Offer to purchase CLEARNET.pdf - About TELUS

TELUS CORPORATION
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2000
(unaudited)
3. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (Continued)
(i) Convertible Debentures
Under Canadian GAAP, financial instruments such as the 6.75% Convertible Unsecured Subordinated
Debentures (the ‘‘Debentures’’) issued by Clearnet on June 19, 2000, are classified as debt or equity
according to their substance rather than their legal form. Accordingly, due to the substance of the
transaction the Debentures have been classified as equity and the corresponding interest expense has been
charged to the deficit rather than to the Statement of Operations. Under U.S. GAAP the Debentures would
be included in long-term debt and the corresponding interest expense charged to the Statement of
Operations. Furthermore, under Canadian GAAP, the holder conversion option is valued separately and is
treated as a distinct element from the principal of the Debentures within equity. The Debentures are
discounted at an effective market rate of interest which approximates the interest rate on comparable
Debentures without the holder conversion option, which results in a rate of interest that is higher than the
coupon rate. The difference between the face value of the Debentures, and the present value of the
Debentures discounted at the effective market rate, is the value assigned to the holder conversion option.
Under U.S. GAAP there is no separate valuation of the holder conversion option, therefore, interest
expense would be based on the coupon rate. Due to the difference in interest rates, interest expense under
Canadian GAAP which has been charged to the deficit is $0.4 million, as compared to $0.3 million under
U.S. GAAP which would be charged to the Statement of Operations under U.S. GAAP.
(j) Extraordinary item
Under U.S. GAAP, the loss on the redemption of certain Clearnet Communications Inc. 2005 Senior
Discount Notes, which is included in interest expense for Canadian GAAP purposes, would have been
treated as an extraordinary item.
(k) Restatement of Prior Year Periods
During the first quarter of 2000, the Company applied the provisions of the new Canadian accounting
standard for income taxes retroactively. Under the new standard, which is substantially consistent with the
U.S. accounting standard ‘‘Statement of Financial Accounting Standards No. 109 Income Taxes’’, the
Company accounts for future income tax assets or future income tax liabilities at the tax rates that are
expected to apply when the asset or liability is settled. As encouraged under the new rules, prior year
financial statements have been restated. The effect of this change on the balance sheet as at June 30, 1999 is
to increase intangible and other assets and reduce the deficit by $102.2 million. The change increases net
loss and net loss per share for the six months ended June 30, 1999 by $1.6 million and $0.03, respectively.
(l) Comprehensive Income
SFAS 130, ‘‘Reporting Comprehensive Income’’, requires that a statement of comprehensive income be
displayed with the same prominence as other financial statements. Comprehensive income, which
incorporates net income, includes all changes in equity during a period except those resulting from
investments by and distributions to owners. There is no requirement to disclose comprehensive income
under Canadian GAAP.
There are no material differences between Canadian and U.S. GAAP which would have an impact on the
consolidated statements of comprehensive income except as outlined in the tables above.
II-22