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: February 2005 | 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.
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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Notwithstanding any reference to BCEs Web site on the World Wide Web in the documents attached hereto, the information contained in BCEs site or any other site on the World Wide Web referred to in BCEs site is not a part of this Form 6-K and, therefore, is not filed with the Securities and Exchange Commission.
News
Release |
For immediate release
(All figures are in Cdn$, unless otherwise indicated)
BCE REPORTS 2004 YEAR-END AND FOURTH QUARTER RESULTS
Montréal, Québec, February 2, 2005 For the full year 2004 BCE Inc. (TSX, NYSE: BCE) reported revenue of $19.2 billion, up 2.4 per cent and EBITDA(1) of $7.6 billion, an increase of 2.1 per cent over the full year 2003. For the fourth quarter of 2004, the company reported revenue of $5.0 billion, up 3.5 per cent, and EBITDA of $1.8 billion, down 0.9 per cent when compared to the same period last year. In 2004, before restructuring BCE achieved its free cash flow(2) target of approximately $1 billion and earnings per share (EPS)3 of $2.02 which was up 6.3 per cent.
The past year was important for BCE as we laid the foundation to position Bell Canada for a new era of communications, said Michael Sabia, President and Chief Executive Officer of BCE Inc. We delivered on our key strategic initiatives and met our guidance for financial performance in 2004. Overall, our progress in the year gives us confidence in the forward momentum of the company as outlined at our annual investor conference in mid-December.
The companys performance in 2004 and the outlook for 2005 and beyond were among the factors that led BCE in December to increase its common share annual dividend by $0.12, or 10 per cent.
In the fourth quarter, the companys revenue growth rate continued to improve. The quarter saw continued subscriber growth in wireless, video and DSL. In the year, the company added nearly one million new subscribers for its digital services. The growth in sales of bundles to consumers and value-added solutions to business customers continued during the quarter. Bells voluntary separation program, which saw a staff reduction of over 5,000, was largely completed during the quarter. This will contribute to improving the companys competitiveness going forward.
There were several events in the fourth quarter that had an impact on results. The most significant of these were the trailing impact of the implementation of a new billing system at Mobility and the residual impact of the strike at Aliant.
Reflecting on 2004, our challenge was to continue transitioning Bell to a new business model while at the same time delivering financial performance and operational progress, said Mr. Sabia. Through the course of 2004 we believe we met that goal.
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BCEs progress in 2004 included:
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BCEs
rate of revenue growth during the year increased in each consecutive quarter |
|
Bells
Galileo program began to have a growing impact across the company, simplifying
operations. Galileo is targeted to produce $1 to $1.5 billion in annual
savings by the end of 2006. |
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Bell
began the rollout of its Fibre-to-the-Node program to bring abundant bandwidth
to customers in the Quebec City to Windsor corridor. |
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Bell
Bundles continue to be well received by customers: 368,000 bundles were
sold in 2004, and 430,000 have been sold since the inception of the offer. |
|
In
the business sector, value-added solutions (VAS), many based on Internet
Protocol, are helping build strong relationships with customers beyond
the standard connectivity Bell traditionally provides. |
We set out a clear plan of action for 2004 and the metrics by which we would measure our progress. said Mr. Sabia. Throughout the year, we made progress despite operating challenges and an industry and market that continues to change rapidly. In 2005, we will continue to execute on that plan. We are satisfied that our progress in 2004 has established the underlying trajectory of the business that will lead to profitable growth going forward, concluded Mr. Sabia.
BCE Financial Performance
On a full year basis, excluding restructuring items as well as net gains on investments(4), operating income reached $4.2 billion. Earnings per share (EPS) was $2.02, an increase of 6.3 per cent over the previous year. On the same basis for the quarter, BCEs operating income was $961 million, and EPS was $0.45, representing an EPS increase of 7.1 per cent over the fourth quarter of 2003.
The most significant of the one-time restructuring items taken during the year was a charge of $985 million ($647 million after tax) in the third quarter, reflecting the cost of Bells Voluntary Employee Departure Program. The departures, representing 10 per cent of Bells workforce, are expected to provide annual savings of approximately $390 million going forward.
On a full-year basis including the restructuring items and net gains on investments, operating income decreased by 27.8 per cent to $3.0 billion. EPS was $1.65, a decrease of 13.2 per cent. On the same basis operating income in the fourth quarter was $835 million and EPS was $0.45, representing an EPS increase of 9.8 per cent from the same period last year.
Key Operational Achievements
Wireless
Despite
challenges presented by the migration to a new billing platform, the companys
wireless subscriber base grew by 513,000 subscribers in 2004, matching the
growth recorded in 2003. We added 217,000 subscribers in the quarter, exceeding
last years fourth quarter level of net activations by 15 per cent.
3
Revenue for the full year was $2.8 billion, a 14.5 per cent increase over the previous year, driven by subscriber growth. Revenue in the quarter reached $742 million, an increase of 13 per cent over the fourth quarter of 2003.
EBITDA performance rose 29 per cent on a full year basis and by 20 per cent in the fourth quarter over the same periods last year. EBITDA margin increased to 41.5 per cent for the full year, up 5 points from 2003.
Wireless churn for the full year was 1.3 per cent, reflecting a 0.1 percentage point improvement compared to full year 2003. Churn for the fourth quarter was 1.4 per cent, unchanged from the same period last year.
The wireless unit is past the peak of the billing challenge. Bills are currently being sent on time, call volumes are substantially reduced and efforts are being made to return service to the high levels that Bell customers have come to expect.
Also during the quarter, Bell announced plans for the launch of a next-generation wireless data network that will feature speeds six times that which is currently available. Known as Evolution, Data Optimized (EVDO) the network will enable wireless services such as video mail, gaming, videoconference and digital streaming and telematics.
Video
Bell reached
a significant milestone at the end of 2004, signing on its 1.5 millionth video
customer.
For the full year, 116,000 new video customers were added, an increase of 40 per cent over 2003. Bell added 43,000 new video customers in the fourth quarter, 23 per cent better than the growth achieved in the fourth quarter in 2003.
For the full year, the increase in customers drove double-digit revenue growth for video, augmented by stronger marketing programs, solid churn at 1 per cent (0.8 per cent for the fourth quarter) and a $3 improvement in average revenue per user (ARPU). Bell has also seen a quarter-over-quarter downward trend in its video cost of acquisition.
Bell ended the year having signed access agreements with 335 multi-dwelling unit (MDU) buildings for its very high-speed DSL (VDSL) service, well ahead of its target for the year of 300 buildings. More than half of new VDSL customers are also signing up for Sympatico High Speed service.
High-Speed
Internet (DSL)
The companys
digital subscriber line (DSL) high-speed Internet business ended 2004 with
1.8 million customers, an increase of 24 per cent over the previous year.
On a full year basis, 350,000 new customers were added slightly less than
in 2003. During the fourth quarter, 91,000 new customers were added, slightly
above last year.
4
Growth of value added services (VAS) sold to Sympatico DSL customers increased significantly during the full year and the fourth quarter. The year ended with a total of 624,000 subscriptions, more than double year end 2003 and there were 337,000 net VAS additions in the fourth quarter alone. Nearly one out of every four DSL customers takes at least one VAS.
The Sympatico.msn.ca site continues to be a leading portal in the country with 16 million unique visitors every month. Revenue from the portal increased by nearly 50 per cent in 2004 compared to the previous year. Demonstrating that the way customers are using the feature-rich site is changing, there has been a three-fold increase (2004 vs. 2003) in the use of video streaming. In 2004, customers downloaded 7.4 million video streams, compared to just 2.4 million in 2003.
Consumer
The consumer segment achieved profitable growth, revenues were up 4.2 per cent and operating income increased 5 per cent for the year. The segment focused on establishing and deepening long-term relationships with customers across all its product lines.
Adoption of the Bell Digital Bundle (a combination of video, wireless and high-speed Internet services) continued to accelerate through 2004 and in the fourth quarter. For the full year, customers purchased 368,000 new bundles. In the fourth quarter, customers purchased 118,000 new bundles and 49 per cent of these customers added at least one new service.
Since the inception of the offering, the company has sold 430,000 Bell Bundles. In the coming months, Bell will continue to drive Bell Bundle growth levels toward its target of 1 million bundles sold by the end of 2005.
Also driving the growth in bundle sales is a special long distance offer introduced by Bell in June of 2004. The offer is a $5/month long distance calling plan for 1,000 minutes of calling anywhere in Canada and the United States, exclusively available to Bell Bundle customers. By the end of 2004, 229,000 customers had signed up for the long distance offer.
Business
In the Business Segment, the company continued to make progress in the adoption of its VAS and Internet Protocol (IP)-based services. Operating income in the Business Segment increased by 15 per cent in 2004, compared to 2003.
Small and Medium Business
The Small and Medium Business (SMB) segment continues to move forward with its strategy to become the trusted technology advisor the Virtual CIO for small and medium businesses. The new capabilities we are adding to the business are revitalizing the group and delivering growth. The opportunity in SMB market for integrated IT and Telecom solutions is solidly increasing.
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In this area, customers are rapidly gaining awareness of Bells expertise and offerings. At the end of 2004, subscriptions to the groups Value-Added Solutions had reached 83,000, compared to a total of 13,000 in 2003 more than a 6 fold increase. As well, the volume of business referrals from newly acquired Charon Systems is tracking well above expectations with over 200 joint deals in the sales funnel and revenues up 20% year-over-year totaling $36.1 million in 2004, evidence of its overall strategic fit within the group.
The SMB group is also closing a growing number of deals that are significantly increasing the size of existing accounts. Customers are now moving from plain connectivity or legacy products to Managed (IP-VPN) virtual private network, combined with managed applications and hosted Internet.
In early December, Bell announced an offer to purchase all outstanding shares of Nexxlink Technologies, a Montréal-based provider of information technology solutions. Nexxlink has particular expertise in business operation automation software, outsourcing solutions, consulting and technical solutions, and infrastructure solutions. In January, Bell announced that 86.3 per cent of the aggregate number of common shares outstanding (fully diluted) had been purchased under the offer.
Additionally, Bells SMB segment announced in mid-December that it is collaborating with Microsoft to develop a new integrated services portfolio offering greater productivity, security and reliability to SMBs.
The migration of Bell customers to IP accelerated throughout the year. The Group doubled the data and VAS revenue delivered over IP as a percentage of total data revenues from 22 per cent in 2003 to 43 per cent in 2004.
Since the beginning of the New Year, Bell has joined with several leading Canadian organizations to announce large-scale IP implementation projects. A significant sales achievement for the quarter is the agreement signed with IBM Canada Ltd. through which Bell will restructure and upgrade the bandwidth of IBMs IP VPN (Virtual Private Network) Network. The network will continue to link IBMs various processing centres in Canada and the United States but with 600 Mbps of bandwidth. Bell also won a five-year $5.8 million contract with La Senza Inc. for an IP VPN network with 280 sites.
Last week, Bell announced an $84 million contract with BMO Financial Group for the implementation of a national IP network that will see 1100 branches convert to the new technology. Several days earlier, the Université du Québec à Montréal (UQAM) launched its Bell-provided Convergence Network, the provinces largest University IP Network with 4000 lines.
These contracts represent major sales for Bell and signal growing customer adoption of IP-based solutions. They closely follow another major IP contract signed with Manulife Financial in December 2004. The company now has 145,000 voice IP lines in service.
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The Value Added Solutions portfolio continues to experience significant growth and 65 per cent of Bells large Enterprise customers now use at least one element of the VAS portfolio.
Significant VAS contract sales in the fourth quarter included a three-year $66 million contract with the Fédération des Caisses Desjardins du Québec for a managed point of sale solution supporting debit/credit transactions on a national basis.
In 2004, Bell in the west has focused on providing a full suite of wireline, wireless and satellite solutions to business customers throughout British Columbia and Alberta. The company has adopted an integrated sales model where wireline and wireless sales are offered and managed through a single point of contact, something not currently offered by its primary competitor in this market.
Mechanical construction of the Supernet was completed in December and Bell is developing advanced IP applications that will run over this state-of-the-art network.
The closing of Bells purchase of 360networks Corporation was completed in November, greatly augmenting the companys on-net capabilities in the two provinces and significantly expanding its customer base.
Telesat Canada
Revenue at Telesat
for the full year reached $362 million, an increase of 4.9 per cent over 2003.
Full year operating income of $141 million was up 13.7 per cent over 2003.
In the fourth quarter, revenue totaled $102 million, representing a 3 per
cent increase versus the comparable quarter in 2003. Operating income for
the quarter reached $37 million, an increase of 12.1 per cent.
Telesats Anik F2 satellite began commercial operation and became the worlds first satellite to commercialize the Ka band. This frequency band delivers two-way broadband services enabling highspeed satellite service to consumers and businesses in Canada and the United States.
Telesat also has two satellites pending launch. The Anik F1-R has been constructed and is now in testing phase with launch planned for this summer and commercial service to begin in the fall. Anik F3 is currently under construction for a planned launch in the latter half of 2006.
Bell Globemedia
Revenue at Bell Globemedia for the full year reached $1.4 billion, an increase
of 4.2 per cent over 2003. Full year operating income of $240 million was
up 43.7 per cent over 2003. In the quarter, revenue increased by 8 per cent
to reach $405 million and operating income in the quarter reached $103 million,
an increase of 56.1 per cent.
7
With 16 of the top 20 regularly-scheduled programs in the country last fall, CTV saw its television advertising revenue grow by 8 per cent for the full year. Another contributing factor was the NHL lockout, which led hockey sponsors to seek alternate advertising opportunities on CTV.
At The Globe and Mail, print revenue was solid in the quarter with national advertising up 27 per cent over the same period in 2003. There was also double-digit growth in revenues from the newspapers on-line properties. The latest NADBank release shows solid increases in readership in the core target audience and The Globe and Mail now has double The National Posts weekday readership.
Outlook
BCE Inc. confirmed its 2005 guidance which was issued at its 2005 business review on December 15, 2004.
Bell Canada
Financial Performance
Bell Canadas
financial performance was also affected this quarter and throughout
the year by the five-month strike at Aliant and by the restructuring
programs mentioned earlier in this release. Bells performance
both excluding and including these factors is discussed below.
Full Year 2004
Excluding
the impact of the labour disruption at Aliant and the restructuring
items4, Bell Canadas full year revenue increased
by 1.3 per cent to reach $16.8 billion and operating income increased
3.4 per cent to $4.0 billion.
Including these factors, Bell Canadas revenue for the year was $16.8 billion, an increase of 1 per cent and operating income was $2.7 billion, decreasing 29.7 per cent from $3.8 billion.
Fourth Quarter
2004
Excluding
the impact of the labour disruption at Aliant and the restructuring
items4, Bell Canadas fourth quarter revenue
increased by 1.7 per cent to reach $4.3 billion, operating income decreased
to $867 million and operating income margin decreased from 22.2 per
cent to 20.1 per cent.
Including these factors, Bell Canadas revenue for the quarter was $4.3 billion, an increase of 1.3 per cent. Operating income decreased 21.4 per cent to $731 million. Operating margin was 17 per cent, down from 21.9 per cent the previous year.
Revenue and EBITDA
In terms
of revenue, the process of migrating to the new Mobility billing system
placed emphasis on maintaining service levels at the expense of revenue-generating
activities, with corresponding impacts on EBITDA and operating income.
As well, in the Business segment operating income declined for the quarter
compared to 2003 mainly due to the completion of the Hydro Quebec contract
in 2003 and wireless billing issues.
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Furthermore, growth in key services increased Bells cost of acquisition and the marketing and advertising expenses required to achieve that growth. While these measures will provide for future growth, they negatively impacted Bells EBITDA this quarter.
For additional details on the companys financial performance for the full year and the fourth quarter, see the Managements Discussion and Analysis (MD&A) which forms a part of this news release.
BELL CANADA STATUTORY RESULTS
Bell Canada statutory includes Bell Canada, and Bell Canadas interests in Aliant, Bell ExpressVu (at 52%), and other Canadian Telcos.
For the full year, Bell Canadas reported statutory revenue was $16.8 billion in 2004, up 1 per cent compared to 2003, and net earnings applicable to common shares were $1.5 billion in 2004, compared to $2.2 billion in 2003, a decrease of 32 per cent. In the fourth quarter, Bell Canadas reported statutory revenue was $4.3 billion, up 1.3 per cent compared to the same period last year. Net earnings applicable to common shares were $465 million in the fourth quarter of 2004, compared to net earnings applicable to common shares of $670 million for the same period last year, a decrease of 30.6 per cent.
ABOUT BCE
BCE is Canadas largest communications company. Through its 27 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, value-added business solutions 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.
BCE 2004 Fourth Quarter Financial Information:
BCEs 2004 Fourth Quarter Shareholder Report will be sent to BCEs shareholders who have requested to receive it on or about February 7, 2005.
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Call with Financial Analysts:
BCE will hold a teleconference/Webcast (audio only) for financial analysts to discuss its fourth quarter and year-end results on Wednesday, February 2, 2005 at 8:00 a.m. (Eastern). The media is welcome to participate on a listen-only basis. Michael Sabia, President and Chief Executive Officer, Siim Vanaselja, Chief Financial Officer, and other senior executives of the company will be present for the teleconference.
Interested participants are asked to dial (416) 405-9310 or 1 877-211-7911 between 7:50 a.m. and 7:58 a.m. (Eastern). 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. An archive of this call will remain on the companys web site until 5:00 PM, Tuesday, May 3, 2005.
Call with the Media:
BCE will hold a teleconference/Webcast (audio only) for media to discuss its fourth quarter results on Wednesday, February 2, 2005 at 2:00 p.m. (Eastern). Michael Sabia will be present for this teleconference.
Notes:
1 | 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 2004 Fourth Quarter MD&A entitled Non-GAAP
Financial Measures included in this news release for more
details on EBITDA including reconciliation to operating income.
|
2 | 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 2004 Fourth Quarter
MD&A entitled Non-GAAP Financial Measures included
in this news release for more details on free cash flow and to the
section of the MD&A entitled Financial and Capital Management
for a reconciliation of free cash flow to cash from operating activities.
For 2005, we expect to generate approximately $700 million to $900
million in free cash flow. This amount reflects expected cash from
operating activities of approximately $5.9 billion to $6.1 billion
less capital expenditures, total dividends and other investing activities.
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3
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Earnings
per share of $2.02 has been computed excluding the restructuring
and other items and net gains on investments described in note 4
below. Including those restructuring and other items and net gains
on investments earnings per share was $1.65, a decrease of 13.2
per cent compared to last year. Refer to note 4 for a description
of the nature and amounts of such restructuring and other items
and net gains on investments. |
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4 | In
Q4 2004, operating income was affected by restructuring and other
items of $126 million and the labour disruption at Aliant which
had an estimated negative impact of $13 million. The restructuring
and other items consisted of $67 million related to Aliants
employee departure program and other charges of $59 million consisting
primarily of closure costs for excess facilities, various asset
write-downs and other provisions. The net earnings and earnings
per share were affected by net gains on investments of $62 million
(or $0.06 per share) relating primarily to the extraordinary gain
on the purchase of the Canadian operations of 360networks Corporation,
which were offset by after-tax restructuring and other items of
$62 million (or negative $0.06 per share). In Q4 2003, operating
income was affected by restructuring and other items of $13 million
and net earnings and earnings per share were affected by the after-tax
restructuring and other items of $9 million and net losses on investments
of $10 million, for a total impact of negative $0.01 per share. |
For
the full year of 2004, operating income was affected by restructuring
and other items of $1.2 billion and the labour disruption at Aliant
which had an estimated negative impact of $68 million. The restructuring
and other items consisted of $996 million related to Bell Canadas
employee departure program, $67 million related to Aliants
employee departure program and other charges of $161 million consisting
primarily of closure costs for excess facilities, various asset
write-downs and other provisions. The net earnings and earnings
per share were affected by net losses of $349 million (or $0.37
per share) consisting of the after-tax restructuring and other items
of $772 million (or negative $0.83 per share) and net gains on investments
of $423 million (or $0.46 per share) relating primarily to the extraordinary
gain on the purchase of the Canadian operations of 360networks Corporation
and the sales of our investments in BCE Emergis Inc., Manitoba Telecom
Services Inc. and YPG General Partner Inc. For the full year of
2003, operating income was affected by restructuring and other items
of $14 million and net earnings and earnings per share were affected
by the after-tax restructuring and other items of $3 million and
net losses on investments of $2 million, for a nominal impact per
share. |
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. These statements do not reflect the potential impact of any 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 risks that could cause actual results or events to differ materially from current expectations please refer to the section entitled Risks That Could Affect Our Business contained in BCE Inc.s 2004 Fourth Quarter MD&A dated February 1, 2005, included in this news release and filed by BCE Inc. with the Canadian securities commissions (available at www.bce.ca or on SEDAR at www.sedar.com) and with the U.S. Securities and Exchange Commission under Form 6-K (available on EDGAR at www.sec.gov). The forward-looking statements contained in this news release represent our expectations as of February 2, 2005 and, accordingly, are subject to change after such date. However, we disclaim any intention or obligation to update any forward-looking statements, whether as a result of new information or otherwise.
France
Poulin Communications (514) 786-8033 Web site: www.bce.ca |
Sophie Argiriou |
In this MD&A, we,
us, our and BCE mean BCE Inc., its subsidiaries and
joint ventures. 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, believe, could, expect, goal, guidance, intend, may, objective, outlook, plan, seek, strive, target and will. |
Managements Discussion and Analysis This managements discussion and analysis of financial condition and results of operations (MD&A) comments on BCEs operations, financial condition and cash flows for the three months (Q4) and twelve months ended December 31, 2004 and 2003. 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. It is important to know that:
Risks that could cause our actual results to materially differ from our current expectations are discussed in this MD&A including, in particular, in Risks That Could Affect Our Business. |
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We
define EBITDA as operating revenues less operating expenses, which means
it represents operating income before amortization expense, net benefit
plans cost, and restructuring and other items.
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NON-GAAP FINANCIAL MEASURES EBITDA
The term, EBITDA (earnings before interest, taxes, depreciation and amortization),
does not have any standardized meaning prescribed by 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. |
2 2004 Quarterly Report Bell Canada Enterprises
EBITDA should not be confused with net cash flows from operating activities. The most comparable Canadian GAAP financial measure is operating income which is discussed in the Financial Results Analysis section of this MD&A. The tables below are reconciliations of EBITDA to operating income on a consolidated basis for BCE and Bell Canada. |
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BCE |
Q4 2004 | Q4 2003 | FY 2004 | FY 2003 | ||||||
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EBITDA |
1,831 | 1,847 | 7,564 | 7,410 | ||||||
Amortization expense |
(803 | ) | (775 | ) | (3,108 | ) | (3,100 | ) | ||
Net benefit plans cost |
(67 | ) | (46 | ) | (256 | ) | (175 | ) | ||
Restructuring and other items |
(126 | ) | (13 | ) | (1,224 | ) | (14 | ) | ||
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Operating income |
835 | 1,013 | 2,976 | 4,121 | ||||||
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Bell Canada |
Q4 2004 | Q4 2003 | FY 2004 | FY 2003 | ||||||
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EBITDA |
1,679 | 1,731 | 7,111 | 7,001 | ||||||
Amortization expense |
(763 | ) | (742 | ) | (2,962 | ) | (2,970 | ) | ||
Net benefit plans cost |
(62 | ) | (46 | ) | (235 | ) | (181 | ) | ||
Restructuring and other items |
(123 | ) | (13 | ) | (1,219 | ) | (14 | ) | ||
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Operating income |
731 | 930 | 2,695 | 3,836 | ||||||
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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
The term, free cash flow,
does not have any standardized meaning prescribed by 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. |
|
Video services are television services provided to customers through our direct-to-home (DTH) satellites or by very high-speed digital subscriber line (VDSL) equipment. |
About
our Business
BCE is Canadas largest communications company. Starting in the first
quarter of 2004, we report our results of operations under five segments:
Consumer, Business, Aliant, Other Bell Canada and Other BCE. Our
reporting structure reflects how we manage our business and how we classify
our operations for planning and measuring performance. Therefore, in addition
to discussing our consolidated operating results in this MD&A, we
discuss the operating results of each of our segments. See Note 2 to the
unaudited consolidated financial statements for information about our
segments. |
3 2004 Quarterly Report Bell Canada Enterprises
The
Other Bell Canada segment includes Bell Canada's wholesale business,
and the financial results of Télébec Limited Partnership
(Télébec), NorthernTel Limited Partnership (NorthernTel)
and Northwestel Inc. (Northwestel). Our wholesale business provides
local telephone, long distance, wireless, data and other services to competitors
who resell these services. Télébec, NorthernTel and Northwestel
provide telecommunications services to less populated areas in Québec,
Ontario and Canadas northern territories. |
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This section reviews the key measures we use to assess our performance and how our results in 2004 compare to our results in 2003. |
The
Year in Review
The results for 2004 demonstrate steady progress on our strategic
objectives. We set a solid foundation for future growth, simplification
of our customers experience and the transformation of our cost structure. |
4 2004 Quarterly Report Bell Canada Enterprises
in each season. The improvement in revenue, combined with cost savings, contributed to significantly higher operating performance compared to 2003. Telesats revenues improved in 2004 as an increase in telecommunications revenue more than offset declines in consulting fees. CGIs revenues also increased due to its acquisition of American Management Systems Incorporated (AMS) in May 2004. | ||
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CUSTOMER CONNECTIONS
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OPERATING REVENUES Revenues of $19,193 million for the year increased 2.4% over last year, a rate of growth which exceeded our 2003 performance. Bell Canada contributed most of the increase despite the trailing effects of the implementation of a new wireless billing system and a prolonged labour disruption at Aliant. Bell Canadas revenue growth reflects improved performance in the Consumer segment stemming from stronger wireless, Internet access and video services, along with higher IP-connectivity and VAS revenues in the Business segment. Revenue growth was enhanced further by higher revenues at CGI, resulting from the AMS acquisition, and at Bell Globemedia, resulting from higher television advertising revenues due to strong ratings performance. OPERATING INCOME AND EBITDA Operating income for the
year of $2,976 million was $1,145 million lower than last year,
mainly as a result of restructuring and other items of $1,224 million
during 2004. The cost of the employee departure programs announced
at Bell Canada in June of this year, encompassing a total of
5,052 employees, and at Aliant, announced in the fourth quarter this year
encompassing a total of 693 employees, amounted to $1,063 million.
In addition, the labour disruption at Aliant had an estimated negative
impact of $68 million on operating income. Operating income before
restructuring and other items for the year of $4,200 million was
$65 million higher than last year despite the estimated negative
impact of $68 million of the Aliant labour disruption. This increase reflects
the EBITDA growth, partially offset by higher net benefit plans cost. |
5 2004 Quarterly Report Bell Canada Enterprises
The
Other BCE units also contributed to the overall EBITDA growth. Bell Globemedias
EBITDA improvement reflects a higher level of television advertising revenue
and benefits from cost savings. CGI reflects the benefit of the AMS acquisition. |
||
ROE (return on common shareholders equity) is calculated as net earnings applicable to common shares as a percentage of average common shareholders equity.
|
NET
EARNINGS / EARNINGS PER SHARE Net earnings applicable to common shares for 2004 were $1,523 million, or $1.65 per common share. This compared to net earnings of $1,744 million, or $1.90 per common share in 2003. ROE was 12.5% in 2004, compared to 15.1% last year. Included in 2004 net earnings were net losses of $349 million, or $0.37 per common share, consisting primarily of:
partly offset by:
This
compared to net losses of $5 million included in 2003 net earnings
due to the loss on sale of Emergis U.S. Health operations, which
was partly offset by a gain on sale of an interest in YPG General Partner Inc. CAPITAL EXPENDITURES For the full year, capital expenditures of $3,364 million were $197 million, or 6.2% higher than 2003. Capital spending as a percentage of revenues this year was 17.5%, compared to 16.9% last year. Capital intensity at Bell Canada also increased from 17.4% to 18.0% . Bell Canada capital spending in 2004 reflected a mix of higher investment in the growth areas of the business and reduced expenditures in legacy areas. Our key strategic investments this year included the migration to one national IP-Multi-Protocol Label System (MPLS) network, our VDSL deployment strategy, our DSL footprint expansion facilitated through the deployment of new high-density remotes, and productivity enhancement initiatives. Higher spending related to satellite builds at Telesat also contributed to the increase. CASH FROM OPERATING ACTIVITIES AND FREE CASH FLOW Cash from operating activities for 2004 totalled $5,519 million, down $449 million compared to last year. The decline resulted mainly from cash tax refunds of $440 million received in 2003 that did not recur this year, higher cash payments related to the employee departure programs and higher working capital requirements, partly offset by the receipt of $75 million from the settlement of lawsuits against MTS and Allstream Inc. |
6 2004 Quarterly Report Bell Canada Enterprises
We
generated free cash flow for the year totalling $898 million or $1,092 million
before restructuring and other items. Compared to 2003, free cash
flow was down $691 million, mainly reflecting the $449 million
decline in cash from operating activities and higher capital expenditures
of $197 million. EXECUTING ON OUR PRIORITIES Setting the Standard
in Internet Protocol (IP) The first of these objectives is to have 100% of our core traffic moved to a pervasive national IP MPLS network by the end of 2006.
Our second objective is for 90% of customers to have access to a full suite of IP services by the end of 2006.
Simplicity and Service |
7 2004 Quarterly Report Bell Canada Enterprises
During
the year, Bell ExpressVu announced a major overhaul of its service
to stimulate growth and invigorate the business. This included program
repackaging and All-in-One pricing principles. Bell ExpressVu also
initiated service on Nimiq 3, a high powered direct broadcast satellite
to boost capacity and to enhance signal quality. Bell ExpressVu made
solid progress in the deployment of VDSL to MDUs. By the end of the year,
we had signed access agreements with 335 buildings.
We
also made significant advancements in improving the customer experience
in our corporate stores. A 30% reduction in activation time helped generate
an increase of 15% in average revenue per store.
For Enterprise customers, we launched our Managed IP Telephony service. We also enhanced our portfolio of value-added services through the acquisitions of:
|
8 2004 Quarterly Report Bell Canada Enterprises
Telesats Anik F2 satellite began commercial operation in October and became the worlds first satellite to commercialize the Ka frequency band. This frequency band delivers two-way broadband services enabling high-speed satellite services to consumers and businesses in Canada and the U.S. New labour agreements Rewarding Shareholders |
||
This section reviews the key measures we use to assess our performance and how our results in Q4 2004 compare to our results in Q4 2003.
|
We delivered Q4 revenue
growth of 3.5% at BCE and 1.3% at Bell Canada, an improvement in
our rate of growth for the fourth consecutive quarter. Consolidated operating
income at BCE this quarter was down 17.6% driven by restructuring and
other items mainly related to Aliants employee departure program,
costs associated with the new wireless billing platform, the residual
impact of the Aliant labour disruption, higher costs of acquisition in
our Consumer segment and cost pressures in the Business and Wholesale
segments. |
|
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|
CUSTOMER CONNECTIONS
|
9 2004 Quarterly Report Bell Canada Enterprises
|
OPERATING REVENUES We achieved revenues of $4,989 million this quarter, reflecting a year-over-year increase of 3.5% and a fourth consecutive quarter of improved growth rates. This growth reflected higher revenue performance at Bell Canada driven primarily by increases in wireless, Internet and video services and revenues stemming from the acquisition in November of 360networks included in our Wholesale unit. These increases were partly offset by the negative impact of the Aliant strike. Higher revenues at CGI resulting from the AMS acquisition and stronger advertising revenues at Bell Globemedia also contributed to the overall revenue growth. OPERATING INCOME AND EBITDAOperating income for the quarter was $835 million, down $178 million compared to the same period last year. This decrease resulted from the recognition of restructuring and other items in the amount of $126 million in the quarter related to Aliants employee departure program and costs related to the relocation of employees and the closure of excess real estate facilities at Bell Canada. Operating income before restructuring and other items for the quarter was $961 million, down $65 million compared to the same period last year reflecting the impacts of:
This
quarters results also reflect a higher net benefit plans cost compared
to last year and accelerated depreciation expense related to our wireless
legacy prepaid platform replacement. |
|
NET
EARNINGS / EARNINGS PER SHARE
Net earnings applicable to common shares for Q4 2004 were $417 million,
or $0.45 per common share. This compared to net earnings of $386 million,
or $0.41 per common share, in the fourth quarter last year. Included in
this quarters net earnings were a $69 million extraordinary
gain on the purchase of the Canadian operations of 360networks which was
offset by costs of $69 million mainly for the employee departure
program at Aliant and other restructuring and other items. This compared
to net losses of $19 million in Q4 2003. In 2003, the loss
on the sale of Emergis U.S. Health operations was partly offset
by the gain on the sale of an interest in YPG General Partner Inc.
|
10 2004 Quarterly Report Bell Canada Enterprises
|
CAPITAL
EXPENDITURES Capital expenditures totalled $1,046 million in the fourth quarter. As a percentage of revenues, capital expenditures declined to 21.0% from 22.4% in Q4 of last year. The decline related to reduced spending on our new wireless billing platform. Expenditures were incurred in Q4 2003 in preparation for the May 2004 wireless billing conversion and spending on this project is now largely complete. In Q4, we continued to invest in rolling out our DSL footprint and VDSL strategies. CASH FROM OPERATING ACTIVITIES AND FREE CASH FLOW Cash from operating
activities for Q4 2004 totalled $1,307 million, down $291 million
compared to the same period last year, reflecting, in part, higher cash
payments related to employee departure programs and changes in working
capital. We resolved many invoicing delays associated with the new billing
platform in the quarter, bringing our accounts receivable balances to
more normal levels at year end.
|
11 2004 Quarterly Report Bell Canada Enterprises
This section provides detailed information and analysis about our performance in Q4 2004 compared to Q4 2003. It focuses on our consolidated operating results and provides financial information for each of our reportable operating segments.
|
OPERATING REVENUES |
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|
||||||||||||||
Q4 2004 | Q4 2003 | % change | FY 2004 | FY 2003 | % change | |||||||||
|
||||||||||||||
Consumer |
1,911 | 1,868 | 2.3 | % | 7,502 | 7,203 | 4.2 | % | ||||||
Business |
1,535 | 1,516 | 1.3 | % | 5,851 | 5,827 | 0.4 | % | ||||||
Aliant |
506 | 527 | (4.0 | %) | 2,033 | 2,059 | (1.3 | %) | ||||||
Other Bell Canada |
511 | 468 | 9.2 | % | 1,939 | 2,015 | (3.8 | %) | ||||||
Inter-segment eliminations |
(160 | ) | (133 | ) | (20.3 | %) | (538 | ) | (490 | ) | (9.8 | %) | ||
|
||||||||||||||
Bell Canada |
4,303 | 4,246 | 1.3 | % | 16,787 | 16,614 | 1.0 | % | ||||||
Other BCE |
800 | 697 | 14.8 | % | 2,861 | 2,597 | 10.2 | % | ||||||
Inter-segment eliminations |
(114 | ) | (125 | ) | 8.8 | % | (455 | ) | (474 | ) | 4.0 | % | ||
|
||||||||||||||
Total operating revenues |
4,989 | 4,818 | 3.5 | % | 19,193 | 18,737 | 2.4 | % | ||||||
|
|
BY SEGMENT Consumer Wireless Video |
12 2004 Quarterly Report Bell Canada Enterprises
|
Our focus on customer retention resulted in a reduction in churn for both the quarter and full year when compared to the same periods last year. Churn for the quarter was 0.8% reflecting a 0.2 percentage point improvement when compared to Q4 2003. Churn for the full year was 1.0% reflecting a 0.1 percentage point improvement compared to full year 2003. Data Wireline Business Enterprise |
13 2004 Quarterly Report Bell Canada Enterprises
|
Other significant contract wins this quarter included a three-year, $66 million contract with Fédération des Caisses Desjardins du Québec for a point-of-sale solution across Canada to perform debit transactions, a five-year, $28 million contract with Ministère du développement économique et régional du Québec for its portal, and a five-year, $5.8 million contract with La Senza Inc. which will be our first customer to deploy a full IP VPN network to its 300 sites. SMB Bell West Aliant |
14 2004 Quarterly Report Bell Canada Enterprises
Data revenues for the quarter and on a full
year basis declined slightly as higher Internet revenues were more than
offset by other data revenue declines from the scaleback of marketing
and sales efforts during the labour disruption and the continued rationalization
of circuit networks by customers. The continued increase in Internet revenues
stemmed from increased popularity of enhanced services and year-over-year
subscriber growth of 6%, reflecting 21% growth in Aliants high-speed
Internet customer base. The higher subscriber base reflected the expansion
of high-speed Internet service into new areas, attractive introductory
offers, an emphasis on bundling with other products and services as well
as dealer and on-line sales channels initiatives. Other Bell Canada |
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Other BCE |
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|
Q4 2004 | Q4 2003 | % change | FY 2004 | FY 2003 | % change | ||||||||
|
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Bell Globemedia |
405 | 375 | 8.0 | % | 1,420 | 1,363 | 4.2 | % | ||||||
Telesat |
102 | 99 | 3.0 | % | 362 | 345 | 4.9 | % | ||||||
CGI |
274 | 208 | 31.7 | % | 1,019 | 838 | 21.6 | % | ||||||
Other |
19 | 15 | 26.7 | % | 60 | 51 | 17.6 | % | ||||||
|
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Other BCE revenues |
800 | 697 | 14.8 | % | 2,861 | 2,597 | 10.2 | % | ||||||
|
||||||||||||||
Other BCE segment revenues were $800 million this quarter and $2,861 million
for the year or 14.8% and 10.2% higher compared to the same periods in 2003.
In each case, revenue growth was driven by CGIs acquisition of AMS
in May 2004, as well as higher revenues at Bell Globemedia and
Telesat. |
15 2004 Quarterly Report Bell Canada Enterprises
|
Telesat had revenues of $102 million
this quarter or 3.0% higher than the same period in 2003 as higher telecommunications
revenues more than offset declines in consulting fees. On a full-year basis,
Telesat had revenues of $362 million or 4.9% higher than 2003
as a result of higher telecommunications and Infosat revenues offsetting
lower consulting fees. On October 1, 2004, Telesat’s Anik
F2 satellite began commercial service and became the world’s first
satellite to commercialize the Ka frequency band, enabling two-way, high-speed
Internet access services to consumers and businesses in Canada and the U.S. Our share of CGI’s revenues was $274 million this quarter and $1,019 million on a full-year basis, or 32% and 22% higher respectively driven mainly as a result of CGI’s acquisition of AMS in May 2004. |
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BY BELL CANADA CONSOLIDATED PRODUCT LINES | ||||||||||||||
|
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Q4 2004 | Q4 2003 | % change | FY 2004 | FY 2003 | % change | |||||||||
|
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Local and access |
1,397 | 1,401 | (0.3 | %) | 5,572 | 5,601 | (0.5 | %) | ||||||
Long distance |
560 | 602 | (7.0 | %) | 2,327 | 2,544 | (8.5 | %) | ||||||
Wireless |
742 | 658 | 12.8 | % | 2,818 | 2,461 | 14.5 | % | ||||||
Data |
963 | 955 | 0.8 | % | 3,640 | 3,717 | (2.1 | %) | ||||||
Video |
219 | 200 | 9.5 | % | 850 | 759 | 12.0 | % | ||||||
Terminal sales and other |
422 | 430 | (1.9 | %) | 1,580 | 1,532 | 3.1 | % | ||||||
|
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Total Bell Canada Consolidated |
4,303 | 4,246 | 1.3 | % | 16,787 | 16,614 | 1.0 | % | ||||||
|
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Local and access Long Distance
|
16 2004 Quarterly Report Bell Canada Enterprises
|
Wireless Data |
17 2004 Quarterly Report Bell Canada Enterprises
|
The number of high-speed Internet subscribers increased by 91,000 this quarter and by 350,000 on a full-year basis to reach a total subscriber count of 1,808,000. While net additions this quarter were slightly up compared to Q4 2003, on a full-year basis, net additions were slightly down, due to an increasingly competitive environment. Total dial-up customers amounted to 743,000 at the end of this year compared to 869,000 at the end of 2003. Video Terminal sales and other |
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OPERATING INCOME | ||||||||||||||
|
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Q4 2004 | Q4 2003 | % change | FY 2004 | FY 2003 | % change | |||||||||
|
||||||||||||||
Consumer |
464 | 471 | (1.5 | %) | 2,119 | 2,019 | 5.0 | % | ||||||
Business |
183 | 199 | (8.0 | %) | 896 | 781 | 14.7 | % | ||||||
Aliant |
23 | 108 | (78.7 | %) | 268 | 415 | (35.4 | %) | ||||||
Other Bell Canada |
61 | 152 | (59.9 | %) | (588 | ) | 621 | (194.7 | %) | |||||
|
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Bell Canada Consolidated |
731 | 930 | (21.4 | %) | 2,695 | 3,836 | (29.7 | %) | ||||||
Other BCE |
104 | 83 | 25.3 | % | 281 | 285 | (1.4 | %) | ||||||
|
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Total operating income |
835 | 1,013 | (17.6 | %) | 2,976 | 4,121 | (27.8 | %) | ||||||
|
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CONSOLIDATED
Our operating income of
$835 million for the fourth quarter and $2,976 million for the
year reflected declines of $178 million and $1,145 million,
respectively, compared to the same periods last year. These decreases
resulted from the recognition of restructuring and other items of $126 million
in the quarter and $1,224 million for the year mainly related to
Bell Canadas and Aliants employee departure programs
and other charges consisting primarily of closure costs for excess facilities
and asset write-downs.
|
18 2004 Quarterly Report Bell Canada Enterprises
|
Excluding the impact of the restructuring
and other items, operating income of $961 million for the quarter
was down $65 million compared to the same period last year. This
decline resulted mainly from increases in operating expenses, amortization
expense and a higher net benefit plans cost which more than offset the
contribution from higher revenues. The higher operating expenses for the
quarter were driven by higher costs of acquisition related to subscriber
increases in wireless, higher salaries mainly from the 2.8% wage increase
effective December 1, 2004 for CEP members, higher contact centre
agent costs to support increased call handling times associated with our
new wireless billing conversion, as well as the negative residual impact
of Aliants labour disruption. BY SEGMENT Consumer Business |
19 2004 Quarterly Report Bell Canada Enterprises
|
Business segment operating income this quarter was $183 million or 8.0% lower than the same period last year reflecting some unusual pressures which included:
In
the Enterprise unit operating income declined for the quarter mainly as
a result of the completion of the Hydro-Québec contract in 2003,
and cost pressures, in part due to the impact of the implementation of
the wireless billing system. On a full-year basis, the Enterprise unit
achieved strong operating income growth reflecting our focus on more profitable
contracts, as well as overall productivity which led to reductions in
cost of goods sold, partly offset by higher operating expenses of acquired
businesses during the year (Infostream and Elix). Aliant Other Bell Canada |
20 2004 Quarterly Report Bell Canada Enterprises
On a full-year basis, the Other Bell Canada segment had operating losses of $588 million compared to operating income of $621 million in 2003 due to restructuring and other items of $1,147 million related mostly to the voluntary employee departure program announced in June 2004. Underlying operating performance, before restructuring items, decreased by 29% this quarter and 9.7% on a full-year basis compared to the same periods last year. The decrease reflected higher costs associated with increased volumes of cross-border carrier exchange traffic and repricing for data and long distance services. Other BCE |
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OTHER ITEMS | ||||||||||||||
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Q4 2004 | Q4 2003 | % change | FY 2004 | FY 2003 | % change | |||||||||
|
||||||||||||||
Operating income |
835 | 1,013 | (17.6 | %) | 2,976 | 4,121 | (27.8 | %) | ||||||
Other income |
18 | 127 | (85.8 | %) | 411 | 175 | 134.9 | % | ||||||
Interest expense |
(247 | ) | (266 | ) | 7.1 | % | (1,005 | ) | (1,105 | ) | 9.0 | % | ||
|
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Pre-tax earnings from continuing operations |
606 | 874 | (30.7 | %) | 2,382 | 3,191 | (25.4 | %) | ||||||
Income taxes |
(199 | ) | (331 | ) | 39.9 | % | (710 | ) | (1,119 | ) | 36.6 | % | ||
Non-controlling interest |
(40 | ) | (57 | ) | 29.8 | % | (174 | ) | (201 | ) | 13.4 | % | ||
|
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Earnings from continuing operations |
367 | 486 | (24.5 | %) | 1,498 | 1,871 | (19.9 | %) | ||||||
Discontinued operations |
(2 | ) | (86 | ) | 97.7 | % | 26 | (56 | ) | 146.4 | % | |||
|
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Net earnings before extraordinary gain |
365 | 400 | (8.8 | %) | 1,524 | 1,815 | (16.0 | %) | ||||||
Extraordinary gain |
69 | | n.m. | 69 | | n.m. | ||||||||
|
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Net earnings |
434 | 400 | 8.5 | % | 1,593 | 1,815 | (12.2 | %) | ||||||
Dividends on preferred shares |
(17 | ) | (14 | ) | (21.4 | %) | (70 | ) | (64 | ) | (9.4 | %) | ||
Premium on redemption of preferred shares |
| | | | (7 | ) | n.m. | |||||||
|
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Net earnings applicable to common shares |
417 | 386 | 8.0 | % | 1,523 | 1,744 | (12.7 | %) | ||||||
|
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EPS |
0.45 | 0.41 | 9.8 | % | 1.65 | 1.90 | (13.2 | %) | ||||||
|
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n.m.: not meaningful |
EPS improved by $0.04 to $0.45 in Q4 2004, compared to Q4 2003.
Factors increasing EPS included non-recurring items of $0.01 relating
to net gains on investments and restructuring and other items, higher
future income taxes of $0.04 in Q4 2003 following the increase in
corporate tax rate made by the Ontario government, an increase in other
miscellaneous income of $0.03 and a decline in interest expense of $0.01.
Factors decreasing EPS resulted from a shortfall in EBITDA of $0.02, an
increase in amortization expense of $0.02 and an increase in net benefit
plans cost of $0.01. |
21 2004 Quarterly Report Bell Canada Enterprises
OTHER
INCOME Other
income of $18 million in Q4 2004 decreased $109 million
compared to the same period last year. The decline mainly relates to a
decrease in net gains on investments as a 3.66% interest in YPG General
Partner Inc. was sold in Q4 2003 for a gain of $120 million
partly offset by a $44 million loss from the write-down of a number
of our cost-accounted investments. In addition, interest income was lower
due to lower average cash balances in 2004.
These
were partly offset by a $120 million gain from the sale of a 3.66%
interest in YPG General Partner Inc. for net cash proceeds of $135 million
in Q4 2003. Interest expense of $247 million in Q4 2004 and $1,005 million for the full year of 2004 showed a 7.1% and a 9.0% decline, respectively, compared to the same periods last year due to $815 million of debt repayments (net of issues) year-over-year. The decline in average debt levels was driven mainly by positive free cash flows. The average interest rate on our outstanding debt in Q4 2004 and on for the full year was 7.1% which is comparable to the same periods last year. INCOME TAXESIncome tax expense of $199 million in Q4 2004 and $710 million for 2004 represents a 40% and 37% reduction, respectively, compared to the same periods last year mainly from:
As a result of these items, the effective tax rate was 29.8% for the full year of 2004 compared to 35.1% in the same period last year. NON-CONTROLLING INTERESTNon-controlling interest of $40 million in Q4 2004 represents a 30% decrease compared to the same period last year. The decrease was due to lower earnings at Aliant as a result of the restructuring charge, partly offset by the impact of purchasing MTSs interest in Bell West. |
22 2004 Quarterly Report Bell Canada Enterprises
For the full year of 2004, non-controlling interest of $174 million was 13.4% lower compared to the same period last year. The decrease resulted from:
The net gain from discontinued operations of $26 million in 2004 consisted of:
The
net loss from discontinued operations of $56 million in 2003
consisted of a loss of $160 million relating to Emergis sale
of its U.S. Health operations in the fourth quarter.
We purchased the Canadian operations of 360networks in the fourth quarter of 2004 for $293 million in cash. The fair value of the net assets acquired exceeded the purchase price by approximately $227 million. This resulted in negative goodwill which is presented as an extraordinary gain in the statement of operations. For accounting purposes, the excess was eliminated by:
|
23 2004 Quarterly Report Bell Canada Enterprises
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. |
Financial
and Capital Management CAPITAL STRUCTURE
|
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|
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At December 31 |
2004 | 2003 | ||||
|
||||||
Debt due within one year |
1,276 | 1,519 | ||||
Long-term debt |
11,809 | 12,381 | ||||
Less: Cash and cash equivalents |
(380 | ) | (585 | ) | ||
|
||||||
Total net debt |
12,705 | 13,315 | ||||
Non-controlling interest |
2,914 | 3,403 | ||||
Total shareholders equity |
14,032 | 13,573 | ||||
|
||||||
Total capitalization |
29,651 | 30,291 | ||||
|
||||||
Net debt to capitalization |
42.8 | % | 44.0 | % | ||
|
||||||
Outstanding share data at end of period (in millions) |
||||||
Common shares |
925.9 | 924.0 | ||||
Stock options |
28.5 | 25.8 | ||||
|
Our net debt to capitalization ratio was 42.8% at the end of 2004,
an improvement from 44.0% at the end of 2003. This reflected lower
net debt and higher total shareholders equity, partly offset by
lower non-controlling interest. |
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SUMMARY OF CASH FLOWS | ||||||||||
|
||||||||||
Q4 2004 | Q4 2003 | FY 2004 | FY 2003 | |||||||
|
||||||||||
Cash from operating activities |
1,307 | 1,598 | 5,519 | 5,968 | ||||||
Capital expenditures |
(1,046 | ) | (1,079 | ) | (3,364 | ) | (3,167 | ) | ||
Other investing activities |
(9 | ) | (7 | ) | 124 | 62 | ||||
Cash dividends paid on preferred shares |
(21 | ) | (22 | ) | (85 | ) | (61 | ) | ||
Cash dividends paid by subsidiaries to non-controlling interest |
(49 | ) | (47 | ) | (188 | ) | (184 | ) | ||
|
||||||||||
Free cash flow before common dividends |
182 | 443 | 2,006 | 2,618 | ||||||
Cash dividends paid on common shares |
(277 | ) | (259 | ) | (1,108 | ) | (1,029 | ) | ||
|
||||||||||
Free cash flow |
(95 | ) | 184 | 898 | 1,589 | |||||
Business acquisitions |
(347 | ) | (42 | ) | (1,299 | ) | (115 | ) | ||
Business dispositions |
| | 20 | 55 | ||||||
Change in investments accounted for under the cost and equity methods |
(38 | ) | 156 | 655 | 163 | |||||
Net issuance of equity instruments |
16 | 5 | 32 | 172 | ||||||
Net repayment of debt instruments |
(523 | ) | (1,480 | ) | (740 | ) | (1,781 | ) | ||
Financing activities of subsidiaries with third parties |
1 | (15 | ) | (50 | ) | 24 | ||||
Cash provided by (used in) discontinued operations |
(3 | ) | 338 | 193 | 355 | |||||
Other financing activities |
(17 | ) | (41 | ) | (51 | ) | (46 | ) | ||
|
||||||||||
Net increase (decrease) in cash and cash equivalents |
(1,006 | ) | (895 | ) | (342 | ) | 416 | |||
|
24 2004 Quarterly Report Bell Canada Enterprises
CASH
FROM OPERATING ACTIVITIES
Cash from operating activities decreased 18.2% or $291 million
to $1,307 million in Q4 2004, compared to Q4 2003. This
was the result of a $187 million increase in restructuring cash payments
relating mainly to the voluntary employee departure program and changes
in working capital, partially offset by higher cash collections at Bell
Mobility as accounts receivable returned to more normal levels in Q4. We continue to make
investments to expand and update our networks and to meet customer demand
for new services. Capital expenditures were $1,046 million in Q4 2004,
or 21% of revenues. This was relatively stable compared with capital expenditures
of $1,079 million, or 22.4% of revenues, for the same period last
year. For the full year of 2004, capital expenditures were $3.4 billion,
or 17.5% of revenues, up from $3.2 billion, or 16.9% of revenues,
for the same period last year. The increase reflects a mix of higher spending
in the growth businesses and reduced spending in the legacy areas. In
addition, the construction of Telesats new satellites contributed
to the increase in capital expenditures for the full year of 2004.
Declines in capital spending at Aliant resulted from the work disruption. Cash from other investing
activities of $124 million for the full year of 2004 included
$179 million of insurance proceeds that Telesat received for a malfunction
on the Anik F1 satellite.
We paid a dividend
of $0.30 per common share in Q4 2004. This was the same as the dividend
we paid in Q4 2003. |
25 2004 Quarterly Report Bell Canada Enterprises
BUSINESS
ACQUISITIONS We invested $347 million in business acquisitions in Q4 2004. This consisted of:
BUSINESS DISPOSITIONS We received $55 million for business dispositions for the full year of 2003 for Bell Canadas sale of its 89.9% ownership interest in Certen Inc. (Certen). Bell Canada received $89 million in cash, which was reduced by $34 million of Certens cash and cash equivalents at the time of sale. CHANGE IN INVESTMENTS ACCOUNTED FOR UNDER THE COST AND EQUITY METHODS In Q3 2004, we sold our
remaining 3.24% interest in YPG General Partner Inc. for net cash
proceeds of $123 million and our 15.96% interest in MTS for net cash
proceeds of $584 million. In 2003, BCE Inc. issued 20 million Series AC preferred shares for $510 million and redeemed 14 million Series U preferred shares for $357 million, which included a $7 million premium on redemption. DEBT INSTRUMENTSWe made $523 million of debt repayments (net of issuances) in Q4 2004 and $740 million of debt repayments (net of issuances) for the full year of 2004. The repayments were mainly at Bell Canada, BCE Inc. and Bell Globemedia. At Bell Canada, the repayments included the Series EB debentures for $200 million, the Series DZ debentures for $126 million, the Series M-15 debentures for $500 million and the Series DU debentures for $126 million. In 2004, BCE Inc. redeemed all of its outstanding Series P retractable preferred shares for $351 million. The issuances were mainly at Bell Canada and Bell Globemedia. Bell Canada issued Series M-17 debentures for $450 million and Bell Globemedia issued $300 million of senior notes. CASH RELATING TO DISCONTINUED OPERATIONS For the full year of 2004,
cash provided by discontinued operations of $193 million consisted
mainly of the net cash proceeds of $315 million from the sale of
our investment in Emergis which were partly offset by the deconsolidation
of Emergis cash on hand of $137 million at December 31, 2003. |
26 2004 Quarterly Report Bell Canada Enterprises
CREDIT RATINGS In June 2004, Standard & Poors, a division of The McGraw-Hill Companies, Inc. (S&P), upgraded BCE Inc.s preferred shares rating. The table below lists BCE Inc.s and Bell Canadas key credit ratings at February 1, 2005. |
||||||||||||||
|
||||||||||||||
BCE Inc. | Bell Canada | |||||||||||||
|
||||||||||||||
S&P | DBRS(1) | Moodys(2) | S&P | DBRS(1) | Moodys | |||||||||
|
||||||||||||||
Commercial paper |
A-1 (mid) / stable | R-1 (low) / stable | P-2 / stable | A-1 (mid) / stable | R-1 (mid) / stable | P-2 / stable | ||||||||
Extendable commercial notes |
A-1 (mid) / stable | R-1 (low) / stable | | A-1 (mid) / stable | R-1 (mid) / stable | | ||||||||
Long-term debt | A- / stable | A / stable | Baa1 / stable | A / stable | A (high) / stable | A3 / stable | ||||||||
Preferred shares |
P-2 (high) / stable | Pfd-2 / stable | | P-2 (high) / stable | Pfd-2 (high) / stable | | ||||||||
|
(1) | Dominion Bond Rating Service Limited (DBRS) | ||
(2) | Moodys Investors Service Inc. (Moodys) |
LIQUIDITY Our ability to generate
cash in the short and long term and to provide for planned growth and
to fund development activities, depends on our sources of liquidity and
on our cash requirements. Dividends Commitment under
CRTC deferral account Provision for contract
loss RECENT DEVELOPMENTS IN LEGAL PROCEEDINGS This section provides a description of new legal proceedings involving BCE and of recent developments in certain of the legal proceedings involving BCE described in the 2003 AIF as subsequently updated in BCE Inc.s 2004 First Quarter MD&A dated May 4, 2004 (BCE 2004 First Quarter MD&A), BCE Inc.s 2004 Second Quarter MD&A dated August 3, 2004 (BCE 2004 Second Quarter MD&A) and BCE Inc.s 2004 Third Quarter MD&A dated November 2, 2004 (BCE 2004 Third Quarter MD&A). |
27 2004 Quarterly Report Bell Canada Enterprises
LAWSUITS RELATED TO TELEGLOBE INC. (TELEGLOBE) BNP Paribas (Canada) |
||
Risks That Could Affect Our Business This section describes
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. RISKS THAT COULD AFFECT ALL BCE GROUP COMPANIES STRATEGIES AND PLANSWe plan to achieve our business objectives through various strategies and plans. The strategy for Bell Canada companies (which includes Bell Canada, Aliant and their respective subsidiaries) is to lead change in the industry and set the standard for IP-based communications while continuing to deliver on our goals of innovation, simplicity and service, and efficiency. The key elements of the strategies and plans of the Bell Canada companies include:
|
28 2004 Quarterly Report Bell Canada Enterprises
Our
strategic direction involves significant changes in our processes, in
how we approach our markets, and in how we develop and deliver products
and services. This means we will need to be responsive in adapting to
these changes. It also means that a shift in employee skills will be necessary. Our business is affected
by general economic conditions, consumer confidence and spending, and
the demand for, and the prices of, our products and services. When there
is a decline in economic growth, and in retail and commercial activity,
there tends to be a lower demand for our products and services. During
these periods, customers may delay buying our products and services, or
reduce or discontinue using them. We face intense competition
from traditional competitors, as well as from new entrants to the markets
we operate in. We compete not only with other telecommunications, media,
television, satellite and information technology service providers, but
also with other businesses and industries. These include cable, software
and Internet companies, a variety of companies that offer network services,
such as providers of business information systems and system integrators,
and other companies that deal with, or have access to, customers through
various communications networks. |
29 2004 Quarterly Report Bell Canada Enterprises
ments. This could result in greater access to capital for our competitors
or the arrival of new competitors with global scale, which would increase
competitive pressure. It is impossible to predict the outcome or to assess
how any change in foreign ownership restrictions may affect us because
the government has not completed its review of these matters. Wireline and Long Distance Internet Access |
30 2004 Quarterly Report Bell Canada Enterprises
In addition, service providers that are funded by regional electrical utilities may continue to develop and market services that compete directly with Bell Canadas Internet access and broadband services. Developments in wireless broadband services may also result in increased competition in certain geographic areas. This could materially and negatively affect the financial performance of our Internet access services business. Wireless Video IMPROVING PRODUCTIVITY AND CONTAINING CAPITAL INTENSITY We continue to implement
several productivity improvements while containing our capital intensity.
There will be a material and negative effect on our profitability if we
do not continue to successfully implement these productivity improvements,
reduce costs and manage capital intensity while maintaining the quality
of our service. For example, we must reduce the price of certain services
offered by the Bell Canada companies, that are subject to regulatory
price caps, each year between 2002 and 2006. In addition, we have reduced
our prices in some business data services that are not regulated in order
to remain competitive and we may have to continue doing so in the future.
The profits of the Bell Canada companies will decline if they cannot
lower their expenses at the same rate. There would also be a material
and negative effect on our profitability if market factors or other regulatory
actions result in lower revenues and we cannot reduce our expenses at
the same rate. We operate
in markets that are experiencing constant technological change, evolving
industry standards, changing client needs, frequent new product and service
introductions, and short product life cycles. |
31 2004 Quarterly Report Bell Canada Enterprises
nologies. A regulatory change could delay our launch of new services and
restrict our ability to market these services if, for example, new pricing
rules or marketing or bundling restrictions were introduced or existing
ones extended.
As
part of this move, the Bell Canada companies also plan to discontinue
certain services that are based on circuit-based infrastructure. This
is a necessary component of improving capital and operating efficiencies.
In some cases, this could be delayed or prevented by customers or regulatory
actions. If the Bell Canada companies cannot discontinue these services
as planned, they will not be able to achieve improvements as expected.
Our ability to generate cash and to maintain capacity to meet our financial
obligations and provide for planned growth depends on our cash requirements
and on our sources of liquidity.
Financing
through equity offerings would dilute the holdings of existing equity
investors. An increased level of debt financing could lower our credit
ratings, increase our borrowing costs and give us less flexibility to
take advantage of business opportunities. |
32 2004 Quarterly Report Bell Canada Enterprises
Our plan in 2005 is to generate enough cash
from our operating activities to pay for capital expenditures and dividends.
We expect to pay contractual obligations maturing in 2005 from cash on
hand, from cash generated from our operations or by issuing debt. If actual
results are different from our business plan or if the assumptions in
our business plan change, we may have to raise more funds than expected
by issuing debt or equity, borrowing from banks or selling or otherwise
disposing of assets.
Any of these possibilities could have a material and negative effect on our cash flow from operations and growth prospects. RELIANCE ON MAJOR CUSTOMERSAn important amount of revenue earned by the BCE group of companies, including Bell Canada, comes from a small number of major customers. If we lose contracts with these major customers and cannot replace them, it could have a material and negative effect on our financial results. MAKING ACQUISITIONSOur growth strategy includes making strategic acquisitions and entering into joint ventures. There is no assurance that we will find suitable companies to acquire or to partner with, or that we will have the financial resources needed to complete any acquisition or to enter into any joint venture. There could also be difficulties in integrating the operations of acquired companies with our existing operations or in operating joint ventures. LITIGATION, REGULATORY MATTERS AND CHANGES IN LAWS Pending or future litigation,
regulatory initiatives or regulatory proceedings could have a material
and negative effect on our businesses, operating results and financial
condition. Changes in laws or regulations or in how they are interpreted,
and the adoption of new laws or regulations, including changes in, or
the adoption of, new tax laws that result in higher tax rates or new taxes,
could also materially and negatively affect us. Any claim by a third party,
with or without merit, that a significant part of our business infringes
on its intellectual property could also materially and negatively affect
us.
Please
see Recent Developments in Legal Proceedings in the BCE 2004
First Quarter MD&A, BCE 2004 Second Quarter MD&A, BCE 2004
Third Quarter MD&A and in this MD&A for a description of recent
developments, since the BCE 2003 AIF, in the principal legal proceedings
involving us. BCE Inc. and Bell Canada are currently funding, directly or indirectly, and may, in the future, continue to fund the operating losses of some of their subsidiaries, but they are under no obligation to continue doing so. If BCE Inc. or Bell Canada decides to stop funding any of its subsidiaries and that subsidiary does not have other sources of funding, this would have a material and negative effect on the subsidiarys results of operations and financial condition and on the value of its securities. |
33 2004 Quarterly Report Bell Canada Enterprises
In addition, BCE Inc. and Bell Canada
do not have to remain the majority holder of, or maintain their current
level or nature of ownership in, any subsidiary, unless they have agreed
otherwise. The announcement of a decision by BCE Inc. or Bell Canada
to change the nature of its investment in a subsidiary, to dispose of
some or all of its interest in a subsidiary, or any other similar decision
could have a material and negative effect on the subsidiarys results
of operations and financial condition and on the value of its securities. Most of our pension plans
had pension fund surpluses as of our most recent actuarial valuation.
As a result, we have not had to make regular contributions to the pension
funds in the past few years. Approximately 41% of our employees
are represented by unions and are covered by collective agreements.
|
34 2004 Quarterly Report Bell Canada Enterprises
Renegotiating collective agreements could result in higher labour costs and work disruptions, including work stoppages or work slowdowns. Difficulties in renegotiations or other labour unrest could significantly hurt our businesses, operating results and financial condition. Although Bell Canada has a program to implement a number of measures seeking to minimize disruptions and ensure that customers continue to receive normal service during labour disruptions, there can be no assurance that service to Bell Canadas customers would not be adversely affected should a strike occur. EVENTS AFFECTING OUR NETWORKS Network failures could
materially hurt our business, including our customer relationships and
operating results. Our operations depend on how well we protect our networks,
our equipment, our applications and the information stored in our data
centres against damage from fire, natural disaster, power loss, hacking,
computer viruses, disabling devices, acts of war or terrorism, and other
events. Our operations also depend on the timely replacement and maintenance
of our networks and equipment. Any of these events could cause our operations
to be shut down indefinitely. In 2004, we announced an early retirement program and early departure program for Bell Canada employees. We estimate annual savings of approximately $390 million relating to these programs from lower salaries, bonuses and non-pension benefits. There is a risk that the amount we expect to save each year from these programs will be lower than anticipated due to various factors including the incurrence of outsourcing, replacement and other costs. RISKS THAT COULD AFFECT BCE INC. HOLDING COMPANY STRUCTUREBCE Inc. is a holding company. That means it does not carry on any significant operations and has no major sources of income or assets of its own, other than the interests it has in its subsidiaries, joint ventures and significantly influenced companies. BCE Inc.s cash flow and its ability to service its debt and to pay dividends on its shares all depend on dividends or other distributions it receives from its subsidiaries, joint ventures and significantly influenced companies and, in particular, from Bell Canada. BCE Inc.s subsidiaries, joint ventures and significantly influenced companies are separate legal entities. They do not have to pay dividends or make any other distributions to BCE Inc. STOCK MARKET VOLATILITYThe stock markets have experienced significant volatility over the last few years, which has affected the market price and trading volumes of the shares of many telecommunications companies in particular. Differences between BCE Inc.s actual or anticipated financial results and the published expectations of financial analysts may also contribute to volatility in BCE Inc.s common shares. A major decline in the capital markets in general, or an adjustment in the market price or trading volumes of BCE Inc.s common shares or other securities, may materially and negatively affect our ability to raise capital, issue debt, retain employees, make strategic acquisitions or enter into joint ventures. |
35 2004 Quarterly Report Bell Canada Enterprises
RISKS THAT COULD AFFECT CERTAIN BCE GROUP COMPANIES BELL CANADA COMPANIES Contract with the Government
of Alberta Decision on Incumbent Affiliates The business of the Bell Canada companies is affected by decisions made by various regulatory agencies, including the Canadian Radio-television and Telecommunications Commission (CRTC). Many of these decisions balance requests from competitors for access to facilities, such as the telecommunications networks, switching and transmission facilities, and other network infrastructure of incumbent telephone companies, with the rights of the incumbent telephone companies to compete reasonably freely.
Second Price Cap decision
The
CRTC also established a deferral account and, on March 24, 2004,
initiated a public proceeding inviting proposals on the disposition of
the amounts accumulated in the accounts of the incumbent telephone companies
during the first two years of the price cap period.
|
36 2004 Quarterly Report Bell Canada Enterprises
If the CRTC does not approve Bell Canadas proposals, there is a risk that the funds in the deferral account could be used in a way that could have a negative financial effect on Bell Canada. Competitor Digital Network
Access Service Retail Quality of Service
Indicators Decision on incumbent
affiliates
On
September 23, 2003, the CRTC issued a decision that requires
Bell Canada and its carrier affiliates to include a detailed description
of the bundled services they provide to customers when they file tariffs
with the CRTC. The customers name will be kept confidential, but
the pricing and service arrangements it has with the Bell Canada
companies will be available on the public record. |
37 2004 Quarterly Report Bell Canada Enterprises
Allstream and Call-Net application concerning customer-specific arrangements Public notice on changes
to minimum prices Application seeking
consistent regulation |
38 2004 Quarterly Report Bell Canada Enterprises
The CRTC has included a Proceeding on Regulatory Symmetry in its 2005-2006 Work Plan. If cable companies and the incumbent telephone companies are subject to different regulations for similar services, and specifically for similar bundles of services, the incumbent telephone companies would be at a competitive disadvantage which could have a material and negative effect on their revenues and profitability. Licences for Broadcasting Licences and Changes
to Wireless Regulation Increased Accidents
From Using Cellphones Competition Bureaus
Investigation Concerning System Access Fees |
39 2004 Quarterly Report Bell Canada Enterprises
fees (“SAFs”) and was served with a court order, under section
11 of the Competition Act, compelling Bell Mobility to produce
certain records and other information that would be relevant to the Competition
Bureau’s investigation. Health Concerns About
Radio Frequency Emissions
Bell ExpressVu Limited
Partnership (Bell ExpressVu) currently uses three satellites, Nimiq 1,
Nimiq 2 and Nimiq 3 for its video services. Telesat Canada (Telesat)
operates or directs the operation of these satellites. In order to restore
the backup capacity for Bell ExpressVu, which was diminished by the
partial failure of Nimiq 2, Telesat reached an agreement with DirecTV
for an existing, spare in-orbit satellite. Telesat received approval from
Industry Canada to relocate this satellite to the orbital slots currently
occupied by Nimiq 1 or Nimiq 2. In July 2004, the CRTC
granted final approval to the agreement between Bell ExpressVu and
Telesat to lease the full capacity of Nimiq 3. |
40 2004 Quarterly Report Bell Canada Enterprises
reception of satellite signals violate the freedom of expression rights
enshrined in the Canadian Charter of Rights and Freedoms. The Canadian
Department of Justice has launched an appeal of this decision to the Superior
Court of Québec. It remains a criminal offence throughout Canada
to manufacture, offer for sale or sell any device used to engage in the
unauthorized reception of satellite signals. If this decision is ultimately
upheld by the courts and Parliament does not enact new provisions criminalizing
the unauthorized reception of satellite signals, Bell ExpressVu may
face increasing loss of revenue from the unauthorized reception of satellite
signals. BELL GLOBEMEDIA Dependence on Advertising Increasing Fragmentation
in Television Markets Revenues From Distributing
Television Services Increased Competition
for Fewer Print Customers Broadcast Licences and
CRTC Decisions |
41 2004 Quarterly Report Bell Canada Enterprises
may change. While these are expected to be renewed at the appropriate times, there can be no assurance that any or all of CTVs licences will be renewed. Any renewals, changes or amendments to licences and any decisions by the CRTC from time to time that affect the industry as a whole or CTV may have a material and negative effect on Bell Globemedia. TELESAT Satellite risks
In
December 2004, Telesat ceased to insure its interest in the residual
value of Nimiq 2, following the arrival on-orbit of the leased satellite
Nimiq 3 (formerly DirecTV3) a satellite which complements the capacity
of Nimiqs 1 and 2, and which, following operational changes, could
be used to provide capacity and continuity of service in the event of
either a Nimiq 1 or a Nimiq 2 failure. |
42 2004 Quarterly Report Bell Canada Enterprises
in either a pro-rated payment to Telesat of the additional US $49.1 million
or a pro-rated repayment of up to a maximum of US $36.1 million to
be made by Telesat to the insurers. The initial payment has been received.
Power levels continue to degrade as predicted. CGI Long Sales Cycle for
Major Outsourcing Contracts Foreign Currency Risks Early Termination Risk |
43 2004 Quarterly Report Bell Canada Enterprises
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. |
||
Supplementary Financial Information The table below shows selected consolidated financial data for the eight most recently completed quarters. |
||||||||||||||||||
|
||||||||||||||||||
2004 |
2003 |
|||||||||||||||||
Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||
|
||||||||||||||||||
Operating revenues |
4,989 | 4,781 | 4,782 | 4,641 | 4,818 | 4,627 | 4,673 | 4,619 | ||||||||||
Operating income |
835 | 25 | 1,105 | 1,011 | 1,013 | 1,049 | 1,078 | 981 | ||||||||||
Earnings from continuing operations |
367 | 102 | 544 | 485 | 486 | 453 | 466 | 466 | ||||||||||
Discontinued operations |
(2 | ) | (2 | ) | 27 | 3 | (86 | ) | 11 | 12 | 7 | |||||||
Extraordinary gain |
69 | | | | | | | | ||||||||||
Net earnings |
434 | 100 | 571 | 488 | 400 | 464 | 478 | 473 | ||||||||||
Net earnings applicable to common shares |
417 | 82 | 554 | 470 | 386 | 446 | 461 | 451 | ||||||||||
|
||||||||||||||||||
Included in net earnings: |
||||||||||||||||||
Net gains on investments |
||||||||||||||||||
Continuing operations |
64 | 325 | | | 84 | | | | ||||||||||
Discontinued operations |
(2 | ) | (2 | ) | 31 | 7 | (94 | ) | 8 | | | |||||||
Restructuring and other items |
(62 | ) | (725 | ) | 16 | (1 | ) | (9 | ) | 6 | | | ||||||
|
||||||||||||||||||
Net earnings per common share: |
||||||||||||||||||
Continuing operations basic |
0.38 | 0.09 | 0.57 | 0.51 | 0.50 | 0.48 | 0.49 | 0.49 | ||||||||||
Continuing operations diluted |
0.38 | 0.09 | 0.57 | 0.51 | 0.50 | 0.47 | 0.49 | 0.49 | ||||||||||
Net earnings basic |
0.45 | 0.09 | 0.60 | 0.51 | 0.41 | 0.49 | 0.50 | 0.50 | ||||||||||
Net earnings diluted |
0.45 | 0.09 | 0.60 | 0.51 | 0.41 | 0.48 | 0.50 | 0.50 | ||||||||||
Average number of common shares outstanding (millions) |
925.3 | 924.6 | 924.3 | 924.1 | 923.4 | 921.5 | 919.3 | 917.1 | ||||||||||
|
44 2004 Quarterly Report Bell Canada Enterprises
Consolidated Financial Statements Consolidated Statements of Operations |
||||||||||
|
||||||||||
For the period ended December 31 |
Three months |
Twelve months |
||||||||
(in $ millions, except share amounts) (unaudited) |
2004 | 2003 | 2004 | 2003 | ||||||
|
||||||||||
Operating revenues |
4,989 | 4,818 | 19,193 | 18,737 | ||||||
|
||||||||||
Operating expenses |
(3,158 | ) | (2,971 | ) | (11,629 | ) | (11,327 | ) | ||
Amortization expense |
(803 | ) | (775 | ) | (3,108 | ) | (3,100 | ) | ||
Net benefit plans cost (Note 4) |
(67 | ) | (46 | ) | (256 | ) | (175 | ) | ||
Restructuring and other items (Note 5) |
(126 | ) | (13 | ) | (1,224 | ) | (14 | ) | ||
|
||||||||||
Total operating expenses |
(4,154 | ) | (3,805 | ) | (16,217 | ) | (14,616 | ) | ||
|
||||||||||
Operating income |
835 | 1,013 | 2,976 | 4,121 | ||||||
Other income (Note 6) |
18 | 127 | 411 | 175 | ||||||
Interest expense |
(247 | ) | (266 | ) | (1,005 | ) | (1,105 | ) | ||
|
||||||||||
Pre-tax earnings from continuing operations |
606 | 874 | 2,382 | 3,191 | ||||||
Income taxes |
(199 | ) | (331 | ) | (710 | ) | (1,119 | ) | ||
Non-controlling interest |
(40 | ) | (57 | ) | (174 | ) | (201 | ) | ||
|
||||||||||
Earnings from continuing operations |
367 | 486 | 1,498 | 1,871 | ||||||
Discontinued operations (Note 7) |
(2 | ) | (86 | ) | 26 | (56 | ) | |||
|
||||||||||
Net earnings before extraordinary gain |
365 | 400 | 1,524 | 1,815 | ||||||
Extraordinary gain (Note 3) |
69 | | 69 | | ||||||
|
||||||||||
Net earnings |
434 | 400 | 1,593 | 1,815 | ||||||
Dividends on preferred shares |
(17 | ) | (14 | ) | (70 | ) | (64 | ) | ||
Premium on redemption of preferred shares |
| | | (7 | ) | |||||
|
||||||||||
Net earnings applicable to common shares |
417 | 386 | 1,523 | 1,744 | ||||||
|
||||||||||
Net earnings per common share basic |
||||||||||
Continuing operations |
0.38 | 0.50 | 1.55 | 1.96 | ||||||
Discontinued operations |
| (0.09 | ) | 0.03 | (0.06 | ) | ||||
Extraordinary gain |
0.07 | | 0.07 | | ||||||
Net earnings |
0.45 | 0.41 | 1.65 | 1.90 | ||||||
Net earnings per common share diluted |
||||||||||
Continuing operations |
0.38 | 0.50 | 1.55 | 1.95 | ||||||
Discontinued operations |
| (0.09 | ) | 0.03 | (0.06 | ) | ||||
Extraordinary gain |
0.07 | | 0.07 | | ||||||
Net earnings |
0.45 | 0.41 | 1.65 | 1.89 | ||||||
Dividends per common share |
0.30 | 0.30 | 1.20 | 1.20 | ||||||
Average number of common shares outstanding basic (millions) |
925.3 | 923.4 | 924.6 | 920.3 | ||||||
|
||||||||||
Consolidated Statements of Deficit | ||||||||||
|
||||||||||
For the period ended December 31 |
Three months | Twelve months | ||||||||
(in $ millions) (unaudited) |
2004 | 2003 | 2004 | 2003 | ||||||
|
||||||||||
Balance at beginning of period, as previously reported |
(5,563 | ) | (5,937 | ) | (5,830 | ) | (6,435 | ) | ||
Accounting policy change for asset retirement obligations (Note 1) |
| (7 | ) | (7 | ) | (7 | ) | |||
|
||||||||||
Balance at beginning of period, as restated |
(5,563 | ) | (5,944 | ) | (5,837 | ) | (6,442 | ) | ||
Consolidation of variable interest entity |
| | | (25 | ) | |||||
Net earnings applicable to common shares |
417 | 386 | 1,523 | 1,744 | ||||||
Dividends declared on common shares |
(278 | ) | (277 | ) | (1,110 | ) | (1,105 | ) | ||
Other |
| (2 | ) | | (9 | ) | ||||
|
||||||||||
Balance at end of period |
(5,424 | ) | (5,837 | ) | (5,424 | ) | (5,837 | ) | ||
|
45 2004 Quarterly Report Bell Canada Enterprises
Consolidated Balance Sheets | ||||||
|
||||||
At December 31 (in $ millions) (unaudited) |
2004 | 2003 | ||||
|
||||||
ASSETS |
||||||
Current assets |
||||||
Cash and cash equivalents |
380 | 585 | ||||
Accounts receivable |
2,119 | 2,061 | ||||
Other current assets |
1,211 | 739 | ||||
Current assets of discontinued operations |
| 280 | ||||
|
||||||
Total current assets |
3,710 | 3,665 | ||||
Capital assets |
21,398 | 21,114 | ||||
Other long-term assets |
2,656 | 3,459 | ||||
Indefinite-life intangible assets |
2,916 | 2,910 | ||||
Goodwill |
8,413 | 7,761 | ||||
Non-current assets of discontinued operations |
50 | 511 | ||||
|
||||||
Total assets |
39,143 | 39,420 | ||||
|
||||||
LIABILITIES |
||||||
Current liabilities |
||||||
Accounts payable and accrued liabilities |
3,700 | 3,046 | ||||
Interest payable |
183 | 194 | ||||
Dividends payable |
297 | 294 | ||||
Debt due within one year |
1,276 | 1,519 | ||||
Current liabilities of discontinued operations |
| 285 | ||||
|
||||||
Total current liabilities |
5,456 | 5,338 | ||||
Long-term debt |
11,809 | 12,381 | ||||
Other long-term liabilities |
4,932 | 4,705 | ||||
Non-current liabilities of discontinued operations |
| 20 | ||||
|
||||||
Total liabilities |
22,197 | 22,444 | ||||
|
||||||
Non-controlling interest |
2,914 | 3,403 | ||||
|
||||||
SHAREHOLDERS EQUITY |
||||||
Preferred shares |
1,670 | 1,670 | ||||
|
||||||
Common shareholders equity |
||||||
Common shares |
16,781 | 16,749 | ||||
Contributed surplus |
1,061 | 1,037 | ||||
Deficit |
(5,424 | ) | (5,837 | ) | ||
Currency translation adjustment |
(56 | ) | (46 | ) | ||
|
||||||
Total common shareholders equity |
12,362 | 11,903 | ||||
|
||||||
Total shareholders equity |
14,032 | 13,573 | ||||
|
||||||
Total liabilities and shareholders equity |
39,143 | 39,420 | ||||
|
46 2004 Quarterly Report Bell Canada Enterprises
Consolidated Statements of Cash Flows | ||||||||||
|
||||||||||
For the period ended December 31 |
Three months | Twelve months | ||||||||
(in $ millions) (unaudited) |
2004 | 2003 | 2004 | 2003 | ||||||
|
||||||||||
Cash flows from operating activities |
||||||||||
Earnings from continuing operations |
367 | 486 | 1,498 | 1,871 | ||||||
Adjustments to reconcile earnings from continuing operations to cash flows from operating activities: |
||||||||||
Amortization expense |
803 | 775 | 3,108 | 3,100 | ||||||
Net benefit plans cost |
67 | 46 | 256 | 175 | ||||||
Restructuring and other items |
126 | 13 | 1,224 | 14 | ||||||
Net (gains) losses on investments |
12 | (76 | ) | (319 | ) | (76 | ) | |||
Future income taxes |
62 | 207 | (34 | ) | 418 | |||||
Non-controlling interest |
40 | 57 | 174 | 201 | ||||||
Contributions to employee pension plans |
(24 | ) | (87 | ) | (112 | ) | (160 | ) | ||
Other employee future benefit plan payments |
(22 | ) | (23 | ) | (81 | ) | (87 | ) | ||
Payments of restructuring and other items |
(214 | ) | (27 | ) | (253 | ) | (124 | ) | ||
Change in operating assets and liabilities |
90 | 227 | 58 | 636 | ||||||
|
||||||||||
Cash from operating activities |
1,307 | 1,598 | 5,519 | 5,968 | ||||||
|
||||||||||
Cash flows from investing activities |
||||||||||
Capital expenditures |
(1,046 | ) | (1,079 | ) | (3,364 | ) | (3,167 | ) | ||
Business acquisitions |
(347 | ) | (42 | ) | (1,299 | ) | (115 | ) | ||
Business dispositions |
| | 20 | 55 | ||||||
Change in investments accounted for under the cost and equity methods |
(38 | ) | 156 | 655 | 163 | |||||
Other investing activities |
(9 | ) | (7 | ) | 124 | 62 | ||||
|
||||||||||
Cash used in investing activities |
(1,440 | ) | (972 | ) | (3,864 | ) | (3,002 | ) | ||
|
||||||||||
Cash flows from financing activities |
||||||||||
Increase (decrease) in notes payable and bank advances |
7 | (53 | ) | 130 | (295 | ) | ||||
Issue of long-term debt |
111 | 105 | 1,521 | 1,986 | ||||||
Repayment of long-term debt |
(641 | ) | (1,532 | ) | (2,391 | ) | (3,472 | ) | ||
Issue of common shares |
16 | 5 | 32 | 19 | ||||||
Issue of preferred shares |
| | | 510 | ||||||
Redemption of preferred shares |
| | | (357 | ) | |||||
Issue of equity securities by subsidiaries to non-controlling interest |
1 | 19 | 8 | 132 | ||||||
Redemption of equity securities by subsidiaries from non-controlling interest |
| (34 | ) | (58 | ) | (108 | ) | |||
Cash dividends paid on common shares |
(277 | ) | (259 | ) | (1,108 | ) | (1,029 | ) | ||
Cash dividends paid on preferred shares |
(21 | ) | (22 | ) | (85 | ) | (61 | ) | ||
Cash dividends paid by subsidiaries to non-controlling interest |
(49 | ) | (47 | ) | (188 | ) | (184 | ) | ||
Other financing activities |
(17 | ) | (41 | ) | (51 | ) | (46 | ) | ||
|
||||||||||
Cash used in financing activities |
(870 | ) | (1,859 | ) | (2,190 | ) | (2,905 | ) | ||
|
||||||||||
Cash provided by (used in) continuing operations |
(1,003 | ) | (1,233 | ) | (535 | ) | 61 | |||
Cash provided by (used in) discontinued operations |
(3 | ) | 338 | 193 | 355 | |||||
|
||||||||||
Net increase (decrease) in cash and cash equivalents |
(1,006 | ) | (895 | ) | (342 | ) | 416 | |||
Cash and cash equivalents at beginning of period |
1,386 | 1,617 | 722 | 306 | ||||||
|
||||||||||
Cash and cash equivalents at end of period |
380 | 722 | 380 | 722 | ||||||
|
||||||||||
Consists of: |
||||||||||
Cash and cash equivalents of continuing operations |
380 | 585 | 380 | 585 | ||||||
Cash and cash equivalents of discontinued operations |
| 137 | | 137 | ||||||
|
||||||||||
Total |
380 | 722 | 380 | 722 | ||||||
|
47 2004 Quarterly Report Bell Canada Enterprises
The interim consolidated financial
statements should be read in conjunction with BCE Inc.s annual
consolidated financial statements for the year ended December 31, 2003,
on pages 64 to 101 of BCE Inc.s 2003 annual report. |
Notes
to Consolidated Financial Statements NOTE 1. SIGNIFICANT ACCOUNTING POLICIES We have prepared the consolidated financial statements in accordance with 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, 2003, except as noted below. Comparative figures We have restated financial information for previous periods to reflect:
Change in accounting
policy
Stock-based compensation
plans In the first
quarter of 2004, we started reporting our results of operations under
five segments: Consumer, Business, Aliant, Other Bell Canada and
Other BCE. Our reporting structure reflects how we manage our business
and how we classify our operations for planning and measuring performance. |
48 2004 Quarterly Report Bell Canada Enterprises
NOTE 2. SEGMENTED INFORMATION (continued) | |||||||||||
|
|||||||||||
Three months | Twelve months | ||||||||||
For the period ended December 31 |
2004 | 2003 | 2004 | 2003 | |||||||
|
|||||||||||
Operating revenues |
|||||||||||
Consumer |
External |
1,888 | 1,846 | 7,440 | 7,142 | ||||||
|
Inter-segment |
23 | 22 | 62 | 61 | ||||||
|
|||||||||||
|
|
1,911 | 1,868 | 7,502 | 7,203 | ||||||
|
|||||||||||
Business |
External |
1,483 | 1,445 | 5,622 | 5,544 | ||||||
|
Inter-segment |
52 | 71 | 229 | 283 | ||||||
|
|||||||||||
|
|
1,535 | 1,516 | 5,851 | 5,827 | ||||||
|
|||||||||||
Aliant |
External |
473 | 487 | 1,894 | 1,909 | ||||||
|
Inter-segment |
33 | 40 | 139 | 150 | ||||||
|
|||||||||||
|
|
506 | 527 | 2,033 | 2,059 | ||||||
|
|||||||||||
Other Bell Canada |
External |
442 | 429 | 1,736 | 1,868 | ||||||
|
Inter-segment |
69 | 39 | 203 | 147 | ||||||
|
|||||||||||
|
|
511 | 468 | 1,939 | 2,015 | ||||||
|
|||||||||||
Inter-segment eliminations Bell Canada |
(160 | ) | (133 | ) | (538 | ) | (490 | ) | |||
|
|||||||||||
Bell Canada |
|
4,303 | 4,246 | 16,787 | 16,614 | ||||||
|
|||||||||||
Other BCE |
External |
703 | 611 | 2,501 | 2,274 | ||||||
Inter-segment | 97 | 86 | 360 | 323 | |||||||
|
|||||||||||
800 | 697 | 2,861 | 2,597 | ||||||||
|
|||||||||||
Inter-segment eliminations Other |
(114 | ) | (125 | ) | (455 | ) | (474 | ) | |||
|
|||||||||||
Total operating revenues |
4,989 | 4,818 | 19,193 | 18,737 | |||||||
|
|||||||||||
Operating income |
|
||||||||||
Consumer |
|
464 | 471 | 2,119 | 2,019 | ||||||
Business |
|
183 | 199 | 896 | 781 | ||||||
Aliant |
|
23 | 108 | 268 | 415 | ||||||
Other Bell Canada |
|
61 | 152 | (588 | ) | 621 | |||||
|
|||||||||||
Bell Canada |
|
731 | 930 | 2,695 | 3,836 | ||||||
Other BCE |
|
104 | 83 | 281 | 285 | ||||||
|
|||||||||||
Total operating income |
835 | 1,013 | 2,976 | 4,121 | |||||||
Other income |
|
18 | 127 | 411 | 175 | ||||||
Interest expense |
|
(247 | ) | (266 | ) | (1,005 | ) | (1,105 | ) | ||
Income taxes |
|
(199 | ) | (331 | ) | (710 | ) | (1,119 | ) | ||
Non-controlling interest |
|
(40 | ) | (57 | ) | (174 | ) | (201 | ) | ||
|
|||||||||||
Earnings from continuing operations |
367 | 486 | 1,498 | 1,871 | |||||||
|
The consolidated statements
of operations include the results of acquired businesses from the date
they were acquired.
|
NOTE 3. BUSINESS ACQUISITIONS We made a number of business acquisitions in 2004 including:
|
49 2004 Quarterly Report Bell Canada Enterprises
NOTE 3. BUSINESS ACQUISITIONS (continued)
The
table below provides a summary of all business acquisitions made in 2004.
The purchase price allocation for all 2004 acquisitions is based
on estimates. The final purchase price allocation for each business acquisition
is expected to be complete within 12 months of the acquisition date.
|
|
||||||||||||
360networks | 40% interest in Bell West |
BCEs proportionate share of AMS | All other business acquisitions | Total |
||||||||
|
||||||||||||
Consideration received: |
||||||||||||
Non-cash working capital |
(9 | ) | | (59 | ) | 11 | (57 | ) | ||||
Capital assets |
| (15 | ) | 90 | 16 | 91 | ||||||
Other long-term assets |
429 | 5 | | 10 | 444 | |||||||
Goodwill |
| 395 | 161 | 171 | 727 | |||||||
Long-term debt |
| | | | | |||||||
Other long-term liabilities |
(58 | ) | | (21 | ) | | (79 | ) | ||||
Non-controlling interest |
| 261 | | | 261 | |||||||
|
||||||||||||
362 | 646 | 171 | 208 | 1,387 | ||||||||
Cash and cash equivalents (bank indebtedness) at acquisition |
| | 13 | (3 | ) | 10 | ||||||
|
||||||||||||
Net assets acquired |
362 | 646 | 184 | 205 | 1,397 | |||||||
|
||||||||||||
|
||||||||||||
Extraordinary gain |
69 | | | | 69 | |||||||
|
||||||||||||
|
||||||||||||
Consideration given: |
||||||||||||
Cash |
283 | 645 | 178 | 185 | 1,291 | |||||||
Acquisition costs |
10 | 1 | 6 | 1 | 18 | |||||||
Issuance of shares |
15 | 15 | ||||||||||
Future cash payment |
| | | 4 | 4 | |||||||
|
||||||||||||
293 | 646 | 184 | 205 | 1,328 | ||||||||
|
50 2004 Quarterly Report Bell Canada Enterprises
NOTE 4. EMPLOYEE BENEFIT PLANS The table below shows the components of the net benefit plans cost. |
||||||||||||||||||
|
||||||||||||||||||
Three months | Twelve months | |||||||||||||||||
Pension benefits | Other benefits | Pension benefits | Other benefits | |||||||||||||||
For the period ended December 31 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||
|
||||||||||||||||||
Current service cost |
61 | 56 | 8 | 8 | 243 | 222 | 31 | 31 | ||||||||||
Interest cost on accrued benefit obligation |
202 | 189 | 26 | 27 | 806 | 757 | 104 | 105 | ||||||||||
Expected return on plan assets |
(239 | ) | (234 | ) | (3 | ) | (2 | ) | (953 | ) | (935 | ) | (10 | ) | (9 | ) | ||
Amortization of past service costs |
3 | 2 | | | 10 | 9 | | | ||||||||||
Amortization of net actuarial losses |
9 | 6 | | | 33 | 23 | 1 | | ||||||||||
Amortization of transitional (asset) obligation |
(11 | ) | (11 | ) | 8 | 8 | (44 | ) | (44 | ) | 30 | 30 | ||||||
Increase (decrease) in valuation allowance |
1 | (3 | ) | | | 3 | (12 | ) | | | ||||||||
Other |
2 | | | | 2 | (2 | ) | | | |||||||||
|
||||||||||||||||||
Net benefit plans cost |
28 | 5 | 39 | 41 | 100 | 18 | 156 | 157 | ||||||||||
|
||||||||||||||||||
The table below shows the amounts we contributed to the pension benefit plans and the payments made to beneficiaries under other employee future benefit plans. |
|
||||||||||||||||||
Three months | Twelve months | |||||||||||||||||
Pension benefits | Other benefits | Pension benefits | Other benefits |
|||||||||||||||
For the period ended December 31 |
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||
|
||||||||||||||||||
Aliant |
13 | 74 | 1 | 1 | 67 | 125 | 4 | 4 | ||||||||||
Bell Canada |
6 | 8 | 21 | 22 | 20 | 17 | 77 | 83 | ||||||||||
Bell Globemedia |
4 | 3 | | | 17 | 11 | | – | ||||||||||
BCE Inc. |
1 | 2 | | | 8 | 7 | | – | ||||||||||
|
||||||||||||||||||
Total |
24 | 87 | 22 | 23 | 112 | 160 | 81 | 87 | ||||||||||
|
NOTE 5. RESTRUCTURING AND OTHER ITEMS | ||||||||||
|
||||||||||
Three months | Twelve months | |||||||||
For the period ended December 31 | 2004 | 2003 | 2004 | 2003 | ||||||
|
||||||||||
Employee departure programs |
(78 | ) | | (1,063 | ) | | ||||
Settlement with MTS |
| | 75 | | ||||||
Provision for contract loss |
(18 | ) | | (128 | ) | | ||||
Other charges |
(30 | ) | (13 | ) | (108 | ) | (14 | ) | ||
|
||||||||||
Restructuring and other items |
(126 | ) | (13 | ) | (1,224 | ) | (14 | ) | ||
|
||||||||||
Employee departure program Bell Canada
During
the fourth quarter of 2004, we recorded a pre-tax charge of $11 million
($7 million after taxes) for the relocation of employees and closure
of excess real estate facilities that are no longer needed as a result
of the employee departure program. We expect to incur an additional amount
of approximately $65 million in the future for similar costs that
will be expensed as incurred. Employee departure program
Aliant |
51 2004 Quarterly Report Bell Canada Enterprises
NOTE 5. RESTRUCTURING AND OTHER ITEMS (continued) The table below provides a summary of the costs recognized in 2004, as well as the corresponding liability at December 31, 2004. |
||||||||
|
||||||||
Bell Canada | Aliant | Consolidated | ||||||
|
||||||||
Employee departure program costs | 985 | 67 | 1,052 | |||||
Less: | ||||||||
Cash payments |
(194 | ) | | (194 | ) | |||
Pension and other post-retirement benefits applied to: |
| |||||||
Other long-term assets |
(660 | ) | | (660 | ) | |||
Other long-tem liabilities |
(11 | ) | | (11 | ) | |||
|
||||||||
Balance in accounts payable and accrued liabilities at December 31, 2004 |
120 | 67 | 187 | |||||
|
||||||||
Settlement with MTS
Provision for contract
loss Other charges |
52 2004 Quarterly Report Bell Canada Enterprises
NOTE 6. OTHER INCOME | ||||||||||
|
||||||||||
Three Months | Twelve Months | |||||||||
For the period ended December 31 |
2004 | 2003 | 2004 | 2003 | ||||||
|
||||||||||
Net gains (losses) on investments |
(12 | ) | 76 | 319 | 76 | |||||
Interest income |
10 | 22 | 32 | 69 | ||||||
Foreign currency gains |
7 | 1 | 3 | 33 | ||||||
Other |
13 | 28 | 57 | (3 | ) | |||||
|
||||||||||
Other income |
18 | 127 | 411 | 175 | ||||||
|
||||||||||
In 2004, net gains on investments of $319 million included:
|
NOTE 7. DISCONTINUED OPERATIONS | ||||||||||
|
||||||||||
Three months | Twelve months | |||||||||
For the period ended December 31 |
2004 | 2003 | 2004 | 2003 | ||||||
|
||||||||||
Emergis |
(2 | ) | (178 | ) | 23 | (154 | ) | |||
Other |
| 92 | 3 | 98 | ||||||
|
||||||||||
Net gain (loss) from discontinued operations |
(2 | ) | (86 | ) | 26 | (56 | ) | |||
|
||||||||||
The table below provides a summarized statement of operations for the discontinued operations. | ||||||||||
|
||||||||||
Three months | Twelve months | |||||||||
For the period ended December 31 |
2004 | 2003 | 2004 | 2003 | ||||||
|
||||||||||
Revenue |
| 197 | 128 | 962 | ||||||
|
||||||||||
Operating gain (loss) from discontinued operations, before tax |
| (9 | ) | (52 | ) | 67 | ||||
Gain (loss) from discontinued operations, before tax |
(2 | ) | (80 | ) | 70 | (70 | ) | |||
Income tax expense on operating gain (loss) |
| (7 | ) | (11 | ) | (30 | ) | |||
Income tax recovery (expense) on gain (loss) |
| 18 | (3 | ) | 17 | |||||
Non-controlling interest |
| (8 | ) | 22 | (40 | ) | ||||
|
||||||||||
Net gain from discontinued operations |
(2 | ) | (86 | ) | 26 | (56 | ) | |||
|
||||||||||
Emergis provides eBusiness solutions to the financial services industry in North America and the health industry in Canada. It automates transactions between companies and allows them to interact and transact electronically while its Security business provides organizations with the related security services. |
Sale of Emergis In June 2004, Bell Canada paid $49 million to Emergis for:
These
transactions were recorded on a net basis. The net proceeds from the sale
of Emergis were $285 million (net of $22 million of selling
costs and $49 million consideration given to Emergis). The gain on
the transaction was $58 million, which was recorded in 2004. |
53 2004 Quarterly Report Bell Canada Enterprises
NOTE 8. STOCK-BASED COMPENSATION PLANS Restricted share units |
||||
|
||||
Number of | ||||
RSUs | ||||
|
||||
Outstanding, January 1, 2004 |
| |||
Granted |
2,047,599 | |||
Expired/forfeited |
(51,077 | ) | ||
|
||||
Outstanding, December 31, 2004 |
1,996,522 | |||
|
||||
Exercisable, December 31, 2004 |
| |||
|
||||
For the three months and year ended December 31, 2004, we recorded compensation expense for RSUs of $8 million and $25 million, respectively. BCE Inc. stock
options |
||||||
|
||||||
Number of shares |
Weighted average exercise price |
|||||
|
||||||
Outstanding, January 1, 2004 |
25,750,720 | $32 | ||||
Granted |
5,911,576 | $30 | ||||
Exercised |
(1,946,864 | ) | $16 | |||
Expired/forfeited |
(1,233,753 | ) | $34 | |||
|
||||||
Outstanding, December 31, 2004 |
28,481,679 | $32 | ||||
|
||||||
Exercisable, December 31, 2004 |
14,633,433 | $34 | ||||
|
Assumptions used in stock-option pricing model The table below shows the assumptions used to determine the stock-based compensation expense based on the Black-Scholes option pricing model. |
||||||||||
|
||||||||||
Three months | Twelve months | |||||||||
For the period ended December 31 |
2004 | 2003 | 2004 | 2003 | ||||||
|
||||||||||
Compensation expense ($ millions) |
6 | 7 | 29 | 26 | ||||||
Number of stock options granted |
322,100 | 80,000 | 5,911,576 | 6,008,051 | ||||||
Weighted average fair value per option granted ($) |
3 | 7 | 4 | 6 | ||||||
Weighted average assumptions |
||||||||||
Dividend yield |
4.2 | % | 3.7 | % | 4.0 | % | 3.6 | % | ||
Expected volatility |
25 | % | 30 | % | 27 | % | 30 | % | ||
Risk-free interest rate |
3.3 | % | 3.8 | % | 3.1 | % | 4.0 | % | ||
Expected life (years) |
3.5 | 4.5 | 3.5 | 4.5 | ||||||
|
||||||||||
Starting in 2004, most of the stock options granted contain specific performance targets that must be met before the option can be exercised. This is reflected in the calculation of the weighted average fair value per option granted. |
54 2004 Quarterly Report Bell Canada Enterprises
NOTE 9. COMMITMENTS AND CONTINGENCIES Litigation Acquisition of Nexxlink
Technologies Inc. (Nexxlink) |
55 2004 Quarterly Report Bell Canada Enterprises
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 Treasurer |
||
Date: February 2, 2005 |