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
For the month of January 2003 Commission File Number 1-8481
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BCE Inc.
(Translation of Registrant's name into English)
1000, rue de La Gauchetiere Ouest, Bureau 3700, Montreal, Quebec 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.
Form 20-F Form 40-F X
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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.
Yes No X
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If "Yes" is marked, indicate below the file number assigned to the Registrant
in connection with Rule 12g3-2(b): 82- .
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Notwithstanding any reference to BCE's Web site on the World Wide Web in the
documents attached hereto, the information contained in BCE's site or any other
site on the World Wide Web referred to in BCE's site is not a part of this Form
6-K and, therefore, is not filed with the Securities and Exchange Commission.
1
BCE Reports its Fourth Quarter and Year-End Results
Q4 2002: Revenue up 1.2%; EBITDA up 4.7%; net earnings of $1.7 billion
Full-year 2002: Revenue up 2.2%; EBITDA up 5.2%; net earnings of
$2.4 billion
(All figures are in Cdn$, unless otherwise indicated)
MONTREAL, QC, Jan. 29 /CNW Telbec/ - For the fourth quarter of 2002, BCE
Inc. (TSX, NYSE: BCE) reported total revenue of $5.2 billion. Total revenue
increased by 1.2% compared to the same period last year. Excluding the impact on
revenues of recent regulatory changes and the sale of Bell Canada's directory
business on November 29, 2002, total revenue growth was 4.7%. BCE also reported
EBITDA(1) of $1.9 billion, and net earnings applicable to common shares of $1.7
billion ($1.92 per common share). Net earnings before non- recurring items(2)
were $395 million ($0.44 per common share).
For the year ended December 31, 2002, BCE reported total revenue of $19.8
billion, up 2.2% over revenue of 2001. EBITDA was $7.6 billion, a 5.2% increase
over 2001 EBITDA. Net earnings applicable to common shares were $2.4 billion
($2.74 per common share) while net earnings applicable to common shares in 2001
were $450 million ($0.56 per common share). Net earnings before non-recurring
items were $1.5 billion ($1.81 per common share) compared to net earnings before
non-recurring items in 2001 of $1.4 billion ($1.74 per common share).
"Despite many industry challenges and an uncertain economy, our performance
in 2002 was on track," said Michael Sabia, President and CEO of BCE Inc. "We had
good results in the growth areas of our business, even as we were facing
regulatory and other pressures in our more traditional services. Through our
continued focus on financial discipline and execution, we have successfully
implemented our productivity initiatives and as a result improved our
efficiency. Our efforts resulted in EBITDA growth of over 5%."
Operational Highlights
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Q4 2002 As at Dec. 31, 2002
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Cellular and PCS 218,000 net additions 3,919,000 subscribers
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High-speed Internet (DSL) 108,000 net additions 1,110,000 subscribers
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Bell ExpressVu (DTH) 83,000 net additions 1,304,000 subscribers
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Data revenue $1.0 billion $3.8 billion
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Bell Globemedia revenue $379 million $1.3 billion
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Productivity initiatives $140 million $655 million
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"We had our best quarter ever in wireless with net postpaid activations of
196,000 and industry leading churn of 1.7%," continued Mr. Sabia. "Direct-
to-Home (DTH) satellite new subscriptions were strong, resulting in revenue
growth of 35% at Bell ExpressVu in 2002. And, our DSL High-speed Internet
subscriber base grew by 47% compared to last year."
"Our goal is to continue to achieve balanced performance in our overall
operations in 2003. By simplifying our operations and placing the customer at
the centre of all that we do, we expect to drive revenue growth, further improve
our productivity performance, and reduce capital intensity to generate free cash
flow," concluded Mr. Sabia.
Q4 2002 OVERVIEW
BCE experienced strong growth during the fourth quarter in several key
areas: a 16% increase in wireless revenues, higher data revenue of 6%, increased
Bell ExpressVu revenues of 32% and a 7% increase in revenues at Bell Globemedia.
EBITDA increased by $86 million or 4.7%, mainly due to higher revenues and
the successful implementation of cost control initiatives at Bell Canada and
Bell Globemedia. As a percentage of revenues, EBITDA improved from 35.7% in the
fourth quarter of 2001 to 37% in the current quarter.
Consolidated net earnings applicable to common shares were $1.7 billion
compared to the loss of $299 million reported last year.
2
As part of its annual review of its businesses, BCE, in the fourth quarter
of 2002, completed an extensive assessment of the carrying value of its assets
as well as accounting for the sale of the directories business and Teleglobe
Inc. This resulted in the following non-recurring items (net of taxes and
non-controlling interest):
- a $1.8 billion gain on the sale of Bell Canada's directories business; -
tax benefits and adjustments of $505 million which were recognized, in
discontinued operations, as a result of the sale of Teleglobe Inc. to a
wholly owned subsidiary of Ernst & Young Inc.;
- an impairment charge of $530 million, resulting from an annual assessment
of goodwill relating to Bell Globemedia ($501 million) and Aliant ($29
million - mainly for its Xwave Solutions Inc. business unit);
- restructuring and other charges of $251 million primarily related to the
workforce reduction program at Bell Canada; and,
- assets write-down of $209 million relating primarily to BCE's investment
in BCI (included in discontinued operations) and other portfolio
investments.
Excluding the non-recurring items, net earnings were $395 million ($0.44 per
common share). Net earnings before non-recurring items for the fourth quarter of
2001 were $345 million ($0.43 per common share). Earnings per share before
non-recurring items increased by 2% as a result of higher EBITDA, offset by
higher interest expense and shareholders' dilution due to the issuance of new
debt and equity in 2002 to partially finance BCE's return to full ownership of
Bell Canada.
OUTLOOK
The Company outlined its financial guidance for the first quarter of 2003
and confirmed its financial guidance for the full year 2003 as follows:
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GUIDANCE Q1 2003 Full Year 2003 Outlook
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Revenue (billions) $4.6 - $4.8 $19.3 - $20.0
EBITDA (billions) $1.7 - $1.8 $7.4 - $7.8
Net earnings per share (before
non-recurring items) $0.42 - $0.46 $1.85 - $1.95
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As indicated during BCE's 2003 Business Review Conference on December 18,
2002, BCE will no longer be providing formal quarterly guidance beyond the first
quarter of 2003.
3
RESULTS BY BUSINESS GROUP (unaudited)
BCE operated under four segments as at December 31, 2002: Bell Canada, Bell
Globemedia, BCE Emergis and BCE Ventures (which consists of BCE's other
investments).
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(Cdn$ millions, except per share amounts)
---------------------------------------------
Fourth Quarter Twelve months
For the period ended
December 31 2002 2001 2002 2001
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----------------------------------------------------------------------
Revenue
Bell Canada 4,532 4,536 17,489 17,202
Bell Globemedia 379 354 1,290 1,203
BCE Emergis 131 181 540 656
BCE Ventures 282 287 1,064 1,044
Corporate and Other,
including Inter-segment
eliminations (152) (245) (615) (765)
----- ----- ------ ---------
Total revenue 5,172 5,113 19,768 19,340
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EBITDA
Bell Canada 1,788 1,704 7,289 6,876
Bell Globemedia 72 43 180 108
BCE Emergis 20 35 30 127
BCE Ventures 72 88 289 290
Corporate and Other,
including Inter-segment
eliminations (39) (43) (166) (159)
----- ----- ------ ---------
Total EBITDA 1,913 1,827 7,622 7,242
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Net earnings (loss)
Bell Canada 1,407 (101) 2,423 663
Bell Globemedia (493) (25) (492) (150)
BCE Emergis 7 (45) (51) (281)
BCE Ventures 32 41 131 270
Corporate and Other,
including Inter-segment
eliminations (118) 40 (113) 3,069
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Earnings (loss) from
continuing operations 835 (90) 1,898 3,571
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Discontinued operations 917 (195) 577 (3,057)
Dividends on preferred shares (16) (14) (59) (64)
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Net earnings (loss) applicable
to common shares 1,736 (299) 2,416 450
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Net earnings (loss) per common
share 1.92 (0.37) 2.74 0.56
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Non-recurring items included
in net earnings (loss) per
common share (1.48) 0.80 (0.93) 1.18
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Net earnings per common share
before non-recurring items 0.44 0.43 1.81 1.74
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4
FOURTH QUARTER REVIEW (Q4 2002 vs. Q4 2001, unless otherwise indicated)
BELL CANADA
The Bell Canada segment includes Bell Canada, Aliant, Bell ExpressVu and
Bell Canada's interests in other Canadian telcos.
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(Cdn$ millions)
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Fourth Quarter Twelve months
For the period ended
December 31 2002 2001 2002 2001
=========================================================================
Bell Canada Revenue
Local and access 1,574 1,654 6,155 6,360
Long distance 635 647 2,579 2,651
Wireless 570 493 2,167 1,839
Data 1,035 979 3,806 3,526
Bell ExpressVu 176 133 638 474
Terminal sales, directory
advertising & other 542 630 2,144 2,352
----- ----- ------ ---------
Total Bell Canada revenue 4,532 4,536 17,489 17,202
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- Excluding the impact of the regulatory changes and the sale of the
directories business, revenues for the quarter increased by 4%.
- Local and access revenues decreased by 5%, due mainly to the effects of
the 2001 CRTC local contribution and May 30, 2002 CRTC Price Caps
decisions.
- Long distance revenue decreased by $12 million. Competitive pricing
pressures offset the effects of a 4% increase in quarterly conversation
minutes and higher network access fees.
- Wireless revenue was up 16% due to strong growth in cellular and PCS
subscribers. Postpaid net additions of 196,000 were the highest achieved
in any quarter in Bell's history. Churn, stable at 1.7%, continues to be
industry-leading, reflecting our priority on customer service.
- Total Internet (High-speed and dial-up) subscribers surpassed the two
million mark to reach 2,067,000 as at December 31. Total High-speed
Internet subscribers grew by 47%.
- Higher Sympatico ISP revenues contributed to the 6% increase in data
revenue.
- Bell ExpressVu's industry-leading success in increasing its subscriber
base greatly contributed to the 32% improvement in its revenues. There
were 22% more subscribers compared to the fourth quarter of 2001.
- Bell Canada's EBITDA grew by $84 million or 5% in the fourth quarter to
reach $1.8 billion, due to continued cost management.
- Productivity gains at Bell Canada were $135 million for the quarter and
$630 million for all of 2002.
- Bell improved its year-end CAPEX intensity (capital expenditures as a
percentage of revenue) from 22.7% (net of the purchase of the Spectrum
licenses) in 2001 to 19.6% in 2002.
BELL GLOBEMEDIA
Bell Globemedia includes CTV, The Globe and Mail and Bell Globemedia
Interactive.
- For the total year ended 2002, Bell Globemedia had revenues of $1.3
billion, an increase of 7% compared to 2001. EBITDA increased by $72
million to reach $180 million.
- Total revenue was $379 million in the quarter compared with revenue of
$354 million for the same period last year.
- Advertising revenue was $284 million, an increase of 8% compared to the
fourth quarter of 2001. Higher demand for both television and print
advertising contributed to the increase.
- Subscriber revenues increased by 7.5% to reach $72 million due to higher
subscriptions to the new digital specialty channels and an increase in
print circulation revenues.
- EBITDA improved by 67% to $72 million, reflecting the increase in revenues
and management's cost control efforts.
5
BCE EMERGIS
- BCE Emergis' sequential quarter over quarter revenues decreased slightly
by $4 million mainly due to lower recurring revenues from its eHealth unit
and the revenue impact of BCE Emergis' decision to exit non-core
businesses. Revenue was $131 million in the quarter, compared with $181
million for the same period in 2001.
- Fourth quarter EBITDA of $20 million was essentially flat compared to the
third quarter EBITDA of $19 million. Year-over-year quarterly EBITDA
decreased by 43%, reflecting the shortfall in revenues.
- In the fourth quarter, BCE Emergis rolled out the first of its several
Web-based eLending solutions, the Vendor Services Exchange, designed to
help Freddie Mac in the streamlining of certain of its mortgage and other
settlement processes.
BCE VENTURES
BCE Ventures includes the activities of CGI, Telesat and other investments.
- BCE Ventures' revenue was $282 million in the quarter, a decrease of 2%
when compared with the same period of 2001.
- EBITDA was $72 million in the quarter compared with $88 million in the
fourth quarter of 2001.
BELL CANADA STATUTORY RESULTS
Bell Canada "statutory" includes Bell Canada, Bell Canada's interests in
other Canadian telcos, and Bell Canada's 39% interest in Aliant (equity-
accounted until December 31, 2002).
Bell Canada's reported revenue was $3.7 billion in the fourth quarter. Net
earnings applicable to common shares were $1.4 billion in the fourth quarter,
compared to a loss of $97 million for the same period last year.
For 2002, revenue was $14.4 billion compared with $14.3 billion in 2001. Net
earnings applicable to common shares were $1.4 billion in 2002, virtually
unchanged from 2001.
ABOUT BCE
BCE is Canada's largest communications company. It has 25 million customer
connections through the wireline, wireless, data/Internet and satellite services
it provides, largely under the Bell brand. BCE's media interests are held by
Bell Globemedia, which features some of the strongest brands in the industry -
CTV, Canada's leading private broadcaster, The Globe and Mail, the leading
Canadian daily national newspaper and Sympatico.ca, a leading Canadian Internet
portal. As well, BCE has extensive e-commerce capabilities provided under the
BCE Emergis brand. BCE shares are listed in Canada, the United States and
Europe.
SUPPLEMENTARY BCE FINANCIAL INFORMATION:
----------------------------------------
BCE's Fourth Quarter 2002 Investor Briefing and other relevant financial
materials are available at www.bce.ca/en/investors, under "Investor Briefcase".
CALL WITH FINANCIAL ANALYSTS:
-----------------------------
BCE will hold a teleconference / Webcast (audio only) for financial analysts
to discuss its fourth quarter results on Wednesday, January 29, 2003 at 8:00 AM
(Eastern). The media is welcome to participate on a listen only basis. Michael
Sabia, President and Chief Executive Officer, and Siim Vanaselja, Chief
Financial Officer, will be present for the teleconference / Webcast.
Interested participants are asked to dial (416) 405-9328 between 7:50 AM and
7:58 AM. If you are disconnected from the call, simply redial the number. If you
need assistance during the teleconference, you can reach the operator by
pressing "0". This teleconference will also be Webcast live (audio only) on our
Web site at www.bce.ca.
A replay facility will be available between 12:00 PM on Wednesday, January
29, 2003 and 12:00 PM on Wednesday, February 5, 2003. To access the replay
facility, please dial (416) 695-5800 and enter access code 1354714. The Webcast
will also be archived on our Web site.
6
CALL WITH THE MEDIA:
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BCE will hold a teleconference for media / Webcast (audio only) on
Wednesday, January 29, 2003 at 1:15 PM (Eastern). Michael Sabia will be present
for this teleconference.
Interested participants are asked to dial (416) 406-6419 or 888 575-8232
between 1:05 PM and 1:13 PM. If you are disconnected from the call, simply
redial the number. If you need assistance during the teleconference, you can
reach the operator by pressing "0". This teleconference will also be Webcast
live (audio only) on our Web site at www.bce.ca.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements made in this press 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.
These statements do not reflect the potential impact of any dispositions,
monetizations, mergers, acquisitions, other business combinations or other
transactions that may be announced after the date hereof.
Other factors that could cause results or events to differ materially from
current expectations include, among other things: general economic conditions,
the level of consumer confidence and spending and the state of capital markets;
the impact of adverse changes in laws or regulations or of adverse regulatory
initiatives or proceedings (including the outcome of the appeal of the CRTC's
price cap decision); the level of demand, including in particular by the
enterprise sector, and prices, for products and services in the telecom (e.g.,
data, IP broadband and voice services), media and e- business markets; BCE's and
its subsidiaries' ability to manage costs, generate productivity improvements
and decrease capital intensity while maintaining quality of service; the
intensity of competitive activity, from both traditional and new competitors,
and its resulting impact on the ability to retain existing, and attract new,
customers, and the consequent impact on pricing strategies, revenues and net
income; the risk of lower returns on pension plan assets requiring increased
pension expenses and potentially pension plan funding; the financial condition
and credit risk of customers and uncertainties regarding collectibility of
receivables; the availability and cost of capital required to implement BCE's
and its subsidiaries' financing plans and fund capital and other expenditures;
the ability to deploy new technologies and offer new products and services
rapidly and achieve market acceptance thereof; the ability to package and cross
sell various services offered by the BCE group of companies; the ability of the
BCE group companies' strategies to produce the expected benefits and growth
prospects; stock market volatility; the availability of, and ability to retain,
key personnel; and the final outcome of pending or future litigation.
For additional information with respect to certain of these and other
factors, refer to the Safe Harbor Notice Concerning Forward-Looking Statements
dated December 18, 2002 filed by BCE Inc. with the U.S. Securities and Exchange
Commission, under Form 6-K, and with the Canadian securities commissions. The
forward-looking statements contained in this press release represent BCE's
expectations as of January 29, 2003 and, accordingly, are subject to change
after such date. However, BCE disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
----------------------------
(1) EBITDA is defined as operating revenues less operating expenses and
therefore reflects earnings before interest, taxes, depreciation and
amortization, as well as any non-recurring items. BCE uses EBITDA, among
other measures, to assess the operating performance of its on- going
businesses. The term EBITDA does not have a standardized meaning
prescribed by Canadian generally accepted accounting principles and
therefore may not be comparable to similarly titled measures presented
by other publicly traded companies. EBITDA should not be construed as
the equivalent of net cash flows from operating activities.
(2) Refer to the discussion under the caption "Q4 2002 Overview" for further
details.
7
CONSOLIDATED FINANCIAL STATEMENTS - BCE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
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For the period ended December 31 Three months Twelve months
($ millions, except share amounts)
(unaudited) 2002 2001(1) 2002 2001(1)
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Operating revenues 5,172 5,113 19,768 19,340
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Operating expenses 3,259 3,286 12,146 12,098
Amortization expense 794 948 3,146 3,826
Net benefit plans credit (8) (31) (33) (121)
Restructuring and other
charges(Note 4) 395 741 887 980
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Total operating expenses 4,440 4,944 16,146 16,783
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Operating income 732 169 3,622 2,557
Other income
(expense)(Note 5) 2,242 (11) 2,468 4,015
Impairment charge(Note 1) (770) - (770) -
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Earnings from continuing
operations before the
under-noted items 2,204 158 5,320 6,572
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Interest expense -long-term debt 278 243 1,041 952
- other debt 71 12 120 104
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Total interest expense 349 255 1,161 1,056
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Earnings (loss) from
continuing operations before
income taxes and
non-controlling interest 1,855 (97) 4,159 5,516
Income taxes 753 31 1,593 1,759
Non-controlling interest 267 (38) 668 186
------------------------------------------
Earnings (loss) from
continuing operations 835 (90) 1,898 3,571
Discontinued operations(Note 6) 917 (195) 577 (3,057)
------------------------------------------
Net earnings (loss) 1,752 (285) 2,475 514
Dividends on preferred
shares (16) (14) (59) (64)
------------------------------------------
Net earnings (loss)
applicable to common
shares 1,736 (299) 2,416 450
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Net earnings (loss) per
common share - basic(Note 7)
Continuing operations 0.92 (0.13) 2.15 4.34
Net earnings (loss) 1.92 (0.37) 2.74 0.56
Net earnings (loss) per
common share - diluted(Note 7)
Continuing operations 0.91 (0.13) 2.13 4.29
Net earnings (loss) 1.89 (0.37) 2.71 0.55
Dividends per common share 0.30 0.30 1.20 1.20
Average number of common
shares outstanding
(millions) 909.1 808.5 847.9 807.9
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The following is a reconciliation of net earnings (loss) to reflect the
comparative impact of the non- amortization of goodwill and indefinite-life
intangible assets effective January 1, 2002 (Refer to Note 1):
Adjusted net earnings (loss)
Net earnings (loss), as
reported 1,752 (285) 2,475 514
Amortization expense on
goodwill and
indefinite-life
intangible assets - 234 - 971
------------------------------------------
Net earnings (loss),
adjusted 1,752 (51) 2,475 1,485
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Adjusted net earnings (loss)
per common share
Basic 1.92 (0.08) 2.74 1.76
Diluted 1.89 (0.08) 2.71 1.74
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(1) Refer to Note 1 "Significant accounting policies" for basis of
presentation.
8
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
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For the period ended December 31 Three months Twelve months
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($ millions) (unaudited) 2002 2001 2002 2001
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Balance at beginning of
period, as previously
reported (7,605) 1,238 712 1,339
Adjustment for change in
accounting policy(Note 1) - - (8,180) -
------------------------------------------
Balance at beginning of
period, as restated (7,605) 1,238 (7,468) 1,339
Net earnings (loss) 1,752 (285) 2,475 514
Dividends - Preferred shares (16) (14) (59) (64)
- Common shares (274) (242) (1,031) (969)
------------------------------------------
(290) (256) (1,090) (1,033)
Costs relating to the
issuance of common shares - - (62) -
Premium on redemption of
common and preferred
shares - - (6) (108)
Other (6) 15 2 -
------------------------------------------
Balance at end of period (6,149) 712 (6,149) 712
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9
CONSOLIDATED BALANCE SHEETS
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At December 31 ($ millions) (unaudited) 2002(1) 2001
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ASSETS
Current assets
Cash and cash equivalents(2) 306 569
Accounts receivable 2,343 4,118
Income and other taxes receivable 147 -
Other current assets 769 1,213
---------------------
Total current assets 3,565 5,900
Investments 777 1,106
Capital assets 20,486 25,861
Future income taxes 675 1,031
Other long-term assets 3,057 3,363
Indefinite-life intangible assets 900 866
Goodwill 10,103 15,947
---------------------
Total assets 39,563 54,074
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LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 3,834 5,792
Income and other taxes payable - 681
Debt due within one year 2,026 5,263
---------------------
Total current liabilities 5,860 11,736
Long-term debt 13,395 14,861
Future income taxes 815 924
Other long-term liabilities 3,026 4,129
---------------------
Total liabilities 23,096 31,650
---------------------
Non-controlling interest 3,596 5,625
---------------------
SHAREHOLDERS' EQUITY
Preferred shares 1,510 1,300
---------------------
Common shareholders' equity
Common shares(3) 16,520 13,827
Contributed surplus 980 980
Retained earnings (deficit) (6,149) 712
Currency translation adjustment 10 (20)
---------------------
Total common shareholders' equity 11,361 15,499
---------------------
Total shareholders' equity 12,871 16,799
---------------------
Total liabilities and shareholders' equity 39,563 54,074
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(1) Refer to Note 1 "Significant accounting policies" for basis of
presentation.
10
(2) At December 31, 2001, cash and cash equivalents include $233 million of
restricted cash (nil at December 31, 2002). This amount represented
BCE's share of Telecom Americas Ltd.'s cash used by it to collaterallize
short-term bank loans of certain of its subsidiaries.
(3) At December 31, 2002, 915,867,928 (808,514,211 at December 31, 2001) BCE
Inc. common shares and 20,470,700 (18,527,376 at December 31, 2001) BCE
Inc. stock options were outstanding. 103 million common shares were
issued during 2002 in connection with the repurchase by BCE Inc. of SBC
Communications Inc.'s indirect minority interest in Bell Canada (refer
to Note 3 "Business acquisitions and dispositions"). The stock options
were issued under BCE's Long-Term Incentive Stock Option Programs and
are exercisable on a one-for-one basis for common shares of BCE Inc.
Additionally, Teleglobe stock option holders will receive, upon exercise
of their stock options, 0.91 of a BCE Inc. common share for each
Teleglobe stock option held. At December 31, 2002, all Teleglobe stock
options outstanding were exercisable into 4,266,723 BCE Inc. common
shares (10,204,966 at December 31, 2001).
11
CONSOLIDATED STATEMENTS OF CASH FLOWS
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For the period ended December 31 Three months Twelve months
------------------------------------------
($ millions) (unaudited) 2002 2001(1) 2002 2001(1)
-------------------------------------------------------------------------
Cash flows from operating
activities
Earnings (loss) from
continuing operations 835 (90) 1,898 3,571
Adjustments to reconcile earnings (loss) from continuing operations to cash
flows from operating activities:
Amortization expense 794 948 3,146 3,826
Net benefit plans credit (8) (31) (33) (121)
Restructuring and other
charges 333 731 805 915
Impairment charge 770 - 770 -
Net gains on investments (2,260) (50) (2,435) (4,088)
Future income taxes 612 179 602 682
Non controlling interest 267 (38) 668 186
Other items (56) (657) (298) (894)
Changes in non-cash
working capital (96) 268 (592) 157
------------------------------------------
1,191 1,260 4,531 4,234
------------------------------------------
Cash flows from investing
activities
Capital expenditures (1,074) (1,196) (3,771) (4,999)
Investments (5,097) (152) (6,604) (535)
Divestitures 2,761 141 3,230 4,749
Other items 5 (73) 10 (122)
------------------------------------------
(3,405) (1,280) (7,135) (907)
------------------------------------------
Cash flows from financing
activities
Decrease in notes
payable and bank advances (636) (217) (210) (2,744)
Issue of long-term debt 2,508 387 4,908 2,443
Repayment of long-term
debt (2,091) (258) (2,893) (1,221)
Issue of common shares 303 5 2,693 71
Costs relating to the
issuance of common and
preferred shares - - (78) -
Purchase of common
shares for cancellation - - - (191)
Issue of preferred shares - - 510 -
Redemption of preferred
shares - - (306) -
Dividends paid on common
and preferred shares (284) (256) (1,042) (1,033)
Issue of common shares,
preferred shares,
convertible debentures
and equity-settled notes
by subsidiaries to
non-controlling interest 5 89 206 1,459
Redemption of preferred
shares by subsidiaries - (1) - (347)
Dividends paid by
subsidiaries to
non-controlling interest (147) (89) (468) (357)
Other items (10) 55 (46) 72
------------------------------------------
(352) (285) 3,274 (1,848)
------------------------------------------
Effect of exchange rate
changes on cash and
cash equivalents 2 (1) 3 (2)
------------------------------------------
Cash provided by (used
in) continuing operations (2,564) (306) 673 1,477
Cash used in
discontinued operations - (213) (936) (1,168)
------------------------------------------
Net increase (decrease)
in cash and cash
equivalents (2,564) (519) (263) 309
Cash and cash
equivalents at
beginning of period 2,870 1,088 569 260
------------------------------------------
Cash and cash
equivalents at end of
period 306 569 306 569
-------------------------------------------------------------------------
1) Refer to Note 1 "Significant accounting policies" for basis of presentation.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BCE INC.
The interim consolidated financial statements should be read in conjunction
with the annual consolidated financial statements as at December 31, 2001 and
2000 and for each of the years in the three-year period ended December 31, 2001,
dated July 23, 2002.
1. SIGNIFICANT ACCOUNTING POLICIES
The interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles ("Canadian
GAAP"), using the same accounting policies as outlined in Note 1 of the annual
consolidated financial statements as at December 31, 2001 and 2000 and for each
of the years in the three-year period ended December 31, 2001, dated July 23,
2002 except as noted below. Certain comparative figures in the consolidated
financial statements have been reclassified to conform to the current period
presentation.
BASIS OF PRESENTATION
All financial information for 2002 and prior periods were restated to
reflect the accounting treatment of BCE's investments in Teleglobe Inc.
("Teleglobe") and Bell Canada International Inc. ("BCI") as discontinued
operations (refer to Note 6 "Discontinued operations"), and the adoption of the
Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1650
regarding the accounting treatment of foreign currency translation (refer to
"Recent pronouncements") effective in the first quarter of 2002. In addition,
effective in the second quarter of 2002, BCE ceased to consolidate the financial
results of Teleglobe and BCI, and during 2002 held these investments at cost
(refer to Note 6 "Discontinued operations").
RECENT PRONOUNCEMENTS
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS The CICA issued
new Handbook Sections 1581, Business Combinations, and
3062, Goodwill and Other Intangible Assets. Effective July 1, 2001, the
standards require that all business combinations be accounted for using the
purchase method. Additionally, effective January 1, 2002, goodwill and
intangible assets with an indefinite life are no longer being amortized to
earnings and will be assessed for impairment on an annual basis in accordance
with the new standards, including a transitional impairment test whereby any
resulting impairment was charged to opening retained earnings. BCE's management
allocated its existing goodwill and intangible assets with an indefinite life to
its reporting units and completed the assessment of the quantitative impact of
the transitional impairment test on its financial statements. In 2002, an
impairment of $8,180 million was charged to opening retained earnings as of
January 1, 2002, as required by the transitional provisions of the new CICA
Handbook section 3062, relating to impaired goodwill of reporting units within
Teleglobe ($7,516 million), Bell Globemedia ($545 million) and BCE Emergis ($119
million).
The following represents a reconciliation of the stated goodwill as at
December 31, 2002:
-------------------------------------------------------------------------
($ millions)
-------------------------------------------------------------------------
Goodwill, January 1, 2002 15,947
Transitional goodwill impairment charge (8,652)
Goodwill acquired during the year(1) 5,472
Goodwill disposed during the year(2) (218)
Deconsolidation of Teleglobe and BCI (1,754)
Impairment charge(3) (770)
Impact of changes in foreign currency translation 78
------------
Goodwill, December 31, 2002 10,103
-------------------------------------------------------------------------
(1) The goodwill acquired during 2002 relates primarily to the acquisition
of SBC Communications Inc.'s ("SBC") 20% interest in Bell Canada
Holdings Inc. ("BCH") (refer to Note 3 "Business acquisitions and
dispositions").
(2) The goodwill disposed during 2002 relates primarily to the sale of the
Directories business (refer to Note 3 "Business acquisitions and
dispositions").
(3) In the fourth quarter of 2002, BCE completed its annual assessment of
goodwill of all of its reporting units, as required by the provisions of
CICA Handbook section 3062, and recorded a charge to pre-tax earnings of
$770 million ($530 million after non-controlling interest) relating to
impaired goodwill of reporting units within Bell Globemedia ($715
million) and Aliant ($55 million). In each case, the goodwill was
written down to its fair value, which was determined based on estimates
of discounted future cash flows and corroborated by market-related
values.
13
The primary factor contributing to the impairment at Bell Globemedia is a
revised estimate of future cash flows that reflect management's decision to
scale back its trials in convergence products and other non-core businesses, as
well as current market conditions for the media business. The write-down at
Aliant was determined to be appropriate in light of current market conditions
and the recent weak performance of its information technology line of business.
FOREIGN CURRENCY TRANSLATION
Effective January 1, 2002, BCE also adopted the revised recommendations of
CICA Handbook Section 1650, Foreign Currency Translation. The standards require
that all unrealized translation gains and losses on assets and liabilities
denominated in foreign currencies be included in earnings for the year,
including gains and losses on long-term monetary assets and liabilities, such as
long-term debt, which were previously deferred and amortized on a straight-line
basis over the remaining lives of the related items. These amendments were
applied retroactively with restatement of prior periods. The cumulative effect
as at January 1, 2002 was to decrease other long-term assets by $288 million,
increase future income taxes by $27 million, decrease non- controlling interest
by $70 million and decrease retained earnings by $191 million.
STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS BCE also adopted the
new recommendations of CICA Handbook Section 3870,
Stock-based compensation and other stock-based payments, effective January 1,
2002. This Section establishes standards for the recognition, measurement and
disclosure of stock-based compensation and other stock-based payments made in
exchange for goods and services. The standard requires that all stock-based
awards made to non-employees be measured and recognized using a fair value based
method. The standard encourages the use of a fair value based method for all
awards granted to employees, but only requires the use of a fair value based
method for direct awards of stock, stock appreciation rights, and awards that
call for settlement in cash or other assets. Awards that a company has the
ability to settle in stock are recorded as equity, whereas awards that the
entity is required to or has a practice of settling in cash are recorded as
liabilities. For BCE, this Section applies to all awards granted on or after
January 1, 2002. Upon adoption, BCE has elected to account for employee stock
options by measuring compensation cost for options as the excess, if any, of the
quoted market price of BCE Inc.'s common shares at the date of grant over the
amount an employee must pay to acquire the common shares(1). The following
outlines the impact and assumptions used if the compensation cost for BCE's
stock options was determined under the fair value based method of accounting for
awards granted on or after January 1, 2002.
-------------------------------------------------------------------------
For the period ended December 31, 2002 Three Twelve
Months Months
-------------------------------------------------------------------------
Net earnings, as reported ($ millions) 1,752 2,475
Pro forma impact ($ millions) (6) (27)
---------------------
Pro forma net earnings ($ millions) 1,746 2,448
Pro forma net earnings per common share
(basic) ($) 1.91 2.71
Pro forma net earnings per common share
(diluted) ($) 1.88 2.67
Assumptions used in Black Scholes option
pricing model:
Dividend yield 3.5% 3.3%
Expected volatility 30% 30%
Risk-free interest rate 3.8% 4.6%
Expected life (years) 3 4.4
Number of options granted 104,180 8,051,159
Weighted average fair value per option granted($) $ 3 $ 7
-------------------------------------------------------------------------
(1) In December 2002, BCE announced that effective January 1, 2003, it will
account for employee stock options by measuring compensation cost for
options granted on or after January 1, 2002 under the fair value based
method of accounting, using a Black Scholes option pricing model. As a
result of applying this new accounting policy, BCE expects to record
operating expenses of approximately $40 million to $55 million in 2003,
representing an impact of approximately $0.04 to $0.05 on net earnings
per share.
14
2. SEGMENTED INFORMATION
BCE operates under four segments, based on products and services, reflecting
the way that management classifies its operations for purposes of planning and
performance management. These segments are the Bell Canada segment, Bell
Globemedia, BCE Emergis and BCE Ventures.
-------------------------------------------------------------------------
For the period ended December 31 Three months Twelve months
------------------------------------------
($ millions) 2002 2001 2002 2001
-------------------------------------------------------------------------
Operating revenues
Bell Canada External 4,499 4,468 17,318 17,038
Inter-segment(1) 33 68 171 164
------------------------------------------
4,532 4,536 17,489 17,202
Bell
Globemedia External 366 344 1,246 1,175
Inter-segment 13 10 44 28
------------------------------------------
379 354 1,290 1,203
BCE Emergis External 100 105 399 451
Inter-segment 31 76 141 205
------------------------------------------
131 181 540 656
BCE
Ventures External 202 196 796 670
Inter-segment 80 91 268 374
------------------------------------------
282 287 1,064 1,044
Corporate
and other External 5 0 9 6
Inter-segment 44 30 165 85
------------------------------------------
49 30 174 91
------------------------------------------
Less: Inter-segment
eliminations(1) (201) (275) (789) (856)
------------------------------------------
Total operating revenues 5,172 5,113 19,768 19,340
-------------------------------------------------------------------------
EBITDA(2)
Bell Canada 1,788 1,704 7,289 6,876
Bell Globemedia 72 43 180 108
BCE Emergis 20 35 30 127
BCE Ventures 72 88 289 290
Corporate and other,
including inter-segment
eliminations (39) (43) (166) (159)
------------------------------------------
Total EBITDA 1,913 1,827 7,622 7,242
-------------------------------------------------------------------------
Net earnings (loss) applicable
to common shares
Bell Canada 1,407 (101) 2,423 663
Bell Globemedia (493) (25) (492) (150)
BCE Emergis 7 (45) (51) (281)
BCE Ventures 32 41 131 270
Corporate and other,
including inter-segment
eliminations (118) 40 (113) 3,069
------------------------------------------
Total earnings (loss)
from continuing operations 835 (90) 1,898 3,571
Discontinued operations 917 (195) 577 (3,057)
Dividends on preferred shares (16) (14) (59) (64)
------------------------------------------
Total net earnings
(loss) applicable to
common shares 1,736 (299) 2,416 450
-------------------------------------------------------------------------
(1) Certain comparative figures have been reclassified to conform to the
current period presentation.
(2) "EBITDA" is defined as operating revenues less operating expenses and
therefore reflects earnings before interest, taxes, depreciation and
amortization, as well as any non-recurring items. BCE uses "EBITDA",
amongst other measures, to assess the operating performance of its on-
going businesses. The term "EBITDA" does not have a standardized meaning
prescribed by Canadian GAAP and therefore may not be comparable to
similarly titled measures presented by other publicly traded companies.
EBITDA should not be construed as the equivalent of net cash flows from
operating activities.
15
3. BUSINESS ACQUISITIONS AND DISPOSITIONS
REPURCHASE OF SBC'S 20% INTEREST IN BCH
On June 28, 2002, BCE Inc., BCH and entities controlled by SBC entered into
agreements that led to the repurchase by BCE Inc. of SBC's 20% indirect interest
in BCH, the holding company of Bell Canada, for $6.3 billion. Pursuant to these
agreements, on June 28, 2002, BCH purchased for cancellation a portion of its
outstanding shares from SBC for a purchase price of $1.3 billion, resulting in
an increase in BCE Inc.'s ownership in BCH to 83.5%. On December 2, 2002, BCE
Inc. completed the repurchase of the remaining 16.5% interest in BCH for a
purchase price of $4.99 billion. The excess of the purchase price over the
carrying value of the 20% interest in BCH amounted to $5.4 billion. This amount
will be allocated to the individual net assets including intangibles of BCH
based on a valuation of those individual net assets with any remaining excess
being allocated to goodwill. Preliminarily, this excess has been allocated
entirely to goodwill.
BCE Inc. completed the financing of the $6.3 billion repurchase price of
SBC's indirect interest in Bell Canada through the following steps:
- $1.1 billion drawn on July 15, 2002 under a $3.3 billion two-year non-
revolving credit agreement;
- proceeds from the issuance on July 15, 2002 of 9 million BCE Inc. common
shares for $250 million ($27.63 per share), by way of a private placement
to SBC;
- net proceeds from the public issuance on August 12, 2002 of 85 million
common shares of BCE Inc. for $2 billion ($24.45 per share);
- net proceeds from the public issuance on October 30, 2002 of long-term
notes of BCE Inc. for $2 billion;
- proceeds from the issuance on December 2, 2002 of 9 million BCE Inc.
common shares for $250 million ($28.36 per share), by way of a second
private placement to SBC; and
- the remaining $0.7 billion was financed from a portion of the net proceeds
from the sale of the Directories business.
As part of the agreements, BCE Inc. will also purchase, at face value, on or
before December 31, 2004, $314 million of BCH Convertible Series B Preferred
Securities held by SBC.
In connection with the arrangements described above, on June 28, 2002, BCH
granted to SBC an option ("BCH option") to purchase 20% of the then outstanding
common shares of BCH at an exercise price of approximately $39.48 per share,
representing an approximate 25% premium to the June 28, 2002 negotiated
repurchase price of the BCH shares, exercisable no later than January 30, 2003.
SALE OF THE DIRECTORIES BUSINESS
On November 29, 2002, Bell Canada and certain affiliates completed the sale
of their print and electronic Directories business for $3 billion cash. As a
result, BCE recorded a gain on sale of $2.3 billion. The purchasers own an
approximate 90% equity interest of an acquisition vehicle that holds the
Directories business. Bell Canada indirectly acquired an approximate 10% equity
interest in the acquisition vehicle for approximately $91 million.
CREATION OF BELL WEST INC. ("BELL WEST")
In April 2002, Bell Canada and Manitoba Telecom Services Inc. ("MTS"), a
related party, combined their interests of the wireline assets of BCE Nexxia
Inc. in Alberta and British Columbia with Bell Intrigna Inc. to create Bell
West, a company providing telecommunications services in those two provinces.
Bell West operates under the Bell brand and is owned 60% by Bell Canada and 40%
by MTS. The terms of the agreement between Bell Canada and MTS also include
certain put and call options with respect to MTS' 40% ownership of Bell West.
The put options for MTS are as follows:
- In February 2004, MTS can sell its interest in Bell West to Bell Canada at
a guaranteed floor value of $458 million plus incremental funding
(including an 8% return on that incremental funding) invested by MTS going
forward (floor value). In January 2007, MTS can sell its interest in Bell
West to Bell Canada at fair market value less 12.5%. MTS can also sell its
interest in Bell West to Bell Canada at fair market value less 12.5% upon
the occurrence of certain change events affecting Bell West.
The call options for Bell Canada should MTS not exercise its put options are
as follows: - In March 2004, Bell Canada has the option to purchase MTS
interest at
the greater of the floor value and fair market value. In February 2007,
Bell Canada has the option to purchase MTS interest at fair market value.
Bell Canada can also purchase MTS interest at fair market value upon a
change of control of MTS to a party other than Bell Canada or its
affiliates.
16
CREATION OF THE BELL NORDIQ INCOME FUND
In April 2002, Bell Canada announced the completion of an initial public
offering of units of a newly created income fund (the "Bell Nordiq Income
Fund"). The Fund acquired from Bell Canada a 36% interest in each of Telebec
Limited Partnership and Northern Telephone Limited Partnership. Bell Canada
retains management control over both partnerships and holds a 64% interest in
the partnerships. Bell Canada received gross proceeds of $324 million and
recorded a gain on sale of $222 million (BCE's share is $170 million on an
after-tax basis).
4. RESTRUCTURING AND OTHER CHARGES
BELL CANADA STREAMLINING COSTS AND OTHER CHARGES In the fourth quarter of
2002, Bell Canada recorded a pre-tax
restructuring charge of $302 million ($190 million after tax), representing
restructuring and other charges of $232 million and $70 million, respectively.
The restructuring charge is related to employee severance, including enhanced
pension benefits and other directly related employee costs, for approximately
1,700 employees, which resulted primarily from a decision to streamline certain
management, clerical, line and other support functions. The restructuring
program is expected to be completed in 2003. At December 31, 2002, the remaining
unpaid balance of this restructuring provision relating to employee severance
and other directly related employee costs was $111 million. Other charges
consisted primarily of various accounts receivable write-downs relating to
billing adjustments and unreconciled balances from prior years.
WRITE-OFF OF DEFERRED COSTS
In the fourth quarter of 2002, BCE recorded a pre-tax charge of $93 million
($61 million on an after tax basis), representing a write-off of deferred costs
relating to various convergence initiatives after an analysis indicated that it
is unlikely that these costs will be recovered.
SETTLEMENT OF PAY EQUITY COMPLAINTS
On September 25, 2002, the members of the Canadian Telecommunications
Employees' Association ("CTEA") ratified a settlement reached between the CTEA
and Bell Canada with respect to the 1994 pay equity complaints filed by members
of the CTEA before the Canadian Human Rights Tribunal. The settlement includes a
cash payout of $128 million and related pension benefits of approximately $50
million. As a result of the settlement, Bell Canada recorded a one-time charge
of $79 million (BCE's share is $37 million on an after-tax basis) in the third
quarter of 2002, which corresponds to the $128 million cash payout, net of a
previously recorded provision. The pension benefits will be deferred and
amortized into earnings over the estimated average remaining service life of
active employees and the estimated average remaining life of retired employees.
WRITE-DOWN OF BELL CANADA'S ACCOUNTS RECEIVABLE
Coincident with the development of a new billing platform, Bell Canada has
adopted a new and more precise methodology to analyze the amount of receivables
by customer and service line, which permits a more accurate determination of the
validity of customer balances to Bell Canada. This analysis indicated that as at
June 30, 2002, a write-down of accounts receivable amounting to $272 million
(BCE's share is $142 million on an after- tax basis) is appropriate. As these
amounts arose from legacy billing systems and processes, Bell Canada has carried
out a detailed review of billings and adjustments for the period from 1997 to
2002. This review determined that these amounts arose as the cumulative result
of a series of individually immaterial events and transactions pertaining to its
legacy accounts receivable systems dating back to the early 1990's.
BCE EMERGIS RESTRUCTURING PLAN
BCE Emergis Inc. ("BCE Emergis") recorded a pre-tax charge of $119 million
(BCE's share is $63 million on an after-tax basis) in the second quarter of
2002, representing restructuring and other charges of $100 million and $19
million, respectively, related to the write-off of certain assets, employee
severance and other employee costs, contract settlements and costs of leased
properties no longer in use, which resulted primarily from the streamlining of
BCE Emergis' service offerings and reduction in its operating cost structure.
The restructuring program is substantially complete. As at December 31, 2002,
the remaining unpaid balance of this restructuring provision was $23 million.
5. OTHER INCOME (EXPENSE)
-------------------------------------------------------------------------
For the period ended December 31 Three months Twelve months
------------------------------------------
($ millions) 2002 2001 2002 2001
-------------------------------------------------------------------------
Net gains on investments 2,246 7 2,427 4,044
Foreign currency gains
(losses) (1) (8) 36 (83)
Other (3) (10) 5 54
-------------------------------------------------------------------------
Other income (expense) 2,242 (11) 2,468 4,015
-------------------------------------------------------------------------
17
In the fourth quarter of 2002, net gains on investments of $2,246 million
resulted primarily from the sale of the Directories business ($2,310 million).
The remaining $64 million net loss consists of various write-downs of portfolio
investments. Included in other is a $30 million write-down of deferred financing
costs relating to the early retirement of credit facilities.
In 2002, net gains on investments of $2,427 million also included the sale
of a 36% interest in both Telebec Limited Partnership and Northern Telephone
Limited Partnership upon the creation of the Bell Nordiq Income Fund ($222
million) and a $98 million write-down of the remaining portfolio investment in
Nortel Networks.
6. DISCONTINUED OPERATIONS
-------------------------------------------------------------------------
For the period ended December 31 Three months Twelve months
------------------------------------------
($ millions) 2002 2001 2002 2001
-------------------------------------------------------------------------
Teleglobe 1,042 (174) 893 (2,810)
BCI (125) (21) (316) (247)
-------------------------------------------------------------------------
Net gain (loss) from
discontinued operations 917 (195) 577 (3,057)
-------------------------------------------------------------------------
TELEGLOBE
Teleglobe provides international voice and data telecommunications services.
Until the second quarter of 2002, Teleglobe also provided, through its
investment in the Excel Communications group ("Excel"), retail
telecommunications services such as long distance, paging and Internet services
to residential and business customers in North America. The results of
operations of Teleglobe include an impairment charge of $2,049 million recorded
in the first quarter of 2001 after completion of an assessment of the carrying
value of Teleglobe's investment in Excel.
On April 24, 2002, BCE Inc. announced that it would cease further long- term
funding to Teleglobe. BCE Inc.'s decision was based on a number of factors,
including a revised business plan and outlook of the principal operating segment
of Teleglobe with associated funding requirements, a revised assessment of its
prospects, and a comprehensive analysis of the state of its industry. In light
of that decision, Teleglobe announced that it would pursue a range of financial
restructuring alternatives, potential partnerships and business combinations.
Also on April 24, 2002, all BCE Inc.-affiliated board members of Teleglobe
tendered their resignation from the Teleglobe board. The effective result of
these events was the exit by BCE of the Teleglobe business and the eventual
material reduction in BCE's approximate 96% economic and voting interest in
Teleglobe as a result of the ongoing restructuring of Teleglobe. Accordingly,
effective April 24, 2002, BCE reclassified the financial results of Teleglobe as
a discontinued operation.
BCE's management completed its assessment of the net realizable value of
BCE's interest in the net assets of Teleglobe and determined it to be nil,
resulting in a loss from discontinued operations of $73 million, which is in
addition to the transitional impairment charge of $7,516 million to opening
retained earnings as at January 1, 2002, as required by the transitional
provisions of the new CICA Handbook section 3062 (refer to Note 1).
On May 15, 2002 and later during the year, Teleglobe and certain of its
subsidiaries filed for court protection under insolvency statutes in various
countries, including Canada and the United States. On September 19, 2002,
Teleglobe announced the execution of agreements for the sale of its core
telecommunications business. Effective November 30, 2002, BCE Inc.'s debtor-in-
possession and employee severance and retention facilities were fully repaid by
Teleglobe and terminated. On December 31, 2002, after obtaining court approval,
BCE Inc. and its affiliates sold all of their common and preferred shares in
Teleglobe to the court-appointed monitor for nominal consideration.
The sale triggered approximately $10 billion of capital losses. BCE recorded
a gain of $1,042 million, relating primarily to the tax benefit from (i)
reinstating non-capital losses that were previously used to offset the gain on
sale of Nortel Networks shares in 2001; and (ii) applying a portion of the
capital losses against the gain on the sale of the Directories business in 2002.
A valuation allowance has been provided against the entire amount of the unused
tax benefit associated with the capital losses.
18
CHANGE IN ACCOUNTING FOR TELEGLOBE
Since (i) BCE's management did not expect any future economic benefits from
its approximate 96% economic and voting interest in Teleglobe; (ii) BCE has not
guaranteed any of Teleglobe's obligations; and (iii) BCE has ceased further
long-term funding to Teleglobe, BCE deconsolidated Teleglobe's financial results
effective May 15, 2002, and began accounting for the investment at cost.
The following are amounts relating to BCE's interest in the net assets of
Teleglobe on May 15, 2002: current assets of $1.4 billion, non-current assets of
$4.3 billion, current liabilities of $3.6 billion, and non-current liabilities
of $2.1 billion.
Refer to Note 8 "Commitments and Contingencies" for a description of the
lending syndicate lawsuit filed against BCE Inc.
BCI
Prior to the sale of its interest in Telecom Americas Ltd., BCI developed
and operated advanced communications companies in markets outside Canada, with a
focus on Latin America. Effective January 1, 2002, BCE adopted a formal plan to
dispose of its operations in BCI. As a result, BCI's results were reported as
discontinued operations.
BCI'S PLAN OF ARRANGEMENT
BCI completed the sale of its interest in Telecom Americas Ltd. in July
2002. BCI held most of its investments through Telecom Americas Ltd. BCI will be
liquidated once all of its assets have been disposed of and all claims against
it have been determined. A final distribution will be made to BCI's creditors
and shareholders with the approval of the court.
CHANGE IN ACCOUNTING FOR BCI
Effective June 30, 2002, BCE deconsolidated BCI's financial results, and now
accounts for the investment at cost. Therefore, all future financial results of
BCI will not affect BCE's future financial results.
BCE recorded a charge of $316 million in 2002 ($191 million in the second
quarter and $125 million in the fourth quarter), representing a write-down of
its investment in BCI to an estimate of its net realizable value. The charge was
reported as a loss from discontinued operations.
Amounts included in the consolidated balance sheets relating to discontinued
operations are as follows:
-------------------------------------------------------------------------
December December
31 31
($ millions) 2002 2001
-------------------------------------------------------------------------
Current assets - 1,957
Non-current assets 50 16,576
Current liabilities - (5,855)
Non-current liabilities - (5,250)
-------------------------------------------------------------------------
Net assets of discontinued operations 50 7,428
-------------------------------------------------------------------------
The summarized statements of operations for the discontinued operations are
as follows:
-------------------------------------------------------------------------
For the period ended December 31 Three months Twelve months
------------------------------------------
($ millions) 2002 2001 2002 2001
-------------------------------------------------------------------------
Revenue - 984 681 3,695
------------------------------------------
Operating loss from
discontinued
operations, before tax - (251) (123) (3,407)
Gain (loss) on
discontinued
operations, before tax (125) 0 (407) 461
Income tax recovery on
operating loss - 75 40 209
Income tax recovery
(expense) on (gain) loss 1,042 0 1,060 (45)
Non-controlling interest - (19) 7 (275)
-------------------------------------------------------------------------
Net gain (loss) from
discontinued operations 917 (195) 577 (3,057)
-------------------------------------------------------------------------
19
7. EARNINGS PER SHARE DISCLOSURES
The following is a reconciliation of the numerators and the denominators of
the basic and diluted earnings per common share computations for earnings from
continuing operations:
-------------------------------------------------------------------------
For the period ended December 31 Three months Twelve months
------------------------------------------
2002 2001 2002 2001
-------------------------------------------------------------------------
Earnings (loss) from continuing
operations (numerator)
($ millions)
Earnings (loss) from
continuing operations 835 (90) 1,898 3,571
Dividends on preferred
shares (16) (14) (59) (64)
-------- -------- --------- ----------
Earnings from continuing
operations - basic 819 (104) 1,839 3,507
Exercise of put options
by CGI shareholders 3 0(1) 12 2
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations -
diluted 822 (104) 1,851 3,509
-------------------------------------------------------------------------
Weighted average number of
common shares outstanding
(denominator) (millions)
Weighted average number
of common shares
outstanding - basic 909.1 808.5 847.9 807.9
Exercise of stock options 1.9 0(1) 2.0 4.4
Exercise of put options
by CGI shareholders 13.0 0(1) 13.0 5.6
-------------------------------------------------------------------------
Weighted average number
of common shares
outstanding - diluted 924.0 808.5 862.9 817.9
-------------------------------------------------------------------------
(1) Anti-dilutive
8. COMMITMENTS AND CONTINGENCIES
TELEGLOBE LENDING SYNDICATE LAWSUIT
Certain members of the Teleglobe lending syndicate (the "Plaintiffs") filed
a lawsuit against BCE Inc. in the Ontario Superior Court of Justice on July 12,
2002. The Plaintiffs seek damages from BCE Inc. in the aggregate amount of
US$1.19 billion (together with interests and costs), which they allege is equal
to the amount they advanced as members of the Teleglobe and Teleglobe Holdings
(U.S.) Corporation lending syndicate. The Plaintiffs' claim is based on several
allegations, including that the actions and representations of BCE Inc. and its
management in effect constituted a legal commitment of BCE Inc. that the
advances would be repaid and that the court should disregard Teleglobe as a
corporate entity and hold BCE Inc. responsible to repay the advances as
Teleglobe's alter ego. The Plaintiffs represent approximately 95.2% of the
US$1.25 billion advanced by the members of such lending syndicate. While the
final outcome of any legal proceeding cannot be predicted with certainty, based
upon information currently available, BCE Inc. is of the view that it has strong
defences and it intends to vigorously defend its position.
CRTC SECOND PRICE CAP DECISION 2002-34
On May 30, 2002, the CRTC released Decision 2002-34, "Second Price Cap
Decision", making a number of changes to the rules governing Canada's
telecommunications industry with respect to local service for the next four
years. One of the changes resulting from this Decision is that there be a
mechanism (referred to in the Decision as the "deferral account") to provide to
the majority of residential customers a combination of certain enhanced
services, reduced rates and/or rebates, and certain other adjustments. Bell
Canada will propose the manner in which it will implement these directives to
the CRTC in March 2003. As at December 31, 2002, BCE's commitment associated
with this Decision is estimated at $99 million.
-30-
For further information: Nick Kaminaris, Communications, (514) 786-3908,
Web Site: www.bce.ca; Isabelle Morin, Investor Relations, (514) 786-3845
20
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.
BCE Inc.
(Signed Michael T. Boychuk)
-----------------------------------------------------
Michael T. Boychuk
Senior Vice-President and Corporate Treasurer
Date: January 29, 2003