Telus 2010 Annual Report Download - page 137

TELUS 2010 annual report . 133
FINANCIAL STATEMENTS & NOTES: 5
(Note 18(d)), it is all fixed-rate debt. The fair value of fixed-rate debt
fluctuates with changes in market interest rates; absent early redemption
and/or foreign exchange rate fluctuations, the related future cash flows
do not change. Due to the short maturities of commercial paper, its fair
values are not materially affected by changes in market interest rates but
its cash flows representing interest payments may be if the commercial
paper is rolled over.
Amounts drawn on the Company’s short-term and long-term credit
facilities will be affected by changes in market interest rates in a manner
similar to commercial paper.
Similar to fixed-rate debt, the fair value of the Company’s cross
currency interest rate swap derivatives fluctuates with changes in market
interest rates as the interest rate swapped to is fixed; absent early
redemption, the related future cash flows do not change due to changes
in market interest rates.
(f) Other price risk
Investments: If the balance of short-term investments includes equity
instruments, the Company would be exposed to equity price risks, as it
would be if it held investments classified as available-for-sale. Long-term
investments are held for strategic rather than trading purposes.
Share-based compensation derivatives: The Company is exposed
to other price risk arising from cash-settled share-based compensation
(appreciating Common Share and Non-Voting Share prices increase
both the expense and the potential cash outflow). Cash-settled equity
swap agreements have been entered into that establish a cap on
the Company’s cost associated with its net-cash settled share options
(Note 12(b)) and fix the Company’s cost associated with its restricted
stock units (Note 12(c)).
(g) Market risk
Net income and other comprehensive income for the years ended
December 31, 2010 and 2009, could have varied if the Canadian
dollar: U.S. dollar foreign exchange rates, market interest rates and
the Company’s Common Share and Non-Voting Share prices varied
by reasonably possible amounts from their actual statement of
financial position date values.
(d) Currency risk
The Company’s functional currency is the Canadian dollar, but it regularly
transacts in U.S. dollars due to certain routine revenues and operating
costs being denominated in U.S. dollars, as well as sourcing some
inventory purchases and capital asset acquisitions internationally. The
U.S. dollar is the only foreign currency to which the Company has a
significant exposure.
The Company’s foreign exchange risk management includes the
use of foreign currency forward contracts and currency options to fix
the exchange rates on short-term U.S. dollar denominated transactions
and commitments. Hedge accounting is applied to these short-term
foreign currency forward contracts and currency options on an exception
basis only.
The Company is also exposed to currency risks in that the fair
value or future cash flows of its U.S. dollar denominated long-term debt
will fluctuate because of changes in foreign exchange rates. Currency
hedging relationships have been established for the related semi-annual
interest payments and principal payment at maturity.
(e) Interest rate risk
Changes in market interest rates will cause fluctuations in the fair value
or future cash flows of temporary investments, short-term investments,
short-term obligations, long-term debt and/or cross currency interest rate
swap derivatives.
When the Company has temporary investments, they have short
maturities and fixed rates, thus their fair value will fluctuate with changes
in market interest rates; absent monetization prior to maturity, the related
future cash flows do not change due to changes in market interest rates.
If the balance of short-term investments includes debt instruments
and/or dividend-paying equity instruments, the Company could be
exposed to interest rate risks.
As short-term obligations arising from bilateral bank facilities, which
typically have variable interest rates, are rarely outstanding for periods
that exceed one calendar week, interest rate risk associated with this item
is not material.
In respect of the Company’s currently outstanding long-term debt,
other than for commercial paper and amounts drawn on its credit facilities
Non-derivative Derivative
Non-interest
Long-term debt Other financial liabilities
As at bearing All except Currency swaps amounts Currency swaps amounts
December 31, 2009 financial capital Capital to be exchanged(2) to be exchanged
(millions) liabilities leases(1)(2) leases (Receive) Pay Other (Receive) Pay Tot a l
2010
First quarter $ß1,023 $ 35 $ß1 $ß – $ – $ß51 $ß (75) $ß 77 $ß 1,112
Balance of year 309 420 1 (113) 175 9 (95) 95 801
2 011 – 1,728 1 (1,473) 2,152 – – – 2,408
2012 – 1,014 – – – – – – 1,014
2013 – 532 – – – – – – 532
2014 – 907 – – – – – – 907
Thereafter 1 3,813 – – – – – – 3,814
To t a l $ß1,333 $ß8,449 $ß3 $ß(1,586) $ß2,327 $ß60 $ß(170) $ß172 $ß10,588
Total $ß9,193
(1) Interest payment cash outflows in respect of commercial paper and amounts drawn under the Company’s credit facilities (if any) have been calculated based upon the rates in effect
as at December 31, 2009.
(2) The amounts included in the undiscounted non-derivative long-term debt in respect of the U.S. dollar denominated long-term debt, and the corresponding amounts included in the
long-term debt currency swaps receive column, have been determined based upon the rates in effect as at December 31, 2009. The U.S. dollar denominated long-term debt contractual
maturity amounts, in effect, are reflected in the long-term debt currency swaps pay column as gross cash flows are exchanged pursuant to the cross currency interest rate swap
agreements (see Note 18(b)).