condensed interim consolidated financial statements

(unaudited)

 

(b)          Inventories

 

Our inventories primarily consist of wireless handsets, parts and accessories (totalling $281 million (December 31, 2017 — totalling $322 million ( adjusted — Note 2(c) ); January 1, 2017 — $268 million ( Note 2(c) )) and communications equipment held for resale. Costs of goods sold for the three-month period ended March 31, 2018, totalled $467 million (2017 — $408 million).

 

2                  accounting policy developments

 

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

 

·                   Amendments to standards arising from Annual Improvements to IFRSs 2015-2017 Cycle were required to be applied for years beginning on or after January 1, 2019; such application has had no effect on our financial performance or disclosure.

 

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

 

·                   IFRS 9, Financial Instruments , is required to be applied for years beginning on or after January 1, 2018, with retrospective application. The new standard includes a model for the classification and measurement of financial instruments, a single forward-looking “expected loss” impairment model and a reformed approach to hedge accounting. Our financial performance is currently not materially affected by the retrospective application of the standard, nor is our financial position, as set out in (c)  following.

 

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

 

As at (millions)		December 31, 2017									January 1, 2017
		As previously reported			IFRS 9 effects			As currently reported			As previously reported			IFRS 9 effects			As currently reported
Classified as
Available-for-sale financial assets		$	41		$	(41	)	$	—		$	62		$	(62	)	$	—
Fair value through net income 1		—			20			20			—			41			41
Fair value through other comprehensive income		—			21			21			—			21			21
		$	41		$	—		$	41		$	62		$	—		$	62

 

---

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

 

·                   IFRS 15, Revenue from Contracts with Customers , is required to be applied for years beginning on or after January 1, 2018. The International Accounting Standards Board and the Financial Accounting Standards Board of the United States worked on this joint project to clarify the principles for the recognition of revenue. The new standard was released in May 2014 and supersedes existing standards and interpretations including IAS 18, Revenue . We have applied the standard retrospectively to prior reporting periods, subject to permitted and elected practical expedients.

 

The effects of the new standard and the materiality of those effects will vary by industry and entity; the effects on us of our retrospective application are set out in (c)  following. Like many other telecommunications companies, we are materially affected by its application, primarily in respect of the timing of revenue recognition, the classification of revenue, the capitalization of costs of obtaining a contract with a customer and the capitalization of the costs of contract fulfilment (as defined by the new standard).

 

Revenue — timing of recognition; classification

 

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

 

 

7

 

notes to condensed interim consolidated financial statements

(unaudited)

 

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

 

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

 

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

 

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

 

Implementation

 

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

 

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

 

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

 

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

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

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

 

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

 

·                   In January 2016, the International Accounting Standards Board released IFRS 16, Leases , which is required to be applied for years beginning on or after January 1, 2019, and which supersedes IAS 17, Leases . We are currently assessing the impacts and transition provisions of the new standard. The International Accounting Standards Board and the Financial Accounting Standards Board of the United States worked together to modify the accounting for leases, generally by eliminating lessees’ classification of leases as either operating leases or finance leases and, for IFRS-IASB, introducing a single lessee accounting model.

 

 

8

 

notes to condensed interim consolidated financial statements

(unaudited)

 

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

 

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

 

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

 

We are currently assessing the impacts and transition provisions of the new standard; however, we are currently considering applying the standard retrospectively with the cumulative effect of initially applying the new standard recognized at the date of initial application, January 1, 2019, subject to permitted and elected practical expedients; such method of application would not result in retrospective adjustment of amounts reported for fiscal periods prior to fiscal 2019. Our current estimate of the time and effort necessary to develop and implement the accounting policies, estimates and processes (including incremental requirements of our information technology systems) we will need to have in place in order to comply with the new standard extends into the latter half of 2018. We expect that our Consolidated statement of financial position will be materially affected, as will those financial metrics related to both debt and results of operations; however, at this time it is not possible to make reasonable quantitative estimates of the effects of the new standard.

 

Implementation

 

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

 

 

9

 

notes to condensed interim consolidated financial statements

(unaudited)

 

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

 

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

 

Three-month periods ended March 31 (millions except per share amounts)		2018									2017
		Excluding effects of IFRS 15			IFRS 15 effects			As currently reported			Excluding effects of IFRS 15			IFRS 15 effects			As currently reported
Operating revenues
Service		$	3,192		$	(306	)	$	2,886		$	3,027		$	(265	)	$	2,762
Equipment		177			288			465			158			250			408
Revenues arising from contracts with customers		3,369			(18		)	3,351			3,185			(15		)	3,170
Other operating income 1		26			—			26			13			—			13
		3,395			(18		)	3,377			3,198			(15		)	3,183
Operating expenses
Goods and services purchased		1,406			2			1,408			1,313			11			1,324
Employee benefits expense		702			(2		)	700			624			—			624
Depreciation		411			—			411			402			—			402
Amortization of intangible assets		139			—			139			130			—			130
		2,658			—			2,658			2,469			11			2,480
Operating income		737			(18		)	719			729			(26		)	703
Financing costs		156			—			156			138			—			138
Income before income taxes		581			(18		)	563			591			(26		)	565
Income taxes		156			(5		)	151			150			(7		)	143
Net income		425			(13		)	412			441			(19		)	422
Other comprehensive income 1		(54		)	—			(54		)	60			—			60
Comprehensive income 1		$	371		$	(13	)	$	358		$	501		$	(19	)	$	482
Net income attributable to:
Common Shares		$	423		$	(13	)	$	410		$	433		$	(19	)	$	414
Non-controlling interest		2			—			2			8			—			8
		$	425		$	(13	)	$	412		$	441		$	(19	)	$	422
Comprehensive income attributable to:
Common Shares		$	370		$	(13	)	$	357		$	491		$	(19	)	$	472
Non-controlling interest		1			—			1			10			—			10
		$	371		$	(13	)	$	358		$	501		$	(19	)	$	482
Net income per Common Share
Basic		$	0.71		$	(0.02	)	$	0.69		$	0.73		$	(0.03	)	$	0.70
Diluted		$	0.71		$	(0.02	)	$	0.69		$	0.73		$	(0.03	)	$	0.70

 

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

 

 

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