Q Supplemental information

Transcription

1 Q Supplemental information For the three-month period ended March 31, 2016 This supplemental information should be read in conjunction with the Q Management's Discussion and Analysis Manitoba Telecom Services Inc.

2 Table of contents Page Section Content 1 Financial information and operating statistics Comprehensive Q financial information and operating statistics 1 Free cash flow that provides continuity from our Management s Discussion and Analysis 2 Transformation program 3 Share repurchase program 4 Operating statistics comparative reporting 8 Operating revenue and expense detail 10 Capital investments and intensity ratio 11 Tax assets Detailed information on the value of our tax assets xiii Pension plans Detailed information on pension plan funding and liabilities Forward-looking statements disclaimer About us For more information about our company, including our Annual Information Form, audited consolidated financial statements and annual Management's Discussion and Analysis (MD&A) for the year ended December 31, 2015, dated February 4, 2016, please visit our website at or visit SEDAR. Discontinued operations We completed the sale of Allstream Inc. (Allstream) on January 15, Effective November 20, 2015, we started reporting Allstream as an asset held for sale, with their results of operations reflected as discontinued operations, and as a result Allstream's revenues and expenses are no longer reflected in our financial results. For more details regarding the accounting treatment, readers are encouraged to review the discontinued operations note disclosure in our consolidated financial statements for the year ended December 31, 2015, which can be found on our website at Non-IFRS measures of performance In this interim supplemental, we provide information concerning earnings before interest, taxes, depreciation and amortization (EBITDA), free cash flow, free cash flow per share and capital intensity ratio because we believe investors use them as measures of our financial performance. These measures do not have a standardized meaning as prescribed by IFRS, and are not necessarily comparable to similarly titled measures used by other companies. Regarding forward-looking statements This interim supplemental includes forward-looking statements and information (collectively, statements ) including, but not limited to: statements pertaining to the purchase by BCE of all the issued and outstanding Common Shares of MTS, the anticipated timing for the Meeting of Shareholders and closing of the Arrangement, the consideration to be received by Shareholders, which may fluctuate in value due to common shares of BCE forming part of the consideration and the consideration not being as elected by Shareholders due to proration, our corporate direction, business opportunities, operations, financial objectives, future financial results and performance, ability to generate free cash flow in the future, restructuring and transformation plans, strategic processes, guidance and outlook and pension plans funding. Implicit in the statements referred to above, are assumptions regarding, among other things, the expected time required to prepare and mail Shareholder Meeting materials, the ability of the parties to receive, in a timely manner and on satisfactory terms, the Required Shareholder Approval, Required Regulatory Approvals, Court, stock exchange and other third party approvals, the ability of the parties to satisfy, in a timely manner, the conditions to the closing of the Arrangement and other expectations and assumptions concerning the Arrangement, future interest rates, the declaration of any future dividends and the amount thereof, the expectation of not having to pay cash income taxes until 2023; and the ability to reduce capital spending and operating expenses, future cash flows, liquidity, credit ratings and profitability, as well as other statements that are not historical facts. 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, line-of-sight and other similar terms. Our forward-looking information includes forecasts and projections related to the following items, among others: revenues, expenses, property, plant and equipment additions, free cash flow, dividend payments, debt repayment, share repurchases, expected growth in subscribers and the services to which they subscribe, the cost of acquiring subscribers and the deployment of new services, continued cost reductions and efficiency improvements, the growth of new products and services and all other statements that are not historical facts. We base our conclusions, forecasts, and projections on the following factors, among others: general economic and industry growth rates, currency exchange rates and interest rates, product pricing levels and competitive intensity, subscriber growth, pricing, usage and churn rates, government regulation changes, technology deployment, device availability, the timing of new product launches, content and equipment costs, the integration of acquisitions and industry structure and stability. All forward-looking statements are made pursuant to the safe harbour provisions of applicable Canadian securities legislation. Forward-looking statements are subject to risks and uncertainties, including, but not limited to: the potential risk that the Arrangement will not be approved by Shareholders; failure to, in a timely manner, or at all, obtain the Required Regulatory Approvals, stock exchange and Court approvals for the Arrangement; failure of the parties to otherwise satisfy the conditions to complete the Arrangement; the possibility that the Board of Directors could receive an Acquisition Proposal and approve a Superior Proposal (each, as defined in the Agreement); the effect of the announcement of the Arrangement on MTS and BCE s respective strategic relationships, operating results and business generally; significant transaction costs or unknown liabilities; the risk of litigation or adverse actions or awards that would prevent or hinder the completion of the Arrangement; failure to realize the expected benefits of the Arrangement; compliance with all applicable laws and other customary risks associated with transactions of a similar nature to the Arrangement; and general economic conditions. In addition, if the Arrangement is not completed, and MTS continues as an independent entity, there are serious risks that the announcement of the Arrangement and the dedication of substantial resources of MTS to the completion of the Arrangement could have an adverse impact on MTS business and strategic relationships (including with future and prospective employees, customers, retailers, vendors, suppliers and partners), operating results and businesses generally. As a consequence, actual results in the future may differ materially from any forward-looking conclusion, forecast or projection, whether expressed or implied. Therefore, forward-looking statements should be considered carefully and undue reliance should not be placed on them. Please note that forward-looking statements in this interim supplemental reflect Management s expectations as at May 11, 2016, and thus, are subject to change thereafter. We disclaim any intention or obligation to update or revise any forwardlooking statements, whether as a result of new information, future events or otherwise, except as required by law. This interim supplemental and the financial information contained herein have been reviewed by our Audit Committee and approved by our Board of Directors. Factors that could cause anticipated opportunities and actual results to differ materially include, but are not limited to, matters identified in the Risks and uncertainties section of our annual MD&A and our interim MD&A which can both be found on our website at and on SEDAR. i Manitoba Telecom Services Inc. Supplemental information Q1 2016

3 Free cash flow ($ millions, unless otherwise stated) Q Q % variance EBITDA before restructuring and transformation expenses Add back (deduct): Deferred wireless costs (23.9) (17.9) 33.5 Other income (expense) (1.8) 0.5 n.a.* Finance costs (14.7) (15.0) 2.0 Current cash income tax expense (0.1) (0.2) 50.0 Loss on disposal of assets Pension funding and net pension expense Other operating activities, net (2.8) (3.3) 15.2 Total Capital investments (excluding restructuring and transformation) (30.1) (43.1) 30.2 Free cash flow Free cash flow per share 1 $0.58 $ * not applicable ($ millions, unless otherwise stated) Q Q Q Q Q EBITDA before restructuring and transformation expenses Add back (deduct): Deferred wireless costs (23.9) (31.6) (26.5) (20.6) (17.9) (96.6) Other income (expense) (1.8) (0.5) Finance costs (14.7) (16.8) (17.7) (15.2) (15.0) (64.7) Current cash income tax expense (0.1) 0.3 (0.1) (0.1) (0.2) (0.1) Loss on disposal of assets Gain on revaluation of The Technology Consortium (TTC) (5.6) (5.6) Pension funding and net pension expense Other operating activities, net (2.8) (3.3) (0.3) Total Capital investments (excluding restructuring and transformation) (30.1) (39.0) (45.8) (52.5) (43.1) (180.4) Free cash flow Free cash flow per share 1 $0.58 $0.42 $0.38 $0.37 $0.61 $ New to Q is our introduction of free cash per share as another performance indicator, which will reflect the impact of the share repurchase program. Free cash flow per share

4 Transformation program update In Q4 2015, we announced the start of a three-year program to transform MTS into a customer-first business. We expect to capture $100 million in annualized free cash flow benefits from our transformation program initiatives, the vast majority of the improvements should be in place by the end of One-time cash costs associated with achieving these improvements of roughly the same amount, incurred over the same period, are anticipated. Our progress over the last two quarters has been significant with programs to deliver over 50% of the free cash flow improvements already implemented. As of March 31, 2016, the transformation program has realized $53 million in annualized free cash flow improvements, and 241 employees had exited the business. To date we have made one-time cash investments of $20.5 million in our transformation program initiatives. ($ millions) Workforce reductions through programs announced in 2015 are expected to deliver annualized cost savings of $28 million through lower salaries and benefits. Of this amount, $7 million relates to labour cost savings achieved with the improved capital investment process initiative, and $21 million from the streamlining of back-office support functions and management structure. Of the $28 million in annualized savings, $10 million of the savings relates to employees who have left MTS by December 31, 2015 and the remaining $11 million relates to employees leaving in 2016, a majority of which have exited by March 31, iii Manitoba Telecom Services Inc. Supplemental information Q1 2016

5 Share repurchase program In February we announced the launch of our $200 million share repurchase program using proceeds from the sale of Allstream. Under this program we can repurchase up to 7,086,000 of our outstanding common shares representing approximately 10% of the public float as at January 31, With our announcement that BCE will be acquiring all of the issued and outstanding shares of MTS, we have suspended the normal course issuer bid with May 4, 2016 being the last settlement date of shares that were repurchased under the share repurchase program. As of March 31, 2016 we had purchased and cancelled 2,770,963 shares (3.5% of our total outstanding shares) at an average trade price of $32.30, returning approximately $90 million to our shareholders. As of May 4, 2016 we have purchased 5,074,735 shares (6.4% of our total outstanding shares) at an average trade price of $32.37, returning approximately $164 million to our shareholders or 82.2% of our $200-million share repurchase program. March 31,2016 May 4, 2016 Number of shares purchased 2,770,963 $5,074,735 Amount of repurchase $89,453,215 $164,337,614 Dollars spent versus total $200 million dollar program 44.7% 82.2% Shares purchased versus outstanding shares* 3.5% 6.4% * Outstanding shares are as of January 31, ($ millions) iv Manitoba Telecom Services Inc. Supplemental information Q1 2016

6 Operating statistics Wireless (Number of, unless otherwise stated) Q Q % variance Connection net adds/(losses) Post-paid wireless 716 (184) n.a.* Pre-paid wireless 1 (31) (3,152) n.a. Other wireless 2 (6,526) (2,675) n.a. Total wireless (5,841) (6,011) 2.8 Average revenue ($) Blended wireless 1 $58.34 $ Churn (percent) Post-paid wireless 0.91% 0.97% 0.06 pts Blended wireless % 1.67% 0.13 pts Connections Post-paid wireless 424, , Pre-paid wireless 1 56,780 59, Other wireless 2 1,452 22, Total wireless 482, , Percentage of wireless subscribers on data plans 81% 75% 6.0 pts * not applicable (Number of, unless otherwise stated) Q Q Q Q Q Connection net adds/(losses) Post-paid wireless 716 3,616 1,358 1,354 (184) Pre-paid wireless 1 (31) 6 (425) (2,327) (3,152) Other wireless 2 (6,526) (11,285) (1,610) (1,911) (2,675) Total wireless (5,841) (7,663) (677) (2,884) (6,011) Average revenue ($) Blended wireless 1 $58.34 $57.67 $58.33 $57.97 $57.22 Churn (percent) Post-paid wireless 0.91% 1.06% 1.18% 1.02% 0.97% Blended wireless % 2.22% 1.66% 1.60% 1.67% Connections Post-paid wireless 424, , , , ,002 Pre-paid wireless 1 56,780 56,811 56,805 57,230 59,557 Other wireless 2 1,452 7,978 19,263 20,873 22,784 Total wireless 482, , , , ,343 Percentage of wireless subscribers on data plans 81% 80% 79% 77% 75% 1 Pre-paid wireless subscribers and related metrics in 2015 have been restated to exclude accounts that have been inactive for over 180 days. 2 Other wireless subscribers relate to a CDMA wholesale arrangement, which is currently in the final stages of unwind. v Manitoba Telecom Services Inc. Supplemental information Q1 2016

7 Operating statistics Wireline (Number of) Q Q % variance Connection net adds/(losses) Internet (high-speed) 3,042 1, IPTV 85 (233) n.a.* Local access Business local access 1 Connections (4,290) (3,519) 21.9 (537) (2,171) n.a. Internet (high-speed) 227, , IPTV 106, , Local access 236, , Business local access 1 203, , * not applicable (Number of) Q Q Q Q Q Connection net adds/(losses) Internet (high-speed) 3,042 2,327 1, ,850 IPTV (719) (1,778) (233) Local access (4,290) (9,595) (6,575) 1,785 (3,519) Business local access 1 (537) (2,827) (2,524) (1,393) (2,171) Connections Internet (high-speed) 227, , , , ,198 IPTV 106, , , , ,863 Local access 236, , , , ,540 Business local access 1 203, , , , ,576 1 Business local access lines have been restated to include connections associated with Allstream that prior to 2016 were not included in MTS consolidated operating statistics. vi Manitoba Telecom Services Inc. Supplemental information Q1 2016

8 2015 comparative reporting The tables proceeding provide quarterly financial results for 2015 on the same basis as our 2016 presentation. On January 15, 2016, we completed the sale of our Allstream division. As a result, in 2016, revenues earned from and operating expenses paid to Allstream (Zayo Canada) are now reported in the respective revenue and operating expense lines to which they relate. Statement of income ($ millions, except EPS 1 ) Q Q % variance Operating revenues, as previously reported Intersegment revenue n.a.* Total operating revenues Operations expense, as previously reported Intersegment expense n.a. Total operations expense EBITDA before restructuring and transformation expenses Restructuring and transformation expenses n.a. EBITDA Depreciation and amortization Total operating expenses Operating Income Other (expense) Income Finance costs (1.8) 0.5 n.a. (14.7) (15.0) 2.0 Income before income taxes Income tax expense Income from continuing operations EPS from continuing operations $0.22 $ Earnings per share. 2 Represents revenues and expenses earned from and paid to Allstream, which, under IFRS, were not reported as part of income from continuing operations in The net amount has been tax effected at an effective rate of 27%. 3 Represents restructuring and transformation expenses relating to continuing operations. The 2015 quarterly distribution has been reclassified to conform with 2016 presentation. * not applicable vii Manitoba Telecom Services Inc. Supplemental information Q1 2016

9 2015 comparative reporting ($ millions, except EPS 1 ) Q Q Q Q Q Operating revenues, as previously reported Intersegment revenue Total operating revenues ,009.6 Operations expense, as previously reported Intersegment expense Total operations expense EBITDA before restructuring and transformation expenses Restructuring and transformation expenses EBITDA Depreciation and amortization Total operating expenses Operating Income Other (expense) Income (1.8) (0.5) Finance costs (14.7) (16.8) (17.7) (15.2) (15.0) (64.7) Income (loss) before income taxes 23.8 (4.0) Income tax expense (recovery) 6.5 (0.8) Income (loss) from continuing operations 17.3 (3.2) EPS from continuing operations $0.22 $(0.04) $0.29 $0.22 $0.34 $ Earnings per share. 2 Represents revenues and expenses earned from and paid to Allstream, which, under IFRS, were not reported as part of income from continuing operations in The net amount has been tax effected at an effective rate of 27%. 3 Represents restructuring and transformation expenses relating to continuing operations. The 2015 quarterly distribution has been reclassified to conform with 2016 presentation. * not applicable viii Manitoba Telecom Services Inc. Supplemental information Q1 2016

10 Operating revenue and expense detail ($ millions, unless otherwise stated) Q Q % variance Wireless Broadband and converged IP Information solutions Unified communications Security and monitoring Local access Long distance and data Other Total operating revenues Salaries and benefits Pension expense - non-cash defined benefit Other operations Cost of goods sold Bad debts Operations expense EBITDA before restructuring and transformation expenses Restructuring and transformation expenses n.a.* EBITDA Depreciation and amortization Plant and equipment Deferred wireless acquisition costs Additional deferred wireless acquisition costs 2 (1.5) n.a. Intangible assets Total depreciation and amortization Total operating expenses Represents revenues and expenses earned from and paid to Allstream, which, under IFRS, were not reported as part of income from continuing operations when Allstream was held for sale in Represents additional amortization of deferred wireless acquisition costs recognized in 2015 as part of the double cohort impact. * not applicable Normalized salaries and benefits expense down 6.5% ($ millions) ix Manitoba Telecom Services Inc. Supplemental information Q1 2016

11 Operating revenue and expense detail ($ millions, unless otherwise stated) Q Q Q Q Q Wireless Broadband and converged IP Information solutions Unified communications Security and monitoring Local access Long distance and data Other Total operating revenues ,009.6 Salaries and benefits Pension expense - non-cash defined benefit Other operations Cost of goods sold Bad debts Operations expense EBITDA before restructuring and transformation expenses Restructuring and transformation expenses EBITDA Depreciation and amortization Plant and equipment Deferred wireless acquisition costs Additional deferred wireless acquisition costs 2 (1.5) (3.4) (5.0) Intangible assets SR&ED - Property, plant and equipment depreciation and amortization 3 (5.6) (5.6) Total depreciation and amortization Total operating expenses Represents revenues and expenses earned from and paid to Allstream, which, under IFRS, were not reported as part of income from continuing operations when Allstream was held for sale in Represents additional amortization of deferred wireless acquisition costs recognized in 2015 as part of the double cohort impact. The additional amortization recognized in Q associated with remaining three year contracts was $9.9 million, of which $5.0 million would have been expensed in Q3 2015, $3.4 million in Q4 2015, and the remaining $1.5 million would have been expensed in Q Scientific Research and Experimental Development Investment Tax Credits (SR&ED) related to prior years. * not applicable x Manitoba Telecom Services Inc. Supplemental information Q1 2016

12 Capital investments and intensity ratio ($ millions, unless otherwise stated) Q Q % variance Capital investments Deduct current year SR&ED ITCs Capital investments, including restructuring and transformation Deduct restructuring and transformation capital investments 0.9 n.a.* Capital investments, excluding restructuring and transformation Revenues Capital intensity ratio Including restructuring and transformation 12.3% 16.7% 26.3 Excluding restructuring and transformation 11.9% 16.7% 28.7 *not applicable ($ millions, unless otherwise stated) Q Q Q Q Q Capital investments Deduct current year SR&ED ITCs Capital investments, including restructuring and transformation Deduct restructuring and transformation capital investments 0.9 Capital investments, excluding restructuring and transformation Revenues ,009.6 Capital intensity ratio Including restructuring and transformation 12.3% 14.9% 17.3% 20.7% 16.7% 17.4% Excluding restructuring and transformation 11.9% 14.9% 17.3% 20.7% 16.7% 17.4% xi Manitoba Telecom Services Inc. Supplemental information Q1 2016

13 TAX ASSETS Value of tax assets March 31, 2016 ($ millions, unless otherwise stated) Gross tax losses Value of tax losses Value of UCC 2 greater than book value of fixed assets Unutilized SR&ED investment tax credits 76.2 Value of tax assets Value per share, at March 31, $5.38 Value per share, at May 4, $5.55 Present value of tax assets ($ millions, unless otherwise stated) Present value of assets utilized through Present value per share, at March 31, $3.14 Present value per share, at May 4, $ Using tax rate of 27%. 2 Undepreciated capital cost. 3 Value per share is based on shares outstanding of 76.5 million as at March 31, Value per share is based on shares outstanding of 74.2 million as at May 4, At a 7% discount rate. xii Manitoba Telecom Services Inc. Supplemental information Q1 2016

14 PENSION PLANS This pension plan section contains information on our pension plan funding and liabilities. Pension solvency deficit ($ millions) MTS pension plan Allstream pension plans Consolidated Jan 1, 2015 Jan 1, 2016 Jan 1, 2015 Jan 1, 2016 Jan 1, 2015 Jan 1, 2016 Market value of assets 1, , , ,600.2 Letters of credit Total solvency assets 2, , , ,947.4 Solvency liabilities (2,357.0) (2,336.6) (748.2) (764.2) (3,105.2) (3,100.8) Solvency surplus (deficit) (289.5) (104.7) (50.8) (48.7) (340.3) (153.4) Consolidated illustrative solvency (deficit) surplus (January 1, 2017 estimate) Change from Jan 1, 2016 discount rate Expected return on plan assets 0.0% 3.0% 6.0% 9.0% 12.0% (100 bps) (758) (681) (605) (528) (452) (75 bps) (623) (546) (470) (393) (317) (50 bps) (493) (416) (340) (264) (187) Current rates (25 bps) (368) (292) (215) (139) (62) 0 bps (248) (171) (95) (18) 58 Bank forecast 25 bps (132) (56) bps (20) bps bps The above numbers reflect the January 1, 2016 actuarial valuation results. xiii Manitoba Telecom Services Inc. Supplemental information Q1 2016

15 PENSION PLANS Letters of credit ($ millions) Letter of credit capacity Max allowed at Jan 1, 2016 Issued at Jan 1, 2016 Expected to be issued in 2016 Total issued at March 31, 2016 Expected total issued at Dec 31, 2016 MTS pension plan Allstream pension plans Total Maximum allowed amount of letters of credit is 15% of the market value of plan assets measured at January 1 valuation date for that year. January 1, 2016 capacity is dependent on asset returns in 2015, but you are not required to decrease letters of credit if assets decline. Solvency liabilities are highly sensitive to changes in interest rates and can change significantly from year to year. As a result, MTS uses letters of credit to partially fund its solvency deficits to avoid 'stranded' capital that would be expected to occur when interest rates rise to more normalized levels. Asset returns (estimated) (Percent) Ten year annualized 2015 Actual Q MTS pension plan (2.30) Allstream pension plans (1.66) (Percent) Asset mix At January 1, 2016 Canadian Equities 10.0 Small cap Canadian Equities 5.0 International Equities 15.0 U.S. Equities 15.0 Global Equities 10.0 Real Estate 5.0 Canadian Bonds 35.0 Mortgages 5.0 Plans are invested in a diversified portfolio using a mix of external managers with specific mandates. There is a strong governance process in place to ensure adherence to the mandate and investment policies. Asset mix remains unchanged from valuation date. xiv Manitoba Telecom Services Inc. Supplemental information Q1 2016

16 PENSION PLANS Pension solvency funding Prescribed methodology Pension solvency funding for the current year is calculated by taking the statutory solvency deficiency at the valuation date and dividing by five. The statutory solvency deficiency is calculated by taking the average solvency ratio and multiplying this number by the solvency liabilities at the valuation date, then subtracting the product from the solvency liabilities. The average solvency ratio is not a simple arithmetic average. Instead, the solvency ratios at each of the last three valuation dates are adjusted for the effect of certain prescribed subsequent events (including funding since the prior valuation dates) and then averaged over the three years. MTS pension plan Allstream pension plans ($ millions) Jan 1, 2014 Jan 1, 2015 Jan 1, 2016 Jan 1, 2014 Jan 1, 2015 Jan 1, 2016 Market value of assets 1, , , Letters of credit Total solvency assets 1, , , Solvency liabilities (2,129.8) (2,357.0) (2,336.6) (678.7) (748.2) (764.2) Solvency surplus (deficit) (189.2) (289.5) (104.7) (16.6) (50.8) (48.7) Solvency ratio 91% 88% 96% 98% 93% 94% Average solvency ratio 93% 96% Solvency liabilities x 2,336.6 x Adjusted solvency assets 2, Solvency liabilities (2,336.6) (764.2) Statutory solvency deficiency (156.3) (29.5) 2016 solvency funding requirement before prepayment Consolidated illustrative solvency funding (Based on 6.0% return on assets) The table summarizes the estimated cash solvency funding from 2016 to 2018 after the application of the $120 million prepayment made in Assuming no change in the discount rate and a 6% return on assets, we expect no further cash solvency funding up to The table also shows how the funding from 2016 to 2018 could be impacted by changes to the discount rate from January 1, 2016 to January 1, 2017, which is the next valuation date. Also summarized is the expected solvency deficit and outstanding letters of credit at the end of ($ millions) Change from Jan 1, 2016 discount rate 2016E 2017E 2018E 3-year funding Forecast solvency (deficit) surplus at end of 2018 Forecast letters of credit at end of 2018 (100 bps) (11) (67) (78) (395) 420 (75 bps) (1) (52) (56) (294) 416 (50 bps) (30) (30) (196) 412 (25 bps) (7) (7) (101) bps (9) 378 January 1, 2017 estimated rates 25 bps bps bps bps xv Manitoba Telecom Services Inc. Supplemental information Q1 2016

17 PENSION PLANS Normal cost funding net of pension expense ($ millions) Q Q E Normal cost funding Pension expense included in operating expense Non-cash pension expense (2) (1) (5) Pension net interest cost (2) (1) (3) Total non-cash pension costs from continuing operations (4) (2) (8) Normal cost funding covers the estimated cost of the pension benefits earned by employees during the year. Normal cost funding is dependent on the number of employees in the defined benefit pension plans as well as their salaries. Net Interest cost is calculated using the accounting discount rate of 4.00% for 2016 and multiplying it by the accounting deficit at December 31, 2015 adjusted for expected cash flows during Net interest cost is included in finance costs on the consolidated statements of income and other comprehensive income. Pension lawsuit summary The pension solvency deficit at January 1, 2016 of $153.3 million includes any remaining liabilities to MTS Pension Plan members and former members. The remaining liabilities in the MTS Pension Plan relating to the lawsuit settlement are now $5.3 million and are owed to estates or former members that have yet to be located. The remaining settlement liabilities remain the same until paid out and do not grow with interest and are not impacted by changes to the discount rate. No further separate funding is required by MTS on account of this lawsuit. All required funding is included in the calculations in previous pages. xvi Manitoba Telecom Services Inc. Supplemental information Q1 2016

18 PENSION PLANS Discount rate (Percent) Forecast interest rates (for Dec 31, 2016) Forecast interest rates (for Dec 31, 2017) Bank forecast Forecast update 2-year 5-year 7-year 10-year 30-year 2-year 5-year 7-year 10-year 30-year BMO Capital Markets Mar 23, CIBC World Markets April 6, RBC Financial Group April 8, Scotiabank Group Mar 2, TD Bank Mar 23, Average forecast * year 5-year 7-year 10-year 30-year 2-year 5-year 7-year 10-year 30-year December 2015 GC rates (monthly series) April 14, 2016 GC rates Forecast versus Dec Forecast versus current * The seven-year average represents an interpolation of the five- and 10-year forecast information The required pension plan discount rate is prescribed by the Office of the Superintendent of Financial Institutions and for active employees not yet eligible to retire is based on the seven- and thirty-year Government of Canada bond yields adjusted for a spread set by the Canadian Institute of Actuaries. For the MTS pension plan the resulting discount rates are then adjusted to reflect the indexing provisions in the Plan. For employees eligible to retire and retirees, the discount rate is based on a replicating portfolio of fixed income securities with similar cash flows to the pension plan's expected benefit payments. The discount rates used to value the pension plan's liabilities at January 1, 2016 were as follows: MTS pension plan 1.7% (indexed) Allstream pension plans 2.8% (non-indexed) xvii Manitoba Telecom Services Inc. Supplemental information Q1 2016