annual information form - bell mts · 2014-02-10 · annual information form for the year ended...
TRANSCRIPT
2013
Annual Information Form
For the year ended December 31, 2013
Manitoba Telecom Services Inc.
TABLE OF CONTENTS
CORPORATE STRUCTURE .................................................................................................................................... 1 Name and incorporation ......................................................................................................................................... 1 Intercorporate relationships ................................................................................................................................... 2
GENERAL DEVELOPMENT OF THE BUSINESS ................................................................................................ 3 Decision on pension plan lawsuit and pension funding ..................................................................................... 3 Leadership changes ............................................................................................................................................... 4 Data centre build in Manitoba ................................................................................................................................ 4 Bought deal financing ............................................................................................................................................. 4 Acquisition of EPIC Information Solutions Inc..................................................................................................... 4 Expansion of network sharing agreement with Rogers ..................................................................................... 4 Allstream strategic review ...................................................................................................................................... 4 Advanced 4G LTE wireless network .................................................................................................................... 5 Company structure changes .................................................................................................................................. 5 Investments in broadband and FTTH networks .................................................................................................. 5 Regulatory developments ...................................................................................................................................... 5 Initiatives to streamline business operations by $132 million over three years .............................................. 5
DESCRIPTION OF THE BUSINESS ....................................................................................................................... 6 Business segments ................................................................................................................................................. 6
Wireless services ................................................................................................................................................ 7 Broadband and converged IP services ............................................................................................................ 7 Unified communications, hosting, security and monitoring services ........................................................... 8 Local access services ........................................................................................................................................ 9 Long distance and legacy data services .......................................................................................................... 9 Other services ................................................................................................................................................... 10
Employee relations................................................................................................................................................ 10 Distribution channels ............................................................................................................................................ 11 Corporate responsibility ........................................................................................................................................ 11
Environment ....................................................................................................................................................... 11 Community and social ...................................................................................................................................... 13
Risk factors ............................................................................................................................................................ 15 INCOME TAXES ....................................................................................................................................................... 15 LEGAL PROCEEDINGS .......................................................................................................................................... 15 CAPITAL STRUCTURE ........................................................................................................................................... 16
General description ............................................................................................................................................... 16 Credit facilities ....................................................................................................................................................... 16 Credit ratings.......................................................................................................................................................... 17 Share capital .......................................................................................................................................................... 17 Constraints ............................................................................................................................................................. 18 Dividend policy ....................................................................................................................................................... 18
MARKET FOR SECURITIES .................................................................................................................................. 19 DIRECTORS AND OFFICERS ............................................................................................................................... 19
Directors ................................................................................................................................................................. 19 Additional information on Directors ...................................................................................................................... 20 Officers ................................................................................................................................................................... 20
AUDIT COMMITTEE ................................................................................................................................................ 21 Composition ........................................................................................................................................................... 21 Policy on engagement of external auditors ....................................................................................................... 22 External auditor service fees ............................................................................................................................... 23
INTERESTS OF EXPERT ....................................................................................................................................... 23 TRANSFER AGENT AND REGISTRAR ............................................................................................................... 23 ADDITIONAL INFORMATION ................................................................................................................................ 23 APPENDIX A: AUDIT COMMITTEE CHARTER .................................................................................................. 24
Manitoba Telecom Services Inc. 1 Fiscal year 2013
In this Annual Information Form (“AIF”), “we”, “our” and “us” refer to Manitoba Telecom Services Inc. (“MTS”, “MTS Allstream” or “the Company”) and, where the context so requires, to its subsidiaries. This AIF and the financial information contained herein have been reviewed by our Audit Committee and approved by our Board of Directors. This AIF includes forward-looking statements and information (collectively, “the statements”), about our corporate direction, business opportunities, operations, financial objectives, future financial results and performance, future cash flows and distributions to shareholders, which 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. Therefore, forward-looking statements should be considered carefully and undue reliance should not be placed on them. 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, matters identified throughout this AIF. Please note that forward-looking statements reflect our expectations as at February 6, 2014. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You will also find more information about us, including our Annual Management’s Discussion and Analysis (“MD&A”) for the year ended December 31, 2013 dated February 6th, 2014, on our website at www.mtsallstream.com and on SEDAR at www.sedar.com. Unless otherwise stated, all amounts are expressed in Canadian dollars.
CORPORATE STRUCTURE
Name and incorporation
MTS commenced its operations in the province of Manitoba in 1908, first as a department of the provincial government, and then as a Crown corporation that was incorporated in 1933. On January 7, 1997, MTS was continued as a share capital corporation pursuant to The Manitoba Telephone System Reorganization and Consequential Amendments Act (Manitoba). MTS subsequently was continued under The Corporations Act (Manitoba) pursuant to a Certificate and Articles of Continuance dated April 5, 2000. MTS’s articles, as amended, were restated by Certificates and Restated Articles of Incorporation dated May 15, 2001 and June 28, 2004. Pursuant to a Certificate and Articles of Amalgamation dated August 3, 2004, MTS amalgamated with its wholly owned subsidiary, Qunara Inc. Our head and registered office is located at 333 Main Street, PO Box 6666, Winnipeg, Manitoba, Canada, R3C 3V6.
Manitoba Telecom Services Inc. 2 Fiscal year 2013
Intercorporate relationships
The following organization chart illustrates the voting share ownership of the principal subsidiaries of MTS as of December 31, 2013, and indicates their respective jurisdictions of incorporation.
MTS ALLSTREAM HOLDINGS INC. (Canada)
AAA ALARM SYSTEMS LTD. (Canada)
8415552 CANADA INC. (Canada)
MANITOBA TELECOM SERVICES INC. (Manitoba)
EPIC INFORMATION SOLUTIONS INC. (Manitoba)
MTS INC. (Canada)
ALLSTREAM INC. (Canada)
7211431 CANADA INC. (Canada)
(50% owned by Rogers Communications Partnership
ALLSTREAM FIBER U.S., INC.
(Delaware)
MTS U.S. FIBER, INC.
(Delaware)
DELPHI SOLUTIONS CORP. (Canada)
100% voting 100% voting
100% voting
100% voting
100% voting 100% voting
100% voting
100% voting 100% voting
50% voting
TECHNOLOGY CONSORTIUM INC. (Manitoba)
(50% owned by Powerland Computer Ltd.)
50% voting
6842811 MANITOBA INC. (Manitoba)
100% voting
Manitoba Telecom Services Inc. 3 Fiscal year 2013
GENERAL DEVELOPMENT OF THE BUSINESS
The general development of our business over the last three years has been influenced by several events, including:
decision on pension plan lawsuit and pension funding;
our leadership changes;
our data centre build in Manitoba;
our bought deal financing;
our acquisition of EPIC Information Solutions Inc.;
our expansion of network sharing agreement with Rogers;
our Allstream strategic review;
our advanced 4G Long Term Evolution (“LTE”) wireless network;
our company structure changes
our investments in broadband and fibre to the home (“FTTH”) networks in Manitoba;
regulatory developments; and
our initiatives to streamline our business operations by $132 million over three years;
Each of these developments is described below.
Decision on pension plan lawsuit and pension funding
We announced on January 30, 2014 that the Supreme Court of Canada (“SCC”) reinstated a lower court ruling on a lawsuit regarding the administration of one of MTS's pension plans following our privatization in 1997. We and outside advisors are reviewing the implications of the ruling, which is complex. While the total dollar value of the judgment is understood and will not exceed $142.1 million, the cash flow impact is subject to the determination of the implementation details and requires further negotiations with and between the plaintiffs, as well as other potential beneficiaries who are not represented by the plaintiffs. Accordingly, the timing of any funding which may be required for the judgment is not known at this time, and may be impacted by the nature of the specific benefits that will ultimately be negotiated. It is expected that a significant portion of the negotiated benefits will be in the nature of pension benefits which are normally funded over time in accordance with the Pension Benefit Standards Act. We will disclose the specific implementation plan once they are known, as well as the expected impact on cash flows. IFRS requires that we treat this ruling as a past service cost, which must be expensed immediately, regardless of the timing of any potential cash flow impact. As a result of the SCC’s ruling, we have recorded a $142.1 million non-cash charge against income in the fourth quarter of 2013, to reflect the total estimated value of the pension benefits and other estimated costs. During 2013, our pension plans performed strongly and experienced an average return on assets exceeding 18%. These asset returns, combined with a rising interest rate environment, have reduced our solvency deficit from more than $600 million at January 1, 2013 to less than $300 million (estimated) at January 1, 2014, including the full value of the SCC ruling as well as the new mortality tables to be implemented in 2014. As a result, our pension solvency deficit is now only half of what it was one year ago. In December 2013, we pre-funded $55 million of solvency payments into its pension plans. Excluding any impact that may result from the SCC decision, this prefunding is sufficient to cover all required solvency payments in 2014. Further payments into the pension plan, if any are required in 2014, would only be determined once the implementation plan for the SCC’s decision becomes clearer. We expect to have sufficient liquidity to satisfy our pension funding obligations, including the impacts which may result from the SCC judgment, using the funds raised in the equity financing that closed in December 2013. We will not be using cash flow from operations to meet our pension funding obligations and expects to maintain our current credit rating under any funding scenario. Additionally, we continue to generate strong free cash flows, which we expect will be more than sufficient to fund our ongoing cash needs.
Manitoba Telecom Services Inc. 4 Fiscal year 2013
Leadership changes
In December 2013, Chief Corporate Officer Chris Peirce retired from the Company. Paul Beauregard, former Chief Administrative Officer and Corporate Secretary, assumed Mr. Peirce's responsibilities and became Chief Corporate and Strategy Officer and Corporate Secretary. Mr. Beauregard is now responsible for the strategy, corporate development, regulatory, corporate communications and community investment functions of the Company, and continues to be responsible for the oversight of all legal and human resource matters at the Company, as well as coordinating and supporting the Company's Board of Directors. In January 2014, Allstream President Dean Prevost stepped down from the Company, in order to pursue other interests. Michael Strople, former Chief Operating Officer of Allstream, has assumed the role of Allstream President.
Data centre build in Manitoba
In December 2013, we announced plans to design and build a commercial, multi-tenant data centre in Manitoba, positioning MTS to become a leading provider of server colocation, managed hosting and cloud services in Manitoba. MTS's new data centre is designed to serve multiple businesses and allow for future expansion. The data centre will be approximately 70,000 square feet in size, designed to meet the highest industry standards in security and reliability, and qualify for Uptime Institute's Tier III certification. It will be the only custom-built commercial data centre of this size in Manitoba, enabling customers to securely host IT equipment. Construction of the $50 million facility is scheduled to begin in 2014, with plans to be fully operational in 2015.
Bought deal financing
On December 6, 2013, we announced that we had closed our previously announced "bought deal" financing agreement of 8,855,000 common shares, issued at a purchase price of $28.10 per common share, for gross proceeds of $248.8 million. The net proceeds were approximately $238 million, determined after deducting the underwriters' commission and expenses. We have used a total of $55 million of the net proceeds to make a pre-funded solvency payment into our pension plans. In addition, we used part of the proceeds to repay the short-term debt incurred in February 2013 to prefund the pension plans. The remaining funds will be used to fund any spectrum purchase, for general corporate purposes and to fund pension plan decision costs.
Acquisition of EPIC Information Solutions Inc. (“EPIC”)
In September 2013, we announced the acquisition of EPIC, a Winnipeg-based company that provides IT infrastructure and managed services to approximately 700 businesses across Manitoba and Saskatchewan. By acquiring EPIC, MTS expands its ability to offer Manitoba businesses the most comprehensive suite of IP communications services in the province, including voice, data, wireless and now IT infrastructure services.
Expansion of network sharing agreement with Rogers
Building on the success of its 4G LTE wireless network launch, MTS announced in June 2013 the extension of its strategic wireless network sharing arrangement with Rogers Wireless Partnership. The extension of this wireless network sharing arrangement offers MTS and its customers a number of benefits, including: expanding MTS’s 4G LTE network reach to approximately 90% of Manitoba's population over the next five years; 4G LTE roaming capabilities across Canada; 4G LTE international roaming; cost-effective sharing of deployment and operating costs related to 4G LTE technology in Manitoba; cost-effective roaming rates for HSPA in Canada; access to, and lower volume requirements for a broader range of handsets, with the ability to launch these handsets within a similar timeframe as other Canadian carriers.
Allstream strategic review
With the completion of the Allstream strategic review, on May 24, 2013, we entered into an agreement with Accelero Capital Holdings (“Accelero”) to sell our Allstream business and classified Allstream as held for sale, with the financial results of Allstream reported as discontinued operations for the second quarter of 2013. The close of the sale was subject to certain regulatory approval. On October 7, 2013, the Federal Government announced that it had rejected the proposed acquisition of Allstream by Accelero.
Manitoba Telecom Services Inc. 5 Fiscal year 2013
Advanced 4G LTE wireless network
On August 28, 2012 MTS was the first to launch a 4G LTE wireless network, bringing LTE technology to Winnipeg and Brandon. This launch is part of our commitment to providing the latest in wireless services to Manitobans. We have since introduced our 4G LTE wireless service in Victoria Beach, Grand Beach, Portage la Prairie, Selkirk, Steinbach and Ste. Anne. We launched our 4G high-speed packet access (“HSPA”) wireless network across Manitoba on March 31, 2011, enabled in part by our strategic wireless arrangement with Rogers Wireless Partnership. The expansiveness and sophistication of our 4G HSPA+ wireless network is a significant competitive advantage and delivers cellular voice and high-speed mobile data coverage to 97% of Manitobans. Customers using LTE-enabled devices outside of MTS's 4G LTE wireless network coverage area will automatically transfer to our 4G HSPA+ wireless network.
Company structure changes
On January 1, 2012 we implemented changes to our organizational structure. The changes better align our legal structure with the way the business has operated over the past several years. In 2013, as a result of the completed Allstream strategic review process and the anticipated sale to Accelero (as noted earlier this sale transaction has since been rejected by the Federal Government), services provided between Allstream Inc. and MTS Inc. are on an arms-length basis.
Investments in broadband and FTTH networks
Our Broadband Evolution program continues to enhance our broadband access infrastructure across several communities in Manitoba, allowing us to offer improved high-speed Internet (“HSI”) (download speeds up to 50 Megabits per second (“Mbps”)) and Internet Protocol television (“IPTV”) services. Our standard HSI service is now available to more than 87% of Manitoba households in 224 communities. IPTV service is now available to 96% of Winnipeg households, as well as in Brandon, Portage La Prairie, Selkirk, Steinbach, Dauphin, Thompson, The Pas, Neepawa, Carberry, Killarney, Minnedosa and newly launched in the communities of Beausejour, Lorette and Stonewall. Our IPTV service provides state-of-the-art entertainment, including up to 146 High Definition (“HD”) channels and 500 channels in total, Whole Home personal video recorder (“PVR”), Video on Demand, Pay Per View, as well as access to our fastest Internet speeds. Since 2012 MTS has continued to invest in the deployment of our FTTH network in Manitoba. This investment allows us to deliver enhanced broadband services in communities where we do not currently have a very-high-bit-rate digital subscriber line (“VDSL”) network deployed. FTTH allows customers to access our top-of-the-line IPTV, HSI and phone services. By the end of 2013, over 37,000 homes in Winnipeg, Brandon and 12 other communities will have been passed by FTTH.
Regulatory developments
The telecommunications and broadcast industries in which we operate are federally regulated. As a result, our business is affected by decisions made by various regulatory agencies of the federal government, including the Canadian Radio-television and Telecommunications Commission and Industry Canada. For a description of the principal regulatory initiatives and proceedings affecting us, please refer to the “Regulatory developments” section of our 2013 MD&A.
Initiatives to streamline business operations by $132 million over three years
In 2013, we continued with our ongoing cost reduction initiatives aimed at achieving further process improvements and further cost reductions with a focus on Allstream. Our 2013 efficiency program achieved $69.5 million in annualized cost savings as at December 31, 2013 from these initiatives, which exceeded our target of $30 million to $40 million. Over the past three years we have achieved a total of $132 million in annualized cost savings from these ongoing cost reduction initiatives.
Manitoba Telecom Services Inc. 6 Fiscal year 2013
DESCRIPTION OF THE BUSINESS
Business segments
We are a leading national communications provider in Canada and the market leader in Manitoba. As at December 31, 2013, we had two reportable operating segments, MTS and Allstream. MTS is the leading telecommunications provider in Manitoba, delivering a full suite of wireless, HSI, IPTV, converged IP, unified communications, local access, as well as long distance and legacy data services under the MTS brand. Security and home alarm monitoring services are provided through AAA Alarm Systems Ltd. (“AAA Alarms”) and customized information technology solutions for business customers through EPIC. This complete range of products is unmatched by any other provider in the province. MTS provides services to both residential and business customers in Manitoba. Allstream is a leading competitor in the national business and wholesale markets; offering small, medium and large businesses and government organizations a portfolio of telecommunications solutions tailored to meet their needs. Allstream’s main products are IP-based communications, unified communications, and voice and data connectivity services. Allstream operates an extensive national fibre optic network that spans over 30,000 kilometres, and provides international connections through strategic alliances and interconnection agreements with other international telecommunications service providers. Our operating segments are responsible for business strategies, investment priorities for new products and services, sales and marketing, and distribution channels.
Total revenues by operating segment for the past two years are as follows:
For the years ended December 31 (in millions $) 2013 2012
MTS 995.0 980.6
Allstream 673.6 758.2
Intersegment eliminations (34.9) (34.7)
Total revenue reported 1,633.7 1,704.1
Further detail on our operating revenues by segment are as follows:
For the years ended December 31 (in millions $) 2013 2012
MTS revenue
Wireless services 375.3 362.1
Broadband and converged IP services 228.1 212.9 Unified communications, security and monitoring services 40.3 36.2
Local access services 251.9 266.5
Long distance and legacy data services 71.0 76.1
Other services 28.4 26.8
Total operating revenues 995.0 980.6
Manitoba Telecom Services Inc. 7 Fiscal year 2013
For the years ended December 31 (in millions $) 2013 2012
Allstream revenue
Converged IP services 241.9 243.6 Unified communications, hosting and security services 76.0 78.3
Local access services 154.7 179.7
Long distance and legacy data services 155.5 186.0
Other services 45.5 70.6
Total operating revenues 673.6 758.2
Wireless services
MTS provides wireless services to both consumer and business customers in Manitoba. Our wireless services include post-paid and pre-paid cellular, wireless data, paging and group communications services. Our wireless revenues increased $13.2 million for the year compared to 2012, mainly the result of higher wireless average revenue per user (“ARPU”) and growth in our subscriber base. Wireless ARPU was $62.26 in 2013, is one of the highest in the country and increased from 2012 by 3.2% from $60.35. At December 31, 2013, we had 501,388 wireless subscribers, a 0.8% increase from 2012. Wireless ARPU growth was driven by higher wireless data usage, resulting in an increase in wireless data revenues of 21.4% over 2012. On the consumer side, the growth has been fuelled by the increased adoption of smartphones which provide customers with a gateway for multiple messaging mediums for example, text messaging and instant messaging, social networking services and streaming video and music. On the business side, the adoption of wireless broadband internet sticks and the continued adoption of smartphones to access e-mail and corporate data have been increasing steadily. The faster data speeds available on our 4G wireless networks to 97% of Manitobans are ideal for high bandwidth applications like streaming media, further supporting the growth of wireless data services. Our new LTE wireless network officially launched on August 28, 2012 offers even higher speed data, as well as a wide range of newer and more powerful devices to customers in Winnipeg and Brandon. MTS also offers customers access to national and international roaming in more than 200 countries worldwide. Along with the implementation of new technologies to support the evolving needs of our customers, MTS operates a code division multiple access network, a high quality network covering over 97% of Manitobans. Our group communications services include FleetNet 800™, which is a two-way wireless communications solution used by enterprises with requirements for dispatch communications. Organizations using this service include police departments, the Royal Canadian Mounted Police, other emergency services and transportation companies. Our main competitors in the wireless market in Manitoba include Rogers Communications Inc. (“Rogers”), TELUS Communications Inc. (“Telus”) and Bell Canada (“Bell”).
Broadband and converged IP services
Our broadband and converged IP services provide HSI and IPTV services in Manitoba as well as IP-based connectivity to business customers in Manitoba and nationally. Internet services
In 2013, MTS Internet services revenue grew $7.6 million, or 6.9%, reflecting subscriber growth and higher average revenue per subscriber due to fewer subscribers on promotional plans and price increases. At December 31, 2013, our HSI subscriber base was 208,331, an increase of 7.6% from 2012. We offer Internet services to both residential and business customers within Manitoba including both high-speed and dial-up Internet services. We offer various pricing and plan options to meet the needs of our residential and business customers.
Manitoba Telecom Services Inc. 8 Fiscal year 2013
As at December 31, 2013, more than 87% of households province-wide have access to our HSI services. Customer can access speeds up to 50Mbps on our VDSL2 networks and up to 250 Mbps on our FTTH networks. Our VDSL2 and FTTH networks have been deployed to 15 centres in Manitoba, including Winnipeg, Brandon, Portage la Prairie and Selkirk. The majority of our residential customers subscribe to our Lightning service which is up to 10 Mbps. In addition to the MTS HSI services, MTS also offers MTS Dedicated Internet Access (DIA) which allows customers to access speeds of up to 4 gigabits per second. DIA is currently available in 40 communities across Manitoba. In addition to a number of smaller ISPs in Manitoba, our main High-Speed Internet competitors are Shaw Cablesystems Limited (“Shaw”) in Winnipeg and surrounding communities, and Westman Media Cooperative Ltd. (“Westman”) in Brandon and surrounding communities. IPTV services
To enhance the MTS TV Service launched in 2003 (now MTS Classic TV), MTS launched MTS Ultimate TV in Winnipeg in 2009. MTS Ultimate TV continues to offer the choice and flexibly in programming selection of MTS Classic TV but also provides a comprehensive HD channel offering and Whole Home PVR, which allows customers to record up to three programs simultaneously and play them back on any TV within the home; all accessed through the award-wining Ericsson Mediaroom platform and interactive user interface. At December 1, 2013, 84% of IPTV customers subscribed to Ultimate TV, up from 77% at the end of 2012. Since its launch MTS Ultimate TV has continued to expand its HD channel line-up making it a clear leader over cable in total number of available HD channels. MTS Ultimate TV coverage not only includes Winnipeg and Brandon, but also Portage la Prairie, Selkirk, Dauphin, Steinbach, Thompson, The Pas, Neepawa, Carberry, Minnedosa and Killarney. MTS Ultimate TV also offers a growing list of converged and interactive features including TV Call Display, MTS Centre on Demand, Winnipeg Jets on Demand, Facebook on TV, Games4tv, MyPicks, Ultimate Picks, Galaxie MusicRoom, Ultimate Events Calendar, Yellow Pages TV, My Remote, MyPVR, The KARAOKE Channel, TumbleBooks TV, Lobby Camera, Message Centre, My PVR Space and The Weather Network App. These features help differentiate MTS UTV from Cable TV competitors Shaw and Westman as well as DTH Satellite competitors Bell Satellite and Shaw Direct. In 2013, revenues from MTS TV services totalled $82.0 million, representing an increase of 4.5% over 2012 revenues of $78.5 million. As at December 31, 2013, our customer base was 109,085, of which 104,861 are IPTV subscribers. Converged IP services
Converged IP services for both MTS and Allstream include the provisioning of IP-based networking, and related products and services through our extensive national broadband fibre optic network. Converged IP combines the flexibility and intelligence of IP routing with the transport quality of a high performance network. This combination provides a secure mode of data transport for a defined set of users including employees or customers, allowing IP connectivity to run data, video and voice traffic over a single network reducing infrastructure costs and improving business flexibility. In 2013, our combined converged IP revenues were $270.3 million, representing an increase of 0.9% over 2012 revenues of $267.9 million, as we continued to transition our customers from legacy data services to converged IP services. Our competitors in the converged IP market include Telus and Bell. Unified communications, hosting, security and monitoring services
Unified communications services
Both MTS and Allstream offer a suite of unified communications solutions and services. Unified communications is the integration of real-time communication services such as telephony (including IP telephony) and video conferencing with non-real-time communication services such as integrated voicemail and e-mail. Unified communications is not a single product, but a set of products that provides a single-user interfacing across multiple devices and media types. Allstream unified communications services also
Manitoba Telecom Services Inc. 9 Fiscal year 2013
includes a Hosted Collaboration Solution that offers users the ability to utilize a full suite of communications and collaboration applications from the internet. Allstream’s unified communications services also have the ability to provide a fully hosted unified communication solution with network connectivity, Session Initiation Protocol (“SIP”) trunking and managed services. This provides a cohesive user experience across all channels. Integrating voice, data and video conferencing on our IP network with SIP trunking enables streamlined network management, improved operational efficiencies, and further reduced infrastructure and communications costs. In 2013, our combined unified communications revenues were $79.1 million, representing a decrease of 1.0% over 2012 revenues of $79.9 million. Our competitors in the unified communications market include Telus, Bell, multiple local resellers and Systems Integrators. Hosting services
Through Allstream we offer a full product suite of collocation and managed hosting services. Collocation services allow our customers to “locate” their servers or telecommunications equipment in a fully equipped, secure and environmentally controlled environment. Managed hosting services provide our customers with access to secure state-of-the-art data centres where they can store and easily access any of their IT software, programs or databases they choose to store on our servers. These services are often packaged with converged IP services providing customers with a complete solution. In 2014, construction of MTS’s new data centre will begin, with plans to be fully operational in 2015. Coupled with EPIC’s expertise in IT and managed services to business customers, the data centre positions MTS to become a leading provider of server colocation, managed hosting and cloud services in Manitoba. Security and monitoring services
We provide IP-based security offerings for IP networks, applications, and underlying databases, as well as managed security services to help manage IT risk to our Allstream business customers. Through AAA Alarms we provide security installation and monitoring services to residential and small business customers in Manitoba. AAA Alarms is the leading security services provider in Manitoba for residential customers. Local access services
Through MTS we provide local voice access services for residential and business customers within Manitoba’s local exchanges. A local exchange is a geographic or metropolitan area in which customers are able to connect to each other for a flat monthly fee. We also earn local services revenues from payphones and enhanced local calling features, such as Call Answer, Call Display, Call Waiting and 3-Way Calling. In addition, we earn wholesale revenues by providing our competitors with access to our local exchange facilities. Local services revenues include subsidies paid to us for providing local services in high-cost serving areas. Our competitors in Manitoba for local access services include Shaw, Westman, and web-based telephone service providers, such as Primus Telecommunications Canada Inc. and Vonage Canada Corp. Our position in the Manitoba market continues to be strong, with an estimated 71% and 81% market share respectively, for the residential and business markets. Nationally through Allstream, we provide a full range of local access services to business customers. These services allow customers to complete calls in their local exchange, to access long distance and the Internet. We also earn wholesale revenues for providing competitors with access to our local exchange facilities. Nationally, our competitors in the local services market include Telus and Bell. In 2013, our combined local access services revenues were $406.6 million, representing a decrease of 8.9% over 2012 revenues of $446.2 million. Long distance and legacy data services
Long distance services
In Manitoba, we provide long distance voice services which allow residential and business customers to communicate with destinations outside the local exchange. We offer a variety of long distance savings
Manitoba Telecom Services Inc. 10 Fiscal year 2013
plans to our Manitoba customers and dial-around service in British Columbia and Alberta. We offer calling cards and pre-paid cards for national and international long distance calling. We also offer teleconferencing, toll-free and featured long distance services to our business customers. We also provide long distance voice services to business customers on a national basis. We offer a variety of long distance savings plans, network access options, calling cards for national and international long distance calls, and audio teleconferencing to business customers on a retail and wholesale basis. We also offer an advanced toll-free service to business customers. In 2013, our combined long distance services revenues totalled $117.1 million, representing a decrease of 14.0% from 2012 revenues of $136.2 million. We will continue to experience further declines in our long distance services revenues as they are being replaced by IP based services. In the long distance market, our principal competitors in the provision of business long distance services nationally include carriers such as Bell, Bell Aliant, Telus and Rogers. In the Manitoba market, our competitors for the provision of residential and business long distance include Shaw, Westman, long distance dial-around service providers, resellers, discount packagers of long distance services and broadband voice over IP providers. Legacy data services
We provide legacy data services to business customers across Canada. Legacy data services provided by both MTS and Allstream connect data, video and voice networks to establish private connections across office locations and to integrate traffic over highly secure networks. Our legacy data line of business also includes revenues from the provision of data connectivity and transport. In 2013, our combined legacy data services revenues totalled $109.4 million, representing a decrease of 13.1% from 2012 revenues of $125.9 million. We will continue to experience further declines in our legacy data services revenues as they are replaced by IP based services. Our competitors in the legacy data market include Bell, Telus and some local utility and cable providers. Other services
Other services include revenues earned from intersegment transactions, from the routing and exchange of long distance network traffic nationally and from the sale and maintenance of terminal equipment such as telephone switches and hardware to business customers both in Manitoba and nationally.
Employee relations
As at December 31, 2013, the number of full-time and regular part-time employees of MTS and Allstream was 2,908 and 1,941, respectively. Of these employees, 3,032 were members of a labour union. Our employees are represented by four labour unions, which are the Telecommunications Employees Association of Manitoba–International Federation of Professional and Technical Engineers, Local 161 (“TEAM-IFPTE”); the International Brotherhood of Electrical Workers, Local 435 (“IBEW”); Unifor Local 7 (MTS) and Unifor Local 2000A (Allstream); and the United Steelworkers, TC Local 1976 (“USW”). TEAM-IFPTE represents certain management and professional employees in Manitoba. The collective agreement with this union expires on February 19, 2016. IBEW represents craft and allied employees, such as warehouse, shopcraft and building utility workers. The collective agreement with IBEW in relation to these employees expires on January 31, 2015. The collective agreement between IBEW and AAA Alarms expires on April 27, 2016. Unifor Local 7 represents MTS operators and clerical employees who are covered by a collective agreement which expired on December 19, 2013. Negotiations are currently underway to renew this collective agreement. Unifor Local 7 also represents operators employed by AAA Alarms, who are covered by a collective agreement which expires on November 20, 2016. Unifor Local 2000A represents Allstream technical and non-technical employees who are covered by a collective agreement which expires on December 31, 2015.
Manitoba Telecom Services Inc. 11 Fiscal year 2013
USW represents Allstream technical employees. The collective agreement with USW expires on December 31, 2015.
Distribution channels
MTS offers a variety of distribution channels to keep customers and employees engaged. New and existing customers use these channels to access both residential and business services, including: landline plans and hardware, legacy data, long distance options, wireless (data, post-paid and pre-paid) service and hardware, broadband (Internet and TV), and a host of other products and services. Our main points of contact include: retail and corporate sales channels, MTS Connect™ stores, customer contact centres (includes call centres and business offices), bill payments agents, multi-dwelling unit programs, direct sales (door-to-door) and our website www.mts.ca. MTS Connect
TM store locations act as our exclusive retail outlets, servicing both residential and small
business customers. We currently operate three MTS ConnectTM
stores, all staffed by MTS employees, and hold agreements with 26 partners who own and operate 45 full-service MTS Connect store locations around Manitoba. In addition to this, MTS also offers wireless prepaid service and hardware to our customers through a national retailer (7-Eleven) in their 50 locations throughout the province, and have retail presence, offering landline and wireless Prepaid service and hardware, to 28 First Nation communities. MTS contact centres are another important sales channel, providing service for residential local and long distance inbound customers. Our partner channel provides solutions and wireless fulfillment through an established outbound program. Through the MTS website, customers can gain valuable information about the services MTS offers, they can access online assistance and client support. They are also able to change various account information, such as updating their billing address to changing their MTS TV channels selected and activating their PVR to record their favourite shows. Allstream’s distribution channels include a direct sales force, alliance partner channel, inside sales, customer care contact centres, a customer service portal and our website www.allstream.com. We use these channels to provide our business customers with technology solutions that include converged IP services; unified communications; voice and data connectivity; and Managed IP Services, including Security, Cloud and Data Centre. Our direct and alliance sales channels are used to serve our business customers across Canada and to provide business solutions to meet their needs. Inside sales provide a channel for inbound calls, as well as outbound telemarketing. Our customer care contact centre and portal allow our customers to access customer assistance, tools and information regarding their products and services. Through the Allstream website, customers can gain valuable information about the services Allstream offers, they can access online assistance and client support, and they can manage their account information.
Corporate responsibility
As a constituent of the Jantzi Social Index, we rank among the top environmentally and socially responsible companies in Canada. As one of the country’s leading national communications providers, we have a goal to contribute to the welfare of the communities in which we operate and serve. Our aim is to continuously have a positive impact on the lives of our employees, customers and other stakeholders through our products and services, as well as through our actions in our workplace, communities and environment. We remain focused on our corporate social responsibility efforts by engaging with our employees, investing in our communities and reducing our impact on the environment.
Environment
Manitoba Telecom Services Inc. 12 Fiscal year 2013
Our Environmental Policy demonstrates our commitment to conducting business in a manner which reflects concern for the environment and supports the principles of sustainability.
Our formal Environmental Management System (“EMS”) has been in place since 1992. Its objectives are based on international standards for environmental management systems, as articulated by the International Standards Organization 14000 series and the Canadian Standards Association. Our EMS is designed to enable us to meet or exceed environmental regulatory requirements. Our EMS approach, and its related training and educational initiatives, plays a pivotal role in creating a culture within our company not only focused on compliance, but on proactive activities and innovation. Our goal is to be as environmentally responsible as we possibly can be.
The EMS functions as an operational manual and reference guide for environmental compliance and management. It is comprised of several components which specify the organizational structure, responsibilities, practices, procedures and resources employed in implementing our Environmental Policy and complying with environmental laws. It emphasizes prevention, rather than detection, and remediation of environmental problems by:
ensuring compliance with environmental law and regulations;
communicating with and providing education for employees;
minimizing waste and maximizing the principles of reduce, re-use and recycle;
being prepared for emergency situations;
using environmentally friendly substances;
applying business practices that preserve the environment; and
undertaking regular environmental reviews to ensure that the EMS is appropriately applied and updated as necessary.
We are committed to reducing our impact on the environment and to helping our customers and employees do the same. We are committed to effectively managing the environmental impact of our business operations. We encourage employees to reduce paper consumption and practice recycling through a corporate standard (30% post-consumer) for recycled office paper and various recycling programs. Our employees are also encouraged to use public transportation through such incentives as discounted monthly bus passes. We also enable telework which allows employees the opportunity to choose “greener” commuting options and to reduce their personal impact on the environment. We leverage technology and innovation to reduce our impact on the environment. The majority of our employees work in or out of Leadership in Energy and Environmental Design or Builder Owners and Managers Association certified locations, which demonstrates our commitment to sustainable workplaces. Lighting, heating, ventilation, air conditioning, and alternate energy sources have been implemented at office locations and network sites to improve energy efficiency and increase the use of renewable energy. We have “greened our fleet” by installing Global Positioning System devices in order to minimize idling time and
Manitoba Telecom Services Inc. 13 Fiscal year 2013
fuel consumption and by investing in electric and hybrid vehicles when replacing our fleet vehicles. By recycling all automotive materials possible, we are reducing and reusing what otherwise would be waste. In addition to our efforts to minimize the impact of our operations on the environment, we continued to engage our customers in the “green” potential of innovative communications solutions and provide our employees with information and resources to reduce their personal impact on the environment outside of work. For our customers, we offer cell phone recycling, participate in the nation-wide mobile device “Recycle My Cell” program and provide e-billing options in order to minimize waste. We also offer virtual workplace communication solutions for our business customers in order to promote telecommuting and alternative work arrangements. We recognize employees who demonstrate environmental leadership. We encourage employees to participate in external environmental events and we sponsor “green” initiatives in the community. New “Green” initiatives include:
MTS Ultimate TV Energy Star set-top box leads in energy efficiency — the TV PVR set-top boxes have an Energy Star rating, a designation that recognizes products as the most energy-efficient in their categories. While we have used Energy Star-rated set-top boxes since the launch of MTS Ultimate TV in 2009, the newest set-top box places MTS at the forefront of energy efficiency and innovation using about half the power of an average PVR.
In response to employees and as part of our efforts to reduce our impact on the environment, we launched electronic T4 and Relevé 1 tax forms, building on electronic pay statements launched several years ago.
We have provided business customers with 24/7 secure access to a searchable database with seven years of electronic invoices through Allstream’s self-service portal, TouchPoint, which reduces the need for printing, making it a true “green” solution.
Community and social
Community
Our company is built on the strength of the communities we serve. Together with our employees across Canada, we make financial, in-kind, and volunteer contributions to charities, educational and non-profit organizations, sporting and cultural groups. A national donor to the United Way, we pride ourselves on contributing to meaningful change. In Manitoba, we're committed to a brighter future for our young people through the MTS Future First program. Future First, a program we launched in December 2013, is a multi-faceted community investment strategy that includes sponsorships, grants, donations, scholarships, employee volunteerism and fundraising programs to help in the advancement of Manitoba's young people.
MTS has been serving Manitobans for more than a century. With this comes a responsibility to support our province through community involvement. Together with our employees and retirees, we have contributed millions of dollars and more than one million volunteer hours towards initiatives and more than 200 organizations making a difference across Manitoba.
Our community investment philosophy focuses on growing healthy communities that provide opportunities and create optimism for our young people. The Future First program strives to achieve social change through giving and community event support focused on the advancement of Manitoba youth.
The challenges facing many of Manitoba's youth are varied and complex – issues ranging from poverty, lack of access to education and healthcare support, and accessibility challenges. Manitoba's level of child poverty continues to rank among the highest in Canada. There are many organizations in the community working to remove these barriers, as well as providing growth and development opportunities through education, the arts, recreation and sport. MTS intends to support the work of these organizations and help provide the means to create new initiatives. We are also committed to working with the Assembly of Manitoba Chiefs (“AMC”) to address the telecommunications needs of the First Nation people. Working together, we explore opportunities for the potential development and implementation of initiatives that enhance the participation of Aboriginal people, communities, and businesses in Manitoba’s economy.
On November 1, 2013, we announced a three-year, $150,000 funding commitment to the Red Road to Healing and Traditional Teachings program, a domestic violence healing and prevention initiative that
Manitoba Telecom Services Inc. 14 Fiscal year 2013
delivers culturally-based education and support to Aboriginal women in Manitoba recovering from the effects of family violence.
Equity and diversity
Our commitment to equity and diversity in the workplace is shown by the highlights below:
Based on an analysis of our employment equity data by the Canadian Human Rights Commission in 2012, our overall employment equity results are better than the communications industry and our performance is contributing to improved representation of designated groups within our industry.
The Corporate Knights 2012 Leadership Diversity Index included our Board as one of the top gender-diverse boards and top minority/aboriginal diverse boards.
In 2012, we signed the “Catalyst Accord” and supported Catalyst in its call to action for Canadian corporations to increase the overall proportion of board seats held by women.
We are an active supporter and sponsor of Canadian Women in Communications (CWC). Over the past five years, four of our female leaders have received awards from CWC that recognize leadership excellence in the communications field.
Employee health and safety
Our company has an unwavering commitment to protecting our employees from workplace risks.
We have a series of corporate policies to protect employees, ranging from a broad health and safety policy covering Employee Well-Being to Working Alone, Violence in the Workplace and Accident Prevention to Personal Protective Equipment. It is everyone’s responsibility to know and follow these policies.
Our values
Our values define acceptable standards that govern the behaviour of all individuals’ within the company.
Courage, empathy, commitment and passion. These four words not only describe what we stand for as a company, they also highlight the specific values that we hold up as both goals and performance measuring criteria.
These values are integrated into our processes and communications. From the promotion and hiring of new employees to our performance management process.
People-related governance
As with other areas of our operations, we apply significant rigour to governance policy and processes for our human resources/assets. This includes:
Guide for business conduct o Outlines the essential rules and guidelines necessary to retain our tradition of honest and ethical
business conduct, which apply to all employees, directors, officers and agents of the company
Whistleblower program o We offer Business Conduct and Ethics Reporting as a venue for stakeholders to safely and
confidentially report potential ethics and compliance violations on an anonymous basis
Privacy/Fair information practices o A formal statement of principles and guidelines concerning the minimum requirements for the
protection of personal information provided by the Company to its customers and employees. The practices ensure responsible and transparent practices in managing personal information in accordance with national standards and federal legislation
Respectful workplace o We are committed to providing a workplace in which all customers and employees and everyone
with whom employees interact at work or for business purposes are treated with dignity and respect at all times. Our respectful workplace policy ensures that all employees understand that harassment, discrimination and bullying will not be tolerated within our workplace and outlines the remedial steps available to all employees.
Accommodation in the workplace
Manitoba Telecom Services Inc. 15 Fiscal year 2013
o This policy provides for the accommodation of employees and applicants who require assistance in the workplace in order to perform their roles or apply for positions (developed in accordance with Human Rights and Employment Equity legislation).
Risk factors
Risk management practices are part of our standard operations, across all of our businesses. Identifying and managing our principal risks forms part of our management’s regular business planning process because risks, as well as associated opportunities, form the basis of many aspects of the Company’s future business model and opportunities. Annually, we conduct a formal “risk assessment” process that is directly linked to our business plan, and regular updates are performed throughout the year to identify potential emerging or previously unidentified risks. Risk factors include, but are not limited to areas such as: competitive environment, changes in regulation of telecommunications and broadcast industries, market conditions, financing and debt requirements, future cash flow requirements, pension funding, pension litigation, operational execution and process, continuous rapid changes in technology, scale of operations, security and network failures, litigation and legal matters, human resources, tax matters and the strategic review of our Allstream subsidiary. For a complete and detailed summary of our risks, please refer to the “Risks and uncertainties” section of our 2013 MD&A.
INCOME TAXES
The Company continues to have substantial capital cost allowance pools and tax losses, which we expect will fully offset our taxable income and eliminate cash income taxes until 2020. The present value of our tax asset is approximately $280 million. Realization of these deferred tax assets is dependent on our ability to utilize the underlying future deductions against future taxable income. For a further discussion on the impact of income taxes, please refer to the “Critical accounting estimates and assumptions” section of our 2013 MD&A.
LEGAL PROCEEDINGS
In August 2004, a national class action claim was filed in the Saskatchewan Court of Queen’s Bench against certain wireless carriers, including us, on behalf of a class of plaintiffs described as subscribers or customers of wireless or cellular services. This claim alleges that each of the carriers is in breach of contract and has violated competition, trade practices and consumer protection legislation in connection with certain system access fees, system licensing charges and other similar charges that the carriers have billed to their wireless customers. The claim seeks unspecified general, aggravated, punitive and exemplary damages. Similar class action claims have been filed in various jurisdictions across Canada, but these actions have been held in abeyance pending the outcome of a certification process in respect of the Saskatchewan claim. In September 2007, the Saskatchewan court certified this claim as a class action which ruling was appealed unsuccessfully by the Defendants to the Saskatchewan Court of Appeal. The Supreme Court of Canada refused leave to appeal the Court of Appeal’s decision and so the matter will now proceed on its merits as a national class action. We are also a defendant in a 2008 national class action lawsuit filed in Saskatchewan on behalf of the class of plaintiffs described as subscribers or customers for wired, wireless or cellular services who have paid extra fees and charges in the nature of, but not limited to, 911 fees. The damages claimed include the recovery of all charges relating to 911 or emergency service access, charged to all customers over and above what the defendants were entitled to charge, as well as aggravated, punitive and exemplary damages and the disgorgement of all profits relating to such charges. The defendants are the major Canadian telecommunications carriers including wireless carriers. The class in this action has not yet been certified by a court, which is required before the claim can proceed on the merits of the claim. Even if the plaintiffs
Manitoba Telecom Services Inc. 16 Fiscal year 2013
are successful in obtaining certification of the class, they must still prove their case on the merits of their claims. The potential for liability and magnitude of potential loss cannot be determined at this time.
CAPITAL STRUCTURE
General description
The composition of our capital structure is summarized in the following table:
As at December 31 (in millions $)
2013
2012(1)
(Cash and cash equivalents) bank indebtedness (87.8) 12.6
Notes payable - 54.5
Long-term debt, including current portion 923.1 921.9
Total debt 835.3 989.0
Shareholders’ equity 1,092.7 821.6
Total capitalization 1,928.0 1,810.6
Debt to capitalization 43.3% 54.6%
(1) In 2013 we reevaluated the assumptions underlying the finance lease obligation and determined, in conjunction with the renewal of the lease arrangement, that the liability associated with the prior lease was overstated. As a result, we retroactively adjusted our statements of financial position and statements of changes in equity to reflect the correction of this error. The adjustment decreased the 2012 closing deficit by $12.5 million, increased accounts payable and accrued liabilities by $1.0 million, decreased property, plant and equipment by $0.5 million, and eliminated the current and long-term portions of the finance lease obligations of $6.5 million and $7.5 million, respectively.
Credit facilities
(in millions $)
Capacity
Utilized at
December 31, 2013
Medium term note program 500.0 -
Revolving credit facility 400.0 161.8
Additional credit facility 250.0 180.1
Accounts receivable securitization 110.0 -
Total 1,260.0 341.9
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. We have a $500.0 million medium term note program, which we have not utilized as at December 31, 2013. In accordance with the terms and conditions of our medium term note program, we have the right to redeem any series of notes issued pursuant to this program if so stated in the applicable pricing supplement. For further information regarding our medium term note program please see our Short Form Base Shelf Prospectus dated September 30, 2013. This prospectus can be found at www.sedar.com. We also have a $400.0 million revolving credit facility, of which we have utilized $161.8 million for undrawn letters of credit. Additionally, we have a $250.0 million credit facility, which is used solely for the issuance of letters of credit. As at December 31, 2013, we have utilized $180.1 million of this facility for undrawn letters of credit. In addition to these programs and facilities, we have a $110.0 million accounts receivable securitization program, which we have not utilized as at December 31, 2013.
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Credit ratings
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. On October 15, 2013, S&P confirmed its credit ratings on our long-term corporate credit and senior unsecured debt at “BBB”, and our commercial paper rating of “A-2”. S&P also confirmed its outlook as “stable”. On May 27, 2013 DBRS confirmed its ratings on our senior debentures at “BBB” and our commercial paper rating of “R-2 (high)”. The credit ratings provided by DBRS and S&P (collectively the “Rating Agencies”) as at December 31, 2013 also are summarized in the following table.
S&P – Senior debentures BBB (stable)
S&P – Commercial paper A-2
DBRS – Senior debentures BBB (stable)
DBRS – Commercial paper R-2 (high)
The credit ratings of the Rating Agencies are not recommendations to purchase, hold or sell the instruments to which they relate, inasmuch as such ratings do not comment as to market price or suitability for a particular investor. Credit ratings are intended to provide investors with an independent measure of the credit quality of an issue of securities. We provide the Rating Agencies with confidential, in-depth information in support of their rating processes. There is no assurance that any rating will remain in effect for any given period of time, or that any rating will not be revised or withdrawn entirely by a Rating Agency in the future if, in its judgment, circumstances so warrant.
According to the S&P rating system, the “BBB” rating is the fourth highest of nine available rating categories and means that the obligor’s capacity to meet its financial commitment on the obligation is adequate. According to the DBRS rating system, the “BBB” rating is the fourth highest of ten available rating categories, and means that the debt security is of adequate credit quality. The “A-2” rating assigned to our commercial paper is the second highest of six available rating categories and means that our capacity to meet our financial commitment on an obligation is satisfactory. The “R-2 (high)” rating assigned to our commercial paper is the fourth highest of ten available rating categories and means that our commercial paper is considered to be at the upper end of adequate credit quality.
Share capital
Our authorized share capital consists of an unlimited number of Common Shares of a single class, and an unlimited number of Preference Shares of two classes.
The holders of Common Shares have the following rights:
to receive notice of, and attend and vote at, meetings of shareholders;
to receive such dividends as may be declared by the Board of Directors; and
to share in the distribution of the assets of the Company upon liquidation, winding-up or dissolution, subject to the rights, privileges and conditions attaching to any other class of shares ranking in priority thereto.
The Company's share capital also allows for the issuance of Preference Shares, that were historically created for certain contemplated holders in very specific and unique situations. For that reason, from a practical perspective, these shares could not be reasonably issued on a general basis, and are therefore not considered to be "blank cheque" preferred shares. Subject to certain very bespoke terms that limit the practical issuability of these shares, the attributes of these shares are identical to those of the Common Shares except for the following:
The holders of Class A Preference Shares are not entitled to vote at meetings of shareholders on resolutions electing directors.
The Class A Preference Shares are convertible, at any time, into Common Shares, on a one-for-one basis.
Manitoba Telecom Services Inc. 18 Fiscal year 2013
The holders of Class B Preference Shares are not entitled to vote at meetings of shareholders, and are not entitled to share in the distribution of the assets of the Company upon a liquidation, winding-up or dissolution.
The Class B Preference Shares are convertible into Common Shares on a one-for-one basis at the option of the holder at any time subject to foreign ownership restrictions, or upon the occurrence of certain events, or at the option of the Company at any time.
Dividends on each class of Preference Shares are payable on the same dates as dividends are paid on the Common Shares of the Company, using the same record date for determining holders of Preference Shares entitled to dividends as the record date for Common Share dividends, in an amount per Preference Share equal to the corresponding amount of dividends per Common Share. Both classes of Preference Shares participate in the earnings of the Company on an equal basis with the Common Shares and, therefore, are included in the weighted average number of shares outstanding for purposes of calculating basic and diluted earnings per share. As at December 31, 2013, our issued and outstanding share capital consisted of 76,821,497 Common Shares. There are no outstanding Preference Shares.
Constraints
Our Articles set out the following ownership restrictions in relation to our voting shares, which consist of those shares that give the holder the right to receive notice of, and attend and vote at, meetings of shareholders on resolutions electing directors:
Individual Holdings – The total number of voting shares that may be beneficially owned by any one person or by the members of any one group of associated persons, other than by way of security only, may not exceed 20% of the total number of issued and outstanding voting shares.
Non-residents of Canada – The number of voting shares that may be beneficially owned by non-residents of Canada, other than by way of security only, may not exceed in the aggregate the maximum percentage of the total number of issued and outstanding voting shares of the Company permitted by applicable law from time to time.
Government Ownership – No voting shares of the Company or any affiliate may be beneficially owned by any government or government agency, other than the Government of Manitoba and its agents or an entity that invests funds or assets under a pension plan or insurance arrangement.
In order to ensure that we continue to be in compliance with the ownership restriction respecting non-residents of Canada, our share ownership is monitored by our transfer agent and registrar in relation to registered shareholders, and by CDS Clearing and Depository Services Inc. in relation to non-registered shareholders.
Dividend policy
Our dividend policy is to provide sustained growth in dividends to shareholders to the extent that it is appropriate considering growth in earnings per share, results of operations, financial condition, and our cash position and investment opportunities. The declaration and payment of dividends are at the sole discretion of the Board of Directors. Accordingly, there can be no assurances as to the amount or timing of any dividend in the future. In 2013 we declared dividends per outstanding Common Share of $0.425 in each of February, May, August and November. In 2012 we declared dividends per outstanding Common Share of $0.425 in each of February, May, August and November. In 2011 we declared dividends per outstanding Common Share of $0.425 in each of February, May, August and November.
Manitoba Telecom Services Inc. 19 Fiscal year 2013
MARKET FOR SECURITIES
Our Common Shares are listed on the Toronto Stock Exchange under the trading symbol of MBT. The
following is a summary of the trading volumes and price ranges of our Common Shares by month during
2013.
Month Trading volumes Price ranges ($)
January 6,339,039 $32.00 - $33.19
February 9,691,465 $32.08 - $33.45
March 4,882,064 $32.50 - $33.15
April 5,922,998 $31.65 - $32.85
May 10,965,781 $31.81 - $36.09
June 9,881,535 $34.17 - $35.90
July 8,108,528 $34.06 - $36.13
August 5,273,702 $32.88 - $34.13
September 4,434,074 $32.85 - $33.90
October 12,391,047 $28.94 - $32.76
November 10,311,104 $28.35 - $29.81
December 11,404,271 $28.53 - $29.69
DIRECTORS AND OFFICERS
Directors
The following persons are the directors of the Company as at December 31, 2013, each of whom was
elected at the annual meeting of shareholders held on May 9, 2013. All directors hold office until the next
annual meeting of shareholders, unless a director resigns or a director’s office becomes vacant for any
reason. Information about our director nominees standing for election in May 2014 can be found in our
Management Proxy Circular which will be available in April 2014. The directors are members of the
committees of the Board of Directors as specified below.
The information specified below shows the month and year in which each director first became a director of the
Company. In the case of a director who was a member of the Board of Commissioners of The Manitoba
Telephone System prior to January 7, 1997 (the date on which The Manitoba Telephone System ceased to be
a Crown corporation and was continued as a publicly-traded company under the name Manitoba Telecom
Services Inc.), the month and year shown is when such director first became a member of the Board of
Commissioners.
Name and province of residence Principal occupation Director since
Pierre J. Blouin
Manitoba, Canada
Chief Executive Officer of the Company March 2006
Jocelyne M. Côté-O'Hara,C.M. (2) (3)
Ontario, Canada
Corporate Director January 1997
N. Ashleigh Everett (2) (3)
Manitoba, Canada
President and Corporate Secretary, Royal
Canadian Securities Limited,
(own and manage various properties)
January 1997
The Honourable Gary A. Filmon, P.C., O.C.,
O.M. (2) (3)
Manitoba, Canada
Corporate Director April 2003
Gregory J. Hanson, FCA, FCIP, FLMI (1)
Manitoba, Canada
Corporate Director May 2007
Manitoba Telecom Services Inc. 20 Fiscal year 2013
Name and province of residence Principal occupation Director since
Kishore Kapoor, CA (1) (5)
Manitoba, Canada
Corporate Director May 2006
David G. Leith (4) (5)
Ontario, Canada
Chair, Manitoba Telecom Services Inc. and certain
of its subsidiaries
May 2009
H. Sanford Riley, C.M., J.D. (1) (5)
Manitoba, Canada
President and CEO
Richardson Financial Group Ltd.
May 2011
D. Samuel Schellenberg (1)
Manitoba, Canada
Corporate Director August 1989
Carol M. Stephenson, O.C. (2) (3)
Ontario, Canada
Dean of Richard Ivey School of Business
University of Western Ontario
May 2008
(1) Member of the Audit Committee (4) Ex-officio member of all Committees of the Board
(2) Member of the Governance & Nominating Committee (5) Member of the Strategic Committee
(3) Member of the Human Resources & Compensation Committee
Additional information on Directors
During the past five years, each of our directors had the principal occupation indicated above, except as
outlined below. Certain other information relating to the directors is outlined below.
David G. Leith was Deputy Chairman and Managing Director of CIBC World Markets and Head of the
firm's Investment, Corporate and Merchant Banking activities prior to March 2009.
D. Samuel Schellenberg was CEO of Pembina Valley Water Cooperative Inc. prior to April 2010.
Kishore Kapoor, CA was President of Wellington West Holdings Inc. prior to July 2011.
Officers
The following persons are the officers of the Company.
Name and province of residence Principal occupation
Pierre J. Blouin Manitoba, Canada
Chief Executive Officer
Wayne S. Demkey, CA Manitoba, Canada
Chief Financial Officer
Kelvin A. Shepherd, P.Eng. Manitoba, Canada
President, MTS
Michael R. Strople
Ontario, Canada President, Allstream
Paul A. Beauregard
Manitoba, Canada Chief Corporate and Strategy Officer and Corporate Secretary
Brenda M. McInnes, CA Manitoba, Canada
Vice-President & Treasurer
During the past five years, each of our officers had the principal occupation indicated above, except as
outlined below.
Paul A. Beauregard was Chief Administrative Officer of Manitoba Telecom Services Inc. prior to
January 2014, Chief Legal Officer and Corporate Secretary of Manitoba Telecom Service Inc. prior to
August 2013, Vice-President, General Counsel & Corporate Secretary of Manitoba Telecom Services
Inc. and MTS Allstream Inc. prior to June 2011, Vice-President & General Counsel of Manitoba Telecom
Services Inc. and MTS Allstream Inc. prior to June 2010, Vice-President, Law of Manitoba Telecom
Manitoba Telecom Services Inc. 21 Fiscal year 2013
Services Inc. and MTS Allstream Inc. prior to January 2009. He was also Vice-President, Law –
Mergers and Acquisitions of BCE Inc. and Bell Canada prior to September 2008.
Michael R. Strople was Chief Operating Officer of Allstream Inc. prior to January 2014, Chief
Technology Officer of Manitoba Telecom Services Inc. prior to March 2013, and Vice-President,
Technology Development of MTS Allstream Inc. prior to September 2011.
Our directors and officers as a group own, directly or indirectly, or exercise control or direction over 0.2% of
the issued and outstanding Common Shares of MTS. In addition, our directors and officers as a group own
(vested and unvested) deferred compensation units, restricted share units and performance share units,
which if converted to Common Shares of MTS, would represent, incrementally, 0.6% of the issued and
outstanding Common Shares of MTS.
AUDIT COMMITTEE
Composition
Our Audit Committee is comprised of four directors appointed by our Board of Directors. Each member of
the Audit Committee is independent as defined in Multilateral Instrument 52-110 Audit Committees.
Each Audit Committee member is financially literate. The following is a description of the education and
experience of each member that is relevant to his or her responsibilities as an Audit Committee member.
Kishore Kapoor, CA has been the Chair of the Audit Committee since May 2012 and the Chair of the
Strategic Committee since September 2012. Mr. Kapoor received a Bachelor of Science from the
University of Manitoba. He is a chartered accountant and a former tax partner with the international
accounting firm of KPMG LLP. Until 2011, Mr. Kapoor was President of Wellington West Holdings Inc.,
the parent company of a number of subsidiaries that provide wealth management and corporate finance
services to retail and institutional clientele in Canada. Mr. Kapoor was a founder of Assante
Corporation, an organization providing wealth and asset management services through a network of
financial advisors, and served as its Executive Vice-President Corporate Development from 1994 to
2003. From 2003 to 2005, Mr. Kapoor was Executive Vice-President Corporate Development of Loring
Ward International Ltd., a public company formed to hold the U.S. operations of Assante Corporation.
Gregory J. Hanson, FCA, FCIP, FLMI has been a member of the Audit Committee since May 2012. Mr.
Hanson has a Bachelor of Commerce (Hons) from the University of Manitoba and is a Fellow Chartered
Accountant. He obtained his Fellowship in both the Life Management Institute (FLMI) and the Insurance
Institute of Canada (FIIC) and completed a one month Advanced Executive Education Program at
Wharton Business School, University of Pennsylvania. From November 1992 to May 2007, Mr. Hanson
was President and Chief Executive Officer of The Wawanesa Mutual Insurance Company. Mr. Hanson
is a Director of each of The Wawanesa Mutual Insurance Company, The Wawanesa Life Insurance
Company, Wawanesa General Insurance Company and James Richardson & Sons Limited, of which he
is the Chair of its Audit Committee.
H. Sanford Riley, C.M., J.D. has been a member of the Audit Committee since May 2011. Mr. Riley obtained a B.A. in Political Science from Queen’s University and a J.D. from Osgoode Hall Law School. H. Sanford Riley is President and Chief Executive Officer of Richardson Financial Group, Ltd., a specialized financial services company. Between 1992 and 2001, he served as President and Chief Executive Officer of Investors Group Inc., a personal financial services organization, retiring as Chairman in 2002. Mr. Riley has been a director of Molson Coors Brewing Company since February 2005, North West Company since 2002, becoming Chairman in 2008, and is also a director of GMP Capital, a publicly traded investment dealer, Canadian Western Bank, and The Canada West Foundation. Mr. Riley serves as Chairman of the University of Winnipeg Foundation, is a past Chancellor of the University of Winnipeg and past Chairman of the Manitoba Business Council. Mr. Riley was also appointed a Member of the Order of Canada in 2002.
Samuel Schellenberg has been a member of the Audit Committee since January 1997. He is a
graduate of the University of Manitoba with a Bachelor of Arts. Mr. Schellenberg has many years of
experience in business as Chief Executive Officer of Pembina Valley Water Cooperative Inc. up until his
retirement in 2010. He also has operated independent businesses, and served in an advisory role to the
Manitoba Telecom Services Inc. 22 Fiscal year 2013
Government of Manitoba. Mr. Schellenberg has a variety of board experience and is a director of the
International Water Institute and Parkinson Society Manitoba. He has served as a Director of the Red
River Basin Commission, Red River Trade Inc. and the International Flood Mitigation Initiative, as well
as a number of non-profit organizations, including the Pembina River Advisory Board and Pembina
Valley Adult Education.
Policy on engagement of external auditors
The mandate of our Audit Committee includes the responsibility to monitor and strengthen the
independence of the external audit function.
Accordingly, we established an Auditor Independence Policy to ensure that the external auditors remain
independent, both in fact and in appearance. We acknowledge that maintaining the independent and
objective viewpoint of the independent external auditors is critical to the external financial reporting process
and our access to the capital markets. Our Auditor Independence Policy applies in all cases where we
intend to engage the external auditors.
The external auditors are appointed annually by vote of the shareholders based on the recommendation of
our Board of Directors. The external audit firm’s compensation is approved based on the recommendation
of our Audit Committee. All other services to be provided by the external auditors and related fees require
the prior approval of our Audit Committee. Our Audit Committee also reviews a quarterly report from
management describing the services that have been provided by the external auditors and related fees.
Our Auditor Independence Policy outlines services that the external auditors may not be engaged to
provide. These services include:
bookkeeping or other services related to accounting records or financial statements;
appraisal or valuation services fairness opinions;
actuarial services;
management functions or human resources services;
broker-dealer, investment advisor or investment banking services;
legal services or expert services unrelated to the audit;
internal audit outsourcing services and
financial information systems design and implementation services.
In late 2013, the Audit Committee completed a comprehensive request-for-proposal process for audit
services. At the conclusion of the process, the Board of Directors (on the recommendation of the Audit
Committee) unanimously determined to commence the process of changing our auditor to Ernst & Young
LLP. Deloitte, our incumbent auditor, is expected to formally resign upon completion of the 2013 audit and
related filings. Ernst & Young LLP is then expected to be formally appointed as our auditor to fill the resulting
vacancy, and will also be proposed for appointment as auditor at our annual shareholders' meeting in
May 2014. There were no disagreements with Deloitte on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure for the period in which Deloitte provided
auditing services, including any "reportable event", as defined in National Instrument 51-102 Continuous
Disclosure Obligations.
Manitoba Telecom Services Inc. 23 Fiscal year 2013
External auditor service fees
The aggregate amounts paid or accrued with respect to fees payable to our external auditors for services
related to the fiscal years ended December 31, 2013 and 2012 are as follows:
(in millions $) 2013 2012
Audit fees 0.9 0.8
Audit related fees (1)
0.6 0.7
All other fees (2)
0.2 0.1
Total 1.7 1.6 (1)
Audit related fees include fees associated with regulatory audits, pension plan audits and other audits including specified audit procedures.
(2) All other fees consist primarily of fees for services related to French translation of documents filed with
securities regulatory authorities.
INTERESTS OF EXPERT
Deloitte LLP, Chartered Accountants, were our auditors for 2013 and are independent within the meaning of
the Rules of Professional Conduct of the Institute of Chartered Accountants of Manitoba.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar is Computershare Investor Services Inc., which maintains our register of
shareholders at its offices located in Calgary, Vancouver, Toronto, Montreal and Halifax.
ADDITIONAL INFORMATION
Additional information relating to our company may be found on SEDAR at www.sedar.com.
Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of
securities and securities authorized for issuance under equity compensation plans, is contained in our
Management Proxy Circular for our most recent annual meeting of shareholders that involved the election of
directors. The most recent Management Proxy Circular can be found at www.mtsallstream.com
Additional information is provided in our financial statements and management’s discussion and analysis for
our most recently completed financial year. All of our financial reports can be found at
www.mtsallstream.com/investors.
Manitoba Telecom Services Inc. 24 Fiscal year 2013
APPENDIX A: AUDIT COMMITTEE CHARTER
Our Audit Committee has a written Charter, which sets out its mandate and responsibilities. The text of this
Charter, effective as of January 1, 2013, follows.
Audit Committee Charter
(A Committee of the Board of Directors (the “Board”) of Manitoba Telecom Services Inc. (the “Corporation”))
Overall Responsibilities of the Committee
1. The Audit Committee (“Committee”) shall assist the Board in carrying out the following responsibilities,
including those expressly set out in the Board Mandate: (a) monitoring the Corporation’s financial reporting functions and related internal control and
management information systems; (b) ensuring the implementation of appropriate systems and processes to identify and manage the
principal risks of the Corporation; (c) adopting a communications policy for the Corporation regarding the distribution of financial
information to the public; (d) governance and administration of employee pension plans; and (e) co-ordination of special studies and reviews.
For greater detail with respect to these Overall Responsibilities, see “Specific Responsibilities of the
Committee” commencing in section 12.
Composition of the Committee
2. The Committee shall be comprised of four (4) or more directors appointed by the Board on the
recommendation of the Governance & Nominating Committee, none of whom shall be officers (as the
term “officer” has meaning in securities regulations) or employees of the Corporation or any of its
affiliates.
3. The Chair of the Committee shall be determined by the Board. The Chair’s responsibilities are attached
hereto as Schedule “A”. The Committee may appoint a Vice-Chair. 4. Each member of the Committee shall be a director and, in the business judgment of the Board, shall
satisfy the applicable experience, and financial literacy qualification requirements of the laws governing the Corporation and the applicable stock exchanges on which the Corporation’s securities are listed, as well as the guidelines of applicable securities regulatory authorities and the Canadian Securities Administrators. In addition, all members of the Committee shall be “independent” within the meaning of applicable securities laws.
5. The appointment of members of the Committee shall be made immediately following each annual
meeting of shareholders of the Corporation. Members of the Committee may be reappointed annually
and shall serve at the pleasure of the Board for such term(s) as the Board may determine.
6. The Committee shall determine whether any of its members serve on the audit committee of three or
more public corporations, and if any member does, the Committee may request that such member not
continue to serve on the Committee.
Meetings, Quorum, Minutes and Procedures
7. Meetings shall be held at the call of the Chair or a majority of the members of the Committee, or with the
consent of the Chair, by the independent auditor. Notice of the time and place of every meeting may be
given by telephone or in writing, and be delivered by hand, mail, facsimile or electronically to each
member of the Committee at least 24 hours prior to the time fixed for such meeting. A meeting of the
Committee may be held and duly constituted at any time without notice if all the Committee members
are present or, if any of them are absent, those absent have waived notice or provided their consent in
writing to the meeting being held in their absence, or thereafter, have ratified and approved the
proceedings thereof or action taken and any resolution passed thereat. Meetings of the Committee
shall be held at least quarterly.
Manitoba Telecom Services Inc. 25 Fiscal year 2013
8. The independent auditor of the Corporation is entitled to receive notice of every meeting of the
Committee and, at the expense of the Corporation, to attend and be heard at the meeting. If so
requested by a member of the Committee, the independent auditor shall attend any or every meeting of
the Committee.
9. A quorum for meetings shall be not less than a majority of the members of the Committee, present in
person or by telephone or other telecommunications device that permits all persons participating in the
meeting to communicate adequately with each other. A majority shall include either the Chair or an
interim Chair, as the case may be, or the Vice-Chair, if any.
10. The Chair of the meeting shall appoint a person to act as a recording secretary to keep minutes of each
meeting. The recording secretary need not be a member of the Committee.
11. Decisions at meetings of the Committee shall be determined by a vote of the majority of those present
and eligible to vote. Decisions may also be effected by a resolution in writing signed by all members of
the Committee. The Chair shall not have a second or casting vote. All significant matters considered,
decisions, and recommendations of the Committee from each of its meetings shall be reported by the
Committee to the next meeting of the Board.
Specific Responsibilities of the Committee
12. The Committee shall make assessments and determinations as the Committee considers necessary or
desirable to assist the Board in carrying out those areas of the Board’s Mandate that deal generally with
financial matters of the Corporation identified summarily in section 1 above. In carrying out such
assessments and determinations, the Committee shall consider all matters necessarily incidental to the
Overall Responsibilities set out in section 1, including without limitation, the matters identified in sections
13 to 17 inclusive below.
13. Monitoring the Corporation’s Financial Reporting Functions and Related Internal Control and
Management Information Systems: With respect to monitoring the Corporation’s internal control and
management information systems, the Committee shall ensure the quality and integrity of financial
information, establish and ensure compliance with disclosure and internal controls over financial
reporting of the Corporation and its Subsidiaries. Specifically, with respect to the: (a) Annual Audited Financial Statements and Financial Reporting, the Committee shall:
(i) review the annual (consolidated) financial statements of the Corporation, including a review of
the adequacy of disclosure and content, significant changes in accounting policies (including
the impact of alternative accounting policies), the significant risks and uncertainties, material
year-end adjustments, and significant estimates and judgments made by Executives that can
be material to the financial statements, and, if considered appropriate, recommend the
approval of such annual (consolidated) financial statements to the Board;
(ii) review the independent auditor’s reports and management letters, together with any response
by Executives, and advise the Board and the board of directors of a Subsidiary, as applicable,
with respect thereto;
(iii) review the financial content of the Corporation’s Annual Report to Shareholders, including
management’s discussion and analysis and, if considered appropriate, recommend its
approval to the Board;
(iv) review the Annual Information Form and, if considered appropriate, recommend its approval
to the Board;
(v) review with Executives, the independent auditors and, if necessary, with legal counsel, any
litigation, claim or other contingency, including tax policy that could have a material effect
upon the financial position or operating results of the Corporation, and the manner in which
these matters have been disclosed in the financial statements; and
(vi) review certifications of annual financial information required to be filed with applicable
regulatory authorities. (b) Interim Unaudited Financial Statements and Financial Reporting, the Committee shall:
(i) review the unaudited quarterly consolidated interim financial statements of the Corporation
and, if considered appropriate, recommend the approval of such financial statements of the
Corporation to the Board;
(ii) review the interim management’s discussion and analysis and, if considered appropriate,
recommend its approval to the Board; and
Manitoba Telecom Services Inc. 26 Fiscal year 2013
(iii) review certifications of interim financial information to be filed with the applicable securities
regulatory authorities.
(c) Independent Audit Function, the Committee shall:
(i) recommend to the board of directors, the independent auditor to be nominated for
appointment by the shareholders;
(ii) recommend to the board of directors, the compensation of the independent auditor in
advance of preparing the annual audit;
(iii) engage at least quarterly the independent auditor to perform a review of the interim financial
statements of the Corporation;
(iv) review and approve the independent auditor’s letter(s) of engagement;
(v) review the proposed scope of the independent audit and interim reviews with the independent
auditor and identify areas of concern of the Board, and request that such areas be considered
by the independent auditor in the finalization of the audit or review plan;
(vi) review any problems identified in performing the audit or review, such as a limitation or
restriction imposed by any Executive or a disagreement with any Executive that, if not
satisfactorily resolved, would have caused the independent auditor to issue a non-standard
report on the financial statements of the Corporation;
(vii) promote effective and timely resolution of audit issues by facilitating communication between
Executives, the auditors and the Board;
(viii) review in-camera with the independent auditors, the quality of the Corporation’s financial and
accounting personnel, and any recommendations that the independent auditors may have;
and
(ix) monitor and strengthen the independence of the independent audit function, including the
audit function’s independence from Executives, by:
(aa) ensuring that a direct reporting relationship exists between the independent auditor and
the Committee;
(bb) providing a forum for communicating findings to the Board;
(cc) maintaining a governance process over the employment of the independent auditor for
any services other than the audit of the annual financial statements, or the review of the
interim financial statements;
(dd) receiving from the independent auditor a written statement describing all relationships
and service arrangements between the independent auditor and the Corporation and
the Subsidiaries, and discussing with the independent auditor any relationships or
service arrangements that have been disclosed that may impact the independent
auditor’s objectivity and independence, and, where necessary, taking such action as
may be appropriate to ensure the independence of the independent auditor; and
(ee) reviewing the hiring of any current or former partners or employees of the present or
former independent auditor by the Corporation or any of the Subsidiaries; and;
(x) pre-approve all audit services and permitted non-audit services (including the fees, terms and
conditions for the performance of such services) to be performed by the independent auditor. (d) Internal Audit Function, the Committee shall:
(i) review and assess annually the scope and objectives of the internal audit function, including
the adequacy of staff resources and budget as well as the appropriateness of audit emphasis;
(ii) review annually the responsibilities of the internal auditor;
(iii) review and approve the internal auditor’s annual audit plan;
(iv) receive directly from the internal auditor for review at least annually a report of the internal
auditor, including initiatives on areas of major audit efforts;
(v) periodically arrange and participate in meetings with the internal auditor to review the results
of the internal audit practices of the Corporation;
(vi) review in-camera with the internal auditors any recommendations made by the internal
auditors; and
(vii) monitor and strengthen the independence of the internal audit function, including the audit
function’s independence from Executives, by establishing a direct reporting relationship
between the internal auditors and the Committee.
Manitoba Telecom Services Inc. 27 Fiscal year 2013
(e) Internal Control Environment, the Committee shall:
(i) promote an appropriate control environment, which emphasizes accountability of employees
for the effective and efficient management of business operations;
(ii) review the process to monitor the operations of the Corporation and its Subsidiaries, in
accordance with the corporate and financial objectives established by the Corporation’s
strategic direction, annual consolidated business plan and the annual operating and capital
budgets approved by the Board;
(iii) obtain assurance that the Corporation has implemented appropriate systems of internal
controls over financial reporting;
(iv) review spending limits and other similar authorizations and authority, including execution of
contracts;
(v) review matters relating to any potential conflict of interest or breach of ethical conduct,
whether or not contemplated by any policy pertaining to conflict of interest or ethics;
(vi) obtain assurance that the Corporation has established procedures for the receipt, retention
and treatment of complaints received by the Corporation regarding accounting, internal
accounting controls or auditing matters, and the confidential anonymous submission of
employees of concerns regarding questionable accounting or auditing matters; and
(vii) review any annual or interim certifications relating to disclosure controls and procedures or
internal control over financial reporting required to be filed with applicable securities regulatory
authorities. (f) Internal Transactions, the Committee shall review and is authorized to approve any internal
transaction undertaken for financial purposes such as an amalgamation, merger or other form of consolidation of one or more affiliates of the Corporation.
14. Ensuring the implementation of appropriate systems and processes to identify and manage the principal risks of the Corporation. Review at least annually and oversee the Corporation’s risk management program for the identification and management of the principal risks of the Corporation and the mitigation of such principal risks. The Committee shall ensure, working with internal Enterprise Risk Management & Audit, that each principal risk and related mitigation initiative(s) identified through this program is assigned to a specific Committee of the Board, or directly to the Board, for oversight and monitoring.
15. Adopting a Communications Policy for the distribution of financial information to the public: With respect to adopting a communications policy for the distribution of financial information to the public, the Committee shall:
(a) review appropriate measures and processes that will facilitate appropriate communications between
the Board and its shareholders, including:
(i) ensuring that there is a department of Investor Relations which receives and responds in a
timely manner as permitted by law to comments from all shareholders;
(ii) reviewing, prior to any release or distribution to the public, news releases containing financial
information based on the Corporation’s financial statements, and recommending to the Board
for approval, earnings guidance, quarterly earnings news releases including interim and
annual financial statements and interim and annual management’s discussion and analysis;
and
(iii) reviewing and recommending to the Board for approval all responses to proposals from
shareholders; and
(b) review the appropriateness of the Corporation’s ‘Corporate Disclosure Policy and Practices’
(‘Disclosure Policy’) from time to time, ensure that the Corporation’s practices relating to the timely
continuous disclosure of appropriate information to the public comply with all applicable securities
regulations, and if considered necessary, recommend to the Board amendments to the Disclosure
Policy.
16. Governance and Administration of Employee Pension Plans: With respect to governance and
administration of the Corporation’s employee pension plans, the Committee shall conduct the annual
review of the policies and procedures directed towards the governance, performance, and the funding
and administrative activities of all pension plans of the Corporation. Specifically, the Committee shall
receive, review and, if considered appropriate by the Committee approve, or make recommendations to
the Board for approval regarding:
(a) annual and other reports relating to the governance, performance, and administration of all pension
plans of the Corporation;
Manitoba Telecom Services Inc. 28 Fiscal year 2013
(b) any process undertaken respecting the appointment or termination of investment managers, the
trustee and auditors, as well as the appointment of members to the Investment Committee and the
appointment of non-elected members to the Pension Committee;
(c) amendments to the Statement of Investment Policies and Goals and amendments to each pension
plan of the Corporation;
(d) obtain assurance that the Corporation and its Subsidiaries have implemented appropriate systems
of internal control over the administration of all pension plans;
(e) proposals to amend, terminate, merge or consolidate the pension plan with a new or existing
pension plan;
(f) the transfer of assets or liabilities of a pension plan as a result of the amendment, termination,
merger or consolidation of a pension plan as described in subsections (c) and (d) above;
(g) any amendments to pension plan benefits; and
(h) funding of one or more of the pension plans.
The responsibility of the Committee pursuant to this section shall be construed in relation to the
responsibilities of the Human Resources & Compensation Committee relating to the Corporation’s
Pension Plans described in the Charter of the Human Resources & Compensation Committee.
The responsibilities of the Committee set out above shall be subject to the Committee working together
with the Human Resources & Compensation Committee with respect to the initiation of a substantial
amendment to an existing pension plan (determined in the sole discretion of the Chair of the
Committee) or the establishment of a new pension plan.
The Audit Committee shall also serve as the audit committee of all material subsidiaries and shall have
the same authority and perform the same function with respect to the pension plans of such
subsidiaries.
17. Coordination of Special Studies and Reviews: The Committee may:
(a) conduct, or cause to be conducted, any special studies and reviews to obtain appropriate and
sufficient evidence to satisfy its purpose and objectives;
(b) receive and consider reports related to special studies and reviews and recommend appropriate
actions to the Board for approval; and
(c) ensure that Executives carry out any recommended and approved actions in a timely manner.
Role of Committee, Management, Board, Independent and Internal Auditors
18. The Committee has the oversight role set out in this Charter. Each of management, the Board, the independent auditor, and the internal auditor, has an important role in respect of risk management, compliance, and the preparation and presentation of financial information, which may be summarized as follows:
(a) management is responsible for risk management, compliance, and preparation of financial
statements and periodic reports, and for ensuring that the Corporation’s financial statements and
disclosures are complete, accurate and in accordance with Canadian generally accepted accounting
principles and applicable laws;
(b) the Board in its oversight role is responsible for ensuring that management fulfills its responsibilities;
(c) the independent auditor, following the completion of its annual audit, is responsible for issuing
opinions on the presentation, in all material respects, of the financial position and results of
operations of the Corporation in accordance with Canadian generally accepted accounting
principles; and
(d) the internal auditor is responsible for assessing the Corporation’s systems of internal controls on an
ongoing basis.
Adequacy of Charter and Performance Evaluation of Committee
19. The Committee shall:
(a) review and assess the adequacy of this Charter annually, and when necessary, recommend
changes to the Board; and (b) annually undertake a review and performance evaluation of itself with the Board against the
responsibilities of the Committee set out in this Charter and to set the goals and objectives of the Committee for the upcoming year.
Manitoba Telecom Services Inc. 29 Fiscal year 2013
Authority of the Committee
20. The authority of the Committee is subject to the provisions of this Charter, the by-laws and other
constating documents of the Corporation, the Board Mandate and the Board Charter, such limitations as
may be imposed by the Board from time to time, and the laws governing corporations.
21. The Committee is authorized by the Board to undertake any assessment, examination or investigation it
determines necessary and such other matters as the Board may request, and to carry out such
responsibility in the manner the Committee considers appropriate having regard to the nature of the
matter it assesses, examines or investigates. For this purpose, the Committee shall have direct
communication channels with the independent and internal auditors.
22. The Committee shall have the authority to consider and make recommendations to the Board regarding
such other matters as may be referred to it by the Board or by management from time to time.
23. The Committee may, with the consent of the Board, for the purpose of assisting the Committee to carry
out any responsibility set out in this Charter, establish a subcommittee comprised of directors reporting
to the Committee.
24. Subject to the provisions of sections 20 and 21, the Committee is authorized, in the case of emergency
as determined by the Committee, to deal with any matter within the power of the Board.
25. Notwithstanding any provision in this Charter, the Chair of the Board may convene on short notice a
meeting of the Committee to address any matter that s/he considers to be an emergency and difficult to
achieve a quorum of the Board. Decision(s) made at such meeting of the Committee may be acted
upon as though they were decision(s) of the Board. All Directors shall promptly be advised of the notice
of meeting, be entitled to attend, and the decision(s) at such meeting.
Independent Advisors
26. The Committee shall have the authority to engage, establish and pay the compensation of independent counsel and other advisors as it may deem necessary for its purposes. The expenses relating to any engagement shall be borne by the Corporation.
Approval of Board
27. The Committee shall function primarily to examine financial issues and aspects of the Corporation and its Subsidiaries with the purposes mandated by this Charter, and to formulate recommendations for consideration by the Board. Accordingly:
(a) unless the Committee has been provided with express instructions by the Board that the effect of
the Committee’s decisions, investigations, findings or actions are final, conclusive and binding on
behalf of the Board, the Committee shall carry out the responsibilities set out in this Charter as the
basis for it making recommendations for consideration by the Board before any action
recommended by the Committee is implemented or adopted; and
(b) any decision or recommendation of the Committee that requires approval of the Board shall not
become effective as a decision of the Board until such decision or recommendation is either
confirmed or otherwise extended or amended by the Board, unless the Board has expressly
delegated a particular matter to be finalized by the Committee without requiring subsequent
confirmation by the Board.
Definitions
The following words and terms used in this Charter shall have the following meaning:
“Executive(s)” means:
(i) the CEO; (ii) all members of the CEO’s Executive Committee; and (iii) such other persons as the Committee determines from time to time for the purpose of this Charter.
“Subsidiary” means a company in which the Corporation owns more than 50% of the securities, the holder
of which is entitled to receive notice of, attend, and vote at meetings of shareholders on resolutions electing
directors.
Manitoba Telecom Services Inc. 30 Fiscal year 2013
Schedule “A”
Committee Chair Responsibilities
The Chair of the Audit Committee is responsible for managing the process of the committee and ensuring that the committee effectively discharges the responsibilities set out in the Charter of the committee. The responsibility of a committee Chair includes: 1. Working with the Chair of the Board to set annual meeting schedules for the committee;
2. Establishing objectives for the committee;
3. Establishing the agenda for each meeting and ensuring that appropriate materials are distributed to
committee members prior to committee meetings;
4. Chairing meetings of the committee and ensuring that the committee is working in compliance with its
charter and discharging its mandate;
5. Communicating with committee members between meetings when necessary;
6. Managing the services provided by the independent auditors to the Corporation;
7. Maximizing attendance at meetings;
8. Ensuring that minutes of each committee meeting accurately reflect the actions and decisions of the
committee;
9. Reporting to the Board as spokesperson for the committee; and
10. Evaluating the contribution of each committee member as well as the effectiveness of the committee.