annual report 2004

management's discussion & analysis

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management's discussion & analysis
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5. results from operations

5.3 consolidated results from operations

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Consolidated Operating revenues and EBITDA increased significantly in 2004, when compared with 2003. This was driven by TELUS Mobility Operating revenue growth of 19.3%, while the corresponding increase in TELUS Mobility Operations expense was only 8.4%. TELUS' Communications segment Operating revenue growth was relatively flat, decreasing by 0.3% in 2004, while its Operations expense increased by 0.4%. Expenses increased to maintain high service levels and provide outsourcing services to customers, and were partly offset by savings from the Operational Efficiency Program phases, which concluded in 2003. Communications segment restructuring charges of $52.6 million in 2004 were recorded for ongoing efficiency initiatives, an increase of $24.3 million when compared with 2003.

For further detail by segment, see Communications segment results and Mobility segment results.

Depreciation and amortization

Increased depreciation for growth in data network and wireless capital assets, increased depreciation for certain other assets, as well as write-offs of network equipment and software assets in 2004, were offset by lower amortization resulting from certain software applications becoming fully amortized and from the write-off of software assets in 2003.

Other expense, net

Other expense includes accounts receivable securitization expense, gains and losses on disposal of property, income (loss) or impairments in equity or portfolio investments, and charitable donations. Accounts receivable securitization expense decreased by $9.8 million in 2004, when compared to 2003, due to the reduction in the amount of securitized receivables. See Accounts receivable sale. Upon expiry of TELUS' offer to purchase Microcell in the fourth quarter of 2004, accumulated acquisition costs of approximately $5 million were written off. In addition, net gains from the sale of land and several buildings and investments increased by $10.4 million in 2004, when compared with 2003. Charitable donations expense continues to reflect TELUS' objective of donating 1% or more of average pre-tax income, as defined under the Imagine Caring Company formula.

Financing costs

Interest on long-term and short-term debt decreased primarily due to the repayment of bank facilities, Medium-term Notes and First Mortgage Bonds during 2003, and the repayment of TCI Debentures and Medium-term Notes in the third quarter of 2004. TELUS maintains a hedging program using cross currency swaps, and as a result, long-term financing costs were generally unaffected by fluctuations in the value of the Canadian dollar against the U.S. dollar.

Debt, which includes Long-term Debt, Current maturities and the deferred hedging liability, but excludes cash-on-hand, was $7,374.2 million at December 31, 2004, when compared with $7,576.7 million at December 31, 2003. Interest income was recognized primarily as a result of tax refunds ($26.2 million in 2004 and $38.9 million in 2003) from the settlement of various tax matters, as well as from interest earned on cash and temporary investments.

Income taxes

Blended federal and provincial statutory income tax increased due to higher income before taxes of $325.1 million, partly offset by lower blended tax rates. Tax recoveries were related to losses carried back and settlement of tax matters and consequential adjustments for prior years that had higher tax rates. Revaluation of future tax balances arose from changes in federal and provincial tax rates.

Non-controlling interest

Non-controlling interest primarily represents minority shareholders' interests in several small subsidiaries.

Preference and preferred dividends

Preference and preferred dividends ended with the redemption of all of the publicly held TELUS Communications Inc. Preference and Preferred Shares, completed on August 3, 2004.