Manitoba Telecom Services Inc. Reports Third Quarter Results
Stock Symbol: MBT
This news release contains forward-looking statements and information.
For a description of the related risk factors and assumptions, please see
the section entitled "Forward-looking Statements Disclaimer" later in
this news release. This release discusses results from Manitoba Telecom
Services Inc.'s continuing operations. The results, and the definition
of continuing operations and free cash flow, should be read in
conjunction with Manitoba Telecom Services Inc.'s third quarter 2009
interim management's discussion and analysis dated November 4, 2009
(available at the Investors section of www.mtsallstream.com), which is
incorporated by reference in this release.
- Stable sequential performance in the face of challenging economic
conditions, in line with consensus forecasts
- Consumer Markets division growth services revenues climb 7.1% in the
third quarter
- New HDTV product, MTS Ultimate TV, drives increased profitability and
digital TV subscriber growth
- Converged IP, the Enterprise Solutions division's flagship growth
product, sees revenue climb 12.2% in the third quarter
- Cost reduction program already reached annual target of $50 million
to $60 million of annualized savings in 2009
- Business generating solid cash flow in support of quarterly dividend
of $0.65 per share
"Our third quarter results reflect the continued impact of economic challenges facing Canada's business market as well as our success in key product lines for our future. While economic pressures continue to impact our enterprise legacy portfolio and unified communications services, our results also highlight our success in strategic product lines that will define our long-term success, such as wireless, high-speed Internet, television and converged IP, which all grew strongly," said
Results from continuing operations(1) for the third quarter of 2009 were consistent with the Company's updated financial outlook and the analysts' consensus forecast. Revenue declined 3.5%, EBITDA(2) declined 5.0%, and EPS(3) was 9.5% lower than the third quarter of 2008.
The Company's growth services portfolio, which includes wireless, digital television, high-speed Internet, converged Internet protocol ("IP"), unified communications, professional services and security, delivered solid performance in the third quarter, growing by 2.4%. Revenues from these services continued to increase their prominence in the overall revenue mix of the business, rising to 47% of total revenues.
QUARTERLY FINANCIAL HIGHLIGHTS *
*From continuing operations
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2009 2008
(in millions $, except EPS)
Q3 Q2 Q1 Q4 Q3
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Growth services revenues 218.2 216.7 227.2 212.5 213.1
Legacy services revenues 244.7 247.6 255.7 263.9 266.8
Revenue 462.9 464.3 482.9 476.4 479.9
EBITDA 156.9 159.3 163.2 156.7 165.1
Free cash flow(4) 62.0 59.9 68.7 39.4 70.8
EPS 0.67 0.67 0.71 0.59 0.74
Capital expenditures/revenue 15% 14% 12% 19% 14%
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Free cash flow of
"Our balance sheet has not been impacted materially by the difficult economic conditions and continues to be one of the strongest in the industry," said Wayne Demkey, Chief Financial Officer.
The Company's Board of Directors declared a cash dividend of
DIVISIONAL HIGHLIGHTS*
*From Continuing Operations
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Three months Nine months
ended ended
(in millions of $) September 30 change September 30 change
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2009 2008 2009 2008
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Consumer Markets division ("CMD")
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CMD growth
services revenue 108.0 100.8 7.1% 313.3 289.5 8.2%
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CMD legacy
services revenue 100.6 107.4 (6.3%) 307.2 323.3 (5.0%)
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CMD total revenue 208.6 208.2 0.2% 620.5 612.8 1.3%
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CMD EBITDA 107.9 104.9 2.9% 322.3 312.7 3.1%
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Enterprise Solutions division ("ESD")
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ESD growth
services revenue 110.2 112.3 (1.9%) 348.8 343.4 1.6%
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ESD legacy
services revenue 144.1 159.4 (9.6%) 440.8 488.9 (9.8%)
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ESD total revenue 254.3 271.7 (6.4%) 789.6 832.3 (5.1%)
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ESD EBITDA 49.0 60.1 (18.5%) 156.7 190.7 (17.8%)
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MTS Allstream totals
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Revenue 462.9 479.9 (3.5%) 1,410.1 1,445.1 (2.4%)
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EBITDA(5) 156.9 165.1 (5.0%) 479.4 505.1 (5.1%)
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Consumer Markets division
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Once again, the Company's Consumer Markets division delivered solid margins, revenue and EBITDA growth and strong cash flow. The division continues to benefit from exposure to the resilient economy of Manitoba and a business strategy that has combined unmatched product bundles with the capabilities of MTS Allstream's advanced networks to offer tremendous value to customers.
The division's three major consumer growth products delivered solid revenue growth through the third quarter. Wireless revenues increased 7.3%, Internet revenues increased 4.8% and digital television revenues climbed 9.6%. The Company has continued to deploy its new HDTV product, MTS Ultimate TV, the most advanced television viewing experience in
"Our products and strategies continue to deliver solid performance," said
Enterprise Solutions division
-----------------------------
The recession and the slow pace of the economic recovery affected the performance of certain business lines within the Enterprise Solutions division. Converged IP, the division's flagship strategic growth product, continued to be successful, with growth of 12.2% in the third quarter as compared to the same period of 2008. The division's national sales team won
"We are positioning the Enterprise Solutions division to benefit once the economy recovers and business spending resumes," said
2010 OUTLOOK
The Company announced today that the release of its Financial and Operating Outlook for 2010 is expected to be provided in February of 2010 to be consistent with the timing of its peers. Based on the Company's stable sequential performance over the past two quarters, and assuming that current economic conditions do not worsen, no significant change in the performance of the business is expected between now and that time.
OTHER DEVELOPMENTS
The following are various announcements made recently by the Company.
Corporate announcements
- On November 2, 2009, MTS Allstream announced it was named as one of
Manitoba's Top 25 Employers for 2010. This annual competition,
announced by the Winnipeg Free Press, recognizes Manitoba's best
places to work.
- On October 22, 2009, MTS Allstream celebrated the official opening of
the Allstream Centre. After many months of construction, the
Allstream Centre, Canada's newest and greenest conference facility,
located at Exhibition Place in Toronto, is fully-equipped with unique
and innovative Allstream-branded communications solutions.
- On October 19, 2009, the Company announced the establishment of a
$500 million medium term note program. Under this program, the
Company may issue medium term notes periodically up to an amount of
$500 million over the next 25 months.
- On October 8, 2009, MTS Allstream announced it was named as one of
Canada's Top 100 Employers for 2010. This annual competition,
announced by Maclean's magazine, recognizes Canada's best places to
work and aims to identify the companies and organizations that lead
their industries in attracting and retaining employees.
- On October 7, 2009, the Company updated its financial outlook for
2009.
- On September 29, 2009, MTS Allstream announced it acquired VisionIP
Technologies Inc. ("VisionIP"), a Montreal-based provider of IT
solutions and services. As a Cisco Silver Partner in Canada, with
specializations in advanced security, advanced wireless, and advanced
unified communications, VisionIP strengthens MTS Allstream's
competitive position by expanding its unified communications
solutions delivery and service capabilities in the province of Quebec
where VisionIP has established a great depth of expertise and
experience in supporting a key business market.
- On September 17, 2009, MTS Allstream welcomed an announcement by the
Federal Government that the Canadian Radio-television and
Telecommunications Commission ("CRTC") should consider the views of
the public when it comes to the issue of Fee-For-Carriage, which
would see service providers pay broadcasters a fee to provide
customers with television signals that are currently available free
of charge over the airwaves.
- On September 16, 2009, MTS Allstream filed a submission with the CRTC
opposing Fee-For-Carriage, which would see service providers pay
broadcasters a fee to provide customers with television signals that
are available free of charge over the airwaves. The submission was
made in preparation for a CRTC hearing on broadcast issues expected
to take place in November.
- On September 11, 2009, the Company confirmed that its previously
announced agreement with Rogers, that will see both companies share
the cost to deploy a high-speed packet access ("HSPA") wireless
network across the existing MTS Allstream regional wireless
footprint, received the required regulatory approvals and will
proceed.
- On September 10, 2009, MTS Allstream, the Canadian Association of
Internet Service Providers, the Canadian Federation of Independent
Businesses and nearly two dozen individual companies from across
Canada launched an Internet-based campaign to convince the Federal
Government to correct a CRTC decision that is harmful to competition
in broadband Internet, Ethernet and other next generation
communications services.
- On August 21, 2009, MTS Allstream received top honours at Manitoba's
first annual Commuter Friendly Workplace Awards. The award recognizes
the Company's achievements in encouraging green commuting year-round
through facility improvements, and outstanding management and staff
support.
- On August 11, 2009, Cindy Klassen, Canada's all-time most decorated
Olympian and MTS Allstream-sponsored athlete, participated in one of
Manitoba's premier community festivals, the Morden Corn & Apple
Festival on Saturday, August 22, 2009. MTS Allstream is a proud
sponsor of both Cindy Klassen and the Morden Corn & Apple Festival.
Consumer Markets division announcements
- On October 19, 2009, MTS Allstream announced it launched Canada's
first Whole Home personal video recorder ("PVR"). This new and more
advanced PVR is capable of recording up to three programs at the same
time and playing back programs from any connected TV in the home.
This is the only service of its kind in Canada and exclusive to MTS
Ultimate TV Service customers.
- On October 16, 2009, MTS Allstream became the first wireless provider
to launch the Novatel Wireless MiFi(TM) 2200 Intelligent Mobile
Hotspot in Manitoba. The MiFi wirelessly accesses the Internet
anywhere MTS 1X/EVDO wireless coverage is available with any WiFi-
enabled device. Able to support up to five users or devices
simultaneously, customers can share their wireless high-speed
connection with friends, family members and co-workers.
- On October 9, 2009, MTS Allstream announced that TSN2 was available
to its MTS TV subscribers. Each year, TSN2 delivers hundreds of
exclusive live sporting events and encore telecasts of key sporting
events, including marquee NHL and NBA games.
- On October 2, 2009, MTS TV premiered a new line-up of
locally-produced programming exclusively on Winnipeg On Demand.
Winnipeg on Demand provides access to local filmmakers and community
producers to express themselves through their stories. The result is
a new and growing library of programs featuring Winnipeg people,
music, history, arts, culture and lifestyle.
- On September 25, 2009, MTS Allstream launched MTS Ultimate TV Service
to residents in Brandon. MTS Ultimate TV Service is the next
generation of high definition television that combines technology
from Alcatel-Lucent Canada Inc. and the award-winning Microsoft
Mediaroom Internet Protocol television software platform.
- On September 18, 2009, MTS Allstream introduced two new residential
high-speed Internet plans - Lightning Bolt and Lightning Super MAX.
These plans offer MTS Allstream's fastest consumer speeds yet and are
great for gaming, for downloading multiple files from multiple URLs
at once, and for when multiple users are accessing the Internet at
the same time.
- On August 27, 2009, MTS Allstream announced its continued support of
community festivals and organizations in Western Manitoba through
financial, in kind, and volunteer contributions. Through a payroll
deduction and corporate match program, MTS employees and retirees
contribute more than $20,000 to charitable organizations in Western
Manitoba every year. MTS Allstream employees and retirees also
contribute more than 8,000 hours to community organizations and
events in Western Manitoba every year through the MTS Volunteers
organization.
- On August 12, 2009, MTS Allstream launched Wireless Hewlett Packard
Mini Notebook Packages. The Wireless HP Mini Notebook Packages
combine an MTS Internet Express Stick and an HP Mini Notebook
computer to provide access to the Internet anywhere 1xEVDO coverage
exists in Manitoba, using Manitoba's widest wireless network, as well
as throughout the rest of Canada and the U.S.
Enterprise Solutions division announcements
- On October 20, 2009, MTS Allstream announced a contract to provide
Vulcan County Alberta with a wireless solution assessment that will
see leading-edge technologies, an information system network, and
other communications infrastructure installed throughout the county.
- On October 14, 2009, MTS Allstream announced it had achieved Cisco
Managed Services Master Channel Partner worldwide status for unified
communications managed services and managed business IP. As MTS
Allstream continues to deliver advanced business communication
solutions to its customers, this designation recognizes the Company's
continued investment in the personnel, processes and tools needed to
meet the growing demand for highly-sophisticated managed services
practices.
- On October 13, 2009, MTS Allstream announced that guests of the 2009
Allstream Global Forum will be the first in Canada to hear former
U.S. Vice-President Al Gore share his new and compelling vision of
how business can play a pivotal role in ensuring changes for the
better through innovation and investment in new technology. Proceeds
from the event, which will take place on November 24, 2009, at the
Allstream Centre in Toronto, go to the David Suzuki Foundation and
its efforts to help transform the Canadian economy in ways that are
consistent with a sustainable future.
- On October 5, 2009, MTS Allstream announced the renewal of a two-year
contract with WestJet, to continue servicing their global MPLS
network to all domestic and international locations; maintain and
support all local, long distance, and toll-free services; support
Internet services for e-commerce Web bookings; and maintain all
domestic phone switches.
- On October 1, 2009, MTS Allstream selected Concrete Design
Communications as its agency-of-record for marketing the Company's
enterprise networking solutions offered under the Allstream brand.
- On September 30, 2009, MTS Allstream was selected by Vicwest Income
Fund to design a fully-managed MPLS network for 18 of its locations
throughout Canada and one location in the U.S.
- On September 15, 2009, MTS Allstream and Ciena announced a strategic
partnership that will see MTS Allstream launch the next generation of
managed wavelength services to its business customers across Canada
that require resilient network solutions for mission critical
applications. MTS Allstream also joined Ciena's BizConnect global
partner program as a designated Managed Services Provider partner.
- On September 4, 2009, MTS Allstream announced it was selected by
Stella-Jones Inc., a leading North American producer and marketer of
industrial pressure-treated wood products, specializing in the
production of railway ties, timbers, and wood poles, for the
installation of an MPLS network and managed hosting solution to eight
facilities across Canada.
- On September 3, 2009, AAA Alarm Systems Ltd. announced it had
signed a five-year alarm monitoring contract with Loblaws for its 670
corporate stores across Canada. Certain franchise stores may, at
their option, also choose to receive monitoring under the terms of
the contract.
Quarterly Conference Call
MTS Allstream's third quarter 2009 conference call with the investment community is scheduled for
Note
MTS Allstream's interim Management's Discussion and Analysis ("MD&A") for the nine months ended
About Manitoba Telecom Services Inc.
Manitoba Telecom Services Inc., through its wholly owned subsidiary MTS Allstream Inc., is one of Canada's leading national communication solutions companies, providing innovative communications for the way Canadians want to live and work today. The Company has more than 100 years of experience, with 6,000 employees across
Forward-looking Statements Disclaimer
This news release includes forward-looking statements and information (collectively, the "statements") about our corporate direction, business opportunities, operating and dispute resolution activities, financial objectives, and future financial results and performance that are subject to risks, uncertainties and assumptions. As a consequence, actual results in the future may differ materially from any conclusion, forecast or projection in such forward-looking statements. Forward-looking statements reflect our expectations as at
Factors that could cause anticipated opportunities and actual results to differ materially include, but are not limited to, the intensity of competitive activity from both traditional and new competitors (competitive conditions); the ability to retain major customers (customer relationships); decisions by the federal regulator that affect our ability to compete effectively or to enter into new business opportunities (developments in federal regulation); general economic and market conditions and the level of consumer confidence and spending, and the demand for, and prices of, our products and services (market conditions and economic fluctuations); fluctuations in pension plan funding requirements (pension solvency funding); the ability to manage labour relations effectively (collective agreements); the ability to anticipate, and respond to, changes in technology (technology); and other risk factors listed from time to time in our comprehensive public disclosure documents, including our 2008 annual MD&A and in other filings with the Canadian securities regulatory authorities. Unless otherwise stated, all amounts are expressed in Canadian dollars. For further information, refer to the "Risks and Uncertainties" sections in our 2008 annual MD&A and our interim MD&A for the third quarter of 2009.
Additional information relating to our Company, including our Annual Information Form, is available on SEDAR at www.sedar.com. This news release and the financial information contained herein have been reviewed by our Audit Committee and approved by our Board of Directors.
(1) Refer to MTS Allstream's third quarter 2009 interim MD&A for the
definition of continuing operations.
(2) EBITDA is earnings before interest, taxes, amortization, and other
income. EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with Canadian generally accepted accounting principles) as
a measure of liquidity.
(3) EPS is earnings per share.
(4) Refer to MTS Allstream's third quarter 2009 interim MD&A for the
definition of free cash flow.
(5) Includes other EBITDA of nil in the third quarter of 2009 as compared
to $0.1 million in the third quarter of 2008. Also includes other
EBITDA of $0.4 million in the first nine months of 2009 as compared
to $1.7 million in the first nine months of 2008.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Unless otherwise indicated, this Management's Discussion and Analysis ("MD&A") of our financial results for the interim period ended
Disclaimer Regarding Forward-Looking Statements
This interim MD&A includes forward-looking statements and information (collectively, the "statements") about our corporate direction, business opportunities, operating and dispute resolution activities, financial objectives and future financial results and performance that are subject to risks, uncertainties and assumptions. As a consequence, actual results in the future may differ materially from any conclusion, forecast or projection in such forward-looking statements. Examples of statements that constitute forward-looking information may be identified by words such as "believe", "expect", "project", "should", "anticipate", "could", "target", "forecast", "intend", "plan", "outlook", "see", "set", "pending", and other similar terms.
Factors that could cause anticipated opportunities and actual results to differ materially include, but are not limited to, the intensity of competitive activity from both traditional and new competitors (competitive conditions); the ability to retain major customers (customer relationships); decisions by the federal regulator that affect our ability to compete effectively or to enter into new business opportunities (developments in federal regulation); general economic and market conditions and the level of consumer confidence and spending, and the demand for, and prices of, our products and services (market conditions and economic fluctuations); fluctuations in pension plan funding requirements (pension solvency funding); the ability to manage labour relations effectively (collective agreements); the ability to anticipate, and respond to, changes in technology (technology); and other risk factors listed from time to time in our comprehensive public disclosure documents, including our 2008 annual MD&A and in other filings with the Canadian securities regulatory authorities.
For further information, please refer to the "Risks and Uncertainties" section in this interim MD&A, our interim MD&As for the first and second quarters of 2009, our 2008 annual MD&A, and our Annual Information Form, all of which are available on SEDAR at www.sedar.com.
Please note that forward-looking statements reflect our expectations as at
NON-GAAP MEASURES OF PERFORMANCE
--------------------------------
In this MD&A, we provide information concerning continuing operations, EBITDA and free cash flow because we believe investors use them as measures of our financial performance. These measures do not have a standardized meaning as prescribed by Canadian generally accepted accounting principles ("GAAP"), and are not necessarily comparable to similarly titled measures used by other companies.
- Continuing Operations - We provide information that refers to our
performance from continuing operations to assist investors in
understanding the performance of our company.
In the first nine months of 2009, continuing operations excludes
restructuring costs; the costs to transition certain wireless service
requirements away from Bell Mobility to new suppliers and to our
wireless platform; costs related to our high-speed packet access
("HSPA") deployment and related billing implementation; costs related
to certain regulatory proceedings; certain costs associated with our
transition from Canadian GAAP to International Financial Reporting
Standards ("IFRS"); a rebate related to Use of deferral account funds
to improve access to telecommunications services for persons with
disabilities and to expand broadband services to rural and remote
communities, Telecom Decision CRTC 2008-1 ("Decision 2008-1"); and
solvency funding to our pension plans.
In the first nine months of 2008, continuing operations excluded the
costs of transitioning certain wireless service requirements away
from Bell Mobility to new suppliers and to our wireless platform as
well as costs associated with the advanced wireless services ("AWS")
spectrum auction; restructuring and integration costs; the impact of
changes in income tax rates on our tax asset; and solvency funding to
our pension plans.
- EBITDA - We define EBITDA as earnings before interest, taxes,
amortization and other income. EBITDA should not be construed as an
alternative to operating income or to cash flows from operating
activities (as determined in accordance with Canadian GAAP) as a
measure of liquidity.
- Free Cash Flow - We define free cash flow as cash flow from operating
activities, less capital expenditures, and excluding changes in
working capital. Free cash flow is the amount of discretionary cash
flow that we have for purchasing additional assets beyond our annual
capital expenditure program, paying dividends, buying back shares
and/or retiring debt.
OVERVIEW
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MTS is a leading national communications provider in
Consumer Markets division
The Consumer Markets division leads every telecommunications market segment in Manitoba, delivering a full suite of wireless, high-speed Internet and data, digital television and wireline voice services under the MTS brand, as well as security and alarm monitoring services through AAA Alarm Systems Ltd., a subsidiary of MTS. This complete range of products is unmatched by any other provider in Manitoba. In addition, the Consumer Markets division is an important service provider in the national small business telecommunications market, providing customers in targeted major Canadian centres with a range of innovative business Internet, data and voice services under the Allstream brand.
Enterprise Solutions division
The Enterprise Solutions division, which operates under the Allstream brand nationally and under the MTS Allstream brand in Manitoba, is a leading competitor in the national business and wholesale markets. This division's main customer base is medium and large businesses and government organizations and its key products are Internet protocol ("IP")-based communications, unified communications, voice and data connectivity, and professional services. The Enterprise Solutions division operates an extensive national broadband fibre optic network that spans almost 30,000 kilometres, and provides international connections through strategic alliances and interconnection agreements with other international service providers.
STRATEGIC PRIORITIES UPDATE
---------------------------
In summary, during the first nine months of 2009, we made the following progress on five core priorities:
1. Focus on profitable growth
Our Consumer Markets division's growth services revenues increased by
8.2%, and our Enterprise Solutions division's growth services
revenues increased by 1.6%. EBITDA from our growth services, across
the company, was up 9.0%.
2. Improve the customer experience and gain market share
Our wireless services revenues climbed by 9.0% year-over-year on
customer growth of 7.4%. Our consumer high-speed Internet revenues
were up 8.4%, with subscribers growing by 3.4%. Driven in part by the
success of our newly introduced high definition television ("HDTV")
product, MTS Ultimate TV Service, late in the first quarter of 2009,
our digital television revenues were up 8.1% on subscriber growth of
2.3%. Revenues from our converged IP enterprise data products
delivered 12.0% growth. We have maintained our market share in most
of our major product lines.
3. Align cost structure to new market realities
Our revised and increased target for 2009 is to generate $50 million
to $60 million in annualized cost savings. We met our 2009 target,
having achieved $51.4 million in annualized cost savings from these
initiatives in the first nine months of the year, and we continue to
pursue additional cost saving opportunities.
4. Drive the transition from legacy to growth services
Growth services accounted for 47.0% of our total revenue from
continuing operations in the first three quarters of 2009, up from
43.8% a year earlier.
5. Determine HSPA deployment plan in Manitoba and national wireless
strategy
On July 28, 2009, we made a significant announcement regarding our
wireless strategy going forward for both divisions of the company.
We entered into a strategic wireless arrangement with Rogers Wireless
Partnership ("Rogers Wireless") that will see both companies share
the cost to deploy an HSPA wireless network across Manitoba. The
agreement also allows us to leverage Rogers Wireless's purchasing
scope and scale to gain cost effective access to the new network
technology and leading-edge HSPA handsets. Our customers will have
access to the best national and international roaming capabilities
with Rogers Wireless as our roaming partner, and both companies will
share roaming revenues from the HSPA network in Manitoba.
The agreement also provides us with the opportunity to launch a
national wireless business offering under the Allstream brand through
a competitive wholesale arrangement. We are continuing our analysis
of the opportunity and will provide more information to stakeholders
when available.
2009 OUTLOOK UPDATE
-------------------
This outlook and the financial information contained herein have been reviewed by our Audit Committee and should be read in conjunction with the "Disclaimer Regarding Forward-Looking Statements" and the "Risks and Uncertainties" sections in this interim MD&A, as well as similar sections of our interim MD&As for the first and second quarters of 2009, our 2008 annual MD&A and our 2008 Annual Information Form.
On
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2009 Financial Outlook - Continuing Operations
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Revenues $1.855 billion to $1.900 billion
EBITDA $625 million to $645 million
EPS $2.60 to $2.90
Free cash flow $230 million to $250 million
Capital expenditures 13% to 15% of revenues
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Our updated outlook reflects the impact the recession and the slow pace of economic recovery are having principally on our Enterprise Solutions division, and primarily reflects a sharper than expected decline in our legacy long distance and data services portfolio, as well as a decline in revenues from our unified communications line of business.
Through the third quarter and first nine months of the year, our Consumer Markets division continued to deliver strong results and growth, as well as benefit from exposure to Manitoba's resilient economy. Converged IP services, the largest and fastest growing product line within our Enterprise Solutions division, also continued to deliver solid growth.
Our growth businesses that will define our long-term success, such as wireless, digital television, high-speed Internet and converged IP, are continuing to perform well despite the economy, and we expect the positive trends in these lines of business to continue. We remain on track to achieve our targeted cost reductions, which are expected to achieve
Material Assumptions
We have made a number of assumptions in preparing our updated financial outlook and making certain other forward-looking statements, which include, but are not limited to, the following assumptions:
Market Assumptions
As competition in the overall marketplace continues, the broad market segment trends that have taken shape in 2008 and 2009 will continue to persist through the balance of 2009.
Growth for our Consumer Markets division in such services as Internet and digital television is expected to continue at similar levels in the fourth quarter of 2009 as it has through the first nine months of the year. We are assuming that there will not be any material changes to the continued growth of wireless services in 2009, notwithstanding anticipated changes to relationships and market dynamics. In addition, we continue to expect there will be no meaningful new competitor in wireless services in Manitoba in 2009 and competitive pressures to continue upon local and long distance services. Although we expect competition from an incumbent cable operator to continue in the Manitoba residential market, we are confident that we have prudently prepared our operations and strategies to counter these threats. Through our broadband network initiative, our bundling leadership, and our residential service offerings, which include wireless, Internet, digital television, local, long distance and home security services, we believe that we are well- positioned to compete successfully.
With respect to our Enterprise Solutions division, we expect our converged IP services to continue to deliver strong growth in the fourth quarter of 2009 as compared to the same period in 2008. In addition, the competitive pressure experienced in traditional legacy services, which include data connectivity, local and long distance services, will continue in similar trends as it did in 2008. Likewise, we anticipate that customer demand will continue to migrate to IP-based services. To face the continued competition in the enterprise markets through 2009, we have been refining our market focus, creating innovative IP solutions, reducing our cost structure, and investing selectively in higher-margin opportunities.
Economic Assumptions
Through the third quarter and first nine months of the year, our Consumer Markets division continued to deliver strong results and to benefit from exposure to the resilient Manitoba economy, which is expected to outperform the national economy for the balance of the year.
Our Enterprise Solutions division is affected by the national economy, which deteriorated sharply towards the end of 2008. While some economists have begun to see indications of a very slight economic improvement in the second half of 2009, we have yet to see the effect of this improvement on our enterprise business and do not expect to through the fourth quarter of 2009.
Financial and Operational Assumptions
Our financial and operational assumptions for the balance of 2009 are discussed above.
Cost Reduction Assumptions
For the first nine months of the year, we have achieved
Liquidity and Capital Resources Assumptions
Our operations historically have delivered strong cash flows, and we expect this trend to continue in 2009. We continue to invest in our core operations with a focus on our growth products and services to ensure success in the markets in which we operate. We have adopted a prudent expenditure and investment strategy that is scalable and provides flexibility to adjust the pace of investment according to economic conditions. For example, during the first nine months of this year, we have been scaling back our capital expenditures in light of the impact the economy is having on our Enterprise Solutions division and continues to do so. In 2009, our capital program is expected to be 13% to 15% of our revenues from continuing operations, with the majority spent on growth services.
Our cash requirements for 2009 include two non-recurring obligations of approximately
The cost of our regional HSPA network upgrade is expected to be up to
Tax Assumptions
We have been able to reduce our taxable income by utilizing our substantial capital cost allowance ("CCA") pools and available tax losses. By utilizing our deferred CCA deductions, we project that we will not pay cash taxes before 2015.
The present value of our tax asset is approximately
RESULTS OF OPERATIONS
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Operating Revenues
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(in millions $) Q3/09 Q3/08 % change
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Revenue (continuing operations) 462.9 479.9 (3.5)
Deferral account rebate (13.5) - n.m.
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Revenue 449.4 479.9 (6.4)
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(in millions $) YTD/09 YTD/08 % change
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Revenue (continuing operations) 1,410.1 1,445.1 (2.4)
Deferral account rebate (13.5) - n.m.
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Revenue 1,396.6 1,445.1 (3.4)
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2009 2008
(in millions $, except EPS)* Q3 Q2 Q1 Q4 Q3
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Growth services revenues 218.2 216.7 227.2 212.5 213.1
Legacy services revenues 244.7 247.6 255.7 263.9 266.8
Revenue 462.9 464.3 482.9 476.4 479.9
EBITDA 156.9 159.3 163.2 156.7 165.1
Free cash flow 62.0 59.9 68.7 39.4 70.8
EPS 0.67 0.67 0.71 0.59 0.74
Capital expenditures/revenue 15% 14% 12% 19% 14%
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* All financial metrics in this table are from continuing operations.
Through the third quarter, our growth and legacy services continued to be negatively affected by the impact of the recession and slow pace of economic recovery. This contributed to the year-over-year decline in the key metrics listed in the table above.
REVENUES
By Segment (continuing operations)
-------------------------------------------------------------------------
(in millions $) Q3/09 Q3/08 % change
-------------------------------------------------------------------------
Revenues 462.9 479.9 (3.5)
-------------------------------------------------------------------------
CMD growth services revenues 108.0 100.8 7.1
ESD growth services revenues 110.2 112.3 (1.9)
Total growth services revenues 218.2 213.1 2.4
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CMD legacy services revenues 100.6 107.4 (6.3)
ESD legacy services revenues 144.1 159.4 (9.6)
Total legacy services revenues 244.7 266.8 (8.3)
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-------------------------------------------------------------------------
-------------------------------------------------------------------------
(in millions $) YTD/09 YTD/08 % change
-------------------------------------------------------------------------
Revenues 1,410.1 1,445.1 (2.4)
-------------------------------------------------------------------------
CMD growth services revenues 313.3 289.5 8.2
ESD growth services revenues 348.8 343.4 1.6
Total growth services revenues 662.1 632.9 4.6
-------------------------------------------------------------------------
CMD legacy services revenues 307.2 323.3 (5.0)
ESD legacy services revenues 440.8 488.9 (9.8)
Total legacy services revenues 748.0 812.2 (7.9)
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Summary
Overall improvement in our growth services revenues, which include our wireless, consumer high-speed Internet, digital television, converged IP, unified communications, security and professional services, and alarm services business, continued in the third quarter and the first nine months of 2009. While sluggishness in the economy has persisted throughout the third quarter, we continue to see strong demand for the converged IP products that our Enterprise Solutions division offers in its growth services portfolio. We believe that it will be our key growth services, such as wireless, digital television, high-speed Internet and converged IP, that will define our long- term success and continue to perform well despite the economy.
Growth Services Revenues
Revenues from our growth services increased 2.4% or
Legacy Services Revenues
Legacy services revenues include our local, long distance and legacy data services. As we continue to see the impact of declining revenues from legacy services contracts with Rogers Communications Inc. ("Rogers") and AT&T Corp. ("AT&T"), we are also experiencing the effects of re-pricing and lower volumes in the enterprise legacy market and competitive losses in the consumer market. In addition, a decline in legacy services revenues related to the slowing economy as some of our enterprise customers who are based or have operations in the U.S. are reducing their business volumes.
The expected migration of communications traffic by Rogers and AT&T to their own respective networks has continued, which resulted in revenues from these customers decreasing to
Operating Revenues (continuing operations)
-------------------------------------------------------------------------
(in millions $) Q3/09 Q3/08 % change
-------------------------------------------------------------------------
Wireless 80.6 75.1 7.3
Data 162.3 171.3 (5.3)
Local 128.2 132.6 (3.3)
Long distance 70.2 80.2 (12.5)
Other 21.6 20.7 4.3
--------------------------------
Total 462.9 479.9 (3.5)
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(in millions $) YTD/09 YTD/08 % change
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Wireless 234.4 215.1 9.0
Data 508.1 523.8 (3.0)
Local 387.6 396.3 (2.2)
Long distance 215.3 248.0 (13.2)
Other 64.7 61.9 4.5
--------------------------------
Total 1,410.1 1,445.1 (2.4)
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Wireless Services
-------------------------------------------------------------------------
(in millions $) 2009 2008 % change
-------------------------------------------------------------------------
Q3 80.6 75.1 7.3
YTD 234.4 215.1 9.0
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Our wireless portfolio consists of cellular, wireless data, paging and
group communications services that we offer in the Manitoba market.
Year-over-year increases in our wireless services revenue were primarily driven by our growing subscriber base. As at
Our average revenue per user ("ARPU") of
We continue to see growth potential for our wireless services in Manitoba. Our MTS Mobility network provides strong brand awareness, network reach and customer service. In addition, the high-value product bundles that we offer customers cannot be matched by our competitors. These factors along with increasing consumer adoption of wireless products provide an environment for further growth in Manitoba. For example, at the end of the third quarter of 2009, wireless penetration in Manitoba was approximately 64% as compared to our estimate of the Canadian penetration rate of approximately 67%.
Revenues from our wireless data services continued to experience strong year-over-year growth, increasing 23.3% for the nine months ended
Data Services
-------------------------------------------------------------------------
(in millions $) 2009 2008 % change
-------------------------------------------------------------------------
Q3 162.3 171.3 (5.3)
YTD 508.1 523.8 (3.0)
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-------------------------------------------------------------------------
Our data line of business includes revenues earned from providing data,
Internet, converged IP and professional services. Data services connect
data, video and voice networks to establish private connections across
office locations and to integrate traffic over highly secure networks. We
provide a wide range of Internet connectivity services to meet the needs
of residential customers in Manitoba and business customers across the
country. We also offer hosting and security services to business
customers across Canada.
Strong demand is continuing for our converged IP services, which delivered revenue growth of 12.2% and 12.0% for the third quarter and year to date periods in 2009. Our consumer Internet services revenues rose by 4.8% and 8.4% in the third quarter and for the first nine months of this year. However, offsetting this growth were the effects of lower legacy data services revenues resulting from customer transition to IP-based growth services and the impact of the recession as many enterprise customers are experiencing lower business volumes and postponing purchases of unified communications and professional services. In addition, the continuing migration of legacy data communications traffic by Rogers and AT&T to their respective networks has further impacted the year-over-year declines in our data services revenues. Our data services revenues decreased by 5.3% and 3.0% in the third quarter and year to date, respectively. If the data services revenues of Rogers and AT&T were excluded, our data services revenues would have shown declines of 2.9% and 0.2% in the third quarter and year to date periods, respectively.
The capabilities of the suite of products offered by our Enterprise Solutions division continued to be demonstrated by solid growth in our IP- virtual private network ("IP-VPN") customer base. As at
Our consumer Internet services revenue continued to grow in the third quarter and first nine months of the year with increases of 4.8% to
Local Services
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(in millions $) 2009 2008 % change
-------------------------------------------------------------------------
Q3 128.2 132.6 (3.3)
YTD 387.6 396.3 (2.2)
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-------------------------------------------------------------------------
Local services revenues include basic voice connections for residential
customers, including enhanced calling features (such as Call Answer, Call
Display, Call Waiting and 3-Way Calling), payphone revenue, wholesale
revenues from services provided to third parties, as well as a full range
of local services to business customers. These services allow customers
to complete calls in their local calling areas and to access long
distance, cellular networks and the Internet.
We believe that we have positioned ourselves for long-term success in our markets by bundling our residential services in attractive offerings. The popularity of our residential service bundle packages, which can include wireless, Internet, digital television and alarm services bundles, continues to provide a unique value proposition for our customers. Customers utilizing our bundled service packages grew by 3.5% in the third quarter of 2009 as compared to the same period in 2008. Through the success of these programs, we continued to deliver "best in class" performance against cable company competitors, and are minimizing the reduction in our local services revenues. Our overall customer connections, which include network access services, high- speed Internet, wireless and digital television subscribers, increased year- over-year by 0.7% as compared to the third quarter of 2008.
Year-over-year, reduced local services revenues reflect decreased residential network access lines due to local competition and substitution. However, our year-over-year residential line loss is among the lowest in
Long Distance Services
-------------------------------------------------------------------------
(in millions $) 2009 2008 % change
-------------------------------------------------------------------------
Q3 70.2 80.2 (12.5)
YTD 215.3 248.0 (13.2)
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Long distance services enable residential customers in Manitoba and
business customers across Canada to communicate with destinations outside
the local exchange. Our long distance voice service portfolio includes
basic, domestic, cross-border and international outbound long distance,
basic and enhanced toll-free services, calling cards and audio
conferencing, as well as a variety of enhanced long distance services and
features.
Similar to the first half this year, we continued to experience impacts in the third quarter from competitive pricing pressures, customer losses and a slowing economy on our long distance services revenues in all market segments that we serve. Long distance services revenues in our Consumer Markets division were lower mainly due to customer migration to lower-priced long distance plans, reduced volumes and customer losses. Decreased long distance services revenues in our Enterprise Solutions division resulted primarily from lower volumes in the cross-border, international and domestic markets along with lower domestic rates. Lower domestic and cross-border volumes are attributable to exiting customers and reduced use by our customers that are based or have operations in the U.S. and have been negatively affected by reduced business activity. In the face of these pressures on our long distance business in the enterprise segment, we launched sales and marketing initiatives designed to identify new customers, retain our existing customer base and encourage higher long distance usage.
Other Revenues
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(in millions $) 2009 2008 % change
-------------------------------------------------------------------------
Q3 21.6 20.7 4.3
YTD 64.7 61.9 4.5
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Other revenues consist of revenues earned from our digital television and
home security services, and miscellaneous items. Our digital television
service is offered across our broadband network platform and is targeted
at residential customers in Winnipeg, Brandon and Portage la Prairie.
Miscellaneous revenues primarily consist of the sale and maintenance of
terminal equipment.
Year-over-year increases in other revenues were driven by growth in our digital television services revenues. Revenues from our digital television services increased by 9.6% or
We continued to add new customers to our digital television subscriber base during the third quarter and these additions were enhanced by an increase in average revenue per subscriber ("ARPS") of 2.3% to
Contributing to the growth in digital television services revenues is a price increase to our basic television service that we implemented in
At the end of March of this year, we launched MTS Ultimate TV Service; becoming the first company in
More recently, on
EBITDA
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(in millions $) Q3/09 Q3/08 % change
-------------------------------------------------------------------------
EBITDA (continuing operations) 156.9 165.1 (5.0)
Deferral account rebate (13.5) - n.m.
Restructuring and other costs (9.0) (7.1) 26.8
National wireless/wireless
transition costs (0.7) (7.5) (90.7)
--------------------------------
EBITDA 133.7 150.5 (11.2)
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(in millions $) YTD/09 YTD/08 % change
-------------------------------------------------------------------------
EBITDA (continuing operations) 479.4 505.1 (5.1)
Deferral account rebate (13.5) - n.m.
Restructuring and other costs (27.8) (7.1) n.m.
National wireless/wireless
transition costs (14.4) (17.8) (19.1)
--------------------------------
EBITDA 423.7 480.2 (11.8)
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Our EBITDA from continuing operations was
Lower consolidated EBITDA was primarily driven by higher year-over-year restructuring costs, the costs associated with the transition away from Bell Mobility to new suppliers and our wireless platform, and the deferral account rebate we recorded in the third quarter of 2009.
At the end of the second quarter this year, our cost reduction program was ahead of schedule and delivering more savings than originally forecasted and as a result, we increased our initial cost savings target for 2009 of
Additionally, due to the early success of our initial cost reduction program, we were able to launch an additional cost reduction program targeting other areas of our business that were not reviewed in our previous initiatives. We believe that there are further opportunities to streamline and gain additional efficiencies in our business in 2010.
EPS
-------------------------------------------------------------------------
(in $) Q3/09 Q3/08 % change
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EPS (continuing operations) 0.67 0.74 (9.5)
National wireless/wireless
transition costs - (0.08) n.m.
Deferral account rebate (0.14) - n.m.
Restructuring and other costs (0.10) (0.07) (42.9)
--------------------------------
Basic EPS 0.43 0.59 (27.1)
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(in $) YTD/09 YTD/08 % change
-------------------------------------------------------------------------
EPS (continuing operations) 2.05 2.39 (14.2)
National wireless/wireless
transition costs (0.14) (0.18) (22.2)
Deferral account rebate (0.14) - n.m.
Future tax rate adjustment - (0.12) n.m.
Restructuring and other costs (0.30) (0.07) n.m.
--------------------------------
Basic EPS 1.47 2.02 (27.2)
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Note: EPS for the three and nine months ended September 30 is based on
weighted average shares outstanding of 64.7 million for 2009, and
64.6 million for 2008.
On a year-over-year basis, EPS from continuing operations decreased by 9.5% in the third quarter and 14.2% for the first nine months of the year as a result of lower EBITDA. Also impacting EPS in the first nine months of the year are higher debt charges due to our decision to issue long-term debt at attractive rates in the second quarter of this year. These rates are higher than the short-term rates we incurred last year but represent excellent financing costs for us as compared to our historical long-term average.
Basic EPS decreased to
OPERATING EXPENSES
Operations Expense (continuing operations)
-------------------------------------------------------------------------
(in millions $) 2009 2008 % change
-------------------------------------------------------------------------
Q3 306.0 314.8 (2.8)
YTD 930.7 940.0 (1.0)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating expenses in the third quarter and year to date were down 2.8% and 1.0%, respectively, as compared to the same periods in the prior year. These decreases are primarily due to our continued focus on cost reduction initiatives in both salaries and benefits, and indirect expenses. Our savings on a year to date basis are partly offset by increases in direct costs in our Enterprise Solutions division.
We continued to make progress with our 2009 cost reduction program. As at
Restructuring and Transition
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(in millions $) 2009 2008 % change
-------------------------------------------------------------------------
Q3 9.7 14.6 (33.6)
YTD 42.2 24.9 69.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
We incurred restructuring costs in the amounts of
Amortization Expense
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(in millions $) 2009 2008 % change
-------------------------------------------------------------------------
Q3 82.1 83.9 (2.1)
YTD 245.2 246.6 (0.6)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization expense was lower in the third quarter due to a decrease in the composite rate. In the first nine months of the year, a decrease in the composite rate was partly offset by an increase in intangible assets and a charge taken in the first quarter of 2009 related to an accounting change in AAA Alarm Systems Ltd.
Other Income
-------------------------------------------------------------------------
(in millions $) 2009 2008 % change
-------------------------------------------------------------------------
Q3 3.2 2.5 28.0
YTD 7.6 7.6 nil
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-------------------------------------------------------------------------
Other income was higher in the third quarter of 2009 primarily due to interest income on a tax credit recorded in the third quarter of 2009 under the scientific research and experimental development ("SR&ED") program. In the first nine months of the year, other income was impacted by interest income on the tax credit under the SR&ED program as well as the gain of
Debt Charges
-------------------------------------------------------------------------
(in millions $) 2009 2008 % change
-------------------------------------------------------------------------
Q3 15.1 12.1 24.8
YTD 43.9 36.7 19.6
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-------------------------------------------------------------------------
Debt charges are higher in 2009 as compared to 2008. This increased interest expense is primarily associated with our higher levels of outstanding debt and higher average coupon rates, which results from a higher proportion of our debt being long-term in 2009.
Income Tax Expense
-------------------------------------------------------------------------
(in millions $) 2009 2008 % change
-------------------------------------------------------------------------
Q3 11.8 18.9 (37.6)
YTD 47.2 74.2 (36.4)
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-------------------------------------------------------------------------
Income tax expense declined by 37.6% or
We continue to benefit from our substantial CCA pools and available tax losses which have enabled us to fully-offset our taxable income. By utilizing our deferred CCA deductions, we project that we will not pay cash taxes before 2015 with the present value of our tax asset being approximately
CONSOLIDATED QUARTERLY DATA
Unaudited quarterly financial data for our eight most recently completed quarters is presented below:
-------------------------------------------------------------------------
(in millions $, except earnings Q3 Q2 Q1 Q4
per share) 2009 2009 2009 2008
-------------------------------------------------------------------------
Operating revenues 449.4 464.3 482.9 476.4
Operating income 51.6 59.2 67.7 50.3
Net income and comprehensive income 27.9 30.1 37.0 13.7
Earnings per share 0.43 0.47 0.57 0.21
Diluted earnings per share 0.43 0.47 0.57 0.21
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(in millions $, except earnings Q3 Q2 Q1 Q4
per share) 2008 2008 2008 2007
-------------------------------------------------------------------------
Operating revenues 479.9 486.4 478.8 489.2
Operating income 66.6 78.8 88.2 72.1
Net income and comprehensive income 38.1 38.0 54.2 14.3
Earnings per share 0.59 0.59 0.84 0.22
Diluted earnings per share 0.59 0.58 0.83 0.22
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Our consolidated financial results for the eight most recently completed quarters reflect the ongoing performance of our business in the marketplace, as well as the following:
- The recording of charges in the amount of $13.5 million for the
deferral account rebate in relation to Decision 2008-1 in the third
quarter of 2009.
- The recording of $7.4 million, $6.3 million and $0.7 million in costs
in relation to the transition of certain wireless service
requirements away from Bell Mobility to new suppliers and to our
wireless platform in the first, second and third quarters of 2009,
respectively. We recorded costs in the amounts of $10.3 million,
$7.5 million and $9.3 million in the second, third and fourth
quarters of 2008, respectively, for this transition and costs
associated with the AWS spectrum auction.
- The recognition of restructuring costs for our ongoing cost reduction
initiatives including the following amounts: $5.4 million in the
first quarter of 2009; $12.3 million in the second quarter of 2009;
$8.6 million in the third quarter of 2009; $7.1 million and
$13.7 million in the third and fourth quarters of 2008, respectively;
and $3.0 million in the fourth quarter of 2007.
- An adjustment in the amount of $25.7 million for a reduction to our
tax asset valuation allowance in the fourth quarter of 2007.
- The recording of charges to reflect decreases in the value of our
income tax asset as a result of reductions in future income tax rates
or rate differential on temporary differences, consisting of
$7.5 million and $9.0 million in the second and fourth quarters of
2008, respectively, and $49.6 million in the fourth quarter of 2007.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash Flows from Operating Activities
-------------------------------------------------------------------------
(in millions $) 2009 2008 $ change
-------------------------------------------------------------------------
Q3 120.9 124.9 (4.0)
YTD 224.3 359.7 (135.4)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flows from operating activities refer to cash we generate from our
normal business activities.
In the third quarter of 2009, cash flows from operating activities declined primarily due to lower consolidated EBITDA and higher debt charges which were partially offset by higher utilization of our accounts receivable securitization program resulting in increased cash from working capital and lower pension solvency funding requirements. On a year to date basis, the decrease in cash flows from operating activities is due primarily to lower utilization of our accounts receivable securitization program resulting in a decrease to cash from working capital in the amount of
Cash Flows used in Investing Activities
-------------------------------------------------------------------------
(in millions $) 2009 2008 $ change
-------------------------------------------------------------------------
Q3 77.3 120.1 (42.8)
YTD 204.4 249.3 (44.9)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Investing activities represent cash used for acquiring, and cash received
from disposing of, long-term assets and other long-term investments.
Cash flows used in investing activities decreased in the third quarter primarily due to our cost of acquiring spectrum in the AWS spectrum auction last year, which was partly offset by our acquisition of VisionIP Technologies Inc. ("VisionIP"). The decrease in cash flows used in investing activities on a year to date basis resulted mainly from our cost of acquiring spectrum in the AWS spectrum auction last year, and the proceeds from the transaction with SecurTek earlier this year and our acquisition of ICU Technologies Inc. in 2008, partly offset by our acquisition of VisionIP in the third quarter of 2009. Our capital expenditures from continuing operations in the third quarter of 2009 were
Free Cash Flow
-------------------------------------------------------------------------
(in millions $) Q3/09 Q3/08 % change
-------------------------------------------------------------------------
Free cash flow (continuing operations) 62.0 70.8 (12.4)
Deferral account rebate (13.5) - n.m.
Restructuring and other costs (9.0) (7.1) 26.8
HSPA and related billing expenditures (6.5) - n.m.
Pension solvency funding (6.0) (10.7) (43.9)
Restructuring capital expenditures (0.6) - n.m.
Wireless transition capital expenditures - (2.4) n.m.
National wireless/wireless
transition costs (0.7) (7.5) (99.4)
Spectrum license costs - (48.6) n.m.
--------------------------------
Consolidated free cash flow 25.7 (5.5) n.m.
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-------------------------------------------------------------------------
(in millions $) YTD/09 YTD/08 % change
-------------------------------------------------------------------------
Free cash flow (continuing operations) 190.6 221.9 (14.1)
Deferral account rebate (13.5) - n.m.
Restructuring and other costs (27.8) (7.1) n.m.
HSPA and related billing expenditures (14.0) - n.m.
Pension solvency funding (23.5) (22.1) 6.3
Restructuring capital expenditures (1.4) - n.m.
Wireless transition capital expenditures (0.2) (2.4) (91.7)
National wireless/wireless
transition costs (14.4) (17.8) (19.1)
Spectrum license costs - (48.6) n.m.
--------------------------------
Consolidated free cash flow 95.8 123.9 (22.7)
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-------------------------------------------------------------------------
Free cash flow refers to cash flow from operating activities, less
capital expenditures, and excluding changes in working capital.
The year-over-year decrease in free cash flow from continuing operations in the three months ended
Consolidated free cash flow increased to
Cash Flows from (used in) Financing Activities
-------------------------------------------------------------------------
(in millions $) 2009 2008 $ change
-------------------------------------------------------------------------
Q3 (41.6) 3.3 (44.9)
YTD (17.4) (103.8) 86.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financing activities refer to actions we undertake to fund our operations
through equity capital and borrowings.
The decrease in cash flows from financing activities in the third quarter of 2009 mainly resulted from the repayment of notes payable. On a year to date basis, the increase in cash flows from financing activities is primarily due to the net issuance of debt.
Credit Facilities
-------------------------------------------------------------------------
utilized at
September 30,
(in millions $) capacity 2009
-------------------------------------------------------------------------
Medium term note program 350.0 350.0
Accounts receivable securitization 150.0 77.0
Revolving credit facility 350.0 106.9
---------------------------
Total 850.0 533.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
We have arrangements in place that allow us to access the debt capital markets for funding when required. Borrowings under these facilities typically are used to fund new initiatives, refinance maturing debt, and manage cash flow fluctuations. Our medium term note program was renewed on
Our revolving credit facility is
As at
Capital Structure
-------------------------------------------------------------------------
September 30, December 31,
(in millions $) 2009 2008
-------------------------------------------------------------------------
Cash and cash equivalents (9.0) (6.5)
Proceeds from accounts receivable
securitization 77.0 127.0
Notes payable - 95.0
Capital lease obligations, including
current portion 19.4 18.8
Long-term debt, including current portion 852.5 650.2
---------------------------
Total debt 939.9 884.5
Shareholders' equity 1,351.9 1,382.0
---------------------------
Total capitalization 2,291.8 2,266.5
---------------------------
---------------------------
Debt to capitalization 41.0% 39.0%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Our capital structure illustrates the amount of our assets that are financed by debt versus equity. Our debt to total capitalization ratio of 41.0% as at
Credit Ratings
-------------------------------------------------------------------------
S&P - Senior debentures BBB+
-------------------------------------------------------------------------
S&P - Commercial paper A-2
-------------------------------------------------------------------------
DBRS - Senior debentures BBB
-------------------------------------------------------------------------
DBRS - Commercial paper R-2 (high)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Two leading rating agencies, Standard & Poor's ("S&P") and DBRS Limited ("DBRS"), analyze us and assign ratings based on their assessments. We consistently have been assigned solid investment grade credit ratings. In conjunction with our most recent debt offering, S&P confirmed our credit ratings on our long-term corporate credit and senior unsecured debt of "BBB+", and our commercial paper of "A-2". The outlook remained unchanged at negative. In addition, DBRS confirmed our credit ratings at "BBB" on our senior debentures and "R-2 (high)" on our commercial paper, and maintained its stable outlook.
Outstanding Share Data as at
Authorized:
- Unlimited number of Preference Shares of two classes issuable in one
or more series
- Unlimited number of Common Shares of a single class
-------------------------------------------------------------------------
Issued:
-------------------------------------------------------------------------
Book Value
Shares Number (in millions $)
-------------------------------------------------------------------------
Common 64,667,817 1,266.9
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-------------------------------------------------------------------------
Stock options:
-------------------------------------------------------------------------
Weighted
Average
Exercise
Price
Options Number Per Share
-------------------------------------------------------------------------
Outstanding 2,369,835 $40.80
Exercisable 1,204,940 $41.43
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Contractual Obligations, Financial Instruments, Off-Balance Sheet
Arrangements, and Other Financial Arrangements
Our contractual obligations, financial instruments, off-balance sheet arrangements, and other financial arrangements remain substantially unchanged from those that were disclosed in our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A. For additional details, please consult our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A, which are available on our Web site at www.mtsallstream.com.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
---------------------------------------------
Our critical accounting estimates and assumptions remain substantially unchanged from those that were disclosed in our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A. For additional details, please consult our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A, which are available on our Web site at www.mtsallstream.com.
CHANGES IN ACCOUNTING POLICIES, INCLUDING INITIAL ADOPTION
----------------------------------------------------------
Our accounting policies, including initial adoption, remain substantially unchanged from those that were disclosed in our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A. For additional details, please consult our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A, which are available on our Web site at www.mtsallstream.com.
IFRS
In
We began our IFRS changeover project in 2008 and have developed a detailed IFRS changeover plan. A project governance structure has been established, which includes a steering committee, consisting of senior management from our finance, information technology ("IT"), network services, enterprise risk management and treasury departments. Our project team includes certain dedicated resources, employees who contribute as required by the project plan, as well as external consultants who have been engaged for project management and technical accounting expertise. The project team reports regularly to the Audit Committee of the Board of Directors of MTS regarding the status of the project and implications of the changeover to IFRS. Throughout the execution of our IFRS plan, there is ongoing training and communication to affected employees and other internal and external stakeholders. Our IFRS changeover plan consists of the following four phases.
Phase 1: Diagnostic Gap Assessment
Phase 1 consists of a high-level diagnostic gap and impact analysis of the differences between Canadian GAAP and IFRS applicable to us. The key activities of Phase 1 include:
- Identification of significant technical accounting and disclosure
differences;
- Identification of key IFRS accounting policy alternatives; and
- Identification of major operational and system impacts.
We completed Phase 1 of our IFRS changeover plan in
Phase 2: Design and Planning
Phase 2 entails a detailed analysis of relevant Canadian GAAP and IFRS differences, as well as an assessment of the implications of implementing new standards. The key activities of Phase 2 include:
- Detailed evaluation of accounting and disclosure options, including
review of estimated impacts on our financial position and results of
operations, key performance indicators, and business activities;
- Selection of IFRS-compliant accounting policies, including IFRS 1
policy choices and continuing accounting policies;
- Assessment of implications to systems, processes and controls in
sufficient detail to support solution development in Phase 3; and
- Identification of a dual reporting solution to maintain parallel
records during 2010.
We have completed Phase 2 activities to assess and select accounting policies. This assessment is based on our expectations of accounting standards that will be in place at the time of changeover, as well as the estimated impact of these standards. Consequently, the detailed evaluation of the impacts of certain accounting policy options is ongoing, along with the final selection of these accounting policies. As IFRS continues to evolve, further evaluation may be required. We have identified a dual reporting solution.
Phase 3: Solution Development
During Phase 3, we will design and test solutions that will be implemented as a result of the changeover to IFRS. The key activities of Phase 3 include:
- Design, development and execution of testing strategies for changes
to accounting and business processes and IT solutions;
- Design, development and execution of a testing strategy for our dual
reporting solution; and
- Revision of internal controls, as required, resulting from changes to
ongoing accounting policies and the one-time adjustments to our
opening balance sheet on changeover to IFRS.
We have commenced Phase 3 activities, including the assessment of implications to systems, processes and internal controls resulting from financial accounting policy differences. We have designed a solution for dual reporting in 2010, and development is underway. We also have commenced design and development activities related to IT system and process changes resulting from the changes in accounting standards for property, plant and equipment. We expect that Phase 3 will be substantially completed by the end of the fourth quarter of 2009.
Phase 4: Implementation
During Phase 4, we will implement IFRS-compliant accounting policies and related systems, processes and controls. The key activities of Phase 4 include:
- Implementation of changes to accounting policies;
- Preparation of IFRS-compliant opening balance sheet as at January 1,
2010;
- Preparation of IFRS-compliant financial statements and related note
disclosures; and
- Implementation of changes to systems, processes and controls.
Phase 4 of the IFRS changeover plan is expected to commence in the first quarter of 2010 and will continue until the end of the first quarter of 2011.
During these phases of our IFRS project, we will complete the necessary work required to quantify the impact of the changeover to IFRS on our financial position and results of operations. We will monitor changes to IFRS and assess the impacts that these new standards will have on our financial results and on our IFRS changeover project. The financial impacts on changeover to IFRS may be material to our financial statements, and we expect the impacts to be of similar nature to our competitors. Based on our work to date, we believe that the areas of highest impact are property, plant and equipment and employee benefits. Further information regarding the selection of IFRS-compliant accounting policies and quantification of the impacts will be provided as we move closer to the changeover date.
RISKS AND UNCERTAINTIES
-----------------------
Our risks and uncertainties remain substantially unchanged from those that were disclosed in our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A, except as noted below. For additional details, please consult our interim MD&As for the first and second quarters of 2009, and our 2008 annual MD&A, which are available on our Web site at www.mtsallstream.com.
Deployment of the HSPA Network
The expected timing, completion and benefits to be gained from the execution of our strategic wireless agreement with Rogers Wireless are subject to various risks and uncertainties. The agreement with Rogers Wireless has been structured with the intent of reducing our long-term capital and operating costs and providing us with an opportunity to generate new business through a national wireless offering. However, there can be no assurance that we will be able to fully realize the expected cost savings and efficiencies from the new technology or the network sharing arrangements, and there are inherent risks associated with deploying new technologies, new products and billing platforms that could negatively impact our operations, customer service and profitability.
Bell Mobility Arbitration
As a result of the end of a historical wireless alliance with Bell Mobility, we incurred significant one-time costs of transitioning certain wireless services requirements away from Bell Mobility to new suppliers and to our wireless platform. Although we have completed this transition and have migrated all existing wireless customers to our new service platform, we are disputing certain costs charged in the past by Bell Mobility, as well as claiming other costs caused by this transition. We are of the opinion that certain of such costs are recoverable from Bell Mobility; however, there is no certainty that such costs will be recovered and the matter is subject to arbitration.
Changes in Telecommunications Policy and Canadian Radio-television and
Telecommunications Commission ("CRTC") Regulation
The telecommunications and broadcast industries in which we operate are federally regulated. We operate as both an incumbent local exchange carrier ("ILEC") in Manitoba and as a competitive local exchange carrier nationally. In addition, pursuant to Broadcasting Decision CRTC 2002-235, the CRTC granted us a Class 1 regional broadcasting distribution license to operate as a broadcasting distribution undertaking ("BDU") serving
Deferral Account
On
In two subsequent decisions relating to the use of deferral account funds, Telecom Decision CRTC 2007-50 dated
We will provide the CRTC with a proposed roll-out plan to expand broadband services to 16 previously approved rural and remote communities as well as file a plan to credit the remaining deferral account monies to the accounts of residential urban customers. Pursuant to directions issued by the CRTC, these proposals will be filed in early 2010. We have estimated these cost and accrued for them.
Internet Traffic Management Practices (Net Neutrality)
On
Broadcasting Policy
On
On
On
CONTROLS AND PROCEDURES
-----------------------
Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during our most recent interim period ended
FOURTH QUARTER DIVIDEND
On
The fourth quarter dividend is designated as an "eligible" dividend under the Income Tax Act (
Notes:
1. Supplementary financial information is available in the Investors
section of the MTS Web site at www.mtsallstream.com.
2. MTS's third quarter 2009 conference call with the investment
community is scheduled for 9:00 a.m. Eastern time on November 5,
2009. The dial-in number is 1-800-732-1073. A live audio Webcast of
the investor conference call can be accessed by visiting the
Investors section of the MTS Web site (www.mtsallstream.com). A
replay of the conference call will be available until midnight
November 14, 2009 and can be accessed by dialing 1- 877-289-8525 or
1-416-640-1917 (access code 4167928 followed by the number sign). The
audio Webcast will be archived on MTS's Web site.
MANITOBA TELECOM SERVICES INC.
CONSOLIDATED STATEMENTS OF NET INCOME AND
COMPREHENSIVE INCOME
(unaudited)
For the periods ended
September 30 Three months ended Nine months ended
-------------------------------------------------------------------------
(in millions, except
earnings per share) 2009 2008 2009 2008
-------------------------------------------------------------------------
Operating revenues $ 449.4 $ 479.9 $ 1,396.6 $ 1,445.1
-------------------------------------------------------------------------
Operating expenses
Operations 306.0 314.8 930.7 940.0
-------------------------------------------------------------------------
Restructuring and
transition (Note 2) 9.7 14.6 42.2 24.9
-------------------------------------------------------------------------
Amortization 82.1 83.9 245.2 246.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
397.8 413.3 1,218.1 1,211.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating income 51.6 66.6 178.5 233.6
-------------------------------------------------------------------------
Other income 3.2 2.5 7.6 7.6
-------------------------------------------------------------------------
Debt charges (15.1) (12.1) (43.9) (36.7)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Income before income taxes 39.7 57.0 142.2 204.5
-------------------------------------------------------------------------
Income tax expense (recovery)
Current (2.0) 0.2 (1.8) 0.3
-------------------------------------------------------------------------
Future 13.8 18.7 49.0 73.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11.8 18.9 47.2 74.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income and comprehensive
income for the period $ 27.9 $ 38.1 $ 95.0 $ 130.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted earnings
per share (Note 7) $ 0.43 $ 0.59 $ 1.47 $ 2.02
-------------------------------------------------------------------------
-------------------------------------------------------------------------
MANITOBA TELECOM SERVICES INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(unaudited)
For the periods ended
September 30 Three months ended Nine months ended
-------------------------------------------------------------------------
(in millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Retained earnings,
beginning of period $ 79.9 $ 129.0 $ 96.8 $ 120.8
-------------------------------------------------------------------------
Net income 27.9 38.1 95.0 130.3
-------------------------------------------------------------------------
Dividends declared (42.1) (42.0) (126.1) (126.0)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings, end
of period $ 65.7 $ 125.1 $ 65.7 $ 125.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
MANITOBA TELECOM SERVICES INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
(in millions) 2009 2008
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 9.0 $ 6.5
-------------------------------------------------------------------------
Accounts receivable (Note 3) 114.9 62.2
-------------------------------------------------------------------------
Future income taxes 91.4 90.5
-------------------------------------------------------------------------
Other current assets 70.8 64.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
286.1 223.2
Capital assets (Note 4) 1,616.9 1,616.7
-------------------------------------------------------------------------
Other assets 387.6 334.6
-------------------------------------------------------------------------
Future income taxes 385.8 436.8
-------------------------------------------------------------------------
Goodwill 42.3 41.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ 2,718.7 $ 2,653.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities
Accounts payable and accrued liabilities $ 339.1 $ 351.6
-------------------------------------------------------------------------
Advance billings and payments 56.9 51.4
-------------------------------------------------------------------------
Current portion of long-term debt (Note 6) 11.9 220.0
-------------------------------------------------------------------------
Notes payable (Note 5) - 95.0
-------------------------------------------------------------------------
Current portion of capital lease obligations 6.1 3.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
414.0 721.8
Long-term debt (Note 6) 840.6 430.2
-------------------------------------------------------------------------
Long-term portion of capital lease obligations 13.3 15.0
-------------------------------------------------------------------------
Deferred employee benefits 43.2 44.2
-------------------------------------------------------------------------
Other long-term liabilities 54.6 58.1
-------------------------------------------------------------------------
Future income taxes 1.1 1.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
1,366.8 1,271.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Shareholders' equity
Share capital (Note 8) 1,266.9 1,265.8
-------------------------------------------------------------------------
Contributed surplus 19.3 19.4
-------------------------------------------------------------------------
Retained earnings 65.7 96.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
1,351.9 1,382.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ 2,718.7 $ 2,653.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
MANITOBA TELECOM SERVICES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the periods ended
September 30 Three months ended Nine months ended
-------------------------------------------------------------------------
(in millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Cash flows from operating
activities
Net income $ 27.9 $ 38.1 $ 95.0 $ 130.3
-------------------------------------------------------------------------
Add (deduct) items not
affecting cash
Amortization 82.1 83.9 245.2 246.6
-------------------------------------------------------------------------
Future income taxes 13.8 18.7 49.0 73.9
-------------------------------------------------------------------------
Gain on sale of
intangible assets - - (3.1) -
-------------------------------------------------------------------------
Deferred wireless costs (10.0) (9.3) (35.4) (28.8)
-------------------------------------------------------------------------
Pension funding and net
pension credit (15.1) (17.5) (48.7) (42.4)
-------------------------------------------------------------------------
Other, net 1.5 0.7 (3.9) (10.7)
-------------------------------------------------------------------------
Changes in non-cash working
capital 20.7 10.3 (73.8) (9.2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flows from operating
activities 120.9 124.9 224.3 359.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flows from investing
activities
Capital expenditures, net (74.5) (120.1) (202.3) (245.0)
-------------------------------------------------------------------------
Acquisition (2.1) - (2.1) (4.0)
-------------------------------------------------------------------------
Net proceeds from sale of
intangible assets - - 1.4 -
-------------------------------------------------------------------------
Other, net (0.7) - (1.4) (0.3)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flows used in
investing activities (77.3) (120.1) (204.4) (249.3)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flows from financing
activities
Dividends paid (42.1) (42.0) (126.1) (126.0)
-------------------------------------------------------------------------
Issuance of long-term debt - - 425.0 -
-------------------------------------------------------------------------
Repayment of long-term debt - - (220.0) (89.7)
-------------------------------------------------------------------------
(Repayment) issuance of
notes payable, net - 45.0 (95.0) 115.0
-------------------------------------------------------------------------
Issuance of share capital
(Note 8) 0.1 - 0.9 0.2
-------------------------------------------------------------------------
Other, net 0.4 0.3 (2.2) (3.3)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flows (used in) from
financing activities (41.6) 3.3 (17.4) (103.8)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Change in cash and cash
equivalents 2.0 8.1 2.5 6.6
-------------------------------------------------------------------------
Cash and cash equivalents
(bank indebtedness),
beginning of period 7.0 (11.6) 6.5 (10.1)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents
(bank indebtedness), end
of period $ 9.0 $ (3.5) $ 9.0 $ (3.5)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
MANITOBA TELECOM SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For the nine months ended September 30, 2009 and 2008 (All financial
amounts are in $ millions, except where noted.)
-------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim consolidated financial statements of Manitoba Telecom
Services Inc. (the "Company") have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP"). These
interim consolidated financial statements have been prepared using
the same accounting policies and methods of their application as the
Company's audited consolidated financial statements for the year
ended December 31, 2008, except as described in Note 4.
These interim consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial
statements for the year ended December 31, 2008.
2. RESTRUCTURING AND TRANSITION
During the nine months ended September 30, 2009 and 2008, the Company
recorded net restructuring and transition expenses as follows:
---------------------------------------------------------------------
Three months ended Nine months ended
---------------------------------------------------------------------
2009 2008 2009 2008
---------------------------------------------------------------------
Restructuring
---------------------------------------------------------------------
Workforce 2.2 0.9 10.3 0.9
---------------------------------------------------------------------
Other 6.8 6.2 17.5 6.2
---------------------------------------------------------------------
---------------------------------------------------------------------
9.0 7.1 27.8 7.1
---------------------------------------------------------------------
Wireless transition 0.7 7.5 14.4 17.8
---------------------------------------------------------------------
9.7 14.6 42.2 24.9
---------------------------------------------------------------------
---------------------------------------------------------------------
The liability for restructuring costs as at September 30, 2009 is as
follows:
---------------------------------------------------------------------
Balance December 31, 2008 11.3
---------------------------------------------------------------------
2009 restructuring costs, net of a $1.5 million reversal
of previously recorded costs 27.8
---------------------------------------------------------------------
Less cash payments (24.5)
---------------------------------------------------------------------
Balance September 30, 2009 14.6
---------------------------------------------------------------------
---------------------------------------------------------------------
Restructuring activities in 2009 represent a continuation of the cost
reduction initiative which commenced in the fourth quarter of 2008
aimed at achieving process improvements and further cost reductions.
The costs recorded in 2009 include severance and other employee-
related expenses, costs to review and improve efficiencies in current
processes, real estate facility consolidation charges, as well as
other non-recurring amounts associated with certain regulatory
proceedings and the transition from Canadian GAAP to International
Financial Reporting Standards.
The Company has undertaken additional workforce reduction initiatives
throughout 2009. In the second quarter, the Company recorded
workforce reduction costs of $9.4 million relating to the reduction
of approximately 160 positions in the Enterprise Solutions division.
In the third quarter, the Company initiated another workforce
reduction program and recorded costs of $2.2 million.
Wireless transition includes costs of transitioning certain wireless
service requirements away from Bell Mobility to new suppliers and to
the Company's wireless platform. In 2008, this amount also included
costs associated with the advanced wireless services spectrum
auction.
3. ACCOUNTS RECEIVABLE SECURITIZATION
Under the terms of the Company's accounts receivable securitization
program, the Company has the ability to sell, on a revolving basis,
an undivided ownership interest in its accounts receivable to a
securitization trust, up to a maximum of $150.0 million. As a result
of selling the interest in certain of the trade receivables on a
fully-serviced basis, a service liability of $0.2 million has been
recognized by the Company as at September 30, 2009.
The terms of the Company's accounts receivable securitization program
also require the Company to maintain reserve accounts, the fair value
of which approximates carrying value. As at September 30, 2009, the
Company had received $77.0 million on the sale of its accounts
receivable to the trust, which is comprised of the outstanding
undivided ownership interest held by the trust of $95.9 million and
the reserve accounts of $18.9 million.
During the three and nine months ended September 30, 2009, the
Company recognized a recovery of nil and $0.4 million, respectively,
on previously recorded losses on the sale of accounts receivable,
which is recorded in other income.
During the three and nine months ended September 30, 2009, cash flows
received and paid to the trust in revolving period securitizations
were $674.0 million and $1,708.7 million, respectively.
The key assumptions used to determine the recovery of previously
recorded losses on the sale of receivables and the fair values
attributed to the retained interest as at September 30, 2009 are as
follows:
---------------------------------------------------------------------
Annual discount rate 0.68%
---------------------------------------------------------------------
Weighted average life of receivables sold (days) 38
---------------------------------------------------------------------
Credit loss ratio 0.52%
---------------------------------------------------------------------
Servicing fee liability 1.0%
---------------------------------------------------------------------
---------------------------------------------------------------------
4. CAPITAL ASSETS
Effective January 1, 2009, the Company adopted the recommendations of
the Canadian Institute of Chartered Accountants ("CICA") Handbook
section 3064 Goodwill and Intangible Assets and the updates to CICA
Handbook section 1000 Financial Statement Concepts. This guidance
establishes updated standards for the recognition, measurement,
presentation and disclosure of intangible and deferred assets.
Accordingly, for the 2008 comparatives, the Company has reclassified
$51.3 million of other long-term assets and $9.5 million of other
current assets relating to deferred wireless costs and installation
costs to intangible assets. The Company also reclassified specific
software costs within capital assets of $129.9 million from property,
plant and equipment to intangible assets.
The following table provides details of the Company's capital assets:
September 30, 2009 December 31, 2008
---------------------------------------------------------------------
Accumu- Accumu-
lated Net lated Net
amorti- book amorti- book
Cost zation value Cost zation value
---------------------------------------------------------------------
Property, plant
and equipment
---------------------------------------------------------------------
Network
equipment
and outside
plant 2,876.1 1,884.2 991.9 2,750.2 1,777.4 972.8
---------------------------------------------------------------------
General
equipment
and other 438.8 317.9 120.9 419.1 274.8 144.3
---------------------------------------------------------------------
Buildings 265.5 150.2 115.3 262.4 142.9 119.5
---------------------------------------------------------------------
Equipment under
capital lease 5.4 0.9 4.5 5.4 0.6 4.8
---------------------------------------------------------------------
Plant under
construction 78.0 - 78.0 91.4 - 91.4
---------------------------------------------------------------------
Materials and
supplies 20.3 - 20.3 21.3 - 21.3
---------------------------------------------------------------------
Land 6.3 - 6.3 6.3 - 6.3
---------------------------------------------------------------------
---------------------------------------------------------------------
3,690.4 2,353.2 1,337.2 3,556.1 2,195.7 1,360.4
---------------------------------------------------------------------
---------------------------------------------------------------------
Intangible
assets
---------------------------------------------------------------------
Software 291.1 145.5 145.6 240.0 110.1 129.9
---------------------------------------------------------------------
Deferred
wireless
costs 89.7 39.4 50.3 78.3 37.6 40.7
---------------------------------------------------------------------
Other deferred
installation
costs 29.9 14.9 15.0 43.7 23.6 20.1
---------------------------------------------------------------------
Customer
contracts and
relationships 29.4 12.8 16.6 27.1 13.8 13.3
---------------------------------------------------------------------
Other
contractual
relationships 1.3 0.6 0.7 1.3 0.5 0.8
---------------------------------------------------------------------
Spectrum
licenses 48.6 - 48.6 48.6 - 48.6
---------------------------------------------------------------------
Broadcasting
certificate 2.9 - 2.9 2.9 - 2.9
---------------------------------------------------------------------
---------------------------------------------------------------------
492.9 213.2 279.7 441.9 185.6 256.3
---------------------------------------------------------------------
---------------------------------------------------------------------
Total 4,183.3 2,566.4 1,616.9 3,998.0 2,381.3 1,616.7
---------------------------------------------------------------------
---------------------------------------------------------------------
5. NOTES PAYABLE
The Company has a $350 million bank credit facility with a syndicate
of financial institutions which is used for cash management purposes,
the issuance of letters of credit and to support the Company's
$150 million commercial paper program. As at September 30, 2009, the
Company had $106.9 million in undrawn letters of credit outstanding
under this facility. The Company paid short-term interest costs of
nil and $2.5 million for the three and nine months ended
September 30, 2009, respectively.
6. LONG-TERM DEBT
September 30, December 31,
2009 2008
---------------------------------------------------------------------
Medium Term Note, 5.85%, due February 23,
2009 - 70.0
---------------------------------------------------------------------
Medium Term Note, 5.25%, due June 10, 2009 - 150.0
---------------------------------------------------------------------
Medium Term Note, 8.625%, due September 8,
2010 11.9 11.9
---------------------------------------------------------------------
Medium Term Note, 5.20%, due September 27,
2011 220.0 220.0
---------------------------------------------------------------------
Medium Term Note, 5.05%, due May 11, 2012 100.0 -
---------------------------------------------------------------------
Loan payable, 6.59%, due May 14, 2014 75.0 -
---------------------------------------------------------------------
Medium Term Note, 6.15%, due June 10, 2014 200.0 200.0
---------------------------------------------------------------------
Medium Term Note, 6.65%, due May 11, 2016 250.0 -
---------------------------------------------------------------------
---------------------------------------------------------------------
856.9 651.9
---------------------------------------------------------------------
Less: deferred costs associated with the
issuance of long-term debt (4.4) (1.7)
---------------------------------------------------------------------
---------------------------------------------------------------------
852.5 650.2
---------------------------------------------------------------------
Less: current portion of long-term debt (11.9) (220.0)
---------------------------------------------------------------------
---------------------------------------------------------------------
840.6 430.2
---------------------------------------------------------------------
---------------------------------------------------------------------
During the three and nine months ended September 30, 2009, the
Company recorded interest expense on long-term debt, including
amortization of debt issue costs of $13.1 million and $33.2 million,
respectively. The Company paid interest on long-term debt for the
three and nine months ended September 30, 2009 of $6.2 million and
$24.6 million, respectively.
7. EARNINGS PER SHARE RECONCILIATION
The following table provides a reconciliation of the information used
to calculate basic and diluted earnings per share:
---------------------------------------------------------------------
Nine months ended
September 30
---------------------------------------------------------------------
2009 2008
---------------------------------------------------------------------
Net income
Basic and diluted 95.0 130.3
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average shares outstanding
(in millions)
Weighted average number of shares outstanding
- basic and diluted 64.7 64.6
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings per share ($)
Basic and diluted earnings per share 1.47 2.02
---------------------------------------------------------------------
---------------------------------------------------------------------
8. SHARE CAPITAL
As at September 30, 2009, share capital consists of 64,667,817 issued
and outstanding Common Shares (December 31, 2008 - 64,637,917).
During the nine months ended September 30, 2009, 29,900 stock options
to purchase Common Shares were exercised for cash consideration of
$0.9 million, of which $1.1 million was credited to share capital and
$0.2 million was charged to contributed surplus.
9. EMPLOYEE FUTURE BENEFITS
The Company's total net benefit recovery for all of its defined
benefit and defined contribution pension plans, supplemental pension
arrangements, and other non-pension employee future benefits for the
three and nine months ended September 30, 2009 is $2.9 million and
$6.1 million, respectively.
10. SEGMENTED INFORMATION
As at September 30, 2009, the Company had two reportable operating
segments: the Consumer Markets division and the Enterprise Solutions
division. The Consumer Markets division provides a full range of
wireless, high-speed Internet and data, digital television, wireline
voice services, and alarm monitoring services to residential and
small business customers in Manitoba. The Consumer Markets division
also provides Internet, data and voice services to small business
customers in Canada. The Enterprise Solutions division provides
Internet protocol-based communications, unified communications,
voice, and data connectivity services to medium and large business
customers in Canada.
The Company evaluates performance based on EBITDA (earnings before
interest, taxes, amortization, and other income). EBITDA, as reported
below, includes intersegment revenues and expenses. The Company
accounts for intersegment revenues and expenses at either prices that
approximate current market prices or cost, depending on the type of
service.
The following table provides further segmented information:
-------------------------------------------------------------------------
Three months ended September 30
-------------------------------------------------------------------------
Consumer Enterprise
Markets Solutions Other Total
-------------------------------------------------------------------------
2009 2008 2009 2008 2009 2008 2009 2008
-------------------------------------------------------------------------
Operating
revenue
External 195.1 208.2 254.3 271.7 - - 449.4 479.9
-------------------------------------------------------------------------
Internal 0.2 0.1 - - 8.3 10.4 8.5 10.5
-------------------------------------------------------------------------
EBITDA 94.3 97.3 40.4 53.3 (1.0) (0.1) 133.7 150.5
-------------------------------------------------------------------------
Restructuring
and trans-
ition 0.1 7.6 8.6 6.8 1.0 0.2 9.7 14.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine months ended September 30
-------------------------------------------------------------------------
Consumer Enterprise
Markets Solutions Other Total
-------------------------------------------------------------------------
2009 2008 2009 2008 2009 2008 2009 2008
-------------------------------------------------------------------------
Operating
revenue
External 607.0 612.8 789.6 832.3 - - 1,396.6 1,445.1
-------------------------------------------------------------------------
Internal 0.4 0.3 0.1 0.1 26.4 29.0 26.9 29.4
-------------------------------------------------------------------------
EBITDA 295.0 296.3 130.6 183.9 (1.9) - 423.7 480.2
-------------------------------------------------------------------------
Restructuring
and trans-
ition 13.8 16.4 26.1 6.8 2.3 1.7 42.2 24.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Reconciliation to consolidated net income is as follows:
---------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------
2009 2008 2009 2008
---------------------------------------------------------------------
Total EBITDA 133.7 150.5 423.7 480.2
---------------------------------------------------------------------
Amortization (82.1) (83.9) (245.2) (246.6)
---------------------------------------------------------------------
Other income 3.2 2.5 7.6 7.6
---------------------------------------------------------------------
Debt charges (15.1) (12.1) (43.9) (36.7)
---------------------------------------------------------------------
Income tax expense (11.8) (18.9) (47.2) (74.2)
---------------------------------------------------------------------
27.9 38.1 95.0 130.3
---------------------------------------------------------------------
---------------------------------------------------------------------
11. COMMITMENTS AND CONTINGENCIES
Commitments
On May 30, 2002, the Canadian Radio-television and Telecommunications
Commission ("CRTC") issued Regulatory framework for second price cap
period, Telecom Decision CRTC 2002-34, which provided the regulatory
framework for local rates charged to residential and business
customers and the rates that incumbent telephone companies charged
their competitors. As part of this framework, the CRTC established a
regulatory deferral account. On January 17, 2008, the CRTC issued
Disposition of funds in the deferral accounts, Telecom Decision CRTC
2008-1, which required the funds that were accumulated in the
Company's deferral account to be used for the expansion of broadband
services, for initiatives to improve accessibility to
telecommunications services for persons with disabilities, and for
certain rate reductions or credits. Aspects of Decision 2008-1,
including the requirement for rate reductions or credits, were
appealed to the Federal Court and then the Supreme Court of Canada by
Bell Canada, TELUS Communications Inc. and the Public Interest
Advocacy Centre with a decision by the Supreme Court ultimately
upholding the CRTC's decision on September 18, 2009. The estimated
balance of the Company's deferral account is approximately
$25 million as at September 30, 2009. In the third quarter, the
Company recorded a liability in its financial statements in the
amount of $13.5 million for the estimated amount applicable to rate
reductions or credits. The Company will be required to file with the
CRTC, its intended plan and costs for the approved extension of
broadband services and the administration of the rate reductions or
credits.
Contingencies
On April 21, 2004, Unique Broadband Services, Inc. (UBS) filed a
statement of claim against Allstream, Inukshuk Internet Inc.
(Inukshuk), Microcell Telecommunications Inc. and Microcell Solutions
Inc. (Microcell) in the Ontario Superior Court of Justice. This
claim, seeking damages in the amount of $160.0 million was settled
during the second quarter of 2009 without any contribution to the
settlement by the Company. There are no future potential liabilities
outstanding against the Company in relation to the above claim.
12. COMPARATIVE FIGURES
The prior period figures have been reclassified when necessary to
conform to the current period's presentation.
%SEDAR: 00003357E
For further information: Investors: Paul Peters, Vice-President, Tax and Investor Relations, Manitoba Telecom Services Inc., (204) 941-6178, [email protected]; Media: Greg Burch, Director, Corporate and Employee Communications, Manitoba Telecom Services Inc., (416) 345-3576 or (204) 941-8576, [email protected]
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