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TABLE OF CONTENTS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934
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For the month of: May 2006
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Commission File Number: 1-8481 |
BCE Inc.
(Translation of Registrants name into English)
1000, rue de La Gauchetière Ouest, Bureau 3700, Montréal, Québec H3B 4Y7, (514) 397-7000
(Address of principal executive offices)
Indicate by check mark whether the Registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Indicate by check mark whether the Registrant by furnishing the information contained in this Form
is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.
If Yes is marked, indicate below the file number assigned to the Registrant in connection with
Rule 12g3-2(b): 82- .
Notwithstanding any reference to BCE Inc.s Web site on the World Wide Web in the documents
attached hereto, the information contained in BCE Inc.s site or any other site on the World Wide
Web referred to in BCE Inc.s site is not a part of this Form 6-K and, therefore, is not filed with
the Securities and Exchange Commission.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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BCE Inc.
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(signed) Siim A. Vanaselja
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Siim A. Vanaselja
Chief Financial Officer
Date: May 3, 2006 |
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News Release
For immediate release
This news release contains forward-looking statements. For a description
of the related risk factors and assumptions please see the section entitled
Caution Concerning Forward-Looking Statements later in this release.
BCE REPORTS 2006 FIRST-QUARTER RESULTS
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Revenues up 2.2% as growth services outpace legacy declines |
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Disciplined capital investment drives free cash flow improvement |
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Service metrics improve across the board |
MONTREAL, (Quebec) May 3, 2006 For the first quarter of 2006, BCE Inc. (TSX, NYSE: BCE)
reported revenues of $4.7 billion, an increase of 2.2% over the same period last year. The company
took an $88 million charge in the quarter related to employee reductions, real estate consolidation
and other items, which resulted in operating income for the quarter of $907 million as compared to
$1,043 million in the first quarter of 2005. EBITDA(1) was unchanged in the quarter at
$1,903 million compared to the same period last year.
The company generated $940 million in cash from operations in the quarter compared to $916 million
for the same period last year. Free Cash Flow(2) in the quarter improved to negative
$48 million compared to negative $172 million for the first quarter of 2005. Earnings per share
(EPS) were $0.52 for the first quarter of 2006 compared to $0.51 in the first quarter of last year.
EPS before restructuring and other items and net gains on investments(3) were $0.49
compared to $0.51 in the same period last year, reflecting an expected increase in pension expense.
BCEs performance in the first quarter is on track against the two-year plan we laid out on
February 1 to reposition Bell Canada by ramping up our growth services, expanding bandwidth, making
service a market differentiator and lowering costs, said Michael Sabia, President and Chief
Executive Officer of BCE.
BCE announced the creation of the Bell Aliant Regional Communications Income Fund in the quarter,
unlocking value for shareholders and advancing the companys asset review program. The company
also completed the disposition of a significant portion of its interest in CGI and announced plans
for the recapitalization of Telesat and a public offering of a minority stake in the second half of
2006. The reduction of its ownership in Bell Globemedia, announced in December of 2005, is
scheduled for completion in the second half of 2006.
Progress On Key Elements of Business Plan
1
Growth services: Revenues from next generation services such as wireless, video and Internet
generated 47% of Bells total revenues in the quarter, compared to 42% one year earlier. Each of
these services recorded year-over-year double-digit revenue increases and are on track to reach
approximately 55% of total Bell revenues by year-end.
Enhanced bandwidth and IP platforms: We extended fibre-to-the-node (FTTN) roll-out to 279
neighbourhood nodes in the first quarter, for a total of 2,327. Bell increased speeds of its
Sympatico DSL service in Québec and Ontario and launched Sympatico High Speed Unplugged, which
leverages the Inukshuk joint-venture to provide users with portable Internet access. The company
also expanded its next-generation EVDO wireless data network footprint to new communities across
Canada.
Service: In the quarter, Bell delivered improved service levels by increasing its first-call
resolution in the residential segment and extending an online bill manager tool to provide
self-serve capabilities for its business customers. At the end of the quarter, four million
residential customers were enjoying the benefits of a single bill for their wireline, Internet,
video and wireless services, representing close to a five-fold increase over the past year. In
April, the company launched an improved Bell.ca website which provides a simplified interface as
well as a one-stop shop for all Bell products.
Cost savings(4): Cost-reduction initiatives delivered $125 million in the first quarter
of 2006. The company expects a progressive ramp up in cost savings for the balance of the year.
The focus remains on driving efficiencies in three areas: the previously announced headcount
reduction programs, the ongoing reduction of procurement spend and the redesign of end-to-end core
processes. All of these initiatives are currently underway and contributed to the cost savings in
the first quarter.
FIRST QUARTER OPERATIONAL ACHIEVEMENTS
Revenue growth this quarter reflects improved performance across most of our business segments,
said George Cope, President and Chief Operating Officer of Bell Canada. As we increase revenues
from growth services and improve service levels we are also delivering cost savings to ensure
profitable growth as we transition the business.
Residential Segment
Bell continues to successfully execute its strategy of increasing the number of multi-product
households, both expanding its revenues from growth services and securing loyal high-value customer
relationships.
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Residential segment revenue growth in the quarter of 0.7% year over year to $1,869
million, compared to $1,856 million in the same period last year. |
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We generated higher average revenue per user (ARPU) from each of wireless, video and
high-speed Internet. |
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23% of the Ontario and Québec households within our footprint subscribed to three or
more products at the end of the first quarter of 2006, versus 16% at the end of the first
quarter of 2005. |
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Despite the continued erosion of the legacy wireline business, a focus on
cost-reduction and profitability delivered similar EBITDA levels in the quarter as in the
same period last year. |
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However, primarily due to higher pension expense, operating income was down 4.4% in the
quarter to $503 million compared to $526 million in the first quarter of 2005. |
Business Segment
2
Continuing a trend established in recent quarters, the SMB segment made a significant contribution
to Business segment results in the first quarter of 2006. Bell West also contributed to Business
segment results in the quarter.
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Business segment revenue grew in the quarter of 2.1% year over year to $1,509 million,
compared to $1,478 million in the same period last year |
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The Enterprise segment continued to face aggressive competitive pressure in the market,
resulting in the loss of high-margin voice and data business. In addition, higher pension
costs and amortization expense contributed to lower Business segment operating income;
$205 million for the first quarter of 2006, down 14.6% from the same period last year. |
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VCIO revenues in the SMB segment were up 37% in the quarter |
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ICT revenues in the Enterprise segment grew by 14% in the quarter |
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Contracts were signed recently with Toronto-Dominion Bank Financial
Group to implement and manage a fully outsourced IP-based contact centre solution
and with RBC Financial Group for a large-scale IP telephony implementation |
Wireless: Wireless continues to strengthen as gross additions increased 17% year over year, leading
to the continued improvement in the quality of the customer base strengthening ARPU and
contributing to double-digit revenue growth
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Revenue growth of 12.8% to $804 million in the first quarter compared to $713 million
in the first quarter of 2005 |
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Post-paid ARPU of $61 per month, an increase of $4 compared to the same quarter in
2005, due to an improved mix of higher value subscribers as well as higher data revenues |
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Wireless EBITDA in the first quarter up 18.3% to $355 million |
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Wireless EBITDA margin up 1.6 points to 43% |
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59,000 net activations in the quarter |
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Total subscribers up 10.8 % year over year to reach 5.5 million at the end of the first
quarter |
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Blended churn for the quarter stable at 1.6% per month |
Video: Bells video group remains Canadas leading Direct-to-Home (DTH) provider and showed strong
revenue growth and overall financial performance in the first quarter.
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Revenue growth of 25% in the first quarter |
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ARPU up $5 per month, reflecting the success of our upsell strategy to premium
programming packages and price increases implemented in 2005 |
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Strong increase in EBITDA in the quarter |
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12,000 subscribers added this quarter |
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Total subscribers up 13.5% year over year to reach 1,739,000 at the end of the first
quarter |
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Churn remains low at 0.9% per month |
3
High Speed Internet: Recorded revenue growth in a highly competitive environment
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Net additions in the quarter of 71,000, despite aggressive competition, particularly in
the Quebec market |
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Total subscribers up 17% year over year to reach 2,266,000 at the end of the first
quarter |
Bell Globemedia: Bell Globemedia revenues for the quarter were $394 million up 10.7% from the first
quarter of 2005. Advertising revenues were up 9.2% based on the continued strength of CTVs
programming lineup. Subscriber revenues in the first quarter increased by 11.7%, based on growth
in speciality channel subscriptions at CTV and on increases in paid readership and on-line
subscriptions for The Globe and Mail. Despite the increased revenue, Bell Globemedias operating
income decreased by 30% to $45 million because of higher programming costs associated with the
resumption of NHL hockey broadcasts, costs of launching MTV and higher pension expense.
Telesat: Telesats revenues increased 9.3% in the quarter to reach $118 million based in part on
increased revenue at two subsidiaries, Infosat Communications Inc. and Telesat Brazil. Telesats
operating income increased 5.4% to $39.2 million in the first quarter.
NCIB Update
BCEs Normal Course Issuer Bid, announced on February 1, 2006, is more than 60% complete with 29.1
million shares having been repurchased. In total, the company is planning to repurchase 5% of its
outstanding common shares.
Quarterly Dividend
BCEs Board of Directors yesterday declared a quarterly dividend of $0.33 per Common Share, payable
on July 15, 2006 to shareholders of record at the close of business on June 15, 2006.
Bell Canada Statutory Results
Bell Canada statutory results includes Bell Canada and Bell Canadas interests in Aliant, Bell
ExpressVu (at 52%), and Bells other Canadian telcos.
In the first quarter of 2006, Bell Canadas reported statutory revenue was $4.3 billion, up 1.4 %
compared to the same period last year. Net earnings applicable to common shares were $474 million
in the first quarter of 2006, compared to net earnings of $528 million for the same period last
year.
4
Outlook
Refer to the section entitled Caution Concerning Forward-Looking Statements later in
this news release for a discussion concerning the material risk factors that could
affect, and the material assumptions underlying, our 2006 guidance.
BCE confirmed the following 2006 financial guidance:
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Guidance 2006E(i) |
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Bell Canada |
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Revenue growth |
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1% - 3 |
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Cost savings |
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700M-$900M |
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EBITDA margin |
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Stable |
Capital intensity (ii) |
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16% - 17 |
% |
BCE Inc. |
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EPS (iii) |
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$1.80-$1.90(iv) |
Free Cash Flow (v) |
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700M-$900M |
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(i) |
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2006 figures reflect the disposition of our interest in CGI and
the reduction of our interest in Bell Globemedia to 20%, BCEs intentions
for the use of proceeds from these transactions and the proposed Bell
Aliant Regional Communications Income Fund. |
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(ii) |
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Capital expenditures as a percentage of revenues. |
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Before restructuring and other items and net gains on
investments |
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BCEs earnings per share will be reduced in 2006 by $0.14 due to an
increase in pension expense as a result of a change in discount rates.
Discount rates are used to calculate long-term pension obligations for
accounting purposes. In 2006, the rate has decreased to 5.2% from 6.2% in
2005. Rates are based on the average yields of long-term corporate bonds
which are currently at historic 40-year lows. The change in the discount
rate and the ensuing increased pension expense are reflected in the
companys EPS guidance outlined above. |
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(v) |
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Cash from operating activities less capital expenditures, total
dividends and other investing activities. For 2006, we expect to generate
approximately $700 million to $900 million in free cash flow, excluding
2006 pension contributions funded through asset monetizations. This
amount reflects expected cash from operating activities of approximately
$5.5 billion to $5.7 billion less capital expenditures, total dividends
and other investing activities. |
Notes
(1) |
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The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not
have any standardized meaning prescribed by Canadian generally accepted accounting principles
(GAAP). Please refer to the section of BCE Inc.s 2006 First Quarter MD&A dated May 2, 2006,
entitled Non-GAAP Financial Measures, included in this news release, for more details on
EBITDA including a reconciliation of EBITDA to operating income. |
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(2) |
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We define free cash flow as cash from operating activities after capital expenditures, total
dividends and other investing activities. Free cash flow does not have any standardized
meaning prescribed by GAAP. Please refer to the section of BCE Inc.s 2006 First Quarter MD&A
dated May 2, 2006, entitled Non-GAAP Financial Measures, included in this news release, for
more details on free cash flow including a reconciliation of cash from operating activities to
free cash flow. |
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Net earnings and EPS before restructuring and other items and net gains on investments do not
have any standardized meaning prescribed by GAAP. Please refer to the section of BCE Inc.s
2006 First Quarter MD&A dated May 2, 2006, entitled Non-GAAP Financial Measures, included in
this news release, for more details on net earnings and EPS before restructuring and other
items and net gains on investments including a reconciliation to net earnings applicable to
common shares on a total and per share basis. |
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The forward-looking statement concerning Bell Canadas expected cost savings in 2006 assumes
that its various planned cost saving initiatives and productivity improvements will achieve
their objectives in 2006. |
Call with Financial Analysts
BCE will hold a teleconference for financial analysts to discuss its first quarter results on
Wednesday, May 3, 2006 at 8:00 a.m. (Eastern). Media are welcome to participate on a listen
only basis.
To participate, please dial 416-641-6105 or 1-866-696-5895 shortly before the start of the call. A
replay will be available for one week by dialing 416-695-5800 or 1-800-408-3053 (passcode 3182498#)
This teleconference will also be Webcast live and archived for 90 days on BCEs website at
www.bce.ca.
Call with the Media
BCE will hold a teleconference for media to discuss its first quarter results on Wednesday, May
3, 2006 at 1:30 p.m. (Eastern). Michael Sabia, President and CEO, and George Cope, President
and COO of Bell Canada, will participate in the teleconference.
To participate, please dial 416-340-8010 or 1-866-540-8136 shortly before the start of the call. A
replay will be available for one week by dialing 416-695-5800 or 1-800-408-3053 (passcode
3185748#) This teleconference will also be Webcast live and archived for 90 days on BCEs website
at www.bce.ca.
Caution Concerning Forward-Looking Statements
Certain statements made in this news release, including, but not limited to, the statements
appearing under the Outlook section, and other statements that are not historical facts, are
forward-looking and are subject to important risks, uncertainties and assumptions. The results or
events predicted in these forward-looking statements may differ materially from actual results or
events. Except as otherwise indicated by BCE, these statements do not reflect the potential impact
of any non-recurring or other special items or of any dispositions, monetizations, mergers,
acquisitions, other business combinations or other transactions that may be announced or that may
occur after the date hereof.
For a description of material assumptions underlying forward-looking statements made in this news
release and of material risk factors that could cause actual results or events to differ materially
from current expectations please refer to the section entitled Assumptions Made In The Preparation
Of Forward-Looking Statements And Risks That Could Affect Our Business and Results contained in
BCE Inc.s MD&A (found on pages 42 to 56 of the Bell Canada Enterprises 2005 Annual Report) for the
year ended December 31, 2005 dated March 1, 2006 filed by BCE Inc. with the Canadian securities
commissions (available on BCEs website at www.bce.ca and on SEDAR at www.sedar.com), and with the
U.S. Securities and Exchange Commission under Form 40-F (available on EDGAR at www.sec.gov), as
updated in BCE Inc.s 2006 First Quarter MD&A dated May 2, 2006,
6
included in this news release, under the section entitled Assumptions Made In The Preparation Of
Forward-Looking Statements and Risks That Could Affect Our Business And Results.
The forward-looking statements contained in this news release represent our expectations as of May
3, 2006 and, accordingly, are subject to change after such date. However, we disclaim any intention
and assume no obligation to update or revise any forward-looking statement, whether as a result of
new information or otherwise.
About BCE Inc.
BCE is Canadas largest communications company. Through its 28 million customer connections, BCE
provides the most comprehensive and innovative suite of communication services to residential and
business customers in Canada. Under the Bell brand, the Companys services include local, long
distance and wireless phone services, high-speed and wireless Internet access, IP-broadband
services, information and communications technology services (or value-added services) and
direct-to-home satellite and VDSL television services. Other BCE businesses include Canadas
premier media company, Bell Globemedia, and Telesat Canada, a pioneer and world leader in satellite
operations and systems management. BCE shares are listed in Canada, the United States and Europe.
7
p. 2 THE QUARTER AT A GLANCE
The
Quarter at a Glance
This section provides a
summary of the key measures
we use to assess our performance and how our results in
Q1 2006 compare to our
results in Q1 2005.
During the quarter, we announced a number of strategic
initiatives to create incremental value for our shareholders, including the creation of the Bell Aliant
Regional Communications Income Fund, our intention
to recapitalize and launch a public offering of Telesat
Canada (Telesat), and implementation of a Normal
Course Issuer Bid (NCIB) to buy back approximately
5% of the companys outstanding common shares. At
the same time, we made progress on growing our
business profitably by generating increased revenues
from our growth services (comprised of wireless, video
and high-speed Internet) despite escalating competitive pressures and by maintaining a sharp focus on cost
control. Although local access line losses continued
to increase in the quarter, they did so at a slower pace
than anticipated due to the traction of our multiproduct household strategy and improvements in
customer service, particularly in terms of higher first-call resolution, fewer missed commitments, as well as
shorter wireline provisioning and repair times.
In 2006, we are aiming to maintain Bell Canadas
EBITDA(1) margin stable, compared with full-year
2005, at roughly 42%. We successfully met this objective in the first quarter of 2006 as Bell Canada achieved
an EBITDA margin of 42.6% by offsetting the impact
of continuing legacy wireline erosion with operating expense management. As part of our cost reduction
program known as Galileo, we are conducting a
thorough review of our supplier relationships and procurement costs, as well as redesigning our end-to-end
business processes to improve service and reduce the
cost base of the company. Our cost reduction initiatives
generated $125 million of savings in the quarter.
Our operating segments also delivered results
in line with our expectations for the first quarter.
In our Residential segment, continued customer
base expansion and higher average revenue per user
(ARPU) from wireless, video and high-speed Internet
customers contributed to positive revenue growth in
the quarter. This more than offset the reduction in
revenues resulting from ongoing erosion of our high-margin local wireline and long distance business, which
contributed to the year-over-year decline in operating
income. To counter the competitive pressure of cable
telephony, we continued to focus on securing multiproduct households and retaining our highest-value
customers in order to enhance customer loyalty and
drive higher revenue per household.
In our Business segment, revenue growth was driven
by continued solid wireless results and sales of IP-based
connectivity and information and communications
technology (ICT) solutions to our Enterprise and small
and medium-sized business (SMB) customers. Operating income was lower due mainly to higher net benefit
plans cost and amortization expense, as well as the
continuing shift in product mix from higher margin
legacy services to lower-margin IP-based systems.
In the Aliant segment, the positive impact on
revenues from continued solid growth in wireless,
Internet services, as well as IT product and other equipment sales, more than offset the declines in its wireline
business resulting from the impacts of competition,
technology substitution, and the limitations imposed
by regulatory restrictions. Operating expense containment led to an improvement in operating margins.
In the Other Bell Canada segment, operating income
before restructuring and other items increased
due to lower cost of goods sold, despite lower revenues
brought about by the challenging market conditions
in our wholesale business.
Within the Other BCE segment, revenue growth at
Bell Globemedia Inc. (Bell Globemedia) reflected
increased advertising sales and higher subscription
revenues. While strong television ratings and the end
of the NHL hockey lockout favourably impacted
revenue growth, higher programming and production
costs adversely affected operating income in Q1 2006.
Continued solid operating performance at Telesat was
driven primarily by revenue growth at certain of its
subsidiaries, increased consulting activity and higher
overall broadcast revenues.
CUSTOMER CONNECTIONS
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Q1 2006 |
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CONNECTIONS |
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NET |
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MARCH 31, |
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ACTIVATIONS |
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2006 |
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NAS |
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(139 |
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12,442 |
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High-Speed Internet |
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71 |
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2,266 |
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Wireless |
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59 |
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5,500 |
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Video |
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12 |
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1,739 |
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GROWTH IN END OF PERIOD CONNECTIONS
(% increase Q106 vs Q105)
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(1) |
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EBITDA, operating income before restructuring and other items, net earnings before
restructuring and other items and net gains on investments, and free cash flow do not have
any standardized meaning prescribed by Canadian generally accepted accounting principles
(GAAP) and are therefore unlikely to be comparable to similar measures presented by other
companies. For more details on these measures, including a reconciliation to the most
comparable GAAP measure, please refer to the section entitled Non-GAAP Financial Measures
contained in BCE Inc.s 2006 First Quarter MD&A dated May 2, 2006. |
BCE INC. 2006 QUARTERLY REPORT
p. 3
Network Access Services (NAS)
NAS in service declined by 139,000 this
quarter, compared with a loss of 55,000 in
Q1 2005. In the past year, our customer base
has decreased 3.2%, representing a higher
rate of decline versus previous quarters.
The higher number of local access line
losses was due primarily to the competitive
entry in 2005 of cable operators in our
Québec and Ontario markets with low-priced
cable telephony services. This decline was
partly offset by the contribution of our
Bell Digital Voice VoIP service and higher
demand for access lines from Shaw
Communications (Shaw) to implement VoIP
services in Western Canada.
High-Speed Internet We added
71,000 net new high-speed Internet customers
this quarter, down from 128,000 net
activations in Q1 2005, increasing our end
of period customer base to 2,266,000 or 17%
year-over-year. Subscriber acquisition in
the quarter was affected by competitors
aggressive pricing and multi-product
bundling practices. This was offset partly
by higher net activations at Aliant.
Wireless We added 59,000 net
new wireless subscribers this quarter, up
from 37,000 net activations in Q1 2005,
bringing our total cellular and PCS
subscriber base as at the end of Q1 2006 to
5,500,000, which represents a 10.8% increase
over the past twelve months. The increase in
net activations for the quarter was due to a
record number of first-quarter gross
activations combined with a stable blended
churn rate that remained unchanged
year-over-year at 1.6%.
Video We activated 12,000 new
video subscribers on a net basis in the
quarter, down from 29,000 in Q1 2005. The
decline was the direct result of a
year-over-year decrease in gross activations
and an increase in the churn rate from 0.8%
to 0.9%, arising from fewer promotional
offers in the market versus the previous
year and vigorous price competition from the
cable operators. Our video subscriber base
has grown by 13.5% since the end of Q1 2005
to reach 1,739,000 as of March 31, 2006.
OPERATING REVENUES
OPERATING REVENUES
(in $ millions)
We generated revenues of $4,734
million in Q1 2006, an increase of 2.2%
compared with the same quarter in 2005,
reflecting improved performance across most
of our segments. Revenues at Bell Canada
grew by 1.4%, driven primarily by Aliant
where solid wireless and Internet results
resulted in higher year-over-year revenues,
and by our Business segment where continued wireless
strength as well as increased ICT revenues
mainly from acquisitions made in the past
year generated improved top-line results.
Our Residential segment realized a slight
improvement in revenues from further growth
of its video, wireless and Internet
services, despite increased erosion of its
legacy wireline business. The Other BCE
segment also contributed to growth in
overall revenues, increasing 10.3%
year-over-year due to continued solid
performance at Bell Globemedia and Telesat.
OPERATING INCOME AND EBITDA(1)
OPERATING INCOME AND EBITDA
(in $ millions)
Operating income at BCE for the
quarter was $907 million, down from $1,043
million in Q1 2005, due largely to $88
million of restructuring and other items
associated with new restructuring
initiatives for involuntary employee
departures at Bell Canada, the relocation of
employees and closing of real estate
facilities related to a reduced workforce,
and transaction costs related to the
creation of the Bell Aliant Regional
Communications Income Fund.
Operating income before restructuring
and other items(1) in Q1 2006 was
$995 million, or $44 million lower than the
same quarter in 2005. EBITDA remained
unchanged year-over-year, due to the
positive impact of various cost reduction
initiatives at Bell Canada, higher overall
revenues and lower cost of acquisition (COA)
expense in our video unit as a result of a
large number of customers choosing our
set-top box
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(1) |
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EBITDA, operating income before restructuring and other items, net earnings before
restructuring and other items and net gains on investments, and free cash flow do not have
any standardized meaning prescribed by Canadian generally accepted accounting principles
(GAAP) and are therefore unlikely to be comparable to similar measures presented by other
companies. For more details on these measures, including a reconciliation to the most
comparable GAAP measure, please refer to the section entitled Non-GAAP Financial Measures
contained in BCE Inc.s 2006 First Quarter MD&A dated May 2, 2006. |
BCE INC. 2006 QUARTERLY REPORT
p. 4 THE QUARTER AT A GLANCE
(STB) rental program, which completely offset the impact from continued wireline
erosion, higher wireless customer acquisition and retention costs and higher service
improvement expenses. As a result, the decrease in operating income before restructuring
and other items was entirely due to increased net benefit plans cost and higher
amortization expense.
Similarly, Bell Canadas operating income in Q1 2006 was $850 million, or $132
million lower than the first three months of 2005, largely because of charges related to
new restructuring initiatives for the involuntary departure of employees. Operating income
before restructuring and other items was $937 million, or $40 million lower than Q1 2005
due to higher net benefit plans cost and amortization expense, offset partly by a slight
year-over-year increase in EBITDA.
EBITDA for BCE was flat year-over-year at $1,903 million in Q1 2006. This resulted
from modest growth at Bell Canada and improved performance at Telesat, offset by lower
EBITDA at Bell Globemedia mainly as a result of higher programming and production costs.
At Bell Canada, EBITDA increased 0.2% to $1,818 million this quarter, due to improved
performance at Aliant and our Other Bell Canada segment and offset by lower margins at our
Residential and Business segments. Due to the combination of higher overall revenues and
relatively stable EBITDA, EBITDA margin in the first quarter of 2006 was 40.2% at BCE and
42.6% at Bell Canada, down 0.9 and 0.5 percentage points, respectively, compared with Q1
2005.
For 2006, our objective is to keep Bell Canadas EBITDA margin stable year-over-year
as we continue to transform the company into an IP-based growth services company. We
remained on track towards meeting this objective as our EBITDA margin for Q1 2006 was
higher than the 41.7% achieved in 2005. This was acomplished as a result of revenue
growth and cost savings realized through our Galileo program in line
with our expectations for Q1, which mitigated the impact
of continued legacy wire-line erosion and other operating cost pressures.
NET EARNINGS / EARNINGS PER SHARE (EPS)
Net earnings applicable to common shares for Q1 2006 were $477 million or $0.52 per
common share, which represents a slight increase to net earnings of $474 million, or $0.51
per common share for the same period last year. The year-over-year improvement can be
attributed to stable EBITDA performance and the gain on sale of most of our interest in
CGI Group Inc. (CGI) included in discontinued operations. Higher net benefit plans cost
and increased restructuring and other items for charges associated with our new employee
workforce reduction initiatives and the related relocation of employees and closing of
real estate facilities, partly offset the positive impacts on net earnings. EPS before
restructuring and other items and net gains on investments(1) decreased to
$0.49 per common share in Q1 2006 from $0.51 per common share in the same quarter one year
earlier.
CAPITAL EXPENDITURES
CAPITAL EXPENDITURES
(in $ millions)
Capital expenditures for BCE were $593 million in Q1 2006, which was $131 million,
or 18.1%, lower than the same quarter last year. As a percentage of revenues, capital
expenditures decreased this quarter to 12.5% from 15.6% in Q1 2005. Similarly, Bell
Canadas capital expenditures decreased 19.2% to $538 million from $666 million for the
same respective quarters. As a result, Bell Canadas capital intensity in the quarter
declined 3.2 percentage points, year-over-year,
|
|
|
(1) |
|
EBITDA, operating income before restructuring and other items, net earnings before
restructuring and other items and net gains on investments, and free cash flow do not have
any standardized meaning prescribed by Canadian generally accepted accounting principles
(GAAP) and are therefore unlikely to be comparable to similar measures presented by other
companies. For more details on these measures, including a reconciliation to the most
comparable GAAP measure, please refer to the section entitled Non-GAAP Financial Measures
contained in BCE Inc.s 2006 First Quarter MD&A dated May 2, 2006. |
BCE INC. 2006 QUARTERLY REPORT
p. 5
to 12.6% in Q1 2006. In line with our objective to
transform into an IP-based growth services company, the
majority of capital spending in the quarter was focused on key
strategic priorities within the growth areas of our business.
The year-over-year decreases in spending at both BCE and Bell
Canada reflected reduced expenditures on IT infrastructure and
systems to support both our Galileo-related cost reduction
initiatives and customer contracts in the Business segment,
the timing of spending associated with various strategic
initiatives such as our fibre-to-the-node (FTTN) footprint
expansion, the completion in the fourth quarter of 2005 of a
next-generation broadband access network in Alberta (the
Alberta Supernet), and the acquisition of wireless spectrum
licences in the first quarter of 2005.
CASH FROM OPERATING ACTIVITIES AND FREE CASH FLOW(1)
CASH FROM OPERATING ACTIVITIES
(in $ millions)
FREE CASH FLOW
(in millions)
In Q1 2006, cash from operating activities was $940
million, an increase of 2.6% compared with $916 million in
Q1 2005. Cash from operating activities was impacted
positively by:
an ongoing contribution from operations
a decrease of $55 million in
pension and other benefit plan payments, due mainly to
Aliants contribution of $60 million in Q1 2005
a decrease of $64 million in payments related to
restructuring initiatives at Bell Canada and Aliant in Q1
2005
a decrease of approximately $100 million
in income taxes paid in Q1 2006 in comparison to Q1 2005
which related largely to the final instalment for 2004
made in early 2005.
This increase was offset mainly by:
compensation payments of $67 million made to
executives and other key employees further to the vesting
of all restricted share units (RSUs) granted for a
two-year performance period ending at the end of 2005
that was based on the achievement of specific operating
objectives established at the outset of the program two
years ago
the timing of supplier payments.
Our free cash flow this quarter was negative $48 million,
an improvement from negative $172 million in Q1 2005, due
mainly due to:
an increase of $24 million in
cash from operating activities
a decrease of $131 million in capital expenditures.
These items were offset in part by a $27 million increase
in dividends paid to BCE Inc. common shareholders
resulting from the $0.03 quarterly increase in dividend
per common share implemented in 2005, as well as an $11
million increase in dividends paid by subsidiaries to
non-controlling interests due mainly to the timing of
Aliants Q4 2005 dividend payment to shareholders which
occurred only in Q1 2006.
|
|
|
(1) |
|
EBITDA, operating income before restructuring and other items, net earnings before
restructuring and other items and net gains on investments, and free cash flow do not have
any standardized meaning prescribed by Canadian generally accepted accounting principles
(GAAP) and are therefore unlikely to be comparable to similar measures presented by other
companies. For more details on these measures, including a reconciliation to the most
comparable GAAP measure, please refer to the section entitled Non-GAAP Financial Measures
contained in BCE Inc.s 2006 First Quarter MD&A dated May 2, 2006. |
BCE INC. 2006 QUARTERLY REPORT
p. 6 MANAGEMENTS DISCUSSION AND ANALYSIS
In this MD&A, we, us, our and BCE mean BCE Inc., its subsidiaries and joint ventures.
All amounts in this MD&A are in millions of Canadian dollars, except where otherwise
noted.
Please refer to the unaudited consolidated financial statements for the first quarter of
2006 when reading this MD&A. We also encourage you to read BCE Inc.s MD&A for the year
ended December 31, 2005 dated March 1, 2006 (BCE 2005 MD&A).
You will find more information about BCE, including BCE Inc.s annual information form for
the year ended December 31, 2005 dated March 1, 2006 (BCE 2005 AIF) and recent financial
reports, on BCE Inc.s website at www.bce.ca, on SEDAR at www.sedar.com and on EDGAR at
www.sec.gov.
A statement we make is forward-looking when it uses what we know and expect today to make
a statement about the future.
Forward-looking statements may include words such as anticipate, assumption, believe,
could, expect, goal, guidance, intend, may, objective, outlook, plan, seek, should,
strive, target and will.
This managements discussion and analysis of financial condition and results of operations
(MD&A) comments on BCEs operations, performance and financial condition for the three months
(Q1) ended March 31, 2006 and 2005.
ABOUT FORWARD-LOOKING STATEMENTS
Securities laws encourage companies to disclose forward-looking information so that
investors can get a better understanding of the companys future prospects and make informed
investment decisions.
Unless otherwise mentioned in this MD&A, the outlooks provided in the BCE 2005 MD&A dated
March 1, 2006 remain unchanged.
This MD&A contains forward-looking statements about BCEs objectives, plans, strategies,
financial condition, results of operations, cash flows and businesses. These statements are
forward-looking because they are based on our current expectations, estimates and assumptions
about the markets we operate in, the Canadian economic environment and our ability to attract and
retain customers and to manage network assets and operating costs. All such forward-looking
statements are made pursuant to the safe harbor provisions of the United States Private
Securities Litigation Reform Act of 1995 and of any applicable Canadian securities legislation,
including the Securities Act of Ontario. It is important to know that:
unless otherwise indicated, forward-looking statements in this MD&A describe our
expectations at May 2, 2006
our actual results could differ materially from what we expect if known or unknown
risks affect our business, or if our estimates or assumptions turn out to be inaccurate. As a
result, we cannot guarantee that any forward-looking statement will materialize and, accordingly,
you are cautioned not to place undue reliance on these forward-looking statements.
except as otherwise indicated by BCE, forward-looking statements do not take into
account the effect that transactions or non-recurring or other special items announced or
occurring after the statements are made may have on our business. Such statements do not, unless
otherwise specified by BCE, reflect the impact of dispositions, sales of assets, monetizations,
mergers, acquisitions, other business combinations or transactions, asset write-downs or other
charges announced or occurring after forward-looking statements are made. The financial impact of
these transactions and non-recurring and other special items can be complex and depends on the
facts particular to each of them. We therefore cannot describe the expected impact in a
meaningful way or in the same way we present known risks affecting our business.
we disclaim any intention and assume no obligation to update or revise any
forward-looking statement even if new information becomes available, as a result of future events
or for any other reason.
A number of assumptions were made by BCE in making forward-looking statements in the BCE 2005
MD&A and in this MD&A, such as certain Canadian economic assumptions, market assumptions,
operational and financial assumptions and assumptions about transactions. Certain factors that
could cause results or events to differ materially from our current expectations include, among
others, our ability to implement our strategies and plans, the intensity of competitive activity
and the ability to achieve customer service improvement while
reducing costs in accordance with our expectations.
Assumptions made in the preparation of forward-looking statements and risks that could cause our
actual results to differ materially from our current expectations are discussed throughout this
MD&A and, in particular, in Assumptions Made in the Preparation of Forward-Looking Statements and
Risks that Could Affect Our Business and Results.
ABOUT OUR BUSINESS
A detailed description of our products and services and our objectives and strategy is
provided in the BCE 2005 MD&A.
STRATEGIC PRIORITIES
Our strategy is to deliver unrivalled integrated communication services to customers
efficiently and cost effectively, and to take a leadership position in setting the standard in
Internet Protocol (IP). We continue to build on three key pillars that support this strategy:
Customer Experience, Bandwidth and Next-Generation Services. Taken together, these pillars will
deliver simplicity to our customers and durable value creation for our shareholders. Advancing
this strategy requires us to transform our cost structure and the way that we serve customers.
These are the guiding principles behind Galileo.
During the quarter, we made progress on each of our three key priorities
and on transforming our cost structure consistent with our
expectations.
1) Enhancing customer experience by
providing superior products and service
experiences that build loyalty
At the end of Q1 2006, four million Residential customers were enjoying the benefits
of a single bill for their wireline, Internet, video and wireless services, representing close to
a five-fold increase over the past year. During the quarter, we began the process of
BCE INC. 2006 QUARTERLY REPORT
p. 7
migrating Bell Mobility customers who already receive a single invoice for
their other Bell Canada services to One Bill.
We improved our first call resolution rate by 2.1 percentage points in
our Residential segment since the beginning of the year.
We reduced major outages of our high-speed Internet service by 48%,
year-over-year, as a result of our DSL Hardening Program, which has improved the
performance of the network as a result of new software upgrades and installation of
new hardware.
We delivered improved service commitments and service levels in the
quarter by reducing the number of missed appointments for fixed
wireline installations and repairs by 11 percentage points since the beginning of the
year.
Our Enterprise unit launched an online bill manager tool that provides
self-serve capabilities for its business customers, enabling them to view, track and
pay invoices online and to produce customized reports. As at the end of the quarter,
77% of Enterprise customers were registered for the service.
During the quarter, we laid the groundwork for our Service Accreditation
Program by training 15% of customer-facing employees in our Residential and Business
segments on consistent service standards. Our objective is to train approximately
14,000 employees by the end of the year.
Our multi-product household strategy continued to drive increased
penetration of households subscribing to three or more products (a combination of
local wireline, Internet, video and long distance services), reaching 23% of total
households in our Ontario and Québec footprint at the end of Q1 2006, up from 16% one
year earlier.
2) Deliver abundant and reliable bandwidth to enable next-generation services
We continued our rollout of FTTN by deploying another 279 neighbourhood
nodes in Q1 2006, raising the total number of nodes served to 2,327.
In the quarter, we expanded the footprint of our EVDO wireless data
network beyond the major urban centres of Toronto, Montréal, Vancouver, Calgary and
Edmonton by launching commercial service in Québec City and Mont-Tremblant. Since the
end of Q1 2006, network service has been deployed in Hamilton, Oakville and Ottawa
with further footprint coverage expected in the Muskoka cottage region later in the
second quarter. EVDO technology is the third generation (3G) of wireless networks
delivering average data download speeds of 400 to 700 kilobits per second (Kbps) with
peaks of up to 2.4 megabits (Mbps).
During the quarter, we initiated
a speed increase for our Basic high-speed
service in Ontario from 512 kbps to 1 Mbps
and for our High-Speed Edition service in
both Ontario and Québec from 3 Mbps to 5
Mbps.
Inukshuk Wireless Inc.
(Inukshuk), a joint venture between Bell
Canada and Rogers Communications, completed
the initial phase of its new wireless
broadband network that covers five million
households representing 40% of the
population in 20 urban centres across
Canada. This next-generation IP wireless
network, based on pre-WiMax standards,
enables portable services allowing
subscribers to access the Internet and other
applications such as VoIP and video
streaming.
3) Create next-generation services to
drive profitable future growth
Revenues from growth services accounted for
47% of total revenues at Bell Canada by the
end of Q1 2006, compared with 42% one year
earlier.
Wireless
Bell Mobility further enhanced
its mobile television service (MobiTV) with
the launch of an exclusive NHL hockey video
clip service that features game action and
packaged two-minute highlights and with the
signing of content access agreements with
MTV for video highlights and images and with
CTV News and ROBTV for news and business
reports.
Bell Mobility also launched a
number of new applications designed to drive
data growth, including:
Groove Client, an MP3 music download service
Sendum VT100, an asset tracking device
that uses a Web-based application to
efficiently track and locate high-value
assets.
Residential Segment
Bell ExpressVu continued to
build on its expansive retail offering of
leading High Definition (HD) services, which
includes sports, news and entertainment
programs and pay-per-view packages. We were
the first to add two newly licensed Canadian
HD channels, Oasis HD and Treasure HD,
bringing viewers two more channels of
all-day HD specialty programming.
Our Residential Internet service
was enhanced by our acquisition of a
majority interest in Puretracks Inc., a leading
Canadian online digital music service, which
strengthens our position in the category of
online entertainment.
BCE INC. 2006 QUARTERLY REPORT
p. 8 MANAGEMENTS DISCUSSION AND ANALYSIS
Sympatico, our Internet service
provider to Residential and SMB customers,
introduced a new nationwide wireless
broadband service enabled through Inukshuks
wireless network called Sympatico High-Speed
Unplugged. This new service provides users
with portable Internet access and offers
comparable speeds to current consumer and
small business offerings, while providing us
with direct entry into the Western Canadian
high-speed Internet market.
Business Segment
In addition, our SMB unit
completed the acquisition of PM
Canada Inc., a software developer
that provides information management
solutions to the Canadian building supply
industry, which helps to expand its suite of
ICT services in the area of IT integrated
solutions.
We continued to make progress on
moving our core traffic to a national IP
multi-protocol label-switching network. At
the end of the quarter, 78% of the
migratable traffic on our core network was
IP-based.
The move to IP continued this
quarter with 12 large Enterprise customers
contracted to implement IP Virtual Private
Networks (IP VPN), bringing the total number
of Enterprise customers implementing IP VPN
networks at the end of Q1 2006 to 155.
Significant customer contracts secured in
the quarter included deals with RBC
Financial Group, the Department of National
Defence and the Toronto Dominion Bank Financial Group.
Our Enterprise unit also sold
316,000 IP-enabled lines on customer
premises equipment by the end of the
quarter, double the cumulative number sold
one year earlier.
Transforming our cost structure
Overall, our various Galileo initiatives
resulted in cost reductions of $125 million
in the first quarter of 2006. These cost
savings were realized primarily through
process improvements from local business
unit level initiatives and our supply chain
transformation program.
Cost reductions in the quarter from
efficiency-related process improvements
amounted to $70 million and were due
primarily to:
continued rollout
of our initiative to reduce the number of
invoices printed and mailed to Residential
customers by consolidating all their Bell
Canada services onto a single invoice (our
One Bill program)
improved
scheduling of customer appointments and
repair times, which increased our ability to
fix customer problems right the first time
(our One and Done program)
contact centre efficiencies and
changes to certain processes at our in-bound
call centres, resulting in lower call
volumes
automated workforce
management (AWFM) initiatives
workforce reductions resulting from
One and Done, AWFM and other operational
efficiencies achieved.
Supply transformation savings of $55 million
in the quarter were realized from:
increased controls over discretionary
spending, resulting in reduced procurement
costs and corporate expenses
reduced spending on IT services
lower-cost outsourcing of contact
centre call volumes
renegotiated supply contracts resulting in vendor rebates
for wireless handsets, wireline data and
voice equipment, and Internet portal
services that we re-sell to our customers.
We also made further progress on our plan to
reduce 3,000 to 4,000 positions in 2006. In
the first quarter, we identified an
additional 900 positions to be eliminated,
bringing the total number of positions
identified with respect to this workforce
reduction program to 1,850. We expect that
the majority of these cost savings will be
realized beginning in the second quarter.
OTHER CORPORATE DEVELOPMENTS
Bell Aliant Regional Communications Income Fund
On March 7, 2006, BCE Inc. and Aliant
announced their intention to create a new
regional telecommunications service provider
in the form of an income trust which would
combine Bell Canadas regional wireline
operations with Aliants wireline
operations. In addition, the new trust would
own Bell Canadas 63.4% interest in
NorthernTel and Télébec held indirectly
through Bell Nordiq Group Inc., an indirect
wholly-owned subsidiary of Bell Canada. By
combining these assets, we will create a new
regional telecommunications service provider
of significant scale and scope that brings a
strong focus on customer service and
regional needs. The new trust will be
controlled by BCE and will remain integral
to Bell Canadas operations, ensuring that
we retain control of core assets in the most
capital efficient way. At the same time, in
partial exchange for contribution of its
regional wire-line operations to an entity
controlled by the trust, Bell Canada will
acquire Aliants wireless operations, as
well as The DownEast Communications retail
outlets.
BCE INC. 2006 QUARTERLY REPORT
p. 9
Non-GAAP Financial Measures
This section describes the non-GAAP financial measures we use in the MD&A to explain our
financial results. It also provides reconciliations of the non-GAAP financial measures to the
most comparable Canadian GAAP financial measures.
EBITDA
We define EBITDA (earnings before interest, taxes, depreciation and amortization) as
operating revenues less operating expenses, meaning it represents operating income before
amortization expense, net benefit plan cost, and restructuring and other items.
Upon closing, BCE will hold a 73.5% indirect interest in the trust, which it
expects to reduce to approximately 45% through a distribution of trust units by way of a
return of capital to holders of BCE Inc. common shares. In conjunction with this, BCE Inc.
will reduce its outstanding common shares by 75 million. At closing, Aliants minority
shareholders will exchange their common shares for trust units, retaining a 26.5% interest
in the new trust. Bell Nordiq Income Fund will continue to trade and operate independently.
The transaction is expected to close as early as the third quarter of 2006 but only once all
closing conditions are satisfied and all necessary approvals and consents are obtained.
Subsequent to the end of the quarter, it was announced that Stephen Wetmore, currently
Group President of Corporate Performance and National Markets at Bell Canada, will assume
responsibility as President and CEO of the proposed new income trust effective July 31,
2006.
For more information on the new trust, see BCE Inc.s Notice of 2006 Annual and Special
Shareholder Meeting and Management Proxy Circular.
Telesat
On February 1, 2006, we announced our intention to implement a recapitalization and launch a
public offering of a minority stake of Telesat in the second half of 2006.
Normal Course Issuer Bid
BCE Inc. commenced a Normal Course Issuer Bid (NCIB) program on February 1, 2006 with the
intention to purchase and cancel approximately 5% of its outstanding common shares over a
twelve-month period. As at March 31, 2006, BCE Inc. had repurchased 21.1 million of its
outstanding common shares for cancellation for a total cost of $587 million. To date, since
the program began, BCE Inc. has repurchased a total of 29.1 million common shares,
representing approximately 63% of the total common shares targeted for repurchase, for a
total outlay of $809 million.
NON-GAAP FINANCIAL MEASURES
EBITDA
The term EBITDA does not have any standardized meaning according to Canadian generally
accepted accounting principles (GAAP). It is therefore unlikely to be comparable to similar
measures presented by other companies. EBITDA is presented on a consistent basis from period
to period.
We use EBITDA, among other measures, to
assess the operating performance of our
ongoing businesses without the effects of
amortization expense, net benefit plans
cost, and restructuring and other items. We
exclude amortization expense and net benefit
plans cost because they largely depend on
the accounting methods and assumptions a
company uses, as well as non-operating
factors such as the historical cost of
capital assets and the fund performance of a
companys pension plans. Excluding
restructuring and other items does not imply
they are necessarily non-recurring.
EBITDA allows us to compare our
operating performance on a consistent basis.
We believe that certain investors and
analysts use EBITDA to measure a companys
ability to service debt and to meet other
payment obligations, or as a common
measurement to value companies in the
telecommunications industry.
The most comparable Canadian GAAP
financial measure is operating income. The
following tables are reconciliations of
operating income to EBITDA on a consolidated
basis for BCE and Bell Canada.
|
|
|
|
|
|
|
|
|
BCE |
|
Q1 2006 |
|
|
Q1 2005 |
|
|
Operating income |
|
|
907 |
|
|
|
1,043 |
|
Amortization expense |
|
|
766 |
|
|
|
761 |
|
Net benefit plans cost |
|
|
142 |
|
|
|
103 |
|
Restructuring and other items |
|
|
88 |
|
|
|
(4 |
) |
|
EBITDA |
|
|
1,903 |
|
|
|
1,903 |
|
|
|
|
|
|
|
|
|
|
|
BELL CANADA |
|
Q1 2006 |
|
|
Q1 2005 |
|
|
Operating income |
|
|
850 |
|
|
|
982 |
|
Amortization expense |
|
|
739 |
|
|
|
732 |
|
Net benefit plans cost |
|
|
142 |
|
|
|
106 |
|
Restructuring and other items |
|
|
87 |
|
|
|
(5 |
) |
|
EBITDA |
|
|
1,818 |
|
|
|
1,815 |
|
|
OPERATING INCOME BEFORE
RESTRUCTURING AND OTHER ITEMS
The term operating income before
restructuring and other items does not have
any standardized meaning according to
Canadian GAAP. It is therefore unlikely to
be comparable to similar measures presented
by other companies.
We use operating income before
restructuring and other items, among other
measures, to assess the operating
performance of our ongoing businesses
without the effects of restructuring and
other items. We exclude these items because
they affect the comparability of our
financial results and could potentially
distort the analysis of trends in business
performance. Excluding these items does not
imply they are necessarily non-recurring.
BCE INC. 2006 QUARTERLY REPORT
p. 10 MANAGEMENTS DISCUSSION AND ANALYSIS
Free Cash Flow
We define free cash flow as cash from operating activities after capital expenditures, total
dividends and other investing activities.
The most comparable Canadian GAAP
financial measure is operating income. The
following tables are reconciliations of
operating income to operating income before
restructuring and other items on a
consolidated basis for BCE and Bell Canada.
|
|
|
|
|
|
|
|
|
BCE |
|
Q1 2006 |
|
|
Q1 2005 |
|
|
Operating income |
|
|
907 |
|
|
|
1,043 |
|
Restructuring and other items |
|
|
88 |
|
|
|
(4 |
) |
|
Operating income before
restructuring and other items |
|
|
995 |
|
|
|
1,039 |
|
|
|
|
|
|
|
|
|
|
|
BELL CANADA |
|
Q1 2006 |
|
|
Q1 2005 |
|
|
Operating income |
|
|
850 |
|
|
|
982 |
|
Restructuring and other items |
|
|
87 |
|
|
|
(5 |
) |
|
Operating income before
restructuring and other items |
|
|
937 |
|
|
|
977 |
|
|
NET EARNINGS BEFORE
RESTRUCTURING AND OTHER ITEMS AND
NET GAINS ON INVESTMENTS
The term net earnings before
restructuring and other items and net gains
on investments does not have any
standardized meaning according to Canadian
GAAP. It is therefore unlikely to be
comparable to similar measures presented by
other companies.
We use net earnings before
restructuring and other items and net gains
on investments, among other measures, to
assess the operating performance of our
ongoing businesses without the effects of
after-tax restructuring and other items and
net gains on investments. We exclude these
items because they affect the comparability
of our financial results and could
potentially distort the analysis of trends
in business performance. Excluding these
items does not imply they are necessarily
non-recurring.
The most comparable Canadian GAAP
financial measure is net earnings applicable
to common shares. The following table is a
reconciliation of net earnings applicable to
common shares to net earnings before
restructuring and other items and net gains
on investments on a consolidated basis and
per BCE Inc. common share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 2006 |
|
|
Q1 2005 |
|
|
|
TOTAL |
|
|
PER SHARE |
|
|
TOTAL |
|
|
PER SHARE |
|
|
Net earnings applicable to common shares |
|
|
477 |
|
|
|
0.52 |
|
|
|
474 |
|
|
|
0.51 |
|
Restructuring and other items |
|
|
58 |
|
|
|
0.06 |
|
|
|
(2 |
) |
|
|
|
|
Net gains on investments |
|
|
(81 |
) |
|
|
(0.09 |
) |
|
|
|
|
|
|
|
|
|
Net earnings before restructuring and other items
and net gains on investments |
|
|
454 |
|
|
|
0.49 |
|
|
|
472 |
|
|
|
0.51 |
|
|
FREE CASH FLOW
The term free cash flow does not have
any standardized meaning according to
Canadian GAAP. It is therefore unlikely to
be comparable to similar measures presented
by other companies. Free cash flow is
presented on a consistent basis from period
to period.
We consider free cash flow to be an
important indicator of the financial
strength and performance of our business
because it shows how much cash is available
to repay debt and reinvest in our company.
We present free cash flow consistently from
period to period, which allows us to compare
our financial performance on a consistent
basis.
We believe that certain investors and
analysts use free cash flow to value a
business and its underlying assets.
The most comparable Canadian GAAP
financial measure is cash from operating
activities. The following table is a
reconciliation of cash from operating
activities to free cash flow on a
consolidated basis.
|
|
|
|
|
|
|
|
|
|
|
Q1 2006 |
|
|
Q1 2005 |
|
|
Cash from operating activities |
|
|
940 |
|
|
|
916 |
|
Capital expenditures |
|
|
(593 |
) |
|
|
(724 |
) |
Total dividends paid |
|
|
(387 |
) |
|
|
(349 |
) |
Other investing activities |
|
|
(8 |
) |
|
|
(15 |
) |
|
Free cash flow |
|
|
(48 |
) |
|
|
(172 |
) |
|
BCE INC. 2006 QUARTERLY REPORT
p. 11
Financial
Results Analysis
This section provides detailed information and analysis about our performance in Q1 2006
compared with Q1 2005. It focuses on our consolidated operating results and provides
financial information for each of our operating segments.
QUARTERLY FINANCIAL INFORMATION
The table below shows selected consolidated financial data for the eight most recently
completed quarters. This information has been prepared on the same basis as the annual
consolidated financial statements, but is unaudited.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Operating revenues |
|
|
4,734 |
|
|
|
4,986 |
|
|
|
4,732 |
|
|
|
4,757 |
|
|
|
4,630 |
|
|
|
4,769 |
|
|
|
4,556 |
|
|
|
4,577 |
|
EBITDA |
|
|
1,903 |
|
|
|
1,858 |
|
|
|
1,864 |
|
|
|
1,972 |
|
|
|
1,903 |
|
|
|
1,794 |
|
|
|
1,901 |
|
|
|
1,920 |
|
Amortization expense |
|
|
(766 |
) |
|
|
(791 |
) |
|
|
(786 |
) |
|
|
(776 |
) |
|
|
(761 |
) |
|
|
(787 |
) |
|
|
(754 |
) |
|
|
(757 |
) |
Net benefit plans cost |
|
|
(142 |
) |
|
|
(65 |
) |
|
|
(108 |
) |
|
|
(104 |
) |
|
|
(103 |
) |
|
|
(67 |
) |
|
|
(61 |
) |
|
|
(65 |
) |
Restructuring and other items |
|
|
(88 |
) |
|
|
(23 |
) |
|
|
(31 |
) |
|
|
(5 |
) |
|
|
4 |
|
|
|
(126 |
) |
|
|
(1,081 |
) |
|
|
(14 |
) |
|
Operating income |
|
|
907 |
|
|
|
979 |
|
|
|
939 |
|
|
|
1,087 |
|
|
|
1,043 |
|
|
|
814 |
|
|
|
5 |
|
|
|
1,084 |
|
Earnings from continuing operations |
|
|
413 |
|
|
|
418 |
|
|
|
448 |
|
|
|
570 |
|
|
|
479 |
|
|
|
354 |
|
|
|
90 |
|
|
|
529 |
|
Discontinued operations |
|
|
81 |
|
|
|
12 |
|
|
|
11 |
|
|
|
11 |
|
|
|
12 |
|
|
|
11 |
|
|
|
10 |
|
|
|
42 |
|
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
494 |
|
|
|
430 |
|
|
|
459 |
|
|
|
581 |
|
|
|
491 |
|
|
|
434 |
|
|
|
100 |
|
|
|
571 |
|
Net earnings applicable
to common shares |
|
|
477 |
|
|
|
413 |
|
|
|
441 |
|
|
|
563 |
|
|
|
474 |
|
|
|
417 |
|
|
|
82 |
|
|
|
554 |
|
Included in net earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
1 |
|
|
|
64 |
|
|
|
325 |
|
|
|
|
|
Discontinued operations |
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
31 |
|
Restructuring and other items |
|
|
(58 |
) |
|
|
(16 |
) |
|
|
(21 |
) |
|
|
(3 |
) |
|
|
2 |
|
|
|
(62 |
) |
|
|
(725 |
) |
|
|
16 |
|
|
Net earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations basic |
|
|
0.43 |
|
|
|
0.43 |
|
|
|
0.46 |
|
|
|
0.60 |
|
|
|
0.50 |
|
|
|
0.37 |
|
|
|
0.08 |
|
|
|
0.55 |
|
Continuing operations diluted |
|
|
0.43 |
|
|
|
0.43 |
|
|
|
0.46 |
|
|
|
0.60 |
|
|
|
0.50 |
|
|
|
0.37 |
|
|
|
0.08 |
|
|
|
0.55 |
|
Net earnings basic |
|
|
0.52 |
|
|
|
0.44 |
|
|
|
0.48 |
|
|
|
0.61 |
|
|
|
0.51 |
|
|
|
0.45 |
|
|
|
0.09 |
|
|
|
0.60 |
|
Net earnings diluted |
|
|
0.52 |
|
|
|
0.44 |
|
|
|
0.48 |
|
|
|
0.61 |
|
|
|
0.51 |
|
|
|
0.45 |
|
|
|
0.09 |
|
|
|
0.60 |
|
Average number of common shares
outstanding (millions) |
|
|
920.5 |
|
|
|
927.3 |
|
|
|
927.0 |
|
|
|
926.6 |
|
|
|
926.2 |
|
|
|
925.3 |
|
|
|
924.6 |
|
|
|
924.3 |
|
|
FINANCIAL RESULTS ANALYSIS
CONSOLIDATED ANALYSIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 2006 |
|
|
Q1 2005 |
|
|
% CHANGE |
|
|
Operating revenues |
|
|
4,734 |
|
|
|
4,630 |
|
|
|
2.2 |
% |
Operating expenses |
|
|
(2,831 |
) |
|
|
(2,727 |
) |
|
|
(3.8 |
%) |
|
EBITDA |
|
|
1,903 |
|
|
|
1,903 |
|
|
|
|
|
Amortization expense |
|
|
(766 |
) |
|
|
(761 |
) |
|
|
(0.7 |
%) |
Net benefit plans cost |
|
|
(142 |
) |
|
|
(103 |
) |
|
|
(37.9 |
%) |
Restructuring and other items |
|
|
(88 |
) |
|
|
4 |
|
|
|
n.m. |
|
|
Operating income |
|
|
907 |
|
|
|
1,043 |
|
|
|
(13.0 |
%) |
Other income (expense) |
|
|
(7 |
) |
|
|
8 |
|
|
|
n.m. |
|
Interest expense |
|
|
(251 |
) |
|
|
(245 |
) |
|
|
(2.4 |
%) |
|
Pre-tax earnings from continuing operations |
|
|
649 |
|
|
|
806 |
|
|
|
(19.5 |
%) |
Income taxes |
|
|
(183 |
) |
|
|
(264 |
) |
|
|
30.7 |
% |
Non-controlling interest |
|
|
(53 |
) |
|
|
(63 |
) |
|
|
15.9 |
% |
|
Earnings from continuing operations |
|
|
413 |
|
|
|
479 |
|
|
|
(13.8 |
%) |
Discontinued operations |
|
|
81 |
|
|
|
12 |
|
|
|
n.m. |
|
|
Net earnings |
|
|
494 |
|
|
|
491 |
|
|
|
0.6 |
% |
Dividends on preferred shares |
|
|
(17 |
) |
|
|
(17 |
) |
|
|
|
|
|
Net earnings applicable to common shares |
|
|
477 |
|
|
|
474 |
|
|
|
0.6 |
% |
|
EPS |
|
|
0.52 |
|
|
|
0.51 |
|
|
|
2.0 |
% |
|
n.m.: not meaningful
BCE INC. 2006 QUARTERLY REPORT
p. 12 MANAGEMENTS DISCUSSION AND ANALYSIS
Operating Revenues
Our revenues increased to $4,734 million in Q1 2006, 2.2% higher than the same quarter last year,
reflecting improved performance across most of our segments. Revenues at Bell Canada grew by 1.4%,
driven primarily by Aliant where solid wireless and Internet results and stabilization of legacy
wireline erosion resulted in higher year-over-year revenues, and by our Business segment where
continued wireless strength, as well as increased ICT revenues mainly from acquisitions made in the
past year, generated improved top-line results. Our Residential segment realized a slight
improvement in revenues from growth of its video, wireless and Internet services, despite continued
erosion of its legacy wireline business. Higher revenues at our Other BCE segment, fuelled by
increased advertising sales and subscription revenues at Bell Globemedia and revenue growth at
certain of Telesats subsidiaries combined with increased consulting activity and higher broadcast
revenues, further contributed to growth in overall revenues. The year-over-year improvement in
overall revenues was softened by a decrease at our Other Bell Canada segment, due primarily to our
wholesale operations that were negatively affected by weaker long distance usage and lower data
revenues.
See Segmented Analysis for a discussion of operating revenues on a segmented basis, and
Product Line Analysis for a discussion of operating revenues on a product line basis.
Operating Income
CONSOLIDATED OPERATING INCOME
(in $ millions)
Operating income at BCE for the first quarter of 2006 was $907 million, down from $1,043
million in the same quarter last year. Bell Canadas operating income also declined by a similar
amount from $982 million to $850 million for the same respective periods. The year-over-year
decreases were due largely to $88 million of restructuring and other items associated with new
restructuring initiatives for involuntary employee departures at Bell Canada, the relocation of
employees and closing of real estate facilities related to a reduced workforce and transaction
costs related to the creation of the Bell Aliant Regional Communications Income Fund.
Operating income before restructuring and other items in Q1 2006 was $995 million, or 4.2%,
lower than the same quarter in 2005 at BCE, and was $937 million or 4.1% lower at Bell
Canada. The decreases at both BCE and Bell Canada resulted primarily from:
continued erosion of our high-margin residential NAS wireline customer base
continued pressure on operating margins from the ongoing transformation of our product mix
towards growth services
higher wireless customer acquisition and retention costs
higher operating expenses from acquisitions made over the past year primarily in
our Business segment
the impact of higher net benefit plans cost
higher costs from our ongoing investment in service improvement and an increased
volume of work orders for provisioning and service assurance.
These impacts were offset partly by:
higher overall revenues
reduced procurement costs and efficiency-related savings stemming from our Galileo
initiatives
lower salary expense from employee workforce reductions
lower COA expense in our video unit due to the large number of customers choosing our
STB rental program
lower bad debt expense in wireless.
See Segmented Analysis for a discussion of operating income on a segmented basis.
EBITDA
EBITDA for BCE remained unchanged year-over-year at $1,903 million in Q1 2006. This resulted
from modest growth at Bell Canada and improved performance at Telesat, offset by lower EBITDA
at Bell Globemedia mainly as a result of higher programming and production costs. At Bell
Canada, EBITDA was $1,818 million this quarter, representing a 0.2% increase over the previous
year, due primarily to improvements at our Aliant and Other Bell Canada segments and offset
mostly by lower margins at our Residential and Business segments.
BCE INC. 2006 QUARTERLY REPORT
p. 13
EBITDA margin in the first
quarter was 40.2% at BCE and 42.6% at Bell
Canada, down 0.9 and 0.5 percentage points,
respectively, compared with Q1 2005. The
slight year-over-year declines reflected a
number of operating cost pressures, which
included higher operating costs in wireless
from increased customer retention activity
and improved year-over-year subscriber
acquisition, continued erosion of
high-margin legacy voice and data services
in all our segments, higher operating
expenses from corporate acquisitions,
increased service improvement costs, as well
as ongoing pressure on operating margins
from the continuing transformation of our
product mix towards growth services. The
savings in operating costs achieved through
various Galileo program initiatives largely
offset the impact of these elements on
EBITDA margin.
Wireless EBITDA increased by 18.3% to
$355 million in Q1 2006 from $300 million in
Q1 2005, reflecting wireless revenue growth
of 12.8%, reduced customer contact centre
costs and lower bad debt expense. These
factors contributed to wireless EBITDA
margin of 43.0% for the quarter,
representing a 1.6 percentage point
improvement in margin compared with Q1 2005
when customer service issues related to our
billing system conversion had a negative
impact on our financial results. This
year-over-year EBITDA margin improvement was
offset partly by the cost of acquiring 17%
more gross subscriber activations in Q1
2006, as well as by higher retention costs
associated with customer lifecycle
management initiatives such as handset
upgrades.
Wireless COA increased 5.6% to $394 per
gross activation in Q1 2006 from $373 per
gross activation for the same quarter in
2005. Despite a larger number of gross
activations, higher COA was driven primarily
by an increase in marketing spend as a
result of our Olympic advertising campaign,
as well as by an increase in handset
subsidies on premium-priced handsets, higher
upfront sales commissions and promotional
incentives associated with the acquisition
of higher average revenue per user (ARPU) and longer-term contract customers.
Video EBITDA for Q1 2006 increased to
$47 million from $4 million for the same
quarter in 2005. The year-over-year
improvement reflected solid revenue growth
from the combined impact of a $5 increase in
monthly ARPU and a 13.5% expansion of the
customer base, significantly lower
subscriber acquisition expense due to a
large number of customers choosing our STB
rental option and efficiency-related
operating cost savings in programming and
contact centres.
Amortization Expense
Amortization expense increased 0.7%, or $5
million, to $766 million in Q1 2006,
compared with Q1 2005. This was a result of
an increase in our capital asset base from
higher investment in the growth areas of the
business, as well as capital spending that
continues to be higher than asset
retirements.
Net Benefit Plans Cost
The net benefit plans cost increased 37.9%,
or $39 million, to $142 million in Q1 2006,
compared with Q1 2005. The increase resulted
mainly from a reduction in the discount rate
from 6.2% to 5.2%, which increased the
accrued benefit obligation of our pension
plans.
Restructuring and Other Items
We recorded restructuring charges and other
items of $88 million in Q1 2006. These
included:
charges of $45 million
related to new restructuring initiatives for
the involuntary departure of approximately
900 employees
charges of $13
million for relocating employees and closing
real estate facilities that are no longer
needed because of the reduction in the
workforce from our restructuring initiatives
transaction costs to date of $30
million related to the creation of the Bell
Aliant Regional Communications Income Fund
announced on March 7, 2006. These
transaction costs related mainly to
investment banking, professional and
consulting fees. Additional costs are
expected to be incurred up to the date of
its launch.
Net Earnings and Earnings per Share (EPS)
Net earnings applicable to common shares for
Q1 2006 were $477 million, or $0.52 per
common share, which represents a slight
increase compared with net earnings of $474
million, or $0.51 per common share for the
same period last year. The year-over-year
improvement can be attributed to stable
EBITDA performance and the gain on sale of
most of our interest in CGI included in
discontinued operations. Higher net benefit
plans cost and increased restructuring and
other items for charges associated with our
new employee workforce reduction initiatives
and the related relocation of employees and
closing of real estate facilities partly
offset the positive impacts on net earnings.
BCE INC. 2006 QUARTERLY REPORT
p. 14 MANAGEMENTS DISCUSSION AND ANALYSIS
SEGMENTED ANALYSIS
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES |
|
Q1 2006 |
|
|
Q1 2005 |
|
|
% CHANGE |
|
|
Residential |
|
|
1,869 |
|
|
|
1,856 |
|
|
|
0.7 |
% |
Business |
|
|
1,509 |
|
|
|
1,478 |
|
|
|
2.1 |
% |
Aliant |
|
|
545 |
|
|
|
524 |
|
|
|
4.0 |
% |
Other Bell Canada |
|
|
474 |
|
|
|
479 |
|
|
|
(1.0 |
%) |
Inter-segment eliminations |
|
|
(127 |
) |
|
|
(128 |
) |
|
|
0.8 |
% |
|
Bell Canada |
|
|
4,270 |
|
|
|
4,209 |
|
|
|
1.4 |
% |
Other BCE |
|
|
524 |
|
|
|
475 |
|
|
|
10.3 |
% |
Inter-segment eliminations |
|
|
(60 |
) |
|
|
(54 |
) |
|
|
(11.1 |
%) |
|
Total operating revenues |
|
|
4,734 |
|
|
|
4,630 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
Q1 2006 |
|
|
Q1 2005 |
|
|
% CHANGE |
|
|
Residential |
|
|
503 |
|
|
|
526 |
|
|
|
(4.4 |
%) |
Business |
|
|
205 |
|
|
|
240 |
|
|
|
(14.6 |
%) |
Aliant |
|
|
94 |
|
|
|
87 |
|
|
|
8.0 |
% |
Other Bell Canada |
|
|
48 |
|
|
|
129 |
|
|
|
(62.8 |
%) |
|
Bell Canada |
|
|
850 |
|
|
|
982 |
|
|
|
(13.4 |
%) |
Other BCE |
|
|
57 |
|
|
|
61 |
|
|
|
(6.6 |
%) |
|
Total operating income |
|
|
907 |
|
|
|
1,043 |
|
|
|
(13.0 |
%) |
|
Residential Segment
RESIDENTIAL REVENUES
(in $ millions)
Residential revenues this quarter increased 0.7% year-over-year to $1,869 million, compared
with 2005. Video, wireless and data revenues contributed 3.0%, 2.5% and 1.1%, respectively, to
overall Residential revenue growth in Q1 2006, offset largely by negative contributions of 2.9%
from long distance, 2.6% from local and access services, and 0.4% from terminal sales and other
revenues. The increase was the result of continued expansion of our wireless, video and
high-speed Internet subscriber bases and an increase in video, wireless and high-speed Internet
ARPUs, offset almost entirely by lower wireline (local and access and long distance) revenues
brought about by an acceleration
in NAS losses, continued wireless long distance and VoIP substitution, as well as ongoing
aggressive price competition. Although overall Residential revenue growth slowed somewhat
compared with previous quarters, this result was anticipated given increased competition from
cable telephony, which adversely affected wireline revenues.
Wireline
Local and access revenues, which represents the largest proportion of our Residential segment
revenues, declined this quarter compared with Q1 2005, due mainly to NAS erosion which resulted
in lower basic service and related SmartTouch feature revenues, offset partly by an increase in
wireline maintenance plan revenues reflecting price increases implemented in the third quarter of
2005. NAS decreased this quarter primarily as a result of losses to competitive local exchange
carriers (CLECs) and cable operators, wireline to wireless substitution as well as to continued
pressure from growth in high-speed Internet access which reduces the need for second telephone
lines, while the impact from other non-facilities based VoIP providers was minimal. The rate of
year-over-year NAS erosion increased in Q1 2006 as the major cable companies operating in our
Ontario and Québec markets expanded their service footprint and intensified aggressive marketing
of low-priced cable telephony offerings.
Long distance revenues this quarter decreased year-over-year, reflecting lower average
revenue per minute (ARPM), a lower volume of conversation minutes, and lower prepaid calling card
sales. Lower ARPM reflected increased competition from non-traditional long distance providers,
increased adoption of our new Block-of-Time (BOT) minute plans, the continued impact of our $5
Long Distance Bundle (which was discontinued in Q3 2005), and a lower volume of higher priced
overseas minutes. Overall minutes also declined year-over-year, as usage gains stemming from our
BOT and bundle products were more than offset by the impact from increased NAS erosion and losses
of domestic and overseas minutes to alternative, non-traditional long distance service providers.
(For further information about our wireline business, please see Local and access and Long
distance within our Product Line Analysis.)
Wireless
Residential wireless revenues for the quarter increased year-over-year as a result of a higher
average number of customers, a shift in the subscriber mix towards
higher ARPU postpaid
customers, the growing presence of higher than average ARPU prepaid customers since the launch of
Solo Mobile and Virgin Mobile services, the positive impact from price increases in the third
quarter of 2005 for certain services and features, and increased adoption of data and other
value-added
BCE INC. 2006 QUARTERLY REPORT
p. 15
feature services. Wireless data revenues increased in the quarter, driven by
the success of our 10-4 service and Fuel Me bundles, MP3 download capabilities,
new downloadable games, and increased usage from our exclusive video streaming
coverage of the Winter Olympics.
(For further information about our wireless business, please see Wireless within our Product
Line Analysis.)
Data
Higher residential data revenues were driven by high-speed Internet subscriber base
growth of 17% and higher ARPU resulting from the migration
of customers to higher-speed, premium-priced products, the implementation of a $5
price increase in Q4 2005 on our Basic high-speed service for customers in Ontario,
as well as a 7% increase in combined revenues from our Sympatico.MSN.ca web portal
and other value-added services such as MSN Premium, Security Services and Home
Networking. The portal currently averages approximately 17 million unique visitors
per month, or 83% of online Canadians. The year-over-year improvement in
residential data revenues was tempered by price decreases on our Basic and
High-Speed Edition services in response to aggressive competition in our Québec
market.
(For further information about our data business, please see Data within our Product Line
Analysis.)
Video
VIDEO REVENUES
(in $ millions)
VIDEO SUBSCRIBERS
(in thousands)
Our video revenues grew 25% this quarter to $277 million from $221 million last year, driven
by year-over-year customer base growth of 13.5% and a $5 increase in monthly ARPU that reflected
the impact from price increases implemented over the past year, and the success of our strategy to
upsell customers to higher-priced programming packages.
We activated 12,000 new net video subscribers, a decrease compared with the 29,000 net
activations achieved in Q1 2005. Our total video customer base reached 1,739,000 at March 31, 2006,
representing an increase of 13.5% compared with the previous year. Despite the continued popularity
of our STB rental option, which accounted for more than 80% of new subscriber acquisitions, we experienced a
decline in year-over-year net activations mainly as a result of fewer promotional offers in
the market compared with the first quarter of 2005 and aggressive price competition from the
cable operators, particularly in Québec. Higher year-over-year churn also contributed to
weaker net activations in the first quarter of 2006. Our video churn rate increased by 0.1
percentage point to 0.9%, reflecting a challenging competitive environment which included the
impact from cable operators strategy of bundling cable service with other products at
discounted rates.
Video ARPU increased to $53 per month in Q1 2006 from $48 per month in Q1 2005. The 10.4%
improvement was the result of price increases implemented during 2005 and a shift in product
mix towards higher-priced programming packages and higher pay-per-view revenues, offset partly
by bundle and retention discounts. In 2005, we applied a $3 rate increase to our existing
subscriber base and on October 1, 2005, we brought into effect $2 and $3 increases,
respectively, on our basic and theme packages for all new customers. During Q1 2006, we
implemented a $2 rate increase on our standard digital programming package for all existing
customers without a contract.
Residential Operating Income
RESIDENTIAL OPERATING INCOME
(in $ millions)
Our Residential segment reported operating income of $503 million this quarter, down 4.4%
compared with the first quarter of 2005. This decrease was due to a higher rate of decline in our
high-margin residential NAS wireline customer base, higher operating costs in wireless from
increased customer retention activity, improved year-over-year subscriber acquisition and our
Winter Olympics advertising campaign, as well as increased net benefit plans cost. These factors
were largely offset by higher revenues, lower video COA expense due to the large number of
customers choosing our rental program, lower contact centre costs driven by an improvement in the
first-call resolution rate and outsourcing of call volumes, lower wireless bad debt expense, as
well as other Galileo-related cost savings including further rollout of our One Bill initiative.
BCE INC. 2006 QUARTERLY REPORT
p. 16 MANAGEMENTS DISCUSSION AND ANALYSIS
Business Segment
BUSINESS REVENUES
(in $ millions)
Business segment revenues for the first quarter of 2006 increased 2.1% over
the same quarter in 2005 to reach $1,509 million. Our SMB and Bell West units
contributed 1.7% and 0.5% of the total growth in Business segment revenues,
respectively, offset by a slight negative contribution of 0.1% from our Enterprise
unit. From a product line perspective, increases in data and wireless revenues
across all our Business segment units were offset partially by declines in long
distance and local and access revenues at Enterprise and SMB, resulting from
ongoing legacy erosion and pricing pressures as customers continue to migrate
their voice and data traffic to our IP-based systems.
Enterprise
Enterprise revenues in Q1 2006 decreased slightly, compared with the first quarter
of 2005, due primarily to further declines in long distance and local and access
revenues brought about by continued erosion of our legacy voice and data business,
the re-pricing of some of our existing wireline business necessitated by
competitive market conditions and the ongoing migration of our customers voice
and data traffic to IP-based systems. Higher wireless and data revenues partly
offset the decrease in Enterprise revenues in the quarter.
Data revenues increased in the quarter mainly as a result of double-digit
growth in IP-based connectivity services and ICT solutions. However, the
year-over-year rate of increase was lower compared to previous quarters due to
timing of IT infrastructure sales particularly in the financial services sector, a
decrease in systems and storage sales, as well as lower acquisitions-related
revenues. Lower voice equipment sales, resulting in weaker terminal sales and
other revenue, also contributed to the year-over-year decline in Enterprise
revenues. ICT revenue growth is becoming more organic, as the impact from larger
acquisitions made more than one year ago, including Infostream Technologies Inc.
and Elix Inc., is now fully reflected in year-over-year revenue comparisons. ICT
revenues grew by 14% in Q1 2006 compared with last year, mostly in the areas of
security solutions, wireless data, and contact centre management, as a result of
acquisitions, organic growth and new contract wins. During the quarter, we
continued to broaden our ICT solutions product suite with the acquisition of the
assets of Cinnabar Networks Inc., a highly-focused service company providing IT
security solutions.
Our Enterprise unit also secured a three-year standing offer with the Department of
National Defence to be the exclusive supplier of telephone equipment and support services and
signed a seven-year contract with Toronto-Dominion Bank Financial Group to implement and
manage a fully outsourced IP-based contact centre solution for the bank that will support
over 6,300 agents in 94 locations.
SMB
Our SMB unit contributed significantly to the financial performance of our Business
segment in Q1 2006. Revenues generated from SMB customers increased this quarter as higher
data and wireless revenues more than offset lower long distance, local and access and
terminal sales and other revenues. Data revenue growth in the quarter was driven by
acquisitions, which have enhanced our VCIO strategy in the past year, organic growth, and by
an increase in the number of high-speed Internet access service connections. Despite
intensifying competition, total VCIO revenues increased 37%, year-over-year, due mainly to
cross-selling opportunities with companies acquired in the past year, as well as higher VAS
and gateway equipment sales. Long distance revenues continued to decrease, largely as a
result of a lower overall volume of minutes, ongoing competitive pricing pressures and a
weakening of our pay-phone business brought about by increasing wireless and Internet
substitution. Although local and access revenues also decreased due to our declining
pay-phone business and market share gains by alternative telephony providers, the rate of
decline slowed this quarter compared with the past several quarters because of stabilization
in local line losses from improved customer retention and the favourable impact of recent
price increases for basic local fixed-line access. Lower revenues in the product line item
terminal sales and other can be attributed primarily to the sale of our U.S. conferencing
solutions operations in the fourth quarter of 2005.
Bell West
Bell West continued to grow its business in the first quarter as revenues in most product
categories increased, due primarily to the launch of services from the Alberta SuperNet (a
next-generation broadband access network) following service acceptance by the Government of
Alberta in the fourth quarter of 2005, higher wholesale service revenues stemming from higher
demand for local access lines to support Shaw Communications Digital Phone service, as well
as continued growth in our Enterprise and SMB customer bases. In Q1 2006, demand for
wholesale NAS from Shaw Communications increased 37% compared with the previous quarter.
BCE INC. 2006 QUARTERLY REPORT
p. 17
Business Operating Income
BUSINESS OPERATING INCOME
(in $ millions)
Business segment operating income for the first quarter of 2006 decreased 14.6% to $205
million, due mainly to higher net benefits plans cost and amortization expense, as well as to the
ongoing shift of voice and data traffic to lower-margin IP-based growth services and the loss of
higher-margin legacy voice and data business due to competitive pricing pressures. These negative
impacts were partially offset by a year-over-year increase in revenues and efficiency-related cost
reductions from our Galileo initiatives.
In our Enterprise unit, operating income decreased in Q1 2006, reflecting lower revenues due
mainly to re-pricing pressure brought about by the competitive environment, margin erosion from the
shift in product mix towards IP-based services, higher selling costs, as well as higher net
benefits plans cost.
Our
SMB unit generated higher operating income in the first quarter of 2006, driven by
year-over-year revenue growth, cost savings from realignment of the sales force and lower
amortization expense, which was partly offset by higher operating expenses stemming from recent
business acquisitions and an increase in net benefit plans cost. Galileo-related cost savings
realized during the quarter completely offset margin erosion related to the shift from legacy voice
and data services to VCIO revenues.
Bell West recorded lower operating income in the first quarter of 2006, due primarily to
higher amortization expense, offset partially by improved gross margins from positive revenue
growth and cost containment initiatives.
Aliant
ALIANT REVENUES
(in $ millions)
Aliant segment revenues were $545 million in the first quarter, reflecting an increase
of $21 million or 4.0% compared with the same period last year.
Continued solid growth in
wireless and Internet services, as well as an increase in terminal sales and other revenue, offset declines in other areas of the
business due to the impacts of competition,
wireless and Internet substitution, and
regulatory restrictions.
Aliants wireless revenue increased in the first quarter, driven
by a 12.9% year-over-year increase in its
wireless customer base and higher ARPU.
Gross wireless activations were up 13.5%,
while churn improved to approximately 1.1%
per month, reflecting Aliants expanded
service area coverage and digital wireless
network, an enhanced dealer network that
improved market penetration, broader product
selection, the positive response to value
packages and business bundles, as well as
the increased number of customers on
longer-term contracts. In addition, ARPU
improved in the quarter, due to an increase
in average minutes of use, higher data usage
driven by the popularity of text messaging,
Web browsing, an increased number of
Blackberry customers and premium content
downloads, as well as a higher penetration
rate of value-added services.
Data revenues increased in the first
quarter as higher Internet revenues were
offset slightly by other data revenue
declines from the continued rationalization
of circuit networks by customers. The growth
in Internet revenues was attributable to
year-over-year subscriber growth of 8.3%,
reflecting 40% growth in Aliants
high-speed Internet customer base. The
expansion of the subscriber base reflected
the extension of high-speed Internet service
into new areas, the migration of dial-up
customers to higher-speed products,
successful marketing programs and increased
bundling of Internet service with other
products.
Long distance revenues declined in the
first quarter, due mainly to the impact from
lower per-minute pricing for residential
customers, despite the resulting increase in
minutes of use as the adoption rate of value
packages with unlimited long distance plans
increased. ARPM for business customers
decreased, reflecting both lower per-minute
pricing and reduced minutes of use due to
competitive pricing pressures and increased
use of contact centre management tools (such
as integrated voice response systems) that
reduce the duration of calls.
Local and access revenues also
decreased on a year-over-year basis in the
quarter. This resulted mainly from a 1.6%
decline in the NAS customer base since the
end of the first quarter of 2005, reflecting
continued losses to the competition,
wireline to wireless substitution, continued
pressure from growth in high-speed Internet
access that reduces the need for second
telephone lines, as well as the limitations
created from the Canadian Radio-television
and Telecommunications Commissions (CRTC)
restrictions on bundling and winback
promotions.
Terminal sales and other revenues
increased in the first quarter, due mainly
to higher IT product and equipment sales.
BCE INC. 2006 QUARTERLY REPORT
p. 18 MANAGEMENTS DISCUSSION AND ANALYSIS
Aliant Operating Income
ALIANT OPERATING INCOME
(in $ millions)
Operating income at Aliant in the
first quarter of 2006 was $94 million or
8.0% higher, compared with the same period
last year. Despite higher expenses related
to improved product sales, contractual wage
increases and higher wireless and Internet
subscriber acquisition required in order to
drive revenue growth, overall margins
improved due to sound management of
operating costs.
Other Bell Canada Segment
OTHER BELL CANADA REVENUES
(in $ millions)
Other Bell Canada segment revenues for the first quarter of 2006 were $474 million,
representing a decrease of $5 million, or 1.0%, compared with the same three-month period in
2005. The year-over-year decline was due primarily to lower revenues in our wholesale unit,
which were negatively affected by a decline in switched minute volumes and continued
competitive pricing pressures and lower data revenues from customers migrating services onto
their own network facilities. This was offset partially by higher local and access revenues
due to increased demand for local loops, fibre and access capacity sales in Western Canada,
as well as revenue from a contract to help restore telecommunications service to the areas
affected in the United States in September 2005 by Hurricane Katrina.
Other Bell Canada Operating Income
OTHER BELL CANADA OPERATING INCOME
(in $ millions)
Operating income for the Other Bell Canada segment was $48 million this quarter or 63%
lower than the $129 million reported in Q1 2005, due mainly to restructuring and other
charges related to new restructuring initiatives for the involuntary departure of
approximately 900 employees and the associated relocation of employees and closing of real
estate facilities no longer required as a result of the workforce reduction. Excluding
restructuring and other items, operating income increased 8.9% year-over-year to $135
million in Q1 2006, reflecting lower cost of goods sold due to lower international traffic
and a decreased volume of termination minutes stemming from reduced southbound traffic to
the United States, as well as the positive impact from our Galileo cost reductions
initiatives. Lower overall revenues mainly from the re-price of wholesale long distance and
data services due to competitive market pressures, higher operating expenses from
contractual wage increases as a result of renegotiated labour agreements with our
technicians in Ontario and Québec partly offset the positive impacts on operating income.
Other BCE Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES |
|
Q1 2006 |
|
|
Q1 2005 |
|
|
% CHANGE |
|
|
Bell Globemedia |
|
|
394 |
|
|
|
356 |
|
|
|
10.7 |
% |
Telesat |
|
|
118 |
|
|
|
108 |
|
|
|
9.3 |
% |
Other |
|
|
12 |
|
|
|
11 |
|
|
|
9.1 |
% |
|
Other BCE revenues |
|
|
524 |
|
|
|
475 |
|
|
|
10.3 |
% |
|
OTHER BCE REVENUES
(in $ millions)
Other BCE segment revenues grew 10.3% to $524 million in Q1 2006, compared with the
same quarter in 2005, reflecting higher revenues mainly at Bell Globemedia and Telesat.
Bell Globemedias revenues for the quarter were $394 million, up 10.7% compared with Q1
2005.
Total advertising revenues in Q1 2006 grew by 9.2%, due to the continued strength of
CTV Televisions schedule, which included 8 of the top 10 and 17 of the top 20 regularly
scheduled programs in the spring season among all viewers. In addition, higher
year-over-year advertising revenues reflected increased airtime sales from the resumption of
hockey broadcasts on our sports specialty channels TSN and RDS following the end of the NHL
players lockout in Q3 2005, and higher newspaper and online advertising sales at The Globe
and Mail.
Subscriber revenues grew by 11.7% in Q1 2006, due primarily to specialty channel
subscription growth, as well as an increase in paid readership and online subscriptions at
The Globe and Mail, which continues to maintain leadership in the national newspaper market
with 60% more weekday readership than its
BCE INC. 2006 QUARTERLY REPORT
p. 19
main competitor according to the latest NADbank and Print Measurement Bureau (PMB)
readership data for 2005.
Telesats revenues increased 9.3% to $118 million this quarter, compared with Q1
2005, due primarily to higher revenues from its Infosat Communications, Inc. and Telesat
Brazil subsidiaries, increased consulting activity and higher broadcast revenues.
On January 17, 2006, Telesat announced plans to build and launch Nimiq 4, a new
direct broadcast satellite that will carry a wide range of digital television services
and enable Bell ExpressVu to enhance advanced services such as HD television, specialty
channels and foreign language programming.
On February 17, 2006, Nimiq 4-Interim, a satellite leased by Telesat, was placed
into service, providing further capacity and backup capability for Bell ExpressVu.
Other BCE Operating Income
OTHER BCE OPERATING INCOME
(in $ millions)
Operating income for the Other BCE
segment decreased 6.6% in Q1 2006 to $57
million. The year-over-year quarterly
decline was due mainly to lower operating
income at Bell Globemedia, offset partly by
higher operating income at Telesat and lower
corporate expenses at BCE Inc.
Bell Globemedias operating income
decreased 30% this quarter to $45 million,
despite revenue growth, primarily as a
result of the following:
higher sports specialty programming costs due to
the resumption of NHL hockey broadcasts
costs associated with the launch
of MTV in March 2006
higher
conventional television programming costs
due to the maintenance of a ratings-strong
schedule
higher net benefit plans cost.
Telesats operating income increased 5.4% to
$39 million in Q1 2006, reflecting higher
revenues, offset partly by higher operating
expenses at Infosat and Telesat Brazil, as
well as higher amortization expense stemming
from the Anik F1R satellite, which was
placed into service during Q4 2005.
Product Line Analysis
BELL CANADA PRODUCT LINE REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES |
|
Q1 2006 |
|
|
Q1 2005 |
|
|
% CHANGE |
|
|
Local and access |
|
|
1,311 |
|
|
|
1,368 |
|
|
|
(4.2 |
%) |
Long distance |
|
|
456 |
|
|
|
538 |
|
|
|
(15.2 |
%) |
Wireless |
|
|
804 |
|
|
|
713 |
|
|
|
12.8 |
% |
Data |
|
|
1,001 |
|
|
|
951 |
|
|
|
5.3 |
% |
Video |
|
|
277 |
|
|
|
221 |
|
|
|
25.3 |
% |
Terminal sales and other |
|
|
421 |
|
|
|
418 |
|
|
|
0.7 |
% |
|
|
Total Bell Canada |
|
|
4,270 |
|
|
|
4,209 |
|
|
|
1.4 |
% |
|
Local and Access
LOCAL AND ACCESS REVENUES
(in $ millions)
Local and access revenues in Q1 2006
decreased 4.2% to $1,311 million, compared
with the same quarter in 2005, as a result
of accelerating NAS
erosion and lower Smart-Touch feature
revenues directly attributable to NAS
losses, offset partly by gains from wireline
maintenance plans.
NAS in service declined by 408,000 or
3.2% since the first quarter of 2005, as a
result of competition from cable operators
for local telephone service, losses to
CLECs, wireline to wireless substitution, as
well as continued pressure from growth in
high-speed Internet access that reduces the
need for second telephone lines. Losses to
other non-facilities based VoIP providers
remained minimal. The accelerated rate of
erosion reflected a higher level of NAS
losses than the previous year, as the major
cable operators in our incumbent territories
sustained their intensive marketing efforts
and further expanded the footprint of their
low-priced local telephony offerings in many
of our Ontario and Québec markets. This was
offset partly by customers
BCE INC. 2006 QUARTERLY REPORT
p. 20 MANAGEMENTS DISCUSSION AND ANALYSIS
subscribing to our Bell Digital Voice
service and higher demand for local access
lines from Shaw to offer VoIP services in
Western Canada.
Moreover, the CRTCs regulatory
restrictions continue to place pressure on
our local and access business with respect
to bundling and packaging of local services
with other non-regulated services, and
limitations on customer win-back promotions.
Long Distance
LONG DISTANCE REVENUES
(in $ millions)
Long distance revenues were $456
million in the quarter, reflecting a
year-over-year decrease of 15.2% compared
with Q1 2005. Lower long distance revenues
affected all Bell Canada segments, due
mainly to the impact of escalating
substitution and continued NAS erosion.
Overall minute volumes decreased only
marginally this quarter to 4,582 million
conversation minutes, representing a slight
0.1% decline compared with Q1 2005.
Similarly, ARPM decreased $0.013 during the
same period to reach $0.094, reflecting a
decline in both domestic and overseas minute
volumes, competitive pricing pressures in
our Residential, Business and Wholesale
markets, as well as the continued pricing
impact from residential customers who
subscribe to the $5 Long Distance Bundle
(which was discontinued in Q3 2005).
Wireless
WIRELESS REVENUES
(in $ millions)
WIRELESS SUBSCRIBERS
(in thousands)
We achieved a record number of
first-quarter gross wireless activations in
2006, increasing 17% to 324,000 from 277,000
in Q1 2005. This solid start to the year
was fuelled by a refreshed line-up of
handsets, which included the Motorola RAZR
V3c, increased advertising presence during the
Winter Olympics with our successful Frank &
Gordon sales campaign, exclusive content
deals and new downloadable data services
popular with the youth segment. These
results were achieved despite aggressive
wireless offers in the market from our
competitors that featured a large number of
zero-dollar handsets and the extension of
certain fourth-quarter Christmas promotions.
Although the percentage of total gross
activations from postpaid rate plans in the
first quarter of 2006 decreased to 67% from
70% in the previous year, due to the impact
of Solo Mobile and Virgin Mobile on prepaid
subscriber growth, the total number of
gross postpaid activations increased by
12.1% to 216,000. Prepaid gross activations
comprised the remaining 108,000 gross
activations, representing a 28% increase
compared with Q1 2005. Postpaid growth was
driven further by our competitive rate-plan
promotions, the launch of our EVDO wireless
data network in Montréal, Toronto,
Vancouver, Calgary and Edmonton in the
latter part of 2005, our increased presence
in Western Canada, as well as our continued
strength in both the Enterprise and SMB
business market segments.
Our postpaid churn rate in the quarter
decreased to 1.3% from 1.6% in Q1 2005
mainly as a result of the success of our
retention activities with higher-value
subscribers, despite on-going vigorous
competition and tighter policies on the
granting of customer discounts and hardware
upgrades. Churn for Q1 2005 was affected
negatively by the cancellation of 45,000
non-paying customer accounts related largely
to the residual impacts from our billing
system conversion. Prepaid churn increased
to 2.5% in Q1 2006 from 1.8% in the same
quarter last year, due to the deactivation
of a higher number of inactive,
non-revenue-generating customer accounts. On
a combined basis, due to the offsetting
impacts of lower postpaid churn and higher
prepaid churn, our blended churn rate for
the first quarter remained unchanged
year-over-year at 1.6%.
As
a result of a solid year-over-year
growth in gross activations and a stable
churn rate, we added 59,000 new net
activations in Q1 2006, corresponding to a
60% increase over net activations of 37,000
achieved in Q1 2005. Accordingly, as at
March 31, 2006, our cellular and PCS
subscribers totalled 5,500,000, representing
a 10.8% increase over the past twelve
months. Postpaid rate plans accounted for
74% of our total subscriber base at the end
of the quarter, compared with 75% at the end
of Q1 2005.
BCE INC. 2006 QUARTERLY REPORT
p. 21
Wireless service revenues for the
quarter increased 12.8% to $804 million from
$713 million for the same quarter in 2005,
reflecting the combined impact of a higher
average number of customers in our
subscriber base and higher ARPU.
Postpaid ARPU increased by $4
year-over-year to $61 per month in Q1 2006,
compared with the same quarter in 2005. This
improvement reflects a shift in
the subscriber mix towards higher-ARPU
postpaid customers resulting from the
success of our Western Canadian sales
initiatives, increased penetration of
Blackberry customers and other heavy users
subscribing to higher-priced rate plans, the
positive impact from price increases in the
third quarter of 2005 for certain services
and features, and increased adoption of data
and other value-added feature services.
Wireless data and value-added service
revenues increased notably in the quarter,
driven by the success of our 10-4
push-to-talk feature, the growing popularity
of our Fuel Me bundled offers and text
messaging, and increased usage during the
Winter Olympics due to our exclusive video
streaming coverage of the events. This was
offset by lower system access fee revenue as
a result of the large number of customers
subscribing to All in One plans where all
service fees and a number of value-added
service features are included as part of the
monthly plan cost. We discontinued our All
in One rate plans in the market at the end
of February. Prepaid ARPU increased to $13
per month this quarter, compared with $11
per month in Q1 2005, due mainly to
increased penetration of higher-than-average
ARPU Solo and Virgin Mobile customers in our
prepaid subscriber base and higher usage. As
a result of both higher postpaid and prepaid
ARPU, blended ARPU increased $2 in the
quarter to $48 per month from $46 in Q1
2005, despite a slight year-over-year
decrease in the percentage of total
subscribers on postpaid rate plans.
Data
DATA REVENUES
(in $ millions)
HIGH-SPEED INTERNET SUBSCRIBERS
(in thousands)
Data revenues in Q1 2006 increased
5.3% year-over-year to $1,001 million. The
improvement was primarily the result of
growth in the number of high-speed Internet
access service connections and increased
sales of IP-based connectivity and ICT
solutions among Enterprise and SMB
customers. In addition, data revenue growth in the
quarter was impacted positively by the
contributions of various acquisitions made
within our Business segment over the past
twelve months, which have enhanced our
growth services product portfolio and
created cross-selling opportunities, and
fibre and access capacity sales at
360networks. These positive impacts more
than offset the negative effects of a
decrease in legacy data revenues within our
Business segment due to competitive pricing
and the continued migration of voice and
data traffic to our IP-based systems and
continued rationalization of circuit
networks by wholesale customers.
The number of high-speed Internet
subscribers increased by 71,000 this
quarter, compared with 128,000 in Q1 2005,
bringing the total subscriber count as at
March 31, 2006 to 2,266,000. Subscriber
growth for the first three months of 2006
was affected by aggressive price competition
particularly within the price-sensitive
segments of our Québec market where a major
cable operator continued to pursue an
acquisition strategy based on selling
multi-product bundles at discounted rates,
as well as by lower demand from SMB
customers. This was offset in part by higher
net additions at Aliant. Subsequent to the
end of the quarter, we launched a targeted
marketing campaign to combat the excessively
competitive pricing conditions in Québec by
offering discounts on our Basic and
High-Speed Edition services for a limited
time period.
Although our residential segment
experienced slower high-speed Internet
subscriber growth on a year-over-year basis,
we acquired 16% more new net additions in Q1
2006, compared with the previous quarter,
primarily as a result of improved customer
retention, enhanced download speeds for a
number of our products, and a more rational
pricing environment across the Ontario
market.
The combined impact from ongoing
expansion of our broadband access footprint
and the focused selling of lower priced
high-speed services, such as Basic Lite,
that are tailored to the very price
sensitive segments of the market, has helped
to expand the overall high-speed market,
stimulating high-speed service growth and
accelerating the rate of erosion of dial-up
Internet service. Total dial-up customers
decreased to 564,000 at the end of the
quarter from 696,000 at the end of Q1 2005.
Our high-speed Internet access footprint in
Ontario and Québec now reaches more than 85%
of homes and business lines passed.
BCE INC. 2006 QUARTERLY REPORT
p. 22 MANAGEMENTS DISCUSSION AND ANALYSIS
Financial
and Capital Management
This section tells you how we manage our cash and capital resources to
carry out our strategy and deliver financial results. It provides an analysis
of our financial condition, cash flows and liquidity on a consolidated basis.
Video
See discussion under Residential segment.
Terminal Sales and Other
TERMINAL SALES AND OTHER REVENUES
(in $ millions)
Terminal sales and other revenues were
$421 million this quarter, or 0.7% higher
than Q1 2005. The year-over-year improvement
reflected higher wireless equipment revenues
resulting from an increased number of
devices sold and mitigated partly by the
impact of promotional discounts, higher IT
product and equipment sales at Aliant, and
incremental revenue from a contract secured
in the second half of 2005 to help restore
telecommunications service to the areas
affected in the United States by Hurricane
Katrina. These favourable impacts were
offset partly by lower legacy voice
equipment sales to business customers.
OTHER ITEMS
Other Income (Expense)
Other expense of $7 million in Q1 2006
represented a decrease of $15 million
compared to other income of $8 million in Q1
2005. The decrease over the previous period
resulted mainly from a loss of $13 million
that was realized on the exercise of a
swaption issued by Aliant.
Interest Expense
Interest expense increased 2.4% or $6
million to $251 million in Q1 2006, compared
to Q1 2005. This was a result of higher
average debt levels mainly from Bell
Globemedias issuance of $905 million in
debt, net of repayments, to finance a return
of capital to its shareholders, partly
offset by lower average interest expense
from the refinancing of debt at lower rates
in 2005.
Income Taxes
Income taxes decreased 30.7% or $81 million
to $183 million in Q1 2006, compared to Q1
2005, due to lower pre-tax earnings and
favourable audit settlements. As a result,
the effective tax rate decreased from 32.8%
in Q1 2005 to 28.2% in Q1 2006.
Non-Controlling Interest
Non-controlling interest decreased 15.9% or
$10 million to $53 million in Q1 2006,
compared to Q1 2005. This was mainly from
lower net earnings at Aliant and Bell
Globemedia.
Discontinued Operations
The net gain from discontinued operations of
$81 million in Q1 2006 relates to our gain
on disposition of CGI of $79 million.
The net gain from discontinued
operations of $12 million in Q1 2005 relates
to our proportionate share of CGIs
operating income.
FINANCIAL AND CAPITAL MANAGEMENT
CAPITAL STRUCTURE
|
|
|
|
|
|
|
|
|
|
|
Q1 2006 |
|
|
Q4 2005 |
|
|
Debt due within one year |
|
|
1,210 |
|
|
|
1,373 |
|
Long-term debt |
|
|
12,978 |
|
|
|
12,119 |
|
Less: Cash and cash equivalents |
|
|
(878 |
) |
|
|
(363 |
) |
|
Total net debt |
|
|
13,310 |
|
|
|
13,129 |
|
Non-controlling interest |
|
|
2,633 |
|
|
|
2,898 |
|
Total shareholders equity |
|
|
14,363 |
|
|
|
14,721 |
|
|
Total capitalization |
|
|
30,306 |
|
|
|
30,748 |
|
|
Net debt to capitalization |
|
|
43.9 |
% |
|
|
42.7 |
% |
|
Outstanding share data (in
millions) |
|
|
|
|
|
|
|
|
Common shares |
|
|
906.2 |
(1) |
|
|
927.3 |
|
Stock options |
|
|
26.7 |
|
|
|
27.3 |
|
|
(1) Excludes 2.2 million of treasury stock
NET DEBT AND NET DEBT TO CAPITALIZATION RATIO
(in $ millions)
Our net debt to capitalization ratio was 43.9% at the end of Q1 2006,
compared to 42.7% at the end of 2005. This was a result of an increase in net
debt and a decrease in non-controlling interest and total shareholders equity.
In Q1 2006 we issued $550 million of debt, net of repayments. In
particular, Bell Globemedia issued $1,095 million in debt.
Net debt increased $181 million to $13,310 million in Q1 2006. This was
primarily due to:
BCEs cancellation of 18.9 million of its outstanding common shares
for $525 million
the capital repayment to non-controlling interest at Bell Globemedia
of $279 million
obligations of $147 million for
additional capital leases
BCE INC. 2006 QUARTERLY REPORT
p. 23
the deconsolidation of CGIs cash on hand of $81 million
$48 million of negative free cash flow.
This was partially offset by $849 million net proceeds from the sale of CGI.
Non-controlling interest declined by $265 million due mainly to Bell Globemedias
capital repayment of $279 million to non-controlling interest.
Total shareholders equity decreased $358 million to $14,363 million in Q1 2006.
This was mainly due to BCEs repurchase of 21.1 million of its outstanding common
shares for cancellation.
CASH FLOWS
FREE CASH FLOW
(in millions)
The table below is a summary of the flow of cash into and out of BCE in Q1 2006 and Q1 2005.
|
|
|
|
|
|
|
|
|
|
|
Q1 2006 |
|
|
Q1 2005 |
|
|
Cash flows from operating activities |
|
|
940 |
|
|
|
916 |
|
Capital expenditures |
|
|
(593 |
) |
|
|
(724 |
) |
Other investing activities |
|
|
(8 |
) |
|
|
(15 |
) |
Cash dividends paid on common shares |
|
|
(305 |
) |
|
|
(278 |
) |
Cash dividends paid on preferred shares |
|
|
(21 |
) |
|
|
(21 |
) |
Cash dividends paid by subsidiaries to non-controlling interest |
|
|
(61 |
) |
|
|
(50 |
) |
|
Free cash flow |
|
|
(48 |
) |
|
|
(172 |
) |
Business acquisitions |
|
|
(27 |
) |
|
|
(87 |
) |
Bell Aliant Regional Communications Income Fund |
|
|
(22 |
) |
|
|
|
|
Increase in investments |
|
|
(14 |
) |
|
|
(128 |
) |
Decrease in investments |
|
|
51 |
|
|
|
2 |
|
Issue of common shares |
|
|
1 |
|
|
|
9 |
|
Repurchase of common shares cancelled |
|
|
(525 |
) |
|
|
|
|
Net issuance of debt instruments |
|
|
550 |
|
|
|
576 |
|
Financing activities of subsidiaries with third parties |
|
|
3 |
|
|
|
(17 |
) |
Return of capital by subsidiary to non-controlling interest |
|
|
(279 |
) |
|
|
|
|
Other financing activities |
|
|
(25 |
) |
|
|
(14 |
) |
Cash provided by (used in) discontinued operations |
|
|
768 |
|
|
|
(23 |
) |
|
Net increase in cash and cash equivalents |
|
|
433 |
|
|
|
146 |
|
|
Cash from Operating Activities
Cash from operating activities increased 2.6% or $24 million to $940 million in Q1 2006,
compared to Q1 2005. This was a result of:
a decrease of $55 million in pension
and other benefit plan payments, due to Aliants contribution of $60 million in Q1 2005
a decrease of $64 million in payments related to restructuring initiatives at Bell
Canada and Aliant in Q1 2005
a decrease of approximately $100 million in income
taxes paid in Q1 2006 in comparison to Q1 2005 which related to the final instalment for 2004
made in early 2005.
This increase was offset mainly by:
compensation payments of $67 million made to executives and other key employees
further to the vesting of all restricted share units (RSUs) granted for a two-year performance
period ending at the end of 2005, based on the achievement of specific operating objectives
established at the outset of the program two years ago
the timing of supplier payments.
Free Cash Flow
Our negative free cash flow was $48 million in Q1 2006, an improvement from negative $172 million
in Q1 2005. This was mainly due to:
an increase of $24 million in cash from operating
activities
a decrease of $131 million in capital expenditures. These items were offset
in part by a $27 million increase in dividends paid to BCE Inc. common shareholders resulting from
the $0.03 quarterly increase in dividend per common share implemented in 2005, as well as an $11
million increase in dividends paid by subsidiaries to non-controlling interests due mainly to the
timing of Aliants Q4 2005 dividend payment to shareholders which occurred only in Q1 2006.
Capital Expenditures
Capital expenditures for BCE were $593 million in Q1 2006, which was $131 million, or 18.1%, lower
than the same quarter last year. As a percentage of revenues, capital expenditures decreased this
quarter to 12.5% from 15.6% in Q1 2005. Similarly, Bell Canadas capital expenditures decreased
19.2% to $538 million from $666 million for the same respective quarters. As a result, Bell
Canadas capital intensity in the
BCE INC. 2006 QUARTERLY REPORT
p. 24 MANAGEMENTS DISCUSSION AND ANALYSIS
quarter declined 3.2 percentage points, year-over-year, to 12.6% in Q1 2006. The decreases in
first-quarter capital expenditures at both BCE and Bell Canada reflected reduced spending on IT
infrastructure and systems to support both our Galileo-related cost reduction initiatives and
customer contracts in the Business segment, the timing of spending associated with various
strategic initiatives such as our FTTN footprint expansion, the completion in the fourth quarter of
2005 of the Alberta SuperNet, and the acquisition of wireless spectrum licences in the first
quarter of 2005.
Cash Dividends Paid on Common Shares
We paid a dividend of $0.33 per common share in Q1 2006, which is $0.03 higher than the dividend we
paid in Q1 2005.
In December 2004, the board of directors of BCE Inc. approved an increase of 10% or $0.12 per
common share in the annual dividend on BCE Inc.s common shares. The new dividend policy began with
the quarterly dividends paid on April 15, 2005.
Business Acquisitions
We invested $27 million in various business acquisitions in Q1 2006.
We invested $87 million in business acquisitions in Q1 2005. This consisted mainly of Bell
Canadas acquisition of an 89% interest in Nexxlink Technologies Inc. (Nexxlink). The remaining 11%
interest in Nexxlink was acquired in April 2005.
Bell Aliant Regional Communications Income Fund
Cash used for costs for the creation of the Bell Aliant Regional Communications Income Fund was $22
million in Q1 2006.
Increase in Investments
Cash flows used for investments decreased $114 million to $14 million in Q1 2006 compared to Q1
2005. The activity in Q1 2006 relates mainly to Telesats increase in short-term investments of $13
million, offset by the sale of $51 million in short-term investments as described in the following
section under Decrease in Investments. In Q1 2005, Bell Canada invested US$100 million to acquire an approximate
12% interest in Clearwire Corporation, a privately-held company that offers advanced IP-based
wireless broadband communications services.
Decrease in Investments
Cash flows provided by investments increased by $49 million due to the sale of short-term
investments of $51 million at Telesat in Q1 2006, offset by the purchase of additional short-term
investments of $13 million as described in the previous section under
Increase in Investments.
Repurchase of Common Shares Cancelled
As at March 31, 2006, BCE Inc. had repurchased 21.1 million of its outstanding common shares
through a NCIB and cancelled 18.9 million of those shares for a total cash outlay of $525 million.
This represents approximately half of our 5% target announced on February 1, 2006. As at May 2,
2006, a total of 29.1 million shares had been repurchased for a total cost of $809 million which
represents approximately 63% of our 5% target announced on February 1, 2006.
Debt Instruments
In Q1 2006, we issued $550 million of debt, net of repayments. Bell Globemedia issued $1,095
million in debt.
We had the following repayments in Q1 2006:
Bell Canada repaid $200 million of debt
Bell Globemedia repaid $190 million of debt
Aliant redeemed $50 million of bonds
we repaid $58 million in notes payable and bank advances
we made other repayments that included capital leases.
In Q1 2005, we issued $576 million of debt, net of repayments. In particular, Bell Canada issued
$700 million in debentures. We also repaid $155 million in notes payable and bank advances, mainly
at Bell Canada.
Return
of Capital by Subsidiary to Non-Controlling Interest
Bell Globemedia returned capital to its shareholders with the proceeds it received from the
issuance of debt. This resulted in a reduction of share capital at Bell Globemedia of $886 million
for which the impact at BCE was a $279 million decline in non-controlling interest.
BCE INC. 2006 QUARTERLY REPORT
p. 25
Cash Relating to Discontinued Operations
Cash provided by discontinued operations was $768 million in Q1 2006. This consisted primarily of
net cash proceeds of $849 million from the sale of our investment in CGI, which was offset by the
deconsolidation of CGIs cash on hand of $81 million.
Cash used in discontinued operations was $23 million in Q1 2005. This consisted mainly of
cash generated from CGIs operations.
CREDIT RATINGS
Our key credit ratings at May 2, 2006 remain unchanged from those listed in the BCE 2005
MD&A.
LIQUIDITY
Our sources of liquidity and cash requirements remain substantially unchanged from those
described in the BCE 2005 MD&A.
Commitment under the CRTC Deferral Mechanism
On February 16, 2006, the CRTC issued Telecom Decision 2006-9, in which it estimated incumbent
telephone companies (ILEC) deferral account amounts, on an accumulated balance and future
annualized commitment basis, at May 31, 2006. Bell Canadas estimated accumulated balance at May
31, 2006 is expected to be $480.5 million with an estimated future annualized commitment of $81.5
million. Aliants estimated accumulated balance at May 31, 2006 is expected to be $21.8 million
with an estimated future annualized commitment of $2.2 million.
The CRTC noted that the ILEC deferral account balances cannot be finalized at this time due
to certain outstanding proceedings that may have an impact on these balances. The CRTC directed
each ILEC to file, by May 15, 2006, its updated deferral account schedule, reflecting in part,
the impact of any subsequent CRTC decisions that impact the ILEC deferral account balances.
In Telecom Decision 2006-9, the CRTC made the following orders to clear the accumulated
balances in the deferral accounts:
The CRTC first directed each ILEC to allocate a minimum of 5% of the accumulated
balance in its deferral account to improve access to telecommunication services for persons with
disabilities.
As to the remaining 95% of the funds in the deferral account, the CRTC addressed both
broadband service investments and subscriber rebates. The CRTC concluded that each ILEC could use
funds in its deferral accounts for initiatives to expand broadband services to rural and remote
communities. Those ILECs who choose to invest in broadband are required to file a
proposal with the CRTC by June 30, 2006, for approval to draw down qualified expenditures from
their deferral accounts. If an ILEC chooses not to invest in broadband expansion, or invests in
such expansion but has money left over in its deferral account, the remaining funds will be rebated
to the ILECs residential local subscribers in non-high cost serving areas.
Telecom Decision 2006-9 also indicates that the future annual deferral account obligations of ILECs
are to be eliminated by reducing monthly prices for primary exchange service and optional local
services for residential customers in non-high cost serving areas. Bell Canada, Aliant and certain
other ILECs have been directed to file their rate proposals, along with their updated deferral
account balances, by May 15, 2006. These rate changes are to become effective on June 1, 2006.
Telecom Decision 2006-9 also notes that the extension of the Second Price Cap Period to May 31,
2007 will result in an additional annual deferral account obligation.
The deferral account obligation will change as amounts are added to the account or the CRTC
approves initiatives that serve to reduce the deferral account obligation, and any amounts
remaining in the deferral accounts will bear interest at the ILECs short-term cost of debt each
year until disposition.
On March 17, 2006, Bell Canada filed an application for leave to appeal this decision to the
Federal Court of Appeal, to the extent that it requires Bell Canada to give rebates in respect of
rates that the CRTC had made final in 2003. Another broader application for leave to appeal was
also filed on behalf of consumer groups.
Due to the nature and number of uncertainties which remain concerning the disposition of
accumulated balances in the deferral account, we are unable to estimate the impact of the CRTCs
decision on our financial results at this time.
Recent Developments in Legal Proceedings
Lawsuits related to Bell Canada
Lawsuit concerning Bell Distribution Incs. (BDI) decision not to proceed with a Wireless
Distribution Income Fund transaction and changes to Dealer Agreements and/or the Remuneration
Program.
As indicated in the BCE 2005 AIF, Bell Canada received a letter of demand dated January 30, 2006
from the Independent Communication Dealer Association of Canada and its Bell independent dealers.
On March 28, 2006, a statement of claim was filed in the Québec Superior Court against BDI by
some 50 independent dealers that own some 78 Bell World
BCE INC. 2006 QUARTERLY REPORT
p. 26 MANAGEMENTS DISCUSSION AND ANALYSIS
Assumptions Made in the Preparation of Forward-Looking Statements and Risks that could
Affect our Business and Results
This section describes assumptions made by BCE in preparing forward-looking statements and
general risks that could affect all BCE group companies and specific risks that could affect BCE
Inc. and certain of the other BCE group companies.
For a more complete description of assumptions made by BCE in preparing forward-looking
statements and risks that could affect our business and results, please see the section entitled
Assumptions Made in the Preparation of Forward-Looking Statements and Risks that could Affect
our Business and Results contained in the BCE 2005 MD&A set out on pages 42 to 56 of the Bell
Canada Enterprises 2005 Annual Report filed by BCE Inc. with the Canadian securities commissions
(available on BCE Inc.s site at www.bce.ca and on SEDAR at www.sedar.com) and with the U.S.
Securities and Exchange Commission (SEC) under Form 40-F (available on EDGAR at www.sec.gov), as
updated in this MD&A.
Please also refer to the BCE 2005 AIF for a detailed description of:
the principal legal proceedings involving BCE
certain regulatory initiatives and proceedings concerning the Bell Canada companies.
stores. In the statement of claim, the plaintiffs have alleged that BDI agreed to proceed
with a transaction pursuant to which the independent dealer retail stores and BDI owned retail
stores would be sold to a Wireless Distribution Income Fund (WDIF) and that BDI subsequently
reneged on this agreement causing damages to the independent dealers. Alternatively, the plaintiffs
have alleged that BDIs refusal to allow the independent dealers to proceed to sell their stores
and assign the dealer agreements to the WDIF constitutes an abuse of right and is contrary to BDIs
obligations to act fairly and in accordance with reasonable commercial standards. The plaintiffs
seek damages against BDI in an amount of $135 million.
ASSUMPTIONS MADE IN THE
PREPARATION OF FORWARD-LOOKING STATEMENTS AND RISKS THAT COULD AFFECT OUR BUSINESS AND RESULTS
Assumptions Made in the Preparation of Forward-Looking Statements
Forward-looking statements made in the BCE 2005 MD&A and this MD&A are based on a number of
assumptions that we believed were reasonable on the day we made the forward-looking statements and
that we believe are still reasonable as at the date of this MD&A. In the BCE 2005 MD&A, we outlined
the principal assumptions that we made in the preparation of these forward-looking statements.
These assumptions include:
assumptions about the Canadian economy related to GDP growth
and a slight increase in the business prime rate and the Consumer Price Index
market
assumptions related to: (i) growth in the overall Canadian telecommunications market, (ii) the
continued decrease in the residential voice telecommunications market, (iii) the increase in
wireline competition, and (iv) the growth in revenue for the Canadian wireless industry, the video
market and the Internet market
operational and financial assumptions related to: (i)
growth in wireless, video and high-speed Internet subscribers as well as ARPU for these services,
(ii) the continued decrease in our network access services, (iii) cost savings, (iv) restructuring
costs, (v) amortization expense, (vi) total net benefit plans cost, and (vii) Bell Canadas capital
intensity
assumptions about transactions related to: (i) BCE Inc.s plans to repurchase
5% of its common shares; (ii) completion of the disposition of our remaining interest in CGI Group
Inc., (iii) the reduction of our interest in Bell Globemedia Inc., (iv) the creation of the Bell
Aliant Regional Communications Income Fund, and (v) the proposed recapitalization of, and public
offering of a minority stake in, Telesat.
Please see Assumptions Made in the
Preparation of Forward-Looking Statements
and Risks that could Affect our Business and
Results in the BCE 2005 MD&A for a more
complete description of the above-mentioned
assumptions.
Risks that could Affect our Business and Results
A risk is the possibility that an event
might happen in the future that could have a
negative effect on the financial condition,
results of operations or business of one or
more BCE group companies. Part of managing
our business is to understand what these
potential risks could be and to minimize
them where we can.
Because no one can accurately predict
whether an event that is possible will
actually happen or what its consequences may
be, the actual effect of any event on our
business and results could be
materially different from what we
currently anticipate. In addition, the risks
described below and elsewhere in this MD&A
do not include all possible risks, and there
may be other risks that we currently do not
know.
In the BCE 2005 MD&A, we provided a
detailed review of risks that could affect
our financial condition, results of
operations or business and that could cause
actual results to differ materially from
those expressed in our forward-looking
statements. This detailed description of
risks is updated in this MD&A. The risks
described in the BCE 2005 MD&A include risks
associated with:
our ability to
implement our strategies and plans in order
to produce the expected benefits and growth
prospects
general economic and
market conditions and the level of consumer
confidence and spending, and the demand for,
and prices of, our products and services
the intensity of competitive
activity from both traditional and new
players, which is increasing following the
introduction of new technologies that have
reduced barriers to entry that existed in
the industry, and its impact on our ability
to retain existing and attract new
customers, and on pricing strategies and
financial results
our ability to
transform our cost structure, improve
productivity and contain capital intensity
while maintaining quality of services
our ability to anticipate, and respond
to, changes in technology, industry
standards and client needs and migrate to
and deploy new technologies, including VoIP,
and offer new products and services rapidly
and achieve market acceptance thereof
the availability and cost of capital
required to implement our business plan and
fund capital and other expenditures
BCE INC. 2006 QUARTERLY REPORT
p. 27
Please see Recent Developments in Legal Proceedings, in this MD&A, for a description of recent
developments, since the BCE 2005 AIF, in the principal legal proceedings involving us.
In
addition, please see Risks That Could Affect Certain BCE Group
Companies Bell Canada Companies Changes to Wireline
Regulation later in this section for a description of recent developments, since the BCE 2005 AIF,
in the principal regulatory initiatives and proceedings concerning the Bell Canada companies.
our ability to find suitable companies to acquire or to partner with, to integrate
the operations of acquired companies and to complete dispositions
the impact of
pending or future litigation and of adverse changes in laws or regulations, including tax laws,
or in how they are interpreted, or of adverse regulatory initiatives or proceedings, including
decisions by the CRTC affecting our ability to compete effectively
the risk of
litigation should BCE Inc. or Bell Canada stop funding a subsidiary or change the nature of its
investment, or dispose of all or part of its interest, in a subsidiary
the risk of
increased pension fund contributions
our ability to effectively manage labour
relations, negotiate satisfactory labour agreements, including new agreements replacing expired
labour agreements, while avoiding work stoppages, and maintain service to customers and minimize
disruptions during strikes and other work stoppages
events affecting the
functionality of our networks or of the networks of other telecommunications carriers on which we
rely to provide our services
our ability to improve and upgrade, on a timely basis,
our various IT systems and software on which many aspects of our businesses depend
our ability to complete the proposed creation of the Bell Aliant Regional Communications
Income Fund and the proposed recapitalization of, and public offering of a minority stake in,
Telesat
stock market volatility
the risk that licences on which we rely
to provide services might be revoked or not renewed when they expire
our ability to
retain major customers
health concerns about radio frequency emissions
launch and in-orbit risks and the ability to obtain appropriate insurance coverage at
favourable rates, concerning Telesats satellites, certain of which are used by Bell ExpressVu to
provide services.
Please see Assumptions Made in the Preparation of Forward-Looking Statements and Risks that Could
Affect our Business and Results in the BCE 2005 MD&A for a more complete description of the
above-mentioned risks.
UPDATES TO THE DESCRIPTION OF RISKS
The following are updates to the description of risks contained in the section entitled
Assumptions Made in the Preparation of Forward-Looking Statements and Risks that Could Affect our
Business and Results contained in the BCE 2005 MD&A. For ease of reference, the updates to the
description of risks below have, where applicable, been presented under the same headings and in
the same order contained in the section entitled Assumptions Made in the Preparation of
Forward-Looking Statements and Risks that could Affect our Business and Results set out in the BCE
2005 MD&A.
RISKS THAT COULD AFFECT CERTAIN BCE GROUP COMPANIES
Bell Canada Companies
Changes to Wireline Regulation
Decisions of Regulatory Agencies
Second Price Cap Decision
On February 16, 2006, the CRTC issued Telecom Decision 2006-9, where it concluded on the ways that
incumbent telephone companies should clear the accumulated balances in their deferral accounts.
Due to the nature and number of uncertainties which remain concerning the disposition of
accumulated balances in the deferral accounts, we are unable to estimate the impact of the decision
on our financial results at this time. Please see Liquidity in this MD&A for more information on
Bell Canadas and Aliants commitment under the CRTC deferral mechanism.
Forbearance from Regulation of Local Exchange Services
The CRTC conducted a public proceeding in 2005 on a framework for forbearance from the regulation
of residential and business local exchange services offered by the incumbent telephone companies.
On April 6, 2006, the CRTC issued Telecom Decision 2006-15 which established a framework for
the forbearance from regulation of local exchange services, including the criteria the CRTC will
use to evaluate forbearance applications from incumbent telephone companies. The CRTC determined
that it is prepared to forbear from regulating local exchange services in a relevant market where
an applicant incumbent telephone company can demonstrate that it has:
lost 25% share in
the relevant market
for the six months prior to the application, met individual
standards for each of 14 specified competitor quality of service indicators
put in
place the necessary competitor service tariffs
where required, implemented competitor
access to its operational support systems in accordance with Telecom Decision CRTC 2005-14
demonstrated to the CRTCs satisfaction that rival-rous behaviour exists in the relevant
market.
BCE INC. 2006 QUARTERLY REPORT
p. 28 MANAGEMENTS DISCUSSION AND ANALYSIS
The decision stipulates that after forbearance is granted, a number of regulations will
continue to apply, including a price ceiling on residential stand-alone primary exchange service, a
prohibition against unjustly discriminatory local service offerings, the requirement to provide
competitor services and several others. Telecom Decision 2006-15 reduced the no-contact period
under the residential local winback rule from 12 months to 3 months. Finally, the decision denied
Aliants application for regulatory forbearance in 32 exchanges in Nova Scotia and Prince Edward
Island on the basis that it did not meet the local forbearance criteria set out in the decision.
Bell Canada does not believe that any market in which it is the incumbent local
service provider is eligible currently for forbearance under the CRTCs new forbearance
framework. Continued regulation limits Bell Canadas and Aliants ability to respond to
competition from cable companies and other local competitors.
Telecom Policy Review Panels Final Report
On April 11, 2005, the Minister of Industry announced the creation of the Telecom Policy Review
Panel (Panel) to review Canadas telecommunications policy and regulatory framework and make
recommendations.
On March 22, 2006, the Panel released its final report, which contains over 100
recommendations which call for significant changes to the structure and nature of
telecommunications regulation in Canada. The Panel calls for short-term changes to regulation
through a variety of Government programs and, more significantly, through a policy directive an
instrument whereby the Cabinet can give binding directions of general policy to the CRTC. The Panel
also calls for significant changes to the Telecommunications Act. Since the Panels initial
appointment, there has been a change of Government, and it is unclear how the new Government will
respond to the Panels report.
The Panels report calls for many changes to the regulatory environment which could have a
material impact on the business performance of Bell Canada and its affiliates. The thrust of the
report is that the state of competition in Canada has progressed to the point where, at least for
economic regulation, the CRTC should remove most of its existing regulation and instead rely on
market forces.
The Panel also recommended that there be a relaxation of Canadas foreign ownership
restrictions as they apply to telecommunications common carriers.
In addition to the recommendations addressing wireline regulation, the Panel also made a
number of recommendations separately addressing issues related to wireless regulation in Canada.
These included, among other things, a recommendation for the continued use of regulatory mechanisms
such as spectrum caps (aggregation limits) where spectrum is scarce to provide an opportunity for
new entrants to acquire spectrum in order to have an expanded choice of service providers. Other
recommendations concerning competitive access to wireless antennae sites and support structures
could serve to facilitate competitive entry into the Canadian wireless industry. If implemented,
the cumulative effect of such recommendations could affect the competitive intensity of the
wireless environment in which the Bell Canada companies operate.
There can be no guarantee that the Minister of Industry and Parliament will implement the
Panels recommendations, nor can there be any assurance that the Government will implement the
Panels proposals.
Winback Rules
On April 6, 2006, the CRTC issued two decisions relating to winbacks, namely Telecom Decisions
2006-15 and 2006-16.
In decision 2006-15, the CRTC reduced the length of the no-winback period for residential
subscribers to 3 months from 12 months. Accordingly, under the amended winback rule, incumbent
telephone companies are now precluded from contacting former residential and business local
exchange service customers from the time of the local service request until 3 months after their
local service is transferred to a competitor. Incumbent telephone companies may apply to have the
winback rule repealed in any local market where they have lost 20% market share and in which they
have met the relevant competitor quality of service indicators in the 3 months preceding the date
of the application. This aspect of decision 2006-15 could have a positive impact on the business
performance of Bell Canada and its affiliates.
In decision 2006-16, the CRTC determined that the winback rule is constitutional because it is
justifiable under the Canadian Charter of Rights and Freedoms. The CRTC also decided that, going
forward, incumbent telephone companies are now permitted to market non-residential local
telecommunications services to a former local exchange customer during, and following, the 3 month
no-winback period, if that customer did not switch those other services to the competitor at the
same time they migrated their local service.
Bell Canada expects to file a leave to appeal application with the Federal Court of Appeal on
the basis that the winback aspects of these decisions infringe the constitutionally-protected
freedom of expression of Bell Canada and its customers under the Canadian Charter of Rights and
Freedoms.
BCE INC. 2006 QUARTERLY REPORT
p. 29
OUR ACCOUNTING POLICIES
We have prepared our consolidated
financial statements according to Canadian
GAAP. See Note 1 to the consolidated
financial statements for more information
about the accounting principles we used to
prepare our financial statements.
The key estimates and assumptions that
management has made under these principles
and their impact on the amounts reported in
the financial statements and notes remain
substantially unchanged from those described
in the BCE 2005 MD&A.
We have not had any significant changes
in the accounting standards or our
accounting policies other than those
described in the BCE 2005 MD&A, except as
noted below.
Adoption of new accounting standard
The CICA reissued section 3830 of the CICA
Handbook as section 3831, Non-Monetary
Transactions, which establishes standards
for the measurement and disclosure of
non-monetary transactions. It also includes
criteria for defining commercial substance
that replace the criteria for defining
culmination of the earnings process in the
former section. Adopting this section on
January 1, 2006 did not have any effect on
our consolidated financial statements.
BCE INC. 2006 QUARTERLY REPORT
p. 30 CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR THE THREE MONTHS ENDED MARCH 31 |
|
|
|
|
|
|
|
|
|
(in $ millions, except share amounts) (unaudited) |
|
NOTE |
|
|
2006 |
|
|
2005 |
|
|
Operating revenues |
|
|
|
|
|
|
4,734 |
|
|
|
4,630 |
|
|
Operating expenses |
|
|
|
|
|
|
(2,831 |
) |
|
|
(2,727 |
) |
Amortization expense |
|
|
|
|
|
|
(766 |
) |
|
|
(761 |
) |
Net benefit plans cost |
|
|
3 |
|
|
|
(142 |
) |
|
|
(103 |
) |
Restructuring and other items |
|
|
4 |
|
|
|
(88 |
) |
|
|
4 |
|
|
Total operating expenses |
|
|
|
|
|
|
(3,827 |
) |
|
|
(3,587 |
) |
|
Operating income |
|
|
|
|
|
|
907 |
|
|
|
1,043 |
|
Other income (expense) |
|
|
|
|
|
|
(7 |
) |
|
|
8 |
|
Interest expense |
|
|
|
|
|
|
(251 |
) |
|
|
(245 |
) |
|
Pre-tax earnings from continuing operations |
|
|
|
|
|
|
649 |
|
|
|
806 |
|
Income taxes |
|
|
|
|
|
|
(183 |
) |
|
|
(264 |
) |
Non-controlling interest |
|
|
|
|
|
|
(53 |
) |
|
|
(63 |
) |
|
Earnings from continuing operations |
|
|
|
|
|
|
413 |
|
|
|
479 |
|
Discontinued operations |
|
|
5 |
|
|
|
81 |
|
|
|
12 |
|
|
Net earnings |
|
|
|
|
|
|
494 |
|
|
|
491 |
|
Dividends on preferred shares |
|
|
|
|
|
|
(17 |
) |
|
|
(17 |
) |
|
Net earnings applicable to common shares |
|
|
|
|
|
|
477 |
|
|
|
474 |
|
|
Net earnings per common share basic |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
0.43 |
|
|
|
0.50 |
|
Discontinued operations |
|
|
|
|
|
|
0.09 |
|
|
|
0.01 |
|
Net earnings |
|
|
|
|
|
|
0.52 |
|
|
|
0.51 |
|
Net earnings per common share diluted |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
0.43 |
|
|
|
0.50 |
|
Discontinued operations |
|
|
|
|
|
|
0.09 |
|
|
|
0.01 |
|
Net earnings |
|
|
|
|
|
|
0.52 |
|
|
|
0.51 |
|
Dividends per common share |
|
|
|
|
|
|
0.33 |
|
|
|
0.33 |
|
Average number of common shares outstanding basic (millions) |
|
|
|
|
|
|
920.5 |
|
|
|
926.2 |
|
|
CONSOLIDATED STATEMENTS OF DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR THE THREE MONTHS ENDED MARCH 31 |
|
|
|
|
|
|
|
|
|
(in $ millions) (unaudited) |
|
NOTE |
|
|
2006 |
|
|
2005 |
|
|
Balance at beginning of period |
|
|
|
|
|
|
(4,763 |
) |
|
|
(5,432 |
) |
Net earnings |
|
|
|
|
|
|
494 |
|
|
|
491 |
|
Dividends declared on preferred shares |
|
|
|
|
|
|
(17 |
) |
|
|
(17 |
) |
Dividends declared on common shares |
|
|
|
|
|
|
(302 |
) |
|
|
(306 |
) |
Excess of purchase price over stated capital of common shares
cancelled and related contributed surplus |
|
|
7 |
|
|
|
(159 |
) |
|
|
|
|
|
Balance at end of period |
|
|
|
|
|
|
(4,747 |
) |
|
|
(5,264 |
) |
|
BCE INC. 2006 QUARTERLY REPORT
|
|
|
CONSOLIDATED BALANCE SHEETS
|
|
p. 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARCH 31 |
|
|
DECEMBER 31 |
|
(in $ millions) (unaudited) |
|
note |
|
|
2006 |
|
|
2005 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
878 |
|
|
|
363 |
|
Accounts receivable |
|
|
|
|
|
|
1,726 |
|
|
|
1,766 |
|
Other current assets |
|
|
|
|
|
|
1,192 |
|
|
|
1,142 |
|
Current assets of discontinued operations |
|
|
5 |
|
|
|
|
|
|
|
402 |
|
|
Total current assets |
|
|
|
|
|
|
3,796 |
|
|
|
3,673 |
|
Capital assets |
|
|
|
|
|
|
22,062 |
|
|
|
22,062 |
|
Other long-term assets |
|
|
|
|
|
|
2,776 |
|
|
|
2,914 |
|
Indefinite-life intangible assets |
|
|
|
|
|
|
3,031 |
|
|
|
3,031 |
|
Goodwill |
|
|
|
|
|
|
7,902 |
|
|
|
7,887 |
|
Non-current assets of discontinued operations |
|
|
5 |
|
|
|
318 |
|
|
|
1,063 |
|
|
Total assets |
|
|
|
|
|
|
39,885 |
|
|
|
40,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
|
|
|
|
3,054 |
|
|
|
3,435 |
|
Interest payable |
|
|
|
|
|
|
265 |
|
|
|
182 |
|
Dividends payable |
|
|
|
|
|
|
322 |
|
|
|
343 |
|
Debt due within one year |
|
|
|
|
|
|
1,210 |
|
|
|
1,373 |
|
Current liabilities of discontinued operations |
|
|
5 |
|
|
|
88 |
|
|
|
281 |
|
|
Total current liabilities |
|
|
|
|
|
|
4,939 |
|
|
|
5,614 |
|
Long-term debt |
|
|
6 |
|
|
|
12,978 |
|
|
|
12,119 |
|
Other long-term liabilities |
|
|
|
|
|
|
4,972 |
|
|
|
5,028 |
|
Non-current liabilities of discontinued operations |
|
|
5 |
|
|
|
|
|
|
|
250 |
|
|
Total liabilities |
|
|
|
|
|
|
22,889 |
|
|
|
23,011 |
|
|
Non-controlling interest |
|
|
|
|
|
|
2,633 |
|
|
|
2,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares |
|
|
|
|
|
|
1,670 |
|
|
|
1,670 |
|
|
Common shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
Common shares |
|
|
7 |
|
|
|
16,467 |
|
|
|
16,806 |
|
Treasury stock |
|
|
7 |
|
|
|
(62 |
) |
|
|
|
|
Contributed surplus |
|
|
|
|
|
|
1,036 |
|
|
|
1,081 |
|
Deficit |
|
|
|
|
|
|
(4,747 |
) |
|
|
(4,763 |
) |
Currency translation adjustment |
|
|
|
|
|
|
(1 |
) |
|
|
(73 |
) |
|
Total common shareholders equity |
|
|
|
|
|
|
12,693 |
|
|
|
13,051 |
|
|
Total shareholders equity |
|
|
|
|
|
|
14,363 |
|
|
|
14,721 |
|
|
Total liabilities and shareholders equity |
|
|
|
|
|
|
39,885 |
|
|
|
40,630 |
|
|
BCE INC. 2006 QUARTERLY REPORT
p. 32 CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR THE THREE MONTHS ENDED MARCH 31 |
|
|
|
|
|
|
|
|
|
(in $ millions) (unaudited) |
|
NOTE |
|
|
2006 |
|
|
2005 |
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
|
|
|
|
|
413 |
|
|
|
479 |
|
Adjustments to reconcile earnings from continuing operations to
cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense |
|
|
|
|
|
|
766 |
|
|
|
761 |
|
Net benefit plans cost |
|
|
3 |
|
|
|
142 |
|
|
|
103 |
|
Restructuring and other items |
|
|
4 |
|
|
|
88 |
|
|
|
(4 |
) |
Net gains on investments |
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
Future income taxes |
|
|
|
|
|
|
200 |
|
|
|
107 |
|
Non-controlling interest |
|
|
|
|
|
|
53 |
|
|
|
63 |
|
Contributions to employee pension plans |
|
|
3 |
|
|
|
(37 |
) |
|
|
(94 |
) |
Other employee future benefit plan payments |
|
|
3 |
|
|
|
(25 |
) |
|
|
(23 |
) |
Payments of restructuring and other items |
|
|
|
|
|
|
(37 |
) |
|
|
(101 |
) |
Operating assets and liabilities |
|
|
|
|
|
|
(621 |
) |
|
|
(373 |
) |
|
Cash flows from operating activities |
|
|
|
|
|
|
940 |
|
|
|
916 |
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(593 |
) |
|
|
(724 |
) |
Business acquisitions |
|
|
|
|
|
|
(27 |
) |
|
|
(87 |
) |
Bell Aliant Regional Communications Income Fund |
|
|
4 |
|
|
|
(22 |
) |
|
|
|
|
Increase in investments |
|
|
|
|
|
|
(14 |
) |
|
|
(128 |
) |
Decrease in investments |
|
|
|
|
|
|
51 |
|
|
|
2 |
|
Other investing activities |
|
|
|
|
|
|
(8 |
) |
|
|
(15 |
) |
|
Cash flows used in investing activities |
|
|
|
|
|
|
(613 |
) |
|
|
(952 |
) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in notes payable and bank advances |
|
|
|
|
|
|
(58 |
) |
|
|
(155 |
) |
Issue of long-term debt |
|
|
|
|
|
|
1,095 |
|
|
|
785 |
|
Repayment of long-term debt |
|
|
|
|
|
|
(487 |
) |
|
|
(54 |
) |
Issue of common shares |
|
|
|
|
|
|
1 |
|
|
|
9 |
|
Repurchase of common shares cancelled |
|
|
7 |
|
|
|
(525 |
) |
|
|
|
|
Issue of equity securities by subsidiaries to non-controlling interest |
|
|
|
|
|
|
3 |
|
|
|
|
|
Redemption of equity securities by subsidiaries from non-controlling interest |
|
|
|
|
|
|
|
|
|
|
(17 |
) |
Cash dividends paid on common shares |
|
|
|
|
|
|
(305 |
) |
|
|
(278 |
) |
Cash dividends paid on preferred shares |
|
|
|
|
|
|
(21 |
) |
|
|
(21 |
) |
Cash dividends paid by subsidiaries to non-controlling interest |
|
|
|
|
|
|
(61 |
) |
|
|
(50 |
) |
Return of capital by subsidiary to non-controlling interest |
|
|
6 |
|
|
|
(279 |
) |
|
|
|
|
Other financing activities |
|
|
|
|
|
|
(25 |
) |
|
|
(14 |
) |
|
Cash flows from (used in) financing activities |
|
|
|
|
|
|
(662 |
) |
|
|
205 |
|
|
Cash provided by (used in) continuing operations |
|
|
|
|
|
|
(335 |
) |
|
|
169 |
|
Cash provided by (used in) discontinued operations |
|
|
5 |
|
|
|
768 |
|
|
|
(23 |
) |
|
Net increase in cash and cash equivalents |
|
|
|
|
|
|
433 |
|
|
|
146 |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
445 |
|
|
|
380 |
|
|
Cash and cash equivalents at end of period |
|
|
|
|
|
|
878 |
|
|
|
526 |
|
|
Consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operations |
|
|
|
|
|
|
878 |
|
|
|
482 |
|
Cash and cash equivalents of discontinued operations |
|
|
|
|
|
|
|
|
|
|
44 |
|
|
Total |
|
|
|
|
|
|
878 |
|
|
|
526 |
|
|
BCE INC. 2006 QUARTERLY REPORT
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
p. 33 |
The interim
consolidated
financial
statements should
be read in
conjunction with
BCE Inc.s annual
consolidated
financial
statements for the
year ended December
31, 2005, on pages
60 to 101 of BCE
Inc.s 2005 annual
report.
These notes are unaudited.
All amounts are in
millions of
Canadian dollars,
except where noted.
We, us, our and BCE
mean BCE Inc., its
subsidiaries and
joint ventures.
Note 1. Significant Accounting Policies
We have prepared the consolidated
financial statements according to Canadian
generally accepted accounting principles
(GAAP) using the same basis of presentation
and accounting policies as outlined in Note
1 to the annual consolidated financial
statements for the year ended December 31,
2005, except as noted below.
COMPARATIVE FIGURES
We have reclassified some of the
figures for the comparative periods in the
consolidated financial statements to make
them consistent with the presentation for
the current period.
We have restated financial information
for the previous period to reflect the sale
of most of BCEs investment in CGI Group
Inc. (CGI). CGI is shown as discontinued
operations.
ADOPTION OF NEW ACCOUNTING STANDARD
The CICA reissued section 3830 of the
CICA Hand-book as section 3831, Non-Monetary
Transactions, which establishes standards
for the measurement and disclosure of
non-monetary transactions. It also includes
criteria for defining commercial substance
that replace the criteria for defining
culmination of the earnings process in the
former section. Adopting this section on
January 1, 2006 did not have any effect on
our consolidated financial statements.
BCE INC. 2006 QUARTERLY REPORT
p. 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Segmented Information
The table below is a summary of financial information by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR THE THREE MONTHS ENDED MARCH 31 |
|
|
|
|
|
2006 |
|
|
2005 |
|
|
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
External customers |
|
|
1,848 |
|
|
|
1,839 |
|
|
|
Inter-segment |
|
|
21 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
1,869 |
|
|
|
1,856 |
|
|
Business |
|
External customers |
|
|
1,468 |
|
|
|
1,442 |
|
|
|
Inter-segment |
|
|
41 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
1,509 |
|
|
|
1,478 |
|
|
Aliant |
|
External customers |
|
|
509 |
|
|
|
488 |
|
|
|
Inter-segment |
|
|
36 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
545 |
|
|
|
524 |
|
|
Other Bell Canada |
|
External customers |
|
|
436 |
|
|
|
434 |
|
|
|
Inter-segment |
|
|
38 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
474 |
|
|
|
479 |
|
|
Inter-segment eliminations Bell Canada |
|
|
|
|
|
|
(127 |
) |
|
|
(128 |
) |
|
Bell Canada |
|
|
|
|
|
|
4,270 |
|
|
|
4,209 |
|
|
Other BCE |
|
External customers |
|
|
473 |
|
|
|
427 |
|
|
|
Inter-segment |
|
|
51 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
524 |
|
|
|
475 |
|
|
Inter-segment eliminations Other |
|
|
|
|
|
|
(60 |
) |
|
|
(54 |
) |
|
Total operating revenues |
|
|
|
|
|
|
4,734 |
|
|
|
4,630 |
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
503 |
|
|
|
526 |
|
Business |
|
|
|
|
|
|
205 |
|
|
|
240 |
|
Aliant |
|
|
|
|
|
|
94 |
|
|
|
87 |
|
Other Bell Canada |
|
|
|
|
|
|
48 |
|
|
|
129 |
|
|
Bell Canada |
|
|
|
|
|
|
850 |
|
|
|
982 |
|
Other BCE |
|
|
|
|
|
|
57 |
|
|
|
61 |
|
|
Total operating income |
|
|
|
|
|
|
907 |
|
|
|
1,043 |
|
Other income (expense) |
|
|
|
|
|
|
(7 |
) |
|
|
8 |
|
Interest expense |
|
|
|
|
|
|
(251 |
) |
|
|
(245 |
) |
Income taxes |
|
|
|
|
|
|
(183 |
) |
|
|
(264 |
) |
Non-controlling interest |
|
|
|
|
|
|
(53 |
) |
|
|
(63 |
) |
|
Earnings from continuing operations |
|
|
|
|
|
|
413 |
|
|
|
479 |
|
|
BCE INC. 2006 QUARTERLY REPORT
p. 35
Note 3. Employee Benefit Plans
We provide pension and other post-employment benefits for almost all of our employees.
These include defined benefit pension (DB) plans, plans that provide other employee future
benefits and defined contribution (DC) pension plans.
|
|
|
|
|
|
|
|
|
FOR THE THREE MONTHS ENDED MARCH 31 |
|
2006 |
|
|
2005 |
|
|
Pension benefits: |
|
|
|
|
|
|
|
|
DB plans cost |
|
|
(91 |
) |
|
|
(56 |
) |
DC plans cost |
|
|
(9 |
) |
|
|
(7 |
) |
Other future benefits costs |
|
|
(42 |
) |
|
|
(40 |
) |
|
Net benefit plans cost |
|
|
(142 |
) |
|
|
(103 |
) |
|
The table below shows the components of the DB plans cost.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PENSION BENEFITS |
|
|
OTHER BENEFITS |
|
FOR THE THREE MONTHS ENDED MARCH 31 |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
Current service cost |
|
|
(73 |
) |
|
|
(53 |
) |
|
|
(7 |
) |
|
|
(9 |
) |
Interest cost on accrued benefit obligation |
|
|
(214 |
) |
|
|
(219 |
) |
|
|
(27 |
) |
|
|
(27 |
) |
Expected return on plan assets |
|
|
249 |
|
|
|
237 |
|
|
|
3 |
|
|
|
2 |
|
Amortization of past service costs |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
1 |
|
|
|
|
|
Amortization of net actuarial losses |
|
|
(49 |
) |
|
|
(26 |
) |
|
|
(6 |
) |
|
|
|
|
Amortization of transitional asset (obligation) |
|
|
2 |
|
|
|
1 |
|
|
|
(6 |
) |
|
|
(6 |
) |
(Increase) decrease in valuation allowance |
|
|
(3 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
DB plans cost |
|
|
(91 |
) |
|
|
(56 |
) |
|
|
(42 |
) |
|
|
(40 |
) |
|
The table below shows the amounts we contributed to the DB and DC pension plans and the
payments made to beneficiaries under other employee future benefit plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PENSION BENEFITS |
|
|
OTHER BENEFITS |
|
FOR THE THREE MONTHS ENDED MARCH 31 |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
Aliant |
|
|
(23 |
) |
|
|
(81 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Bell Canada |
|
|
(6 |
) |
|
|
(7 |
) |
|
|
(24 |
) |
|
|
(22 |
) |
Bell Globemedia |
|
|
(6 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
BCE Inc. |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
Total |
|
|
(37 |
) |
|
|
(94 |
) |
|
|
(25 |
) |
|
|
(23 |
) |
|
Comprised of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions to DB plans |
|
|
(33 |
) |
|
|
(91 |
) |
|
|
(25 |
) |
|
|
(23 |
) |
Contributions to DC plans |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
BCE INC. 2006 QUARTERLY REPORT
p. 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Restructuring and Other Items
|
|
|
|
|
|
|
|
|
FOR THE THREE MONTHS ENDED MARCH 31 |
|
2006 |
|
|
2005 |
|
|
Restructuring initiatives |
|
|
(58 |
) |
|
|
4 |
|
Other charges |
|
|
(30 |
) |
|
|
|
|
|
Restructuring and other items |
|
|
(88 |
) |
|
|
4 |
|
|
The table below provides a summary of the costs recognized in the first three months of
2006 as well as the corresponding liability as at March 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BELL CANADA & |
|
|
|
|
|
|
|
|
|
BCE |
|
|
ALIANT |
|
|
CONSOLIDATED |
|
|
Balance in accounts payable and accrued liabilities at December 31, 2005 |
|
|
52 |
|
|
|
13 |
|
|
|
65 |
|
Restructuring
initiatives |
|
|
40 |
|
|
|
|
|
|
|
40 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments |
|
|
(27 |
) |
|
|
(7 |
) |
|
|
(34 |
) |
|
Balance in accounts payable and accrued liabilities at March 31, 2006 |
|
|
65 |
|
|
|
6 |
|
|
|
71 |
|
|
RESTRUCTURING INITIATIVES
During the first quarter of 2006, we
recorded pre-tax restructuring charges of
$58 million consisting of:
charges of $45 million related to new
restructuring initiatives for the
involuntary departure of approximately 900
employees
charges of $13 million
for relocating employees and closing real
estate facilities that are no longer needed
because of the reduction in the workforce
from our restructuring initiatives.
During the first quarter of 2005, we
recorded a pre-tax charge of $21 million
primarily for relocating employees and
closing real estate facilities, offset by a
credit of $25 million relating to the
reversal of restructuring provisions that
were no longer needed since actual payments
were lower than estimated.
OTHER CHARGES
On March 7, 2006, BCE Inc. and Aliant
announced their intention to create a new
regional telecommunications service provider
in the form of an income trust. Bell Aliant
Regional Communications Income Fund will
combine Bell Canadas regional wireline
operations with Aliants wireline operations
and includes Bell Canadas 63.4% interest in
NorthernTel and Télébec held indirectly
through Bell Nordiq Group Inc., an indirect
wholly-owned subsidiary of Bell Canada.
During the first quarter of 2006, we
recorded other charges of $30 million
related to transaction costs associated with
the creation of Bell Aliant Regional
Communications Income Fund. These
transaction costs relate mainly to
investment banking, professional and
consulting fees.
Note 5. Discontinued Operations
|
|
|
|
|
|
|
|
|
FOR THE THREE MONTHS ENDED MARCH 31 |
|
2006 |
|
|
2005 |
|
|
CGI |
|
|
80 |
|
|
|
12 |
|
Emergis |
|
|
1 |
|
|
|
|
|
|
Net gain from discontinued operations |
|
|
81 |
|
|
|
12 |
|
|
The table below is a summarized statement of operations for the discontinued operations.
|
|
|
|
|
|
|
|
|
FOR THE THREE MONTHS ENDED MARCH 31 |
|
2006 |
|
|
2005 |
|
|
Revenue |
|
|
34 |
|
|
|
229 |
|
|
Income from discontinued operations, before tax |
|
|
2 |
|
|
|
22 |
|
Gain (loss) from discontinued operations, before tax |
|
|
80 |
|
|
|
(1 |
) |
Income tax expense on operating gain |
|
|
(1 |
) |
|
|
(9 |
) |
|
Net gain from discontinued operations |
|
|
81 |
|
|
|
12 |
|
|
On January 12, 2006 CGI bought 100 million of its Class A shares from us and we
realized total net proceeds of $849 million. The proceeds were offset by the deconsolidation
of CGIs cash on hand of $81 million. The gain on disposition was $79 million. As a result of
the transaction, our ownership in CGI is 8.4% and is accounted for as a cost investment.
BCE INC. 2006 QUARTERLY REPORT
p. 37
The table below is a summary of cash provided by discontinued operations.
|
|
|
|
|
|
|
|
|
FOR THE THREE MONTHS ENDED MARCH 31 |
|
2006 |
|
|
2005 |
|
|
Cash flows from (used in) operating activities |
|
|
(80 |
) |
|
|
22 |
|
Cash flows from (used in) investing activities |
|
|
848 |
|
|
|
(1 |
) |
Cash flows (used in) financing activities |
|
|
|
|
|
|
(44 |
) |
|
Cash provided by (used in) discontinued operations |
|
|
768 |
|
|
|
(23 |
) |
|
Note 6. Long-Term Debt
In Q1 2006, Bell Globemedia Inc. (Bell
Globemedia) repaid $190 million of its debt
and issued $1,095 million of new debt. The
proceeds from the loan were used mainly to
finance a return of capital to its
shareholders as part of the announcement
made by BCE Inc. on December 2, 2005 to
reduce its interest in Bell Globemedia to
20% contingent on regulatory approval. As a
result, Bell Globemedia repaid $279 million
to The Woodbridge Company Limited and an
affiliate.
Note 7. Share Capital
On February 1, 2006, BCE Inc.
announced its plan to repurchase 5% of its
outstanding common shares through a normal
course issuer bid. As at March 31, 2006, BCE
Inc. had repurchased approximately half of
its targeted 46 million outstanding common
shares, or 21.1 million shares, for a total
amount of $587 million.
Of the shares purchased, 18.9 million
shares were cancelled for a total cost of
$525 million. Of the total cost, $343
million represents the stated capital and is
recorded against common shares while $23
million has been recorded against
contributed surplus attributable to these
common shares. The remaining $159 million,
which has been recorded against the deficit,
represents the excess of the purchase price
over the stated capital of common shares cancelled and related
contributed surplus.
The remaining 2.2 million common shares
which had been repurchased for a total of
$62 million have been recorded as treasury
stock as they were still issued as at March
31, 2006.
BCE INC. 2006 QUARTERLY REPORT
p. 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Stock-Based Compensation Plans
RESTRICTED
SHARE UNITS (RSUs)
The table below is a summary of the status of RSUs.
|
|
|
|
|
|
|
NUMBER OF RSUs |
|
|
Outstanding, January 1, 2006 |
|
|
2,520,781 |
|
Granted |
|
|
|
|
Dividends credited |
|
|
29,188 |
|
Payments |
|
|
(2,432,697 |
) |
Forfeited |
|
|
|
|
|
Outstanding, March 31, 2006 |
|
|
117,272 |
|
|
For the three months ended March 31, 2006 and March 31, 2005, we recorded compensation
expense for RSUs of $10 million and $9 million, respectively. All outstanding RSUs related to
the two year program ending on December 31, 2005 have vested during the quarter.
STOCK OPTIONS
The table below is a summary of the status of BCE Inc.s stock option programs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED |
|
|
|
|
|
|
|
AVERAGE |
|
|
|
NUMBER |
|
|
EXERCISE |
|
|
|
OF SHARES |
|
|
PRICE |
|
|
Outstanding, January 1, 2006 |
|
|
27,342,735 |
|
|
$ |
32 |
|
Granted |
|
|
132,200 |
|
|
$ |
28 |
|
Exercised |
|
|
(38,517 |
) |
|
$ |
19 |
|
Expired/forfeited |
|
|
(705,428 |
) |
|
$ |
31 |
|
|
Outstanding, March 31, 2006 |
|
|
26,730,990 |
|
|
$ |
32 |
|
|
Exercisable, March 31, 2006 |
|
|
18,624,595 |
|
|
$ |
34 |
|
|
ASSUMPTIONS USED IN STOCK OPTION PRICING MODEL
The table
below shows the assumptions used to determine the stock option
expense using the Black-Scholes option pricing model.
|
|
|
|
|
|
|
|
|
FOR THE THREE MONTHS ENDED MARCH 31 |
|
2006 |
|
|
2005 |
|
|
Compensation expense ($ millions) |
|
|
3 |
|
|
|
6 |
|
Number of stock options granted |
|
|
132,200 |
|
|
|
477,524 |
|
Weighted average fair value per option granted ($) |
|
|
2 |
|
|
|
3 |
|
Weighted average assumptions: |
|
|
|
|
|
|
|
|
Dividend yield |
|
|
4.3 |
% |
|
|
4.5 |
% |
Expected volatility |
|
|
17 |
% |
|
|
24 |
% |
Risk-free interest rate |
|
|
4.0 |
% |
|
|
3.3 |
% |
Expected life (years) |
|
|
3.5 |
|
|
|
3.6 |
|
|
BCE INC. 2006 QUARTERLY REPORT
p. 39
|
Note 9. Commitment Under the CRTC Deferral Mechanism |
On February 16, 2006, the Canadian
Radio-Television and Telecommunications
Commission (CRTC) issued Telecom Decision
2006-9, in which it estimated incumbent
telephone companies (ILEC) deferral
account amounts, on an accumulated balance
and future annualized commitment basis, at
May 31, 2006. Bell Canadas estimated
accumulated balance at May 31, 2006 is
expected to be $480.5 million with an
estimated future annualized commitment of
$81.5 million. Aliants estimated balance at
May 31, 2006 is expected to be $21.8 million
with an estimated annualized commitment of
$2.2 million.
The CRTC noted that the ILECs deferral
account balances cannot be finalized at this
time due to certain outstanding proceedings
that may have an impact on these balances.
The CRTC directed each ILEC to file, by May
15, 2006, its updated deferral account
schedule, reflecting in part, the impact of
any subsequent CRTC decisions that impact
the ILECs deferral account balances.
In Telecom Decision 2006-9, the CRTC
made the following orders to clear the
accumulated balances in the deferral
accounts:
The CRTC first directed each
ILEC to allocate a minimum of 5% of the
accumulated balance in its deferral account
to improve access to telecommunication
services for persons with disabilities
As to the remaining 95% of the
funds in the deferral account, the CRTC
addressed both broadband service investments
and subscriber rebates. The CRTC concluded
that each ILEC could use funds in its
deferral accounts for initiatives to expand
broadband services to rural and remote
communities. Those ILECs who choose to
invest in broadband are required to file a
proposal with the CRTC by June 30, 2006, for
approval to draw down qualified expenditures
from their deferral accounts. If an ILEC
chooses not to invest in broadband
expansion, or invests in such expansion but
has money left over in its deferral account,
the remaining funds will be rebated to the
ILECs residential local subscribers in
non-high cost serving areas.
Telecom Decision 2006-9 also indicates
that the future annual deferral account
obligations of ILECs are to be eliminated by
reducing monthly prices for primary exchange
service and optional local services for
residential customers in non-high cost
serving areas. Bell Canada, Aliant and
certain other ILECs have been directed to
file their rate proposals, along with their
updated deferral account balances, by May
15, 2006. These rate changes are to become
effective on June 1, 2006. Telecom Decision
2006-9 also notes that the extension of the
Second Price Cap Period to May 31, 2007 will
result in an additional annual deferral
account obligation.
The deferral account obligation
will change as amounts are added to the
account or the CRTC approves initiatives
that serve to reduce the deferral account
obligation, and any amounts remaining in the
deferral accounts will bear interest at the
ILECs short-term cost of debt each year
until disposition.
On March 17, 2006, Bell Canada filed an
application for leave to appeal this
decision to the Federal Court of Appeal, to
the extent that it requires Bell Canada to
give rebates in respect of rates that the
CRTC had made final in 2003. Another broader
application for leave to appeal was also
filed on behalf of consumer groups.
Due to the nature and number of
uncertainties which remain concerning the
disposition of accumulated balances in the
deferral account, we are unable to estimate
the impact of the CRTCs decision on our
financial results at this time.
-30-
For further information:
|
|
|
Pierre Leclerc
|
|
Thane Fotopoulos |
Media Relations
|
|
Investor Relations |
(514) 391-2007 / 1 877 391-2007
|
|
(514) 870-4619 |
pierre.leclerc@bell.ca
|
|
thane.fotopoulos@bell.ca |