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TELUS 2010 annual report . 111
Earnings coverage is defined in the Canadian Securities
Administrators’ National Instrument (NI) 41-101 and related instruments.
Prior to the changeover to IFRS, the calculation prescribed the use
of gross interest expense on long-term debt; after the changeover to
IFRS, the calculation prescribes the use of total gross interest expense.
Calculation of earnings coverage
Unaudited
pro forma
Years ended December 31 IFRS-IASB As currently reported
($ millions, except ratio) 2010 2010 2009
Net income attributable
to Common Shares
and Non-Voting Shares 1,048 – –
Net income – 1,038 1,002
Income taxes 335 328 203
Gross interest expense
Interest on long-term debt 442 442 474
Interest on short-term
obligations and other 29 Excluded(1) Excluded(1)
Loss on redemption of debt 52 52 99
Interest accretion on asset
retirement obligations 4 n.a. n.a.
Numerator 1,916 1,860 1,778
Denominator –
Gross interest expense 527 494 573
Ratio (times) 3.6 3.8 3.1
(1) Interest on short-term obligations and other was $21 million in 2010 and $9 million
in 2009.
EBITDA – excluding restructuring costs is defined as EBITDA
(described in Section 11.1), adding back restructuring costs of $74 million
in 2010 and $190 million in 2009. This measure is used in the calculation
of Net debt to EBITDA – excluding restructuring costs and EBITDA –
excluding restructuring costs interest coverage, consistent with the
calculation of the Leverage Ratio and the Coverage Ratio in credit facility
covenants.
EBITDA – excluding restructuring costs interest coverage is
calculated on a 12-month trailing basis and defined as EBITDA excluding
restructuring costs, divided by Net interest cost. Historically, this measure
is substantially the same as the Coverage Ratio covenant in TELUS’
credit facilities.
Net debt is a non-GAAP measure whose nearest GAAP measure
is Long-term debt, including Current maturities of long-term debt, as
reconciled below. Net debt is one component of a ratio used to deter-
mine compliance with debt covenants (refer to the description of
Net debt to EBITDA below). The measurement of net debt is currently
unaffected by the changeover to IFRS.
Smartphones are advanced mobile devices or personal digital
assistants (PDAs) that provide text messaging, email, multimedia down-
loads and social networking (e.g. Facebook Mobile) functionalities in
addition to voice. TELUS reports smartphones as a percentage of gross
postpaid subscriber additions and as a percentage of the postpaid
subscriber base.
11.4 Definition and calculation of liquidity
and capital resource measures
Dividend payout ratio and dividend payout ratio of adjusted
net earnings: The basic measure is defined as the quarterly dividend
declared per Common Share and Non-Voting Share, as recorded
on the financial statements, multiplied by four and divided by the sum
of basic earnings per share for the most recent four quarters for interim
reporting periods (divided by annual basic earnings per share for fiscal
years). The target guideline for the annual dividend payout ratio is on
a prospective basis, rather than on a trailing basis, and is 55 to 65% of
sustainable net earnings. More representative of a sustainable calculation
is the historical ratio based on reported earnings per share adjusted to
exclude income tax-related adjustments, loss on redemption of debt,
and ongoing impacts of a net-cash settlement feature introduced in 2007.
Calculation of dividend payout ratios
Unaudited
pro forma
Measure for December 31 IFRS-IASB As currently reported
($, except ratios) 2010 2010 2009
Dividend payout ratio
Numerator – Annualized fourth
quarter dividend declared
per Common Share and
Non-Voting Share 2.10 2.10 1.90
Denominator – Earnings
per Common Share and
Non-Voting Share 3.27 3.23 3.14
Ratio (%) 64 65 61
Dividend payout ratio
of adjusted net earnings
Numerator – Annualized fourth
quarter dividend declared
per Common Share and
Non-Voting Share 2.10 2.10 1.90
Adjusted net earnings ($ millions)
Net income attributable to
Common Shares and
Non-Voting Shares 1,048 1,034 998
Deduct favourable income
tax-related adjustments (30) (30) (165)
Add back loss on
redemption of debt 37 37 69
Net-cash settlement feature
(7) (7) 1
1,048 1,034 903
Denominator – Adjusted net
earnings per Common Share
and Non-Voting Share 3.27 3.23 2.84
Adjusted ratio (%) 64 65 67
MANAGEMENT’S DISCUSSION & ANALYSIS: 11