Telus 2011 Annual Report Download - page 153

TELUS 2011 ANNUAL REPORT . 149
FINANCIAL STATEMENTS & NOTES: 16
.Subsequently in the first quarter of 2011, Transactel (Barbados) Inc.
achieved the business growth target necessary for the Company
to exercise its second purchased call option. The Company exercised
its second purchased call option and asserted its control effective
February 1, 2011 (the acquisition date). The effects of the second
purchased call option exercise included that the Company:
.accounted for its 51% economic interest in Transactel (Barbados)
Inc. on a consolidated basis (as the vendor no longer had an
effective veto over the strategic operating, investing and financing
policies of Transactel (Barbados) Inc.) and thus included Transactel
(Barbados) Inc.’s results in the Company’s Wireline segment
effective February 1, 2011;
.was required to re-measure its pre-acquisition 51% economic
interest at acquisition-date fair value, resulting in the recognition
of a gain of $16 million (see Note 6) (such gain being net of a
contingent consideration liability estimate of $10 million; concurrent
with preparing the Company’s 2011 financial statements, the
contingent consideration liability was confirmed at $9 million, as
discussed further in Note 19(a), and the gain was thus revised to
$17 million);
.was required to initially measure the non-controlling interest’s 49%
economic interest at acquisition-date fair value, resulting in an
increase of $60 million in the non-controlling interest; and
.recorded, in the second quarter of 2011, a post-acquisition equity
transaction with the vendor for the incremental 44% economic
interest for $51 million cash.
Concurrent with acquiring the incremental 44% economic interest,
the Company provided a written put option to the vendor. This third
written put option becomes exercisable on December 22, 2015, and
allows the vendor to put the remaining 5% economic interest to the
Company (the Company’s effective interest in Transactel (Barbados) Inc.
would become 100%). The written put option sets out that the pricing
methodology is to use an independent party using common practice
valuation techniques. Also concurrently, the vendor has provided the
Company with a purchased call option which substantially mirrors the
third written put option.
TELUS-branded wireless dealership businesses
During the year ended December 31, 2011, the Company acquired 100%
ownership of certain TELUS-branded wireless dealership businesses
for $81 million cash ($81 million net of cash acquired). There was no
contingent consideration in the transactions. The investments were made
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 acquired businesses in excess of the net
tangible assets and net intangible assets acquired (such excess arising
from the acquired workforce and the benefits of acquiring established
businesses in multiple locations). Approximately $16 million assigned to
goodwill during the year ended December 31, 2011, may be deductible
for tax purposes.
Acquisition-date fair values
The acquisition-date fair values assigned to assets acquired and liabilities
assumed are as set out in the following table.
TELUS-branded
wireless
Transactel dealership
(Barbados) Inc. businesses
As at (millions) February 1, 2011 Various 2011
Assets
Current assets
Accounts receivable(1) $ß 25 $ß 2
Other 5 1
30 3
Non-current assets
Property, plant and equipment 12 6
Intangible assets
Intangible assets subject to amortization(2)
Customer contracts, related customer
relationships and leasehold interests 21 39
Software 1 –
22 39
Deferred income taxes – 2
Total non-current assets 34 47
Total identifiable assets acquired 64 50
Liabilities
Current liabilities 13 5
Non-current liabilities
Other long-term liabilities – 1
Deferred income taxes – 1
Total non-current liabilities – 2
Total liabilities assumed 13 7
Net identifiable assets acquired 51 43
Goodwill 72 38
Net assets acquired $ß123 $ß81
Acquisition effected by way of:
Cash consideration $ß – $ß81
Re-measured pre-acquisition 51% interest
at acquisition-date fair value(3) 63 n.a.
63 81
Non-controlling interest measured at fair value(4) 60 n.a.
$ß123 $ß81
(1) The fair value of the accounts receivable is equal to the gross contractual amounts
receivable and reflects the best estimates at the acquisition dates of the contractual
cash flows expected to be collected.
(2) The customer contracts and the related customer relationships and the software
acquired in conjunction with Transactel (Barbados) Inc. are being amortized over periods
of six years and three years, respectively. The customer contracts, related customer
relationships and leasehold interests acquired in conjunction with the TELUS-branded
wireless dealership businesses are being amortized over a period of six years.
(3) Re-measurement of the Company’s previously held 51% economic interest resulted
in the recognition of an acquisition-date gain of $16 which is included in the Consolidated
Statements of Income and Other Comprehensive Income as a component of Other
operating income (see Note 6). The previously held 51% economic interest was com-
prised of an initial 29.99% acquired December 22, 2008, and a 21.01% economic
interest obtained January 7, 2011.
The acquisition-date fair value of the Company’s 51% interest included the
recognition of $10 for contingent consideration, which was contractually based upon
a multiple of an estimate of Transactel (Barbados) Inc. fiscal 2011 earnings in excess
of a threshold amount.
Concurrent with preparing the Company’s 2011 financial statements, the con-
tingent consideration liability was confirmed at $9, as discussed further in Note 19(a),
and the gain was thus revised to $17.
(4) The remaining non-controlling interest, representing a 49% economic interest, had a
fair value of $60 as of February 1, 2011 (acquisition-date fair value). The non-controlling
interest fair value (the recorded amount of which is based upon net assets acquired)
was determined by discounted cash flows. The fair value estimate is based upon: a
going-concern basis; market participant synergies; a perpetuity terminal value based
on sustaining cash flows; and costs (taxes) associated with future repatriation of funds.