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growth
2011 ANNUAL REPORT
a passion for

Table of contents

  • Page 1
    growth 2011 ANNUAL REPORT a passion for

  • Page 2
    ...,000 TELUS TV® customers. TELUS provides a wide range of telecommunications products and services including wireless, data, Internet protocol (IP), voice, television, entertainment and video. In support of our community investment philosophy - we give where we liveTM - TELUS, our team members and...

  • Page 3
    ... secure, high-performing network Conferencing and collaboration: Full range of equipment and application solutions to support meetings using phone, video and the Internet Contact centre and outsourcing solutions: Managed solutions providing secure, stable, low-cost and scalable infrastructure. TELUS...

  • Page 4
    ... Canada international wireless roaming rates > Secured a five-year contract extension with the Government of Ontario to manage its province-wide portfolio of telecommunications services > Held sixth annual TELUS Day of GivingTM with a record 11,400 TELUS team members, retirees, family and friends...

  • Page 5
    ... customer connections Wireless subscribers 2011: 7.34 million 2010: 6.97 million Net.ork access lines 2011: 3.59 million 2010: 3.74 million Internet subscribers 2011: 1.29 million 2010: 1.23 million TV subscribers 2011: 509,000 2010: 314,000 +5.3% -3.9% +4.6% +62% TELUS 2011 ANNUAL REPORT...

  • Page 6
    ... price competition. New advanced wireless devices are satisfying customer demand for increased data functionality, including access to email, Internet, social networking, applications and streaming video. As a result, wireless data revenue in Canada increased by more than 30 per cent in 2011...

  • Page 7
    In 2011, we: . Enhanced TELUS' Early Device Upgrade program by enabling customers to upgrade to a new device at any time by simply paying the balance of their device discount . Introduced Data Flex Plans, which automatically adjust each month to the best data volume tier based on customer usage . ...

  • Page 8
    ..., in 2011, drove very successful Optik TV and High Speed Internet loading, while also slowing residential network access line losses. However, aggressive introductory promotions and discounting on service bundles remain typical as cable-TV rivals defend their TV and bundled services subscriber base...

  • Page 9
    ... SMB market through enhanced coverage and connectivity, simple and targeted offers, and high-quality customer service . Increasing the number of Canadians using our innovative healthcare technology solutions . Targeting revenue growth of up to three per cent in our wireline operations. Watch TV on...

  • Page 10
    CEO LETTER TO INVESTORS growth TELUS is delivering on our proven growth strategy. The benefits of our strategic investments, underpinned by an excellent financial position, are continuing to grow shareholder value. Our passion for growth is driving our success and differentiated performance in the ...

  • Page 11
    ... 2011 ANNUAL REPORT . 7 Darren Entwistle and his family help prepare and serve food at the Union Gospel Mission in Vancouver as part of the sixth annual TELUS Day of Giving. Our customer-friendly approach, championing fairness and transparency for Canadians through our enhanced Clear & Simple rate...

  • Page 12
    ..., we launched our new Clear & Simple international travel pricing, which includes significantly reduced international roaming rates. During the year, 1,600 senior leaders interacted with front-line team members during our Customers First days. This program gives senior management an opportunity to...

  • Page 13
    ... in the history of our Company. In the coming years, TELUS will expand access to highspeed Internet service to 97 per cent of B.C. residents, extend wireless coverage to 1,700 kilometres of rural highway corridors and upgrade communications technology in 450 schools. TELUS 2011 ANNUAL REPORT . 9

  • Page 14
    ... first time, to bundle their office phone, Internet and wireless telecommunication services into one flexible, simple and cost-effective solution. The TELUS team is dedicated to transforming healthcare through innovative technology solutions. We move healthcare information over our secure, wireline...

  • Page 15
    ... overall employee recognition program globally. TELUS 2011 ANNUAL REPORT . 11 Partnering, acquiring and divefting In early 2012, TELUS acquired Wolf Medical Systems, Canada's largest and fastest-growing electronic medical record provider. The acquisition creates a new line of business called TELUS...

  • Page 16
    ... and employees, provided 63,500 comfort and care items to citizens in need across Canada in 2011. Going to market with one brand The TELUS brand promise, the future is friendly, reflects our values as an organization and our desire to make communications technology enjoyable to use and accessible...

  • Page 17
    ...Each year we set corporate priorities that help guide our team as we work together to advance our national growth strategy. For 2012, our priorities are to: . Deliver on TELUS' future friendly brand promise by putting customers first . Increase our competitive advantage through technology leadership...

  • Page 18
    ... building our urban 4G LTE wireless network, as well as success-based capital spending resulting from strong growth of Optik TV. TELUS continues to adhere to its financial objectives, policies and guidelines, which include generally maintaining a minimum of $1 billion of unutilized liquidity, a Net...

  • Page 19
    ... statements on page 38 of this report. 12 target 11 10 3.8 to 4.0 3.78 3.65 Target growing by 1 to 6%, driven by wireless operations EPS - BASIC ($) 12 target 11 10 3.75 to 4.15 3.76 3.27 Target increasing by 0 to 10%, driven by operating earnings growth and lower financing costs TELUS 2011...

  • Page 20
    ... Okanagan, British Columbia - we now have 11 boards across Canada that, last year alone, contributed $5 million to local charities and supported 418 charitable organizations. Late in 2011, TELUS International launched three Community Boards in locations where we own and operate contact centres - the...

  • Page 21
    ... free long distance calling and access to TV Japan to help our customers stay connected with family and friends in the region. In response to these disasters, TELUS also enabled customers to make text donations to relief agencies and provided cash donations from the Company and its team members...

  • Page 22
    ...-edge RPM technology to close to 20,000 locations across Canada. TELUS is well positioned to facilitate the integration of health records by ensuring critical health information is available to care providers over secure wireline and wireless broadband networks. 18 . TELUS 2011 ANNUAL REPORT

  • Page 23
    ... effects from Optik TV service, with accelerated high-speed Internet loading, improved client winback rates and reduced residential phone line losses. Among TV customers added in 2011, the vast majority either added or have another service with TELUS. In 2011, combined TV and high-speed Internet net...

  • Page 24
    ... selection and timing of technology upgrades to deliver innovative solutions for the benefit of our customers, while driving growth and earning an attractive return for our investors. LTE services commercially in major urban markets in February 2012. To expand the LTE network into rural Canada, we...

  • Page 25
    ... the new next generation wireless and wireline access technologies as they evolve to deliver access network convergence, and to meet our customers' evolving voice, data and video services and traffic needs - at home, at work and on the go. This should allow TELUS to maintain high service levels for...

  • Page 26
    ... Columbia Other boards and affiliations: ConocoPhillips Inc. and Enbridge Income Fund Holdings Inc. TELUS Committees: Human Resources and Compensation; and Chair, Corporate Governance TELUS shareholdings: 55,339 A. Charles Baillie Residence: Toronto, Ontario Principal occupation: Chair, Alberta...

  • Page 27
    ... of Medical.MD EHR Inc.; Member of Order of Canada; and Officer of Order of Belgium TELUS Committees: Corporate Governance, and Human Resources and Compensation TELUS shareholdings: 33,131 R.E.T. (Rusty) Goepel Residence: Vancouver, British Columbia Principal occupation: Senior Vice-President...

  • Page 28
    ... Engineering), University of Waterloo Boards and committees: Celestica, United Way Toronto and Soulpepper Theatre TEBUS shareholdings: 112,042 TEBUS options: 245,906 Eros Spadotto Executive Vice-President, Technology Strategy and Operations Bocation: Toronto, Ontario Joined TEBUS: 2000 (Clearnet...

  • Page 29
    ... and Internet backbone points of presence Quebec Ontario Atlantic Canada Coverage areas are approximate as of December 2011. Actual coverage and network services may vary and are subject to change. Alberta Team members: 6,300 (15%) 2011 capital expenditures: $640 million Community Boards: Calgary...

  • Page 30
    ...management's report auditors' reports financial statements notes to financial statements additional investor resources glossary investor information online information why invest in TELUS 75 79 82 100 32 34 36 38 40 48 50 52 57 66 68 103 104 106 111 170 172 177 back cover 26 . TELUS 2011 ANNUAL...

  • Page 31
    ... share income divided by the average quarterly common share and non-voting share equity for the year. 4 Market value based on year-end closing share prices and shares outstanding. Note: Certain comparative information has been restated to conform to the 2011 presentation. TELUS 2011 ANNUAL REPORT...

  • Page 32
    ... revenues from growing Optik TV and High Speed Internet service subscriptions and several small price increases, as well as the acquisition of control of an international contact centre operation. Our 2012 targets, shown in the table, build on the momentum we delivered in 2011. TELUS expects to...

  • Page 33
    ... reporting and fourth best investor relations program in Canada. As well, the Canadian Institute of Chartered Accountants (CICA) recognized TELUS with the Overall Award of Excellence for Corporate Reporting, CICA's highest award in Canada, for the fourth time in the last five years. We also received...

  • Page 34
    ... Passion for good governance Each year, we implement enhancements that help us achieve good governance and increase investor confidence. Some of the new practices we adopted in 2011 include: . Voluntarily holding our first annual say-on-pay vote on executive compensation, which received 80 per cent...

  • Page 35
    ... the United States and Europe. In 2011, we continued to receive recognition for excellence in corporate governance and reporting. . TELUS was recognized for having the eighth best annual report in the world by the Annual Report on Annual Reports in an international review, and is the only company to...

  • Page 36
    ... and non-voting shares Share information4 Average shares outstanding - basic (millions) Year-end shares outstanding (millions) Earnings per share - basic Dividends declared per share Financial position (millions) Capital assets, at cost 5 5 324 325 $ß 3.76 2.205 2011 320 322 $ß 3.27 2.00 2010...

  • Page 37
    ... million for that year. 4 Common shares and non-voting shares. 5 Includes Property, plant and equipment and Intangible assets. 6 The summation of Long-term debt excluding unamortized debt issuance cost, current maturities of Long-term debt, net deferred hedging liability related to U.S. dollar Notes...

  • Page 38
    ...,211 $ß 1,847 $ß 1,721 $ß 1,721 $ß 2,103 $ß 1,859 Capex intensity 8 including payment for wireless spectrum Total customer connections (000s) 9 Employee-related information Total salaries and benefits (millions)10 Total active employees 11 $ß 2,258 41,100 40,100 12,13 $ß 2,205 34,800...

  • Page 39
    .... In 2011, TELUS also deducted the Transactel gain of $17 million from EBITDA. 8 Capital expenditures divided by Operating revenues. 9 The sum of wireless subscribers, network access lines, Internet access subscribers and TV subscribers (TELUS Optik TV and TELUS Satellite TV). 10 Includes net-cash...

  • Page 40
    ... (000s) Wireless subscribers (000s) Wireless market share, subscriber-based Average monthly revenue per subscriber unit (ARPU) Data ARPU Average minutes per subscriber per month COA, per gross addition Monthly churn rate Population coverage - digital (millions) 6 Wireline segment Operating revenues...

  • Page 41
    ... subscribers (000s) Wireless market share, subscriber-based ARPU Data ARPU Average minutes per subscriber per month COA, per gross addition Monthly churn rate Population coverage - digital (millions) Wireline segment Operating revenues (millions) 2 Operating expenses before restructuring costs...

  • Page 42
    ..., TELUS TV® and Optik High SpeedTM Internet services; costs of subscriber acquisition and retention; pressures on wireless average revenue per subscriber unit per month (ARPU) such as through flat rate pricing trends for voice and data, inclusive long distance plans for voice, and increasing...

  • Page 43
    ...capital resource measures, including calculation and reconciliation of certain non-GAAP measures used by management 100 Changes in financial position A discussion of changes in the Consolidated statements of financial position for the year ended December 31, 2011 66 TELUS 2011 ANNUAL REPORT . 39

  • Page 44
    ... Non-Voting Shares. (2) The sum of wireless subscribers, network access lines (NALs), Internet access subscribers and TELUS TV subscribers (Optik TV TM subscribers and TELUS Satellite TV® subscribers), measured at the end of the respective periods based on information in billing and other systems...

  • Page 45
    ... call centres in Central America (see Partnering and acquiring in Section 2.2). The increase also includes higher recoveries of employee costs under eligible government-sponsored employment programs, and a drawdown of the price cap deferral account for provisioning of broadband Internet service...

  • Page 46
    ... acquire and retain wireless subscribers and increased programming and support costs for TELUS TV. The Company updated annual guidance on August 5, 2011, increasing expected 2011 revenues and capital expenditures and reaffirming target ranges for EBITDA and basic EPS (see footnote 1 of the following...

  • Page 47
    ... 5% higher than 2010). Original targets were reaffirmed for consolidated EBITDA and EPS, and wireless and wireline EBITDAs. (2) EBITDA is a non-GAAP measure. See definition in Section 11.1. (3) Excluding any potential capital expenditures for wireless spectrum in 2012. TELUS 2011 ANNUAL REPORT . 43

  • Page 48
    ... of smartphones, including upgrades, and to support a larger subscriber base Continued wireline broadband expansion and upgrades supporting Optik TV and Optik High Speed Internet subscriber revenue growth that offsets the continued erosion in NAL-related revenues 44 . TELUS 2011 ANNUAL REPORT

  • Page 49
    ... on December 16, 2011, in the Company's annual financial targets news release and accompanying investor conference call and webcast. For 2012, consolidated revenue and EBITDA are expected to benefit from TELUS' continued strong execution in wireless and data. Basic earnings per share is targeted to...

  • Page 50
    ... broadband expansion and upgrades supporting Optik TV and Optik High Speed Internet subscriber sales. Legacy service revenue declines reflect continued erosion in network access lines and long distance revenue A preliminary pension accounting discount rate was confirmed at 4.5% (75 basis points...

  • Page 51
    ... are wireless and wireline. Segmented information in Note 5 of the Audited consolidated financial statements is regularly reported to the Company's Chief Executive Officer (the chief operating decision-maker). See Section 4. 1 WIRELESS EXTERNAL REVENUE ($ millions) Principal markets addressed and...

  • Page 52
    ... supports manufacturer-rated peak data download speeds of up to 75 Mbps (typical speeds of 12 to 25 Mbps expected). TELUS' LTE network operates on advanced wireless services (AWS) spectrum, acquired by the Company for $882 million in Industry Canada's 2008 auction. 48 . TELUS 2011 ANNUAL REPORT

  • Page 53
    ...employees. The Future Friendly Office includes TELUS-supported Cisco office systems linked to TELUS wireless and wireline network services, and is available across Canada. In October 2011, the Company introduced the TELUS Business FreedomTM bundle of wireless and wireline telecommunications services...

  • Page 54
    ... wireless and wireline broadband networks Enhance TELUS' position in the small and medium business market Ensure TELUS delivers its future friendly brand promise to clients Continue to improve TELUS' operational efficiency to effectively compete in the market and fund future growth Increase TELUS...

  • Page 55
    ... products and services, submit orders for multiple devices directly online and port in wireless phone numbers . TELUS Health Solutions began running three pilot projects with electronic medical record providers to help transform healthcare in Canada through communications technology to reduce costs...

  • Page 56
    ...with TELUS' wireline networks. Services and products offered: . Data - Web browsing, social networking, messaging, TELUS mobile TV ®, video on demand, Rdio, downloadable music, and the latest wireless mobile applications . Digital voice - Postpaid, Pay & Talk ® prepaid and Mike services, including...

  • Page 57
    ...the go . IP networks and applications - IP networks that offer converged voice, video, data or Internet access on a secure, high-performing network . Conferencing and collaboration - Full range of equipment and application solutions to support meetings using phone, video and the web . Contact centre...

  • Page 58
    ... and distribution The Company has a well established and recognizable national brand (TELUS, the future is friendly ®) that is supported by extensive advertising across all media. Optik TV and Optik High Speed Internet brands launched in mid-2010. Koodo Mobile® basic wireless brand and postpaid...

  • Page 59
    ... in future spectrum auctions . IP-based technology that is replacing legacy technology may not be feasible or economical in many areas for some time and the Company will need to support both systems. Convergence of wireless and wireline voice, Internet and video to a common IP-based application is...

  • Page 60
    ..., pay dividends to holders of Common Shares and Non-Voting Shares. TELUS plans to continue with two dividend increases per year to 2013, normally declared in May and November, and expects the annual increase to be in the range of circa LONG-TERM DEBT PRINCIPAL MATURITIES AS AT DECEMBER 31, 2011 2025...

  • Page 61
    ... and Exchange Commission on Form 40-F, as required by the United States SarbanesOxley Act, and with Canadian securities regulatory authorities. Deloitte & Touche LLP, the Company's auditor, has audited internal controls over financial reporting of TELUS Corporation at December 31, 2011. Changes in...

  • Page 62
    ... in 2011, as compared to 74% 25% in 2010 and 71% in 2009. 16% Legacy wireline voice revenues continue to be eroded by wireless voice and other wireless data competition and technological wireline voice and other substitution. wireline data . Nut incomu - Includes income tax-related adjustments...

  • Page 63
    ... subscriber base as a result of bundled offers with Optik TV, as well as rate increases. A general trend of declining wireline voice revenues and network access lines (NALs) is due to substitution to wireless and IP-based services, as well as competition from VoIP service providers (including cable...

  • Page 64
    ... costs under eligible government-sponsored employment programs, and a drawdown of the price cap deferral account to recognize the provisioning of broadband Internet service to a number of qualifying rural communities, partly offset by lower portable subsidy revenue. 60 . TELUS 2011 ANNUAL REPORT

  • Page 65
    ...increased content and support costs for expanding and managing wireline Optik TV services. . Employee benefits expense decreased year over year by $13 million in 2011. The decrease mainly reflects lower employee-related restructuring costs, a higher defined benefit pension plan recovery, lower share...

  • Page 66
    ... to more data-centric rate plans and substitute text messaging, instant messaging and voice applications for voice calls. The voice ARPU decline also reflects increased use of included-minute rate plans as subscribers shift usage patterns and optimize pricing, an increasing volume of mobile Internet...

  • Page 67
    ...Cost of acquisition. Operating expenses - wireless segment Years ended December 31 ($ millions) 2011 2010 Change Equipment sales expenses 1,237 Network operating expenses 662 Marketing expenses 464 General and administration (G&A) expenses Employee benefits expense 540 Other G&A expenses 411 Total...

  • Page 68
    ... of bundled offers including Optik High Speed services that enable TELUS to win and retain subscribers, and a $2 per month increase beginning April 2011 for Internet subscribers not on rate protection plans; and (iii) increased data equipment sales, including sales to business customers. Managed...

  • Page 69
    ... and promotions costs primarily supporting Optik TV and Optik High Speed Internet marketing campaigns. . Employee benefits expense decreased by $45 million in 2011. The decrease includes lower employee-related restructuring costs, higher defined benefit pension plan recoveries, lower share-based...

  • Page 70
    ... in average cost and volume of wireless handsets due to a greater proportion of smartphones Mainly an increase in prepaid maintenance contracts and deposits related to building an Internet data centre Primarily fair value adjustments to hedges for restricted share units and wireless handsets Income...

  • Page 71
    ... transactions in respect of Transactel (see Partnering, acquiring in Section 2.2) and reclassification of certain assets of a foreign operation to assets held for sale Non-controlling interests - 22 (22) (100) (1) Current assets subtracting Current liabilities. TELUS 2011 ANNUAL REPORT . 67

  • Page 72
    ...Company has generated annual cash flow from operations exceeding the amounts of annual capital investment needed to support business growth and reinvest in technology. In both 2011 and 2010, cash provided by operating activities exceeded cash used by investing activities. As well, in 2010, long-term...

  • Page 73
    ... certain change of control provisions. . Long-term debt issue in July 2010; early partial redemption of U.S. dollar Notes in September 2010 In the third quarter of 2010, TELUS successfully closed a $1 billion public offering of 5.05%, Series CH, 10-year Notes. The Company used the net proceeds...

  • Page 74
    ... and guidelines set out below. The Company believes that these measures are currently at the optimal level and by maintaining credit ratings in the range of BBB+ to A-, or the equivalent, are expected to continue to provide reasonable access to capital markets. TELUS long-term financial policies and...

  • Page 75
    ... access to TELUS' credit facilities is not contingent on the maintenance by TELUS of a specific credit rating. Subsequent to December 31, 2011, the Company received financing commitments from two Canadian financial institutions in connection with the TELUS Garden project. TELUS Corporation plans...

  • Page 76
    ... rucuivablu - Credit risk associated with accounts receivable is inherently managed by the Company's large and diverse customer base, which covers substantially all consumer and business sectors in Canada. The Company follows a program of credit evaluations of customers and limits the amount of...

  • Page 77
    ... rate yield curves as at the statement of financial position dates). The fair values of the Company's derivative financial instruments used to manage exposure to increases in compensation costs arising from certain forms of share-based compensation are based upon fair value estimates of the related...

  • Page 78
    ... business, the Company agreed to bear a proportionate share of the new owner's increased directory publication costs if the increased costs were to arise from a change in the applicable CRTC regulatory requirements. The Company's proportionate share is 15% through, and ending, May 2016. As well...

  • Page 79
    ... information used to develop the assumptions and changes in the Company's credit ratings, where applicable. Unless otherwise specified in the discussion of the specific critical accounting estimate, it is expected that no material changes in overall financial performance and financial statement line...

  • Page 80
    ...estimate, as applicable to intangible assets with indefinite lives and goodwill, primarily affects the Company's wireless cash-generating unit. (2) Accounting estimate impact due to internal labour capitalization rates. Accounts receivable General . The Company considers the business area that gave...

  • Page 81
    ... . The Company reviews industry practices, trends, economic conditions and data provided by actuaries when developing assumptions used in the determination of defined benefit pension costs and accrued pension benefit obligations. Pension plan assets are generally valued using market prices, however...

  • Page 82
    ... defined benefit pension costs, accrued pension benefit obligations and pension plan assets include: discount rates, long-term rates of return for plan assets, market estimates and rates of future compensation increases. Material changes in overall financial performance and financial statement line...

  • Page 83
    ... market in Canada continues to support good growth, which is indicated by the generally comparable market in the U.S. that has a penetration rate of approximately 101%. Estimated wireless industry growth factors 2010 2011 2012 Total land area (square km) Subscriptions per square km of network...

  • Page 84
    ... market share of approximately 32%, up 1% from 2010. Other non-facilities-based competitors also offer local and long distance VoIP services and resell high-speed Internet solutions. This competition, along with technological substitution such as to wireless, continue to erode TELUS' residential...

  • Page 85
    ... increased cable-TV competition by offering an integrated small business bundle called TELUS Business One, which includes connectivity (voice, Internet and email services), security, hosting, audio and video conferencing, and other IP-based tools. In 2011, TELUS introduced Future Friendly Office...

  • Page 86
    ...annual internal audit program, which has an emphasis on assurance coverage of higher-rated risks and is approved by the Audit Committee. Risk assessments are also incorporated back into the Company's strategic planning, operational risk management and performance management processes, and are shared...

  • Page 87
    ... locations and claiming future download speeds of up to 25 Mbps. Risk mitigation in wireless markets: The Company improved its competitive position with the launch of its HSPA+ wireless network in 2009, commercialization of HSPA+ dual-cell technology in early 2011, and the launch of 4G LTE services...

  • Page 88
    ... service development and profitable expansion of the Company's subscriber base and address accelerating demand for data usage. (See Section 10.3 Regulatory matters - Future availability and cost of wireless spectrum.) Competitor pricing and technological substitution may adversely affect market...

  • Page 89
    ... satellite-based TV services. In addition, cable-TV companies continue to increase the speed of their HSIA offerings. To a lesser extent, other non-facilities-based competitors offer local and long distance VoIP services over the Internet and resell HSIA solutions. Erosion of TELUS' residential NALs...

  • Page 90
    ...increased data speeds required for many new wireless, IP and data services. TELUS' evolution to next generation wireless technologies involves services and devices that meet the requirements of the Company's current and future subscriber base. TELUS continues to support CDMA2000 3G wireless services...

  • Page 91
    ... and corresponding standards, enabled with quality of service standards and network traffic engineering, all support the TELUS Future Friendly Home strategy to deliver IP-based Internet, voice and video services over a common broadband access infrastructure. TELUS 2011 ANNUAL REPORT . 87

  • Page 92
    ... public switched telephone network access base in certain areas, resulting in some investment in line adaptation in non-broadband central offices. If TELUS were to decide to migrate towards a fully IP-based voice solution, the level of effort required to migrate customers could be costly. TELUS...

  • Page 93
    ...year term). TELUS also holds a licence to operate a national video-on-demand (VOD) undertaking (received an administrative renewal until February 2012 and is in the process of being renewed). The Company's strategy is to aggregate, integrate and make accessible content and applications for customers...

  • Page 94
    ... high-speed access services. The CRTC has indicated that ILECs and incumbent cable-TV carriers can use either a flat-rated unlimited usage access rate or a rate that combines an access rate and a usage charge based on reserved network capacity. These determinations followed the CRTC's review...

  • Page 95
    ... part-time employees. Medium-term and long-term performance incentives (RSUs, PSUs and share options) for key personnel generally have three-year vesting periods. The increased value of TELUS shares in 2010 and 2011 has increased the effectiveness of these retention incentives. Where required, TELUS...

  • Page 96
    ... effective deployment of technologies and supporting systems, cost efficiencies, improved customer service, and better capability to implement large enterprise deals. TELUS follows industry standard practices for rigorous project management, including executive (senior) level governance and project...

  • Page 97
    ...customers and conduct of business process outsourcing activities. TELUS has in recent years expanded beyond its Philippines operations to include locations in India, Central America, the Caribbean region and the U.S. state of Nevada. The continued expansion of international operations provides TELUS...

  • Page 98
    ... changes in this area. For example, in 2010, the provinces of British Columbia and Ontario both required a change from their provincial sales tax regimes to a sales tax harmonized with the federal GST. In implementing those required changes, 70 applications or systems were impacted at a total cost...

  • Page 99
    ... reduce subscriber growth and usage, and increase costs as a result of modifying handsets, relocating wireless towers, and addressing incremental legal requirements and product liability lawsuits. TELUS continues to monitor developments in this area. Risk mitigation: Industry Canada is responsible...

  • Page 100
    ... of the effects of a changing climate on TELUS operations, and an innovation component, which helps customers and communities realize their climate change goals through TELUS' technological and service solutions. TELUS' strategic targets are a 25% reduction in CO2e emissions over 2009 levels by 2020...

  • Page 101
    ... risk exposure is reasonable and has not changed significantly over the past 12 months. However, there can be no assurance that TELUS' processes will be followed by all team members at all times. Legal compliance TELUS relies on its employees, officers, Board of Directors, key suppliers and partners...

  • Page 102
    ... projects involving the use of customer or team member personal information. The Company has established a rigorous review process to ensure that regulatory, legal and tax requirements are considered when pursuing opportunities outside Canada. The Company has also launched an enterprise-wide program...

  • Page 103
    ...operations TELUS is a key provider of critical telecommunications infrastructure in Canada and has certain supporting business functions located in more than 10 countries in North America, Asia, Central America and Europe. The Company's networks, information technology, physical assets, team members...

  • Page 104
    ...). If necessary, the Company may also consider additional cost and efficiency initiatives in future years. Pension funding Economic and capital market fluctuations could also adversely impact the funding and expense associated with the defined benefit pension plans that TELUS sponsors. There can be...

  • Page 105
    ... uses of cash. The following reconciles management's definition of free cash flow with standardized free cash flow and Cash provided by operating activities. Free cash flow reconciliation Years ended December 31 ($ millions) 2011 2010 Net income attributable to Common Shares and Non-Voting Shares...

  • Page 106
    ... 31 ($ millions) 2011 2010 Denominator - Adjusted net earnings per Common Share and Non-Voting Share Adjusted ratio (%) 3.61 64 3.27 64 EBITDA - excluding restructuring costs is defined as EBITDA (see Section 11.1), adding back restructuring costs of $35 million for the year ended December 31...

  • Page 107
    ... the effectiveness of the Company's internal control over financial reporting as of December 31, 2011. Robert G. McFarlane Executive Vice-President and Chief Financial Officer February 23, 2012 Darren Entwistle President and Chief Executive Officer February 23, 2012 TELUS 2011 ANNUAL REPORT . 103

  • Page 108
    ... the standards of the Public Company Accounting Oversight Board (United States). Those standards revuire that we comply with ethical revuirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An...

  • Page 109
    ... audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as at and for the year ended December 31, 2011, of the Company and our report dated February 23, 2012...

  • Page 110
    ... from translating financial statements of foreign operations Item never subsevuently reclassified to income Employee defined benefit plans actuarial gains (losses) $ (851) (841) Comprehensive Income Net Income (Loss) Attributable to: Common Shares and Non-Voting Shares Non-controlling interests...

  • Page 111
    ...term borrowings Accounts payable and accrued liabilities Income and other taxes payable Dividends payable Advance billings and customer deposits Provisions Current maturities of long-term debt Current portion of derivative liabilities Non-current liabilities Provisions Long-term debt Other long-term...

  • Page 112
    ...CHANGES IN OWNERS' EQUITY Common Shares (millions except number of shares) Non-Voting Shares Share capital Number of shares Share capital Note Number of shares Balance as at January 1, 2010 Net income Other comprehensive income Dividends Dividend Reinvestment and Share Purchase Plan - Dividends...

  • Page 113
    FINANCIAL STATEMENTS & NOTES Common Share and Non-Voting Share evuity Evuity contributed Share capital Contributed surplus Retained earnings Accumulated other comprehensive income Total Total Non-controlling interests Total...- $ 11 - $ß7,513 - $ß - - $ß7,513 TELUS 2011 ANNUAL REPORT . 109

  • Page 114
    ... Years ended December 31 (millions) Note 2011 2010 (adjusted - Note 25) Operating Activities Net income Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization Deferred income taxes Share-based compensation Net employee defined benefit plans...

  • Page 115
    ... British Columbia, V5H 3Z7. TELUS Corporation is one of Canada's largest telecommunications companies providing a wide range of telecommunications services and products incuding wireless, data, Internet protocol, voice and television. The terms "TELUS" or "Company" are used to mean TELUS Corporation...

  • Page 116
    ...-corporate dividends. On a continuing basis, TELUS reviews its corporate organization and effects changes as appropriate so as to enhance its value. This process can, and does, affect which of the Company's subsidiaries are considered principal subsidiaries at any particular point in time. (b) Use...

  • Page 117
    ... to modify (the hedged items). The Company assesses *Denotes accounting policy affected in the years ended December 31, 2011 and 2010, by the convergence of Canadian GAAP for publicly accountable enterprises with IFRS-IASB, as discussed further in Note 2 and Note 25. TELUS 2011 ANNUAL REPORT . 113

  • Page 118
    ...alternative to mandating price reductions. (e) Revenue recognition General The Company earns the majority of its revenue (wireless network, data (including television, Internet, data and information technology managed services), voice local and voice long distance) from access to, and usage of, the...

  • Page 119
    ...and are depreciated over its estimated useful life. Wireline subscriber base Customer contracts, related customer relationships and leasehold interests Software Access to rights-of-way and other 40 years 6 to 10 years 3 to 5 years 8 to 30 years Impairment - general Impairment testing compares the...

  • Page 120
    ... afforded to the associated share option awards. *Denotes accounting policy affected in the years ended December 31, 2011 and 2010, by the convergence of Canadian GAAP for publicly accountable enterprises with IFRS-IASB, as discussed further in Note 2 and Note 25. 116 . TELUS 2011 ANNUAL REPORT

  • Page 121
    ... plans The Company accrues for its obligations under employee defined benefit plans, and the related costs, net of plan assets. The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected benefit method pro-rated on service and management...

  • Page 122
    ... 19, Employee Benefits (amended 2011): Relative to the Company's current accounting policies and presentation and disclosure practices, the key difference in the amended standard is that the expected long-term rate of return on plan assets will no longer be used for defined benefit plan measurement...

  • Page 123
    ... as set out in the following schedule. Net debt is one component of a ratio used to determine compliance with debt covenants. The reported dividend payout ratio is calculated as the vuarterly dividend declared per Common Share and Non-Voting Share, as recorded in the financial statements, multiplied...

  • Page 124
    ... costs divided by net interest cost. This measure is substantially the same as the coverage ratio covenant in the Company's credit facilities. (6) Adjusted net earnings attributable to Common Shares and Non-Voting Shares is calculated as follows: 2011 - (46) 404 $ß6,959 (2) (17) 400 $ß6,869 Net...

  • Page 125
    ... managed by the Company's large and diverse customer base, which covers substantially all consumer and business sectors in Canada. The Company follows a program of credit evaluations of customers and limits the amount of credit extended when deemed necessary. Customer accounts receivable net...

  • Page 126
    ... in the following tables: Non-derivative(1) Non-interest bearing financial liabilities Derivative Currency swaps amounts to be exchanged (Receive) Pay Total As at December 31, 2011 (millions) Short-term borrowings(2) Long-term debt (Note 20) 2012 First vuarter Balance of year 2013 2014 2015 2016...

  • Page 127
    ... long-term debt would fluctuate because of changes in foreign exchange rates. Currency hedging relationships were established for the related semi-annual interest payments and principal payment at maturity. Net income and other comprehensive income for the years ended December 31, 2011 and 2010...

  • Page 128
    ..., 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. The sensitivity analysis of the Company's exposure to currency risk at the reporting date has been determined based...

  • Page 129
    ... of the related cash-settled evuity forward agreements provided by the counterparty to the transactions (such fair value estimates being largely based upon the Company's Common Share and Non-Voting Share prices as at the statement of financial position dates). TELUS 2011 ANNUAL REPORT . 125

  • Page 130
    ... Deduct: Net amounts due to counterparties in respect of derivatives used to manage changes in share-based compensation costs and classified as held for hedging 2013 $ß22 $ß 3 $ß 2 $ß15 $ß 5 $ß 4 $ß12 $ß - $ß - (1) $ß 2 $ß 2 (1) $ß 4 $ß 4 126 . TELUS 2011 ANNUAL REPORT

  • Page 131
    ...- - 2012 2010 $ß 4 $ß - - - - - $ $ 60 - 13 - 13 - $ $ 130 26 51 9 51 9 2011 $ß - - - - $ß1,133 404 419 407 $ - - 62 - 3 $ß422 $ß422 - $ß 62 $ß 62 Other Long-Term Liabilities Derivatives(1) used to manage changes in share-based compensation costs and classified...

  • Page 132
    ... on derivatives Years ended December 31 (millions) Location 2011 2010 Derivatives used to manage currency risks Derivatives used to manage changes in share-based compensation costs (Note 13(b)) Financing costs Employee benefits expense $ß 7 6 $ß13 $ß - 24 $ß24 128 . TELUS 2011 ANNUAL REPORT

  • Page 133
    ..., voice long distance, data (which includes: television; Internet, enhanced data and hosting services; and managed and legacy data services) and other telecommunications services excluding wireless. Segmentation is based on The following segmented information is regularly reported to the Company...

  • Page 134
    ...of providing residential basic telephone services in non-forborne high cost serving areas. The portable subsidy payments are paid based upon a total subsidy revuirement calculated on a per network access line/per band subsidy rate. For the year ended December 31, 2011, the Company's portable subsidy...

  • Page 135
    ... The Company's basic blended weighted average statutory income tax rate is the aggregate of the following: Years ended December 31 2011 2010 Basic federal rate Weighted average provincial rate Other tax jurisdictions 16.2% 10.4% 0.6% 27.2% 17.7% 10.9% 0.4% 29.0% TELUS 2011 ANNUAL REPORT . 131

  • Page 136
    ... December 31, 2011, the Company recognized the benefit of $NIL (2010 - $1 million) in net capital losses. The Company conducts research and development activities, which are eligible to earn Investment Tax Credits. During the year ended December 31, 2011, the Company recorded Investment Tax Credits...

  • Page 137
    ... Common Shares and Non-Voting Shares by the total weighted average Common Shares and Non-Voting Shares outstanding during the period. Diluted net income per Common Share and Non-Voting Share is calculated to give effect to share option awards and restricted stock units. The following table presents...

  • Page 138
    ... the Company, payable on July 3, 2012, to holders of record at the close of business on June 8, 2012. In the event that the proposed share conversion of Non-Voting Shares to Common Shares on a one-for-one basis receives all revuisite approvals (see Note 21(a)) and is effective prior to the dividend...

  • Page 139
    ... estimation at the time of grant, using the Black-Scholes model (a closed-form option pricing model), are as follows: Years ended December 31 2011 2010 Share option award fair value (per share option) Risk free interest rate Expected lives(1) (years) Expected volatility Dividend yield $ß 6.75...

  • Page 140
    .... The following table presents a summary of the activity related to the Company's restricted stock units. Years ended December 31 Number of restricted stock units Non-vested Vested 2011 Weighted average grantdate fair value Number of restricted stock units Non-vested Vested 2010 Weighted average...

  • Page 141
    ...market. For the years ended December 31, 2011 and 2010, all Common Shares issued to employees under the plan were purchased on the market at normal trading prices. 14 EMPLOYEE FUTURE BENEFITS Summary schedules and review of employee future benefits and related disclosures The Company has a number...

  • Page 142
    ... British Columbia are covered by a negotiatedcost, target-benefit union pension plan. Company contributions are determined in accordance with provisions of negotiated labour contracts, the current one of which is in effect until December 31, 2015, and are generally based on employee gross earnings...

  • Page 143
    ... included in employee benefits expense reflects management's expected long-term rate of return, as discussed further in (f). Experience adjustments The Company's defined benefit pension plan experience adjustments were as follows: As at, or for the years ended, December 31 (millions) 2011 2010 2009...

  • Page 144
    ...224 Future benefit payments Estimated future benefit payments from the Company's defined benefit pension plans, calculated as at December 31, 2011, are as follows: Years ending December 31 (millions) 2012 2013 2014 2015 2016 2017-2021 $ß 374 389 405 419 432 2,295 140 . TELUS 2011 ANNUAL REPORT

  • Page 145
    ...Financial assumptions - - - Change in the effect of limiting net defined benefit assets to the asset ceiling - $ß 2 (1) The return on plan assets included in employee benefits expense reflects management's expected long-term rate of return, as discussed further in (f). TELUS 2011 ANNUAL REPORT...

  • Page 146
    ... plans is to ensure the security of the retirement income and other benefits of the plan members and their beneficiaries. A secondary goal of the Company is to maximize the long-term rate of return of the defined benefit plans' assets within a level of risk acceptable to the Company. Risk management...

  • Page 147
    ...Company's accrued benefit obligations are as follows: Pension benefit plans 2011 2010 2011 Other benefit plans 2010 Discount rate used to determine: Net benefit costs for the year ended December 31 Accrued benefit obligation as at December 31 Expected long-term rate of return(1) on plan assets used...

  • Page 148
    ... long-term rate of return on plan assets), which might magnify or counteract the sensitivities. (g) Defined contribution plans The Company's total defined contribution pension plan costs recognized were as follows: Years ended December 31 (millions) 2011 2010 Union pension plan and public service...

  • Page 149
    ...; January 1, 2010 - $2.6 billion). As at December 31, 2011, the Company's contractual commitments for the acvuisition of property, plant and evuipment were $188 million over a period through to 2013 (December 31, 2010 - $170 million over a period through to 2013). TELUS 2011 ANNUAL REPORT . 145

  • Page 150
    ... goodwill and review of reported fiscal year acvuisitions from which goodwill arose (a) Intangible assets and goodwill, net Intangible assets subject to amortization Customer contracts, related customer relationships Subscriber and leasebase hold interests Access to Assets rights-of-way under...

  • Page 151
    ...December 31, 2010 - every 5 years or every 10 years; January 1, 2010 - every 5 years or every 10 years) following a review by Industry Canada of the Company's compliance with licence terms. In addition to current usage, the Company's licensed spectrum can be used for planned and new technologies. As...

  • Page 152
    ... three-month period ended March 31, 2011, the Company acvuired control of Transactel (Barbados) Inc., a business process outsourcing and call centre company with facilities in two Central American countries. The investment was made with a view to enhancing the Company's business process outsourcing...

  • Page 153
    ...with a view to enhancing the Company's distribution of wireless products and customer services across Western Canada. The primary factor that contributed to the recognition of goodwill was the earnings capacity of the acvuired businesses in excess of the net tangible assets and net intangible assets...

  • Page 154
    ... beginning of the fiscal years presented. Years ended December 31 (millions except per share amounts) As reported (1) 2011 Pro forma (2) 2010 As reported (adjusted - Note 25(c)) Pro forma(2) Operating revenues Net income Net income per Common Share and Non-Voting Share - Basic - Diluted $ß10...

  • Page 155
    .... TELUS Communications Inc. is revuired to maintain at least a BBB (low) credit rating by Dominion Bond Rating Service or the securitization trust may revuire the sale program to be wound down prior to the end of the term. When the Company sells its trade receivables, it retains reserve accounts...

  • Page 156
    ... in respect of residential basic services provided to non-high cost serving areas. In order to extinguish the deferral account liability, the Company will be: expanding broadband services in its incumbent local exchange carrier territories to rural and remote communities; enhancing accessibility to...

  • Page 157
    ... to improve the Company's long-term operating productivity and competitiveness. The Company expects that substantially all of the cash outflows in respect of the balance accrued as at the financial statement date will occur within twelve months thereof. The Company's estimate of restructuring...

  • Page 158
    20 As at ($ in millions) Series LONG-TERM DEBT Summary schedule of long-term debt and related disclosures (a) Details of long-term debt December 31, December 31, January 1, 2011 Rate of interest Maturity 2010 2010 TELUS Corporation Notes U.S.(2) CB CC CD CE CF CG CH CI 8.00%(1) 5.00%(1) 4.50...

  • Page 159
    ...Continued access to TELUS Corporation's credit facility is not contingent on the maintenance by TELUS Corporation of a specific credit rating. As at (millions) Revolving credit facility expiring Dec. 31, 2011 Nov. 3, 2016 Dec. 31, 2010 May 1, 2012 May 1, 2012 Dec. 31, 2010 January 1, 2010 Total Net...

  • Page 160
    ... to eliminate the Company's Non-Voting Share class at the Company's annual and special meeting to be held May 9, 2012. Under the terms of the proposal, each Non-Voting Share would be converted into a Common Share on a one-for-one basis, effected by way of a court-approved plan of arrangement and...

  • Page 161
    FINANCIAL STATEMENTS & NOTES: 21 (b) Share option plans The Company has a number of share option plans under which officers and other employees may receive options to purchase Non-Voting Shares at a price evual to the fair market value at the time of grant; prior to 2001, options were also ...

  • Page 162
    ... members voted to accept the April 11, 2011, tentative agreement. The terms and conditions of the new collective agreement are effective from June 9, 2011, to December 31, 2015; the contract covered approximately 27% of the Company's workforce as at December 31, 2011. 158 . TELUS 2011 ANNUAL REPORT

  • Page 163
    ... of one claim that certain wireless products used on the Company's network infringe two third-party patents. The Company is assessing the merits of this claim but the potential for liability and magnitude of potential loss cannot be readily determined at this time. TELUS 2011 ANNUAL REPORT . 159

  • Page 164
    ... Professional Employees of TELUS porporation and non-registered, non-contributory supplementary defined benefit pension plans (Note 14). (2) For the year ended December 31, 2011, share-based compensation is net of $2 (2010 - $5) of effects of derivatives used to manage share-based compensation costs...

  • Page 165
    ... and other employee related liabilities Restricted stock units liability Accrual for net-cash settlement feature for share option awards (Note 13(b)) Trade accounts payable Interest payable Other $ 579 287 29 $ 555 284 20 $ 520 252 20 Net change in non-cash working capital Accounts receivable...

  • Page 166
    ...date of adoption is January 1, 2011. The Company's December 31, 2010, annual consolidated financial statements were the latest presented using previous non-IFRS-IASB compliant GAAP. Exemption Exemption taken? Comments Business combinations Yes As would impact the Company, and as adopted by the...

  • Page 167
    ...038 $ß1,048 4 $ß1,052 $ $ 888 4 892 Total Comprehensive Income Attributable to: Common Shares and Non-Voting Shares Non-controlling interests $ß1,088 4 $ß1,092 Net Income per Common Share and Non-Voting Share Basic Diluted $ß 3.23 $ß 3.22 $ß 3.27 $ß 3.27 TELUS 2011 ANNUAL REPORT . 163

  • Page 168
    ... pension plans Operating expenses - employee benefits expense Income taxes Net income Net income per Common Share and Non-Voting Share - Basic - Diluted Other comprehensive income - employee defined benefit plans actuarial gains (losses) $ $ 0.09 0.09 $ (214) 164 . TELUS 2011 ANNUAL REPORT

  • Page 169
    ... of assets Operating expenses - depreciation Income taxes Net income Net income per Common Share and Non-Voting Share - Basic - Diluted $ß $ $ 5 (1) (4) $ß (0.01) $ß (0.01) Sale of trade receivables Other expense, net Financing costs $ $ß (8) 8 X TELUS 2011 ANNUAL REPORT . 165

  • Page 170
    ... 7,745 11,843 Non-current liabilities Provisions Long-term debt Other long-term liabilities Deferred income taxes - 6,090 1,271 1,319 8,680 Liabilities Owners' Equity Common Share and Non-Voting Share evuity Common Shares Non-Voting Shares Contributed surplus Retained earnings Accumulated other...

  • Page 171
    ...Company. Amount of effect (increase (decrease), in millions) Topic Line items affected January 1, 2010 Recognition, measurement, presentation December 31, and/or 2010 disclosure Presentation and/or disclosure Comments Sale of accounts receivable Accounts receivable Short-term borrowings Accounts...

  • Page 172
    ... accrued liabilities Restructuring accounts payable and accrued liabilities Advance billings and customer deposits Current liabilities - provisions Other long-term liabilities Non-current liabilities - provisions (135) (144) 299 (48) 70 (111) - 122 (171) 171 168 . TELUS 2011 ANNUAL REPORT

  • Page 173
    ... Retained earnings Accumulated other comprehensive income $ $ß (19) 19 $ $ß (19) 19 X (e) Reconciliations - consolidated statement of cash flows The Company's consolidated statement of cash flows was not materially affected by the transition to IFRS-IASB. TELUS 2011 ANNUAL REPORT . 169

  • Page 174
    ... network and a customer's terminal equipment. LTE (long-term evolution): A 4G mobile telecommunications technology, capable of advanced wireless broadband speeds, that has emerged as a leading global wireless industry standard. TELUS' 4G LTE coverage is capable of delivering manufacturer-rated...

  • Page 175
    ...by TELUS through its Mike service using iDEN technology. PVR (personal video recorder): An interactive TV set-top box that records and plays back television programs. roaming: A service offered by wireless network operators that allows subscribers to use their mobile phones while in the service area...

  • Page 176
    INVESTOR INFORMATION Stock exchanges and TELUS trading symbols Toronto Stock Exchange (TSX) Common shares T Non-voting shares T.A New York Stock Exchange (NYSE) Non-voting shares TU CUSIP: 87971M103 CUSIP: 87971M202 Board's assessment and determination of the Company's financial situation and ...

  • Page 177
    ...common and non-voting share. 2 For a definition of free cash flow, see Section 11 of Management's discussion and analysis in this report. Share prices and volumes Toronto Stock Exchange Common shares (T) (C$ except volume) Year 2011 Q4 Q3 Q2 2011 Q1 Year 2010 Q4 Q3 Q2 2010 Q1 High Low Close Volume...

  • Page 178
    ...YEAR DAILY CLOSING PRICES 75 TSX (C$) 60 ($) 45 NYSE (US$) Toronto Stock Exchange Common (T) Non-voting (T.A) New York Stock Exchange Non-voting (TU) 30 15 0 Q1 Q2 2007 Q3 Q4 Q1 Q2 2008 Q3 Q4 Q1 Q2 2009 Q3 Q4 Q1 Q2 2010 Q3 Q4 Q1 Q2 2011 Q3 Q4 TELUS TOTAL SHAREHOLDER RETURN...

  • Page 179
    ... began on a next generation long-term evolution (LTE) wireless network, with service launched in February 2012 in major urban centres across Canada. Awards . The TELUS annual report placed eighth in the global Annual Report on Annual Reports, making TELUS the only company that has ranked in the...

  • Page 180
    ...news releases and investor presentations Contact TELUS Investor Relations: John Wheeler Vice-President, Investor Relations 1-800-667 -4871 or +1 (604) 643-4113 (outside North America) email: [email protected] telus.com/investors TELUS executive office 555 Robson Street Vancouver, British Columbia Canada...

  • Page 181
    ... information and sign up for email alerts by visiting telus.com/investors. . Annual meeting shareholder documents and proxy materials . TELUS annual report . Dividend Reinvestment and Share Purchase Plan details . Signing up for e-delivery of shareholder documents . Latest quarterly financial...

  • Page 182
    ... technology and introducing a broader range of devices to deliver significantly higher data speeds and a better customer experience . Leveraging our Clear & Simple customer approach to enhance our wireless leadership position . Offering a superior home entertainment experience with Optik TV and High...