Telus 2010 Annual Report Download - page 63

TELUS 2010 annual report . 59
MANAGEMENT’S DISCUSSION & ANALYSIS: 5
the redeemed Notes and $36 million for termination of the associated
cross currency interest rate swaps.
Interest income on tax refunds decreased by $44 million in 2010
when compared to 2009, as larger amounts were recognized in 2009
for settlement of prior years’ tax matters.
Income taxes
Years ended December 31
($ millions, except tax rates) 2010 2009 Change
Basic blended federal and provincial
tax at statutory income tax rates 396 366 8.2%
Revaluation of future income tax
liability to reflect future statutory
income tax rates (43) (99) –
Tax rate differential on, and
consequential adjustments from,
reassessments of prior years’
tax issues (36) (68) –
Share option award compensation 10 4 –
Other 1 – –
328 203 61.6%
Blended federal and provincial
statutory tax rates (%) 29.0 30.3 (1.3) pts.
Effective tax rates (%) 24.0 16.8 7.2 pts.
Basic blended statutory income taxes increased by $30 million in 2010
when compared to 2009, due to higher Income before income taxes,
partly offset by lower blended statutory income tax rates. The effective
tax rates were lower than the statutory tax rates due to revaluations of
future income tax liabilities and the tax rate differential and consequential
adjustments from reassessments of prior years’ tax issues. Changes to
B.C. income tax rates were enacted in the first quarter of 2009, reducing
rates beginning January 1, 2010. Changes to Ontario income tax rates
from 2010 to 2013 were enacted in the fourth quarter of 2009 for provin-
cial income taxes effective July 1, 2010 and thereafter. In addition,
enacted federal income tax rates decreased in 2010.
In 2010, the Rulings Division of Canada Revenue Agency (CRA)
advised the Company that, as a result of a detailed review of the
facts and regulatory issues concerning the acquisition of auctioned
spectrum in 2001 and 2008, CRA agreed with the Company’s filed
tax position that the spectrum acquired in both circumstances repre-
sented an amortizable asset for income tax purposes, which would
be amortized on a straight-line basis over the 10-year life of the licences.
This is expected to result in lower cash income taxes in each year
from 2011 to 2019, and does not include the impact of any future
spectrum purchases.
Share option award compensation in 2010 includes a $7 million
write-off of a future income tax asset due to the enactment of new
legislation in December 2010 that changes the tax treatment of certain
share-based compensation. Where stock option rights are acquired
by the Company in exchange for a cash payment, either the employee
must forgo his or her personal income tax deduction, which emulates
capital gains treatment, or the Company must forgo its tax deduction,
thereby eliminating the double benefit afforded to employees and
corporations. To the extent that the Company acquires the stock option
rights from employees, the Company has elected to forgo its tax
deduction for such payments.
Other income statement items
Other expense, net
Years ended December 31
($ millions) 2010 2009 Change
32 32 –
Other expense, net, includes accounts receivable securitization expense,
income (losses) or impairments in equity or portfolio investments, gains
and losses on disposal of real estate, and charitable donations.
Accounts receivable securitization expenses were $8 million in 2010,
down $2 million from 2009 primarily due to lower rates. See Section 7.6
Accounts receivable sale for additional information. Charitable donations
increased by $10 million in 2010, and were largely offset by net gains
on the sale of minor investments and real estate in 2010 as compared
to net losses on minor investments in 2009.
Financing costs
Years ended December 31
($ millions) 2010 2009 Change
Interest on long-term debt,
short-term obligations and other 463 483 (4.1)%
Loss on redemption of long-term debt 52 99 (47.5)%
Interest income and foreign exchange (5) (50) –
510 532 (4.1)%
Interest on long-term debt, short-term obligations and other decreased
by $20 million in 2010 when compared to 2009 mainly due to lower
effective interest rates on long-term debt as well as a lower average debt
balance, partly offset by a $15 million financing charge in the third quarter
of 2010 that arose from the CRTC’s determinations on the regulatory
deferral account.
On September 2, 2010, the Company completed an early partial
redemption of U.S.$607 million of publicly traded U.S. dollar 8% Notes
due June 1, 2011, and terminated associated cross currency interest rate
swaps. The partial redemption was funded with $1 billion of new 5.05%
10-year Notes issued on July 23, 2010. The Company recorded a loss
on redemption comprised of $36 million in respect of the redeemed
Notes and $16 million for termination of the associated cross currency
interest rate swaps.
In December 2009, the Company completed an early partial
redemption of U.S.$577 million of publicly traded U.S. dollar 8% Notes
due June 1, 2011, and terminated associated cross currency interest
rate swaps. The partial redemption was funded with $1 billion of new
5.05% 10-year Notes issued on December 1, 2009. The Company
recorded a loss on redemption comprised of $63 million in respect of
10
09
08
07
INTEREST EXPENSE ($ millions)
10 515
582
52
99
463
483
481
09
08
08
Interest expense before losses on long-term debt redemption
Losses on long-term debt redemption