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: November 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) 870-8777
(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
|
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
|
|
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)
BELL CANADA ENTERPRISES REPORTS THIRD QUARTER RESULTS
Montréal (Québec), November 2, 2005 For the third quarter of 2005, BCE Inc. (TSX, NYSE: BCE) reported revenues of $5.0 billion, up 3.6% from the same period last year. Operating income for the quarter increased to $957 million, from $25 million in the third quarter of 2004(1), due primarily to restructuring charges recognized in 2004 for the companys employee departure program. Earnings per share (EPS) were $0.48 cents, up from $0.09 the previous year. EBITDA(2) was $1.9 billion, down 1.9% from the same period last year. EPS before restructuring and other items and net gains on investments(3) were $0.50 as compared to $0.52 the previous year. Cash from operating activities was $1.7 billion in the quarter, down 7.8% from the third quarter of 2004, while free cash flow(4) was $344 million, compared to $673 million for the same period last year.
Bell Canada achieved solid revenue performance in the quarter with video, wireless, Internet and the Business segment all contributing to revenue growth that more than offset the declines from the companys legacy business. Operating costs were impacted by decisions taken by the company to invest the necessary resources to clear up the backlog from the Entourage strike quickly and to invest in customer service. In addition, to maintain a clear focus on these priorities certain planned cost savings initiatives were temporarily delayed. Taken together, these factors had a significant effect on EBITDA in the quarter. EPS and Operating income were also affected by these factors, and by expected higher pension and amortization costs.
We continued to have solid revenue increases in our key growth services in the quarter. We also made progress on our multi-product household strategy, said Michael Sabia, President and Chief Executive Officer of BCE. However, our financial performance suffered as a result of decisions we took to invest in service and to clear up the lingering consequences of the Entourage strike. With significant progress on these issues, we are ramping up our cost-saving initiatives in the fourth quarter and as we enter 2006.
In terms of its overall cost reduction program (Galileo), on a year-to-date basis the company has generated $353 million in savings. This includes $111 million in the third quarter. The latter was affected by the company's decision to defer some Galileo initiatives.
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Going into the fourth quarter, a number of initiatives will come on-line and others will be accelerated. They include: the continued migration of customers to Bell Canadas new and simple One Bill; the deployment of a new bell.ca web site that transforms this online destination into a simple and cost-effective sales channel; and the convergence of consumer call centres to provide customers with a single point of contact for their multiple Bell services.
Bell has also launched a significant procurement review effort that targets the companys $8.5 billion external operating and capital expenditures. Its objective is to drive down the cost base through price improvements, consumption controls, supply-chain re-designs, inventory controls as well as a review of the overall real estate spend. The full impact of this and other measures will contribute to the company achieving its target run rate of savings of $500-$600 million for 2005 and of $1-1.5 billion by the end of 2006.
Bell recently announced two appointments that further strengthened the executive leadership of the company to bring an ever-sharper focus to the day-to-day execution of its business plans. George Cope will join Bell Canada as President and Chief Operating Officer in January 2006 to lead the companys various customer-facing groups (Residential, Enterprise, SMB and wholesale), excluding wireless. He will focus on driving revenue growth, delivering new products to the marketplace and enhancing our customer service. In addition, Stephen Wetmore was given expanded responsibilities as Group President Corporate Performance and National Markets of Bell Canada. In this new capacity, Mr. Wetmore has overall responsibility for driving the improvement of the companys cost structure and thus contributing to profitable growth.
Strengthening the executive leadership of the company is about a renewed focus on driving our future growth, re-setting our cost structure and improving our customer service to meet the competitive realities of the market, said Mr. Sabia. Its also about relentless execution of the plan we have put in place to deliver value to our customers and shareholders.
Key operational achievements
Video
ExpressVu posted its best third quarter since 2001 as net additions jumped 148% over the same quarter in 2004 to 82,000. So far this year, Bell has added 174,000 net new video subscribers, bringing the total subscriber base to 1,677,000, up 14.9% year over year. The improvement in net activations this quarter and year to date was driven by the positive impact of our set-top-box rental program and the addition of 12,500 subscribers from the acquisition of Cable VDN Inc.
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Video revenues increased by 17.8% year-over-year, driven by a higher customer base, an improvement in Average Revenue Per User (ARPU) of $3 over the third quarter of last year and a churn rate of 1.0%, down by 0.1 points year over year. The higher ARPU is a result of a pricing increase of $2 and greater up-selling initiatives that leveraged strong programming and hardware offerings. Cost containment and the impact of a new rental program drove improved operating performance, despite a significant increase in new additions.
Bell continued to lead the Canadian market in the delivery of high-definition (HD) programming and recently launched its third high-definition sports channel, Raptors NBA TV in High Definition, to bring the total number of high-definition channels to 28. In addition, with the return of the hockey season, Bell is the only carrier of NHL Centre Ice in Canada.
On the hardware front, there has been strong demand for the new 9200 HD PVR (Personal Video Recorder) Plus. The 9200 can be connected to two televisions for separate program recording and viewing on each, making it simple for customers to watch and record the largest selection of HD programming available in Canada.
Wireless
Wireless subscriber momentum continued in the third quarter as Bell stepped up its efforts to secure new, higher value, long term customers to drive overall wireless ARPU. Bell attracted 358,000 gross subscribers, a 27% increase over the third quarter of 2004. Bells new Push-to-Talk service, called 10-4", and BlackBerry subscriptions helped deliver 68%, or 243,000 postpaid subscribers of the total gross activations. 10-4 ended the third quarter with 70,000 consumer and business subscribers.
Net additions were 123,000 in the third quarter, up 12.8% over the same period last year. At the end of the third quarter, Bell had 5.2 million wireless subscribers, an increase of 11.1% when compared to September 30, 2004. Contributing to these results was the success of Solo Mobile, launched on July 25 to specifically target the youth market, the introduction of new handsets, competitive rate plans and Virgin Mobile service.
Subscriber growth, and a $1 increase in ARPU to $51, contributed to wireless revenues of $801 million, an improvement of $74 million, or 10.2%, over the third quarter of 2004. Wireless EBITDA margin was at 44.0% in the third quarter of 2005, down 1.4% over last year, due principally to the cost associated with acquiring an increased number of high-value subscribers.
Blended churn of 1.5% was 0.3 points higher than in the third quarter of 2004 but down 0.1 point compared to the second quarter of this year. Prepaid churn in the quarter improved to 1.6% compared to 2.1% in the second quarter of 2005. Postpaid churn was up slightly to 1.5% this quarter from 1.4% last quarter.
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In mid-August, Bell introduced MOBI TV, the first Canadian mobile television application. This new technology will provide customers with a variety of television programming on their mobile handsets.
On October 31, Bell became the first wireless operator in Canada to launch Evolution, Data Optimized (EVDO), which provides the company with new revenue opportunities in both business and consumer markets. EVDO, with a wireless data speed rate five times faster than what is currently available, allows Bell to grow next-generation services to drive higher ARPU. EVDO delivers data-rich content such as e-mail, video messaging, gaming, video conferencing, telematics and streaming entertainment.
High-speed Internet
Bells high speed Internet service added 106,000 subscribers in the third quarter of 2005, an increase of 26% over the same period in 2004. The total high-speed subscriber base reached 2,134,000, up 24% over the third quarter of last year. Focused selling efforts, the continued success of Basic Lite and subscriptions to the 5 Mbps Ultra service resulted in 58% of gross additions subscribing to high-speed products. An expanded footprint and attractive back-to-school offers also contributed to overall growth in the third quarter.
Sympatico.MSN portal revenues increased by 58% in the quarter over the third quarter of 2004. The portal continues to be the countrys most popular online destination with over 16 million unique visitors to the site monthly.
The company launched kidsmania.ca on October 5, a subscription-based service offering interactive education and entertainment (edutainment) in English and French to children aged 3-12. It is a first in Canada and is achieving favourable customer adoption in the first few weeks of its availability.
Bell also introduced Live @ The Orange in partnership with Universal Music. This Canadian first allows subscribers to purchase exclusive live music recordings through SympaticoMusicStore, view live studio sessions on ExpressVu HDTV, and download the music recordings to their Bell mobile phones. It offers fans unparalleled access to content and leverages Bells wide distribution capabilities.
Consumer segment highlights
At the end of the third quarter, 59% of Bell households in Quebec and Ontario subscribed to at least two Bell services, up from 57% in the second quarter. Of this total, 1.34 million households subscribed to at least three services, up 70,000 from the second quarter. This contributed to a steady increase in average revenue per household in the quarter.
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Consumer segment revenues grew by 1.1% over the same quarter of 2004, at $1.9 billion. This increase was driven by a continued expansion of video, wireless and high-speed subscriber bases, as well as higher ARPU performance. This was partly offset by greater wireline erosion, which led to lower long distance and local access revenues. Year-to-date Consumer revenues were $5.7 billion, up 1.5% from the same period last year.
Operating income was down 15.8% for the quarter, attributable to factors previously discussed surrounding the Entourage strike, higher pension and amortization costs and a 3.5% decline in the residential NAS (Network Access Service) customer base. Costs associated with acquiring higher revenue-generating customers also contributed to these results.
On September 8, Bell launched Digital Voice, its IP-based voice communications solution, in the Greater Toronto area and expanded the availability of its over-the-top service throughout Ontario and Quebec after a successful trial period in select Quebec communities. On October 25, Bell made Digital Voice available in Quebec starting with Montreal, providing two of Canadas major urban centres with a premium IP-telephony service with advanced capabilities such as voicemail to email, additional numbers, enhanced call forwarding and online account management. It is recognized as one of the most innovative and advanced offerings of its kind in North America and is part of companys effort to maximize retention in a highly competitive market.
Business segment highlights
The Business segment achieved its fifth consecutive quarter of improved revenue growth, with revenues of $1.5 billion, up 5.3% over the third quarter of 2004. Year to date revenues were approximately $4.5 billion, representing an increase of 4.1% over 2004. Data and wireless revenues rose in the quarter for Enterprise and SMB, yet there was a decline in long distance and local access revenues.
SMBs strong performance was driven by the success of the companys VCIO (Virtual Chief Information Officer) strategy and by steady growth in both wireless and data revenues. In Enterprise, demand for Information and Communication Technologies (ICT) services and IP-based solutions contributed to the revenue growth.
Small and Medium Business
The SMB group experienced its best quarter since the launch of its VCIO strategy. Revenues for these services grew significantly over the third quarter of last year, with 34% organic growth. Bell Business Solutions (BBS), housing the resources of CSB Systems, Nexxlink Technologies and Charon Systems, contributed significantly to data products growth in the quarter.
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In August, the SMB group launched Business IP Voice. This service provides small and medium businesses with access to new capabilities, lower communication costs and improved productivity through applications that have been available only to large enterprise customers in the past.
The SMB group also recently opened a new innovation centre in Kanata, Ontario to develop IP-based technologies and applications. The centre will focus on advanced solutions for small and medium businesses in key sectors such as health care, retail and transportation. The centre is a collaborative effort with The Wesley Clover Group, owned by telecommunications entrepreneur Terry Matthews.
Revenues increased this quarter, due to growth in wireless and data revenues. The Enterprise group continued to make progress as a leading ICT services provider to Canadian corporations, governments and public sector organizations. Sales of ICT services grew by 22% over the third quarter of 2004 and by 40% on a year-to-date basis. Enterprise added 23,000 IP-enabled voice lines on customer premises equipment during the quarter for a total of 208,000 lines.
Significant customer wins in the third quarter included:
|
An
important five-year partnership with the Aéroports de Montréal
to provide solutions including Wi-Fi technology, intelligent
digital signage, IP telephony, computerized information kiosks and the
installation of business centres in public areas at Montreal Trudeau
Airport. Bell is serving as the systems integrator for this project which
will allow the Airport to provide one of the most technologically advanced
passenger experiences in Canada. |
|
A
three-year agreement with Megatrade Communications Services Corp.
for its approximately 120 member organizations in the financial services
industry across Canada. The agreement covers IP-migration and the provision
of IP VPN services. |
|
A
three-year contract with CIBC to provide and manage DSL and IP VPN services
for its 1200 remote automatic banking machines. |
In the quarter, Bell took
important steps to consolidate its industry leading wireless data position,
including the acquisition of The Createch Group. Createchs expertise in
supply chain optimization, manufacturing and logistics performance improvement
will combine with Bells existing wireless data capabilities to expand
the Enterprise wireless data portfolio and drive additional benefits for Bell
customers.
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Bell Canada was also selected by a group of leading suppliers and retailers called the Supply Chain Network Project (SCN) to deploy Canadas first end-to-end EPC/RFID (Electronic Product Code/Radio Frequency Identification) pilot. The pilot will involve up to four suppliers, one warehouse and one STAPLES Business Depot location and will encompass pallet, case and item level tagging. This project will explore how an EPC/RFID enabled supply chain can help retailers and suppliers reduce their costs, increase their productivity and enhance the customer experience.
National Markets
In September, the company announced an agreement with Rogers Communications to jointly build and manage a nation-wide wireless broadband network. However, Bell and Rogers will compete in the marketing and delivery of applications and services over this network, including a host of portable voice, video streaming and data applications. The network is expected to reach more than two-thirds of Canadians in less than three years, covering over 40 cities and approximately 50 unserved rural and remote communities.
At the end of Q3 2005, Bell Canada completed construction of the Alberta SuperNet and is currently awaiting completion of service acceptance by the Government of Alberta. The SuperNet is now operational in 429 communities across Alberta, connecting over 4,200 learning and health facilities and government offices across the province. Bell is now focused on leveraging this province-wide broadband network to deliver shared application services like Voice and Video. The network will also connect rural Alberta businesses to the rest of the country through Bell national network infrastructure.
Telesat Canada
Telesats third quarter revenues grew by approximately 23% year over year to $112 million, largely as a result of growth in business network services revenues from Anik F2 Ka-band, Interactive Distance Learning Services, and The SpaceConnection Inc. Operating income increased by 10.3% in the third quarter.
Anik F1R was launched successfully in September with transfer into service in October. Anik F3 is on schedule for launch in Fall 2006.
Bell Globemedia
Bell Globemedias revenues for the third quarter increased by 10.9% over the same period last year to reach $335 million. The companys operating income increased by 26% to $29 million.
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Revenue growth was driven by double-digit growth in specialty television advertising and by an overall improvement in the print advertising market. CTVs strong programming schedule once again drove top ratings. For the summer season, CTV held 10 of the top 10 and 15 of the top 20 programs in Canada. Canadian Idol was once again the top television program during the summer season in all of its demographics.
Revenue growth at the Globe and Mail was also strong, reflecting heightened online sales activity. According to the most recent NADBank audience measurement statistics, The Globe and Mail continues to lead its national competitor in readership by 60% on weekdays and 78% on Saturdays.
BCE Financial Performance
Year-to-date revenues at BCE totalled $14.8 billion, a 4.2% increase over the same period last year. Operating income year to date was $3.1 billion, compared to $2.1 billion in the same period in 2004. Year-to-date EBITDA was $5.8 billion, an increase of 1.8% over the previous year. BCEs EBITDA margin for the third quarter was 38.4% and for year-to-date was 39.5%, due to previously discussed factors.
Net earnings applicable to common shares for Q3 2005 were $441 million ($0.48 per common share), up from net earnings of $82 million ($0.09 per common share) for the third quarter of 2004. Included in 2004 third quarter earnings was a charge of $985 million, attributable to restructuring and other costs.
Cash from operating activities was $1.7 billion in the quarter and $4.1 billion year to date, compared to $1.8 billion and $4.2 billion for the comparable periods in 2004. Free cash flow was $344 million in the third quarter of 2005 and $320 million for the first nine months of 2005.
Bell
Canada Statutory Results
Bell Canada statutory includes Bell Canada, and
Bell Canadas interests in Aliant, Bell ExpressVu (at 52%), and other Canadian
telcos.
In the third quarter of 2005, Bell Canadas reported statutory revenue was $4.3 billion, up 2.9% compared to the same period last year. Net earnings applicable to common shares were $488 million in the third quarter of 2005, compared to a net loss applicable to common shares of $53 million for the same period last year.
In the first nine months of 2005, Bell Canadas reported statutory revenue was $12.8 billion, up 2.5% compared to the same period last year. Net earnings applicable to common shares were $1,596 million in the first nine months of 2005, compared to net earnings applicable to common shares of $1,062 million for the same period last year, an increase of 50.3%.
Outlook
BCE Inc. confirmed its annual full year 2005 guidance. Management
believes that it is on track to meet the lower end of guidance on EPS, Free
Cash Flow and Capital Intensity.
Guidance
2005E |
|
Revenue Growth | ≥
GDP |
Galileo Savings | $500-$600M |
EPS(a) | Single
digit growth |
Free Cash Flow(b) | $700
$900M |
Bell Canada Capital Intensity(c) | 18%
19% |
Cellular and PCS Subscriber Growth | 10%-15% |
High Speed Internet Subscriber Growth | 15%-20% |
Video Subscriber Growth | 10%-15% |
(a) | Before
net investment gains/losses, or impairment or restructuring charges
(please see note 3 for additional details). |
(b) | Cash
from operating activities less capital expenditures, total dividends
and other investing activities (please see note 4 for additional details). |
(c) | Capital
expenditures as a percentage of revenues. |
About BCE
BCE is Canadas largest communications company. Through its 28 million customer connections, BCE provides the most comprehensive and innovative suite of communication services to residential and business customers in Canada. Under the Bell brand, the companys services include local, long distance and wireless phone services, high-speed and wireless Internet access, IP-broadband services, 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.
(1) The employee reduction program at Bell in 2004 resulted in a charge to earnings in the third quarter of 2004 of $985 million, which adversely affected operating income and EPS.
(2) 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 2005 Third Quarter MD&A, dated November 1, 2005, entitled Non-GAAP Financial Measures included in this news release, for more details on EBITDA including a reconciliation of EBITDA to operating income.
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(3) Net earnings and EPS before restructuring and other items and net gains on investments do not have any standardized meaning prescribed by GAAP. Please refer to the section of BCE Inc.s 2005 Third Quarter MD&A, dated November 1, 2005, entitled Non-GAAP Financial Measures included in this news release for more details on net earnings and EPS before restructuring and other items and net gains on investments including a reconciliation to net earnings applicable to common shares on a total and per share basis.
(4) 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 2005 Third Quarter MD&A, dated November 1, 2005, entitled Non-GAAP Financial Measures included in this news release for more details on free cash flow including 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.
BCE 2005 Third Quarter Financial Information
BCEs 2005 Third Quarter Shareholder Report (which contains BCEs 2005 third quarter MD&A and unaudited consolidated financial statements) and other relevant financial materials are posted at www.bce.ca/en/investors, under Investor Briefcase. BCEs 2005 Third Quarter Shareholder Report is also available on the Web site maintained by the Canadian securities regulators at www.sedar.com or it can be ordered from BCEs Investor Relations Department (email: investor.relations@bce.ca, tel.: 1 800 339-6353; fax: (514) 786-3970).
BCEs 2005 Third Quarter Shareholder Report will be sent to BCEs shareholders who have requested to receive it, on or about November 7, 2005.
Call with Financial Analysts
BCE will hold a teleconference for financial analysts to discuss its third quarter results on Wednesday, November 2, 2005 at 8:00 a.m. (Eastern). Media are welcome to participate on a listen only basis. Michael Sabia, President and CEO, Siim Vanaselja, Chief Financial Officer, and other executives will participate in the teleconference.
To participate, please dial 416-405-9328 or 1-800-387-6216 shortly before the start of the call. A replay will be available for one week by dialing 416-695-5800 or 800-408-3053 (passcode 3163915#). This teleconference will also be Webcast live and archived for 90 days on BCEs website at www.bce.ca.
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Call with the Media
BCE will hold a teleconference for media to discuss its third quarter results on Wednesday, November 2, 2005 at 2:30 p.m. (Eastern). Michael Sabia, President and CEO will participate in the teleconference.
To participate, please dial 416-405-9328 or 800-387-6216 shortly before the start of the call. A replay will be available for one week by dialing 416-695-5800 or 800-408-3053 (passcode 3166277#). This teleconference will also be Webcast live and archived for 90 days on BCEs website at www.bce.ca.
Caution Concerning Forward-Looking Statements
Certain statements made in this news release, including, but not limited to, the statements appearing under the Outlook section, and other statements that are not historical facts, are forward-looking and are subject to important risks, uncertainties and assumptions. The results or events predicted in these forward-looking statements may differ materially from actual results or events. These statements do not reflect the potential impact of any non-recurring or other special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after the date hereof.
For a description of risks that could cause actual results or events to differ materially from current expectations please refer to the sections entitled Risks That Could Affect Our Business contained in BCE Inc.s Annual Information Form for the year ended December 31, 2004, in BCE Inc.s 2005 First Quarter MD&A dated May 3, 2005, and in BCE Inc.s 2005 Second Quarter MD&A dated August 2, 2005 all filed by BCE Inc. with the Canadian securities commissions (available at www.bce.ca and on SEDAR at www.sedar.com), and with the U.S. Securities and Exchange Commission under Form 40-F and Form 6-K, respectively, (available on EDGAR at www.sec.gov), as updated in BCE Inc.s 2005 Third Quarter MD&A dated November 1, 2005, included in this news release, under the section entitled Risks That Could Affect Our Business.
The forward-looking statements contained in this news release represent our expectations as of November 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.
The
Quarter at a Glance
|
||
The
Quarter at a Glance
|
In the third quarter, we achieved solid revenue performance, driven
by strong video, wireless and high-speed Internet subscriber acquisitions
and improved organic growth in our Business segment, while continuing
to make steady progress on our key strategic priorities. Revenues from
our growth services (comprised mainly of wireless, video and data-related
products such as high-speed Internet) accounted for 44% of total revenues
at Bell Canada at the end of Q3 2005, which keeps us on track to
achieve our target of 45% by the end of 2005. Revenue declines in our
legacy voice and data businesses were brought about by the more competitive
telecommunications landscape. Legacy declines, together with increased
investment in customer service and customer acquisitions, put pressure
on operating margins.
|
Customer Connections |
||||||
Q3 2005 | 30-SEPT-05 | |||||
CONNECTIONS |
NET | CONNEC- | ||||
(IN THOUSANDS) |
ACTIVATIONS | TIONS | ||||
|
||||||
Wireless |
123 | 5,231 | ||||
High-Speed Internet |
106 | 2,134 | ||||
Video |
82 | 1,677 | ||||
NAS |
(60 | ) | 12,640 | |||
|
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|
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|
(1) |
EBITDA,
operating income before restructuring and other items, net earnings before
restructuring and other items and net gains on investments, and free cash
flow do not have any standardized meaning prescribed by Canadian generally
accepted accounting principles (GAAP) and are therefore unlikely to be comparable
to similar measures presented by other companies. For more details on these
measures, including a reconciliation to the most comparable GAAP measure,
please refer to the section entitled Non-GAAP Financial Measures contained
in BCE Inc.s 2005 Third Quarter MD&A dated November 1, 2005. |
2 Bell Canada Enterprises 2005 Quarterly Report
Operating Revenues Our revenues increased by 3.6% year-over-year to reach $4,951 million in the quarter. The growth reflected improved revenue performance across all of our segments. At Bell Canada, revenues grew by 2.9%, driven primarily by the Business segment where continued wireless strength, organic growth of ICT (or VAS) solutions sales and the contribution from recent acquisitions in driving our Virtual Chief Information Officer (VCIO) strategy in SMB, led to improved top-line results. Furthermore, our Consumer segment delivered a solid quarter of revenue growth as a result of the performance of its video, Internet and wireless services, despite continued decreases in legacy wireline services, while Aliant revenues also increased notably due in part to its recovery from a labour disruption in 2004. Overall revenue growth was further enhanced by the performance in the Other BCE segment, where strong double-digit growth of 10.9% at Bell Globemedia and 23% at Telesat more than offset a decline of 1.5% at CGI Group Inc. Operating Income and EBITDA(1) Operating income at BCE for the quarter was $957 million, compared with $25 million for Q3 2004, which included the recognition of $985 million of restructuring |
(1) |
EBITDA,
operating income before restructuring and other items, net earnings before
restructuring and other items and net gains on investments, and free cash
flow do not have any standardized meaning prescribed by Canadian generally
accepted accounting principles (GAAP) and are therefore unlikely to be comparable
to similar measures presented by other companies. For more details on these
measures, including a reconciliation to the most comparable GAAP measure,
please refer to the section entitled Non-GAAP Financial Measures contained
in BCE Inc.s 2005 Third Quarter MD&A dated November 1, 2005. |
3 Bell Canada Enterprises 2005 Quarterly Report
The Quarter at a Glance
|
||
charges related to last years employee departure program. Operating
income before restructuring and other items(1) for Q3 2005
decreased by 10.7% or $118 million, compared with the previous year.
Despite higher revenues, cost savings from Galileo and recovery from the
2004 labour disruption at Aliant, we experienced higher operating expenses
resulting from service recovery efforts following settlement of the Entourage
labour dispute in July, the expected increase in the cost of acquiring
a substantially higher number of wireless subscribers, the Canadian Radio-television
and Telecommunications Commissions (CRTC) decision with respect
to Competitor Digital Network Services (CDN), and continued margin pressure
from the ongoing transformation of our product mix towards growth services.
Higher net benefit plans cost and amortization expense also contributed
to the decline. Similarly at Bell Canada, operating income for Q3
2005 showed a marked improvement year-over-year, increasing to $908 million
from a loss of $13 million as a result of the charges recognized
in 2004 in consideration of the employee departure program. Operating
income before restructuring and other items(1) declined by
$129 million in the quarter, or 12.1%, to $938 million from
$1,067 million in Q3 2004 for the reasons referred to previously. Net Earnings / Earnings per Share Net earnings applicable to common shares for Q3 2005 were $441 million, or $0.48 per common share, compared with net earnings of $82 million, or $0.09 per common share, for the same period last year. Included in Q3 earnings this year was a net charge of $21 million for restructuring and other items, compared with a net charge of $402 million for restructuring and other items and net gains on investments in Q3 2004. Net earnings before restructuring and other items and net gains on investments(1) for Q3 2005 were $462 million, or $0.50 per common share, down $22 million, or $0.02 per share, representing a decrease of 3.8% per share over last year. This decline can be attributed to lower operating income, offset partly by net income tax savings, which included the impact from a loss monetization program based on an agreement entered into between Bell Canada and Bell Canada International Inc. (BCI) in August 2004. Capital Expenditures |
(1) |
EBITDA,
operating income before restructuring and other items, net earnings before
restructuring and other items and net gains on investments, and free cash
flow do not have any standardized meaning prescribed by Canadian generally
accepted accounting principles (GAAP) and are therefore unlikely to be comparable
to similar measures presented by other companies. For more details on these
measures, including a reconciliation to the most comparable GAAP measure,
please refer to the section entitled Non-GAAP Financial Measures contained
in BCE Inc.s 2005 Third Quarter MD&A dated November 1, 2005. |
4 Bell Canada Enterprises 2005 Quarterly Report
Capital expenditures were $968 million this quarter, or 19.4% higher than the same period last year. As a percentage of revenues, capital expenditures increased this quarter to 19.6% from 17.0% last year, reflecting acceleration in our spending program. This year-over-year increase related to an expansion of our fibre-to-the-node (FTTN) footprint to deliver higher-speed broadband access, the initial deployment of an Evolution, Data Optimized (EVDO) wireless data network in certain of our markets, information technology (IT) efficiency projects to deliver cost savings, investment in our IP television (IPTV) platform, Digital Subscriber Line (DSL) footprint expansion, as well as a return to more normal spending levels at Aliant after its labour disruption in 2004. Cash from operating activities and free cash flow(1) Cash from operating
activities in Q3 2005 increased for a second consecutive quarter to $1,686 million,
reflecting the continued positive contribution from operations and the
negative impact from certain items earlier this year. Cash from operating
activities in Q3 2005 was 7.8% or $142 million lower than last year.
The result for Q3 2004 was impacted favourably by a payment received from
the settlement of lawsuits against Manitoba Telecom Services Inc.
(MTS) and Allstream Inc. and cash received from a higher accounts
receivable securitization level, which was partially offset by a decrease
in taxes paid resulting from a refund (net of instalments) in Q3 2005.
Our free cash flow in Q3 2005 improved for the second consecutive quarter to $344 million, reflecting increased cash flow from operations and the timing of certain items, including income tax instalment payments, voluntary pension plan contributions and employee severance, which unfavourably affected free cash flow in the first two quarters of 2005. On a year-over-year basis, free cash flow decreased from $673 million generated in the third quarter of 2004, attributable mainly to lower cash from operating activities, an increase in capital expenditures related to our investment in next-generation service platforms and higher dividends paid as a result of a $0.03 quarterly increase in the dividend per common share. Similarly, for the first nine months of 2005, free cash flow was $320 million compared with $993 million for the same period last year, due to a decrease in cash from operating activities in addition to Telesat insurance proceeds that were received in the first half of 2004. |
(1) |
EBITDA,
operating income before restructuring and other items, net earnings before
restructuring and other items and net gains on investments, and free cash
flow do not have any standardized meaning prescribed by Canadian generally
accepted accounting principles (GAAP) and are therefore unlikely to be comparable
to similar measures presented by other companies. For more details on these
measures, including a reconciliation to the most comparable GAAP measure,
please refer to the section entitled Non-GAAP Financial Measures contained
in BCE Inc.s 2005 Third Quarter MD&A dated November 1, 2005. |
5 Bell Canada Enterprises 2005 Quarterly Report
Managements Discussion and Analysis
|
||
In this MD&A, we, us, our and BCE mean BCE Inc.,
its subsidiaries and joint ventures. |
This managements discussion and analysis of financial condition and results of operations (MD&A) comments on BCEs operations, performance and financial condition for the three months (Q3) and nine months (YTD) ended September 30, 2005 and 2004. 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.
Risks that could cause our actual results to materially differ from our current expectations are discussed throughout this MD&A and, in particular, in Risks That Could Affect Our Business. EBITDA The term EBITDA
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. |
6 Bell Canada Enterprises 2005 Quarterly Report
The most comparable
Canadian GAAP financial measure is operating income. The tables below are
reconciliations of EBITDA to operating income on a consolidated basis for
BCE and Bell Canada. |
||||||||||
YTD | YTD | |||||||||
BCE |
Q3 2005 | Q3 2004 | 2005 | 2004 | ||||||
|
||||||||||
EBITDA |
1,899 | 1,936 | 5,838 | 5,733 | ||||||
Amortization expense |
(803 | ) | (769 | ) | (2,368 | ) | (2,305 | ) | ||
Net benefit plans cost |
(108 | ) | (61 | ) | (315 | ) | (189 | ) | ||
Restructuring and other items |
(31 | ) | (1,081 | ) | (32 | ) | (1,098 | ) | ||
|
||||||||||
Operating income |
957 | 25 | 3,123 | 2,141 | ||||||
|
||||||||||
|
|
YTD | YTD | ||||||||
BELL CANADA |
Q3 2005 | Q3 2004 | 2005 | 2004 | ||||||
|
||||||||||
EBITDA |
1,804 | 1,856 | 5,458 | 5,432 | ||||||
Amortization expense |
(756 | ) | (734 | ) | (2,234 | ) | (2,199 | ) | ||
Net benefit plans cost |
(110 | ) | (55 | ) | (323 | ) | (173 | ) | ||
Restructuring and other items |
(30 | ) | (1,080 | ) | (30 | ) | (1,096 | ) | ||
|
||||||||||
Operating income |
908 | (13 | ) | 2,871 | 1,964 | |||||
|
||||||||||
|
||||||||||
The term operating income before
restructuring and other items does not have any standardized meaning prescribed
by Canadian GAAP. It is therefore unlikely to be comparable to similar
measures presented by other companies. |
|
YTD | YTD | ||||||||
BCE |
Q3 2005 | Q3 2004 | 2005 | 2004 | ||||||
|
||||||||||
Operating income |
957 | 25 | 3,123 | 2,141 | ||||||
Restructuring and other items |
31 | 1,081 | 32 | 1,098 | ||||||
|
||||||||||
Operating income before restructuring and other items |
988 | 1,106 | 3,155 | 3,239 | ||||||
|
||||||||||
|
|
YTD | YTD | ||||||||
BELL CANADA |
Q3 2005 | Q3 2004 | 2005 | 2004 | ||||||
|
||||||||||
Operating income |
908 | (13 | ) | 2,871 | 1,964 | |||||
Restructuring and other items |
30 | 1,080 | 30 | 1,096 | ||||||
|
||||||||||
Operating income before restructuring and other items |
938 | 1,067 | 2,901 | 3,060 | ||||||
|
||||||||||
|
||||||||||
Net Earnings Before Restructuring and Other Items and Net Gains on Investments The term net
earnings before restructuring and other items and net gains on investments
does not have any standardized meaning prescribed by Canadian GAAP. It
is therefore unlikely to be comparable to similar measures presented by
other companies. |
7 Bell Canada Enterprises 2005 Quarterly Report
Managements Discussion and Analysis
|
Free
Cash Flow We define free cash flow as cash from operating activities after capital expenditures, total dividends and other investing activities. |
|
Q3 2005 | Q3 2004 | YTD 2005 | YTD 2004 | |||||||||||||
|
TOTAL |
PER SHARE |
TOTAL |
PER SHARE |
TOTAL |
PER SHARE |
TOTAL |
PER SHARE |
||||||||||
|
||||||||||||||||||
Net earnings applicable to common shares |
441 | 0.48 | 82 | 0.09 | 1,478 | 1.60 | 1,106 | 1.20 | ||||||||||
Restructuring and other items |
21 | 0.02 | 725 | 0.78 | 22 | 0.02 | 710 | 0.76 | ||||||||||
Net gains on investments |
| | (323 | ) | (0.35 | ) | (28 | ) | (0.03 | ) | (361 | ) | (0.39 | ) | ||||
|
||||||||||||||||||
Net earnings before restructuring and other items and net gains on investments |
462 | 0.50 | 484 | 0.52 | 1,472 | 1.59 | 1,455 | 1.57 | ||||||||||
|
||||||||||||||||||
|
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. |
||||||||||
|
YTD | YTD | ||||||||
|
Q3 2005 | Q3 2004 | 2005 | 2004 | ||||||
|
||||||||||
Cash from operating activities |
1,686 | 1,828 | 4,075 | 4,212 | ||||||
Capital expenditures |
(968 | ) | (811 | ) | (2,619 | ) | (2,318 | ) | ||
Total dividends paid |
(374 | ) | (342 | ) | (1,110 | ) | (1,034 | ) | ||
Other investing activities |
| (2 | ) | (26 | ) | 133 | ||||
|
||||||||||
Free cash flow |
344 | 673 | 320 | 993 | ||||||
|
||||||||||
|
About Our Business
|
||
A detailed description of our products and services and our objectives and strategy is provided in the BCE 2004 MD&A. Strategic PrioritiesOur strategy is to deliver unrivalled integrated communication services to customers and to take a leadership position in setting the standard in Internet Protocol (IP). During the quarter, we made significant progress on each of our three key strategic priorities. 1) Enhancing customer experience while targeting lower costs (our Galileo program) In our Consumer segment:
|
8 Bell Canada Enterprises 2005 Quarterly Report
In our Business segment:
Overall, our
various Galileo initiatives led to cost reductions this quarter of $111 million,
bringing total savings for the first nine months of 2005 to $353 million.
This keeps us on track to achieve our target run-rate savings of $500-$600
million for 2005 as certain initiatives such as our new One Bill and Bell.ca
website roll-outs gain further traction during Q4. 2) Deliver abundant bandwidth to enable next-generation services We continued
our fibre-to-the-node (FTTN) rollout by deploying another 499 neighbourhood
nodes, raising the total number of nodes served to 1,854. Our objective
is to deploy 2,000 nodes by the end of 2005. |
9 Bell Canada Enterprises 2005 Quarterly Report
Managements Discussion and Analysis
|
||
3) Create next-generation services to drive future growth Our Consumer segment:
Other Corporate Developments George Cope, formerly President and Chief Executive Officer of TELUS Mobility, was appointed as President and Chief Operating Officer of Bell Canada. He will be responsible for Bell Canadas Residential Services unit, which includes the wireline, Internet and video businesses, but not the wireless business, as well as for Bell Canadas Enterprise, SMB and wholesale units. Mr. Cope will begin working for Bell Canada in January 2006. In addition, we announced the appointment of Stephen Wetmore as Group President, Corporate Performance and National Markets for Bell Canada. In this new broader capacity, Mr. Wetmore will have overall responsibility for improving Bell Canadas cost structure. |
10 Bell Canada Enterprises 2005 Quarterly Report
On September 16, 2005, we announced an alliance with Rogers Communications Inc. (Rogers) to jointly build and manage a nationwide wireless broadband network through a joint venture, which holds approximately 98 MHz of wireless broadband spectrum in the 2.5 GHz frequency range across much of Canada. The development and commercialization of services, as well as sales, marketing and end-user customer care and billing functions will be provided directly by Bell Canada and Rogers to their respective customers. The services will allow subscribers to have wireless access to the Internet and use a host of voice, video streaming and data applications from wherever the service is available. The network footprint is expected to reach more than two-thirds of Canadians in less than three years, covering over 40 cities and approximately 50 unserved rural and remote communities. Separately, in conjunction with this transaction, we reached an agreement to acquire the remaining 50 per cent of NR Communications not already owned by Bell Canada. Quarterly Financial Information
The table below shows selected consolidated financial data for the eight
most recently completed quarters. This information has been prepared on
the same basis as the annual consolidated financial statements, but is
unaudited. |
||||||||||||||||||
2005 |
2004 |
2003 |
||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | |||||||||||
|
||||||||||||||||||
Operating revenues |
4,951 | 4,980 | 4,859 | 4,986 | 4,778 | 4,779 | 4,638 | 4,815 | ||||||||||
EBITDA |
1,899 | 2,001 | 1,938 | 1,831 | 1,936 | 1,953 | 1,844 | 1,847 | ||||||||||
Amortization expense |
(803 | ) | (792 | ) | (773 | ) | (803 | ) | (769 | ) | (769 | ) | (767 | ) | (775 | ) | ||
Net benefit plans cost |
(108 | ) | (104 | ) | (103 | ) | (67 | ) | (61 | ) | (65 | ) | (63 | ) | (46 | ) | ||
Restructuring and other items |
(31 | ) | (5 | ) | 4 | (126 | ) | (1,081 | ) | (14 | ) | (3 | ) | (13 | ) | |||
|
||||||||||||||||||
Operating income |
957 | 1,100 | 1,066 | 835 | 25 | 1,105 | 1,011 | 1,013 | ||||||||||
Earnings from continuing operations |
459 | 581 | 492 | 367 | 102 | 544 | 485 | 486 | ||||||||||
Discontinued operations |
| | (1 | ) | (2 | ) | (2 | ) | 27 | 3 | (86 | ) | ||||||
Extraordinary gain |
| | | 69 | | | | | ||||||||||
Net earnings |
459 | 581 | 491 | 434 | 100 | 571 | 488 | 400 | ||||||||||
Net earnings applicable to common shares |
441 | 563 | 474 | 417 | 82 | 554 | 470 | 386 | ||||||||||
|
||||||||||||||||||
Included in net earnings: |
||||||||||||||||||
Net gains on investments |
||||||||||||||||||
Continuing operations |
| 28 | 1 | 64 | 325 | | | 84 | ||||||||||
Discontinued operations |
| | (1 | ) | (2 | ) | (2 | ) | 31 | 7 | (94 | ) | ||||||
Restructuring and other items |
(21 | ) | (3 | ) | 2 | (62 | ) | (725 | ) | 16 | (1 | ) | (9 | ) | ||||
|
||||||||||||||||||
Net earnings per common share |
||||||||||||||||||
Continuing operations basic |
0.48 | 0.61 | 0.51 | 0.38 | 0.09 | 0.57 | 0.51 | 0.50 | ||||||||||
Continuing operations diluted |
0.48 | 0.61 | 0.51 | 0.38 | 0.09 | 0.57 | 0.51 | 0.50 | ||||||||||
Net earnings basic |
0.48 | 0.61 | 0.51 | 0.45 | 0.09 | 0.60 | 0.51 | 0.41 | ||||||||||
Net earnings diluted |
0.48 | 0.61 | 0.51 | 0.45 | 0.09 | 0.60 | 0.51 | 0.41 | ||||||||||
Average number of common shares outstanding (millions) |
927.0 | 926.6 | 926.2 | 925.3 | 924.6 | 924.3 | 924.1 | 923.4 | ||||||||||
|
||||||||||||||||||
|
11 Bell Canada Enterprises 2005 Quarterly Report
Managements Discussion and Analysis
|
||||||||||||||
Financial Results Analysis |
Consolidated
Analysis |
|||||||||||||
|
Q3 2005 | Q3 2004 | % CHANGE | YTD 2005 | YTD 2004 | % CHANGE | ||||||||
|
||||||||||||||
Operating revenues |
4,951 | 4,778 | 3.6% | 14,790 | 14,195 | 4.2% | ||||||||
Operating expenses |
(3,052 | ) | (2,842 | ) | (7.4% | ) | (8,952 | ) | (8,462 | ) | (5.8% | ) | ||
|
||||||||||||||
EBITDA |
1,899 | 1,936 | (1.9% | ) | 5,838 | 5,733 | 1.8% | |||||||
Amortization expense |
(803 | ) | (769 | ) | (4.4% | ) | (2,368 | ) | (2,305 | ) | (2.7% | ) | ||
Net benefit plans cost |
(108 | ) | (61 | ) | (77.0% | ) | (315 | ) | (189 | ) | (66.7% | ) | ||
Restructuring and other items |
(31 | ) | (1,081 | ) | n.m. | (32 | ) | (1,098 | ) | n.m. | ||||
|
||||||||||||||
Operating income |
957 | 25 | n.m. | 3,123 | 2,141 | 45.9% | ||||||||
Other income (expense) |
(1 | ) | 333 | n.m. | 30 | 393 | n.m. | |||||||
Interest expense |
(247 | ) | (253 | ) | 2.4% | (741 | ) | (758 | ) | 2.2% | ||||
|
||||||||||||||
Pre-tax earnings from continuing operations |
709 | 105 | n.m. | 2,412 | 1,776 | 35.8% | ||||||||
Income taxes |
(193 | ) | 44 | n.m. | (687 | ) | (511 | ) | (34.4% | ) | ||||
Non-controlling interest |
(57 | ) | (47 | ) | (21.3% | ) | (193 | ) | (134 | ) | (44.0% | ) | ||
|
||||||||||||||
Earnings from continuing operations |
459 | 102 | n.m. | 1,532 | 1,131 | 35.5% | ||||||||
Discontinued operations |
0 | (2 | ) | 100.0% | (1 | ) | 28 | n.m. | ||||||
|
||||||||||||||
Net earnings |
459 | 100 | n.m. | 1,531 | 1,159 | 32.1% | ||||||||
Dividends on preferred shares |
(18 | ) | (18 | ) | 0.0% | (53 | ) | (53 | ) | 0.0% | ||||
|
||||||||||||||
Net earnings applicable to common shares |
441 | 82 | n.m. | 1,478 | 1,106 | 33.6% | ||||||||
|
||||||||||||||
EPS |
0.48 | 0.09 | n.m. | 1.60 | 1.20 | 33.3% | ||||||||
|
||||||||||||||
|
||||||||||||||
n.m.: not meaningful |
||||||||||||||
Our revenues increased by 3.6% in the third quarter to $4,951 million and by 4.2% to $14,790 million year-to-date, reflecting improved revenue performance across all of our segments. At Bell Canada, growth was fuelled primarily by the Business segment where continued strength in wireless, driven by competitively attractive devices and price plans, organic growth of Information and Communications Technology (ICT or value-added services (VAS)) solutions and the contribution from recent acquisitions in further developing our Virtual Chief Information Officer (VCIO) strategy, delivered improved top-line results. Our Consumer segment also contributed to the year-over-year improvements with strong wireless, video and high-speed Internet subscriber growth driving revenue growth, while Aliant segment revenues were supported by the continued solid performance of its wireless and Internet businesses and recovery from its 2004 labour disruption that negatively affected results in Q2 and Q3 of last year. Revenue growth at Bell Canada was moderated by the continued decline in our legacy voice and data business, as competitive pressures and the ongoing transformation of our business towards growth services (comprised mainly of wireless, video and data-related products such as high-speed Internet) further eroded local and access services and long distance revenues this year. The Other BCE segment contributed significantly to higher revenues in the quarter and year-to-date, with strong growth delivered by Telesat Canada (Telesat) and Bell Globemedia Inc. (Bell Globemedia). However, while CGI Group Inc. (CGI) posted double-digit growth on a year-to-date basis, it reported a decrease in Q3 2005 as it was no longer benefiting from a year-over-year increase |
12 Bell Canada Enterprises 2005 Quarterly Report
in revenues from its purchase of American Management Systems Inc. (AMS) in Q2 2004 and as the appreciation of the Canadian dollar negatively impacted its U.S. dollar revenues. Operating income Operating
income was $957 million and $3,123 million for the third quarter
and first nine months of 2005, respectively, compared with $25 million
and $2,141 million for the same periods in 2004, which included the
recognition of restructuring charges in the amount of $985 million
related to last years employee departure program. Operating income
before restructuring and other items decreased by 10.7%, or $118 million,
to $988 million this quarter and by 2.6%, or $84 million, to
$3,155 million year-to-date. Despite higher revenues, cost savings
from Galileo and recovery from Aliants 2004 labour disruption, this
decline was due mainly to higher operating expenses resulting from service
recovery efforts following settlement of the Entourage labour dispute
in July, an expected increase in the cost of acquiring a substantially
higher number of wireless subscribers, and continued margin pressure from
the ongoing transformation of our product mix towards growth services.
Higher net benefit plans cost and amortization expense also contributed
to the decrease.
Our EBITDA for
the quarter was down $37 million, or 1.9%, to $1,899 million,
compared with last year, reflecting a decrease at Bell Canada, offset
partly by an increase in our Other BCE segment. |
13 Bell Canada Enterprises 2005 Quarterly Report
Managements Discussion and Analysis
|
||
0.8 percentage points compared with last year. Although we are targeting
a stable EBITDA margin for Bell Canada in 2005, we may not achieve
this objective due primarily to the accelerated erosion of our legacy
voice and data businesses and the timing of Galileo cost savings that
will ramp up further in 2006. Amortization expense of $803 million in Q3 2005 and $2,368 million on a year-to-date basis in 2005 represent increases of 4.4% and 2.7%, respectively, compared to the same periods last year. This was a result of an increase in our capital asset base from capital spending that continues to be higher than asset retirements. Net benefit plans costThe net benefit plans cost of $108 million in Q3 2005 and $315 million on a year-to-date basis in 2005 represents increases of 77% and 67%, respectively, compared to the same periods last year. The increases resulted mainly from:
|
14 Bell Canada Enterprises 2005 Quarterly Report
Restructuring and other items We recorded restructuring and other items of $31 million in Q3 2005 and $32 million on a year-to-date basis in 2005, which consisted mainly of:
The year-to-date
charges were partly offset by a $25 million credit in Q1 2005 for
the reversal of restructuring provisions that were no longer necessary,
since the actual payments made to employees were lower than estimated.
Net earnings / Earnings per Share (EPS) Net earnings
applicable to common shares for Q3 2005 were $441 million, or $0.48
per common share, significantly higher than net earnings of $82 million,
or $0.09 per common share, for the same period last year. Included in
the third quarter earnings this year was a net charge of $21 million
for restructuring and other items, compared to a net charge of $402 million
from restructuring and other items and net gains on investments in Q3
2004. Net earnings before restructuring and other items and net gains
on investments of $462 million, or $0.50 per common share, were down
$22 million, or $0.02 per share, representing a decrease of 3.8%
over last year. |
15 Bell Canada Enterprises 2005 Quarterly Report
Managements Discussion and Analysis
|
||||||||||||||
Segmented Analysis |
||||||||||||||
|
Q3 2005 | Q3 2004 | % CHANGE | YTD 2005 | YTD 2004 | % CHANGE | ||||||||
|
||||||||||||||
Operating revenues |
||||||||||||||
Consumer |
1,929 | 1,908 | 1.1% | 5,675 | 5,591 | 1.5% | ||||||||
Business |
1,516 | 1,440 | 5.3% | 4,493 | 4,316 | 4.1% | ||||||||
Aliant |
520 | 497 | 4.6% | 1,562 | 1,527 | 2.3% | ||||||||
Other Bell Canada |
500 | 486 | 2.9% | 1,464 | 1,428 | 2.5% | ||||||||
Inter-segment eliminations |
(139 | ) | (125 | ) | (11.2% | ) | (401 | ) | (378 | ) | (6.1% | ) | ||
|
||||||||||||||
Total Bell Canada |
4,326 | 4,206 | 2.9% | 12,793 | 12,484 | 2.5% | ||||||||
Other BCE |
732 | 679 | 7.8% | 2,315 | 2,052 | 12.8% | ||||||||
Inter-segment eliminations |
(107 | ) | (107 | ) | 0.0% | (318 | ) | (341 | ) | 6.7% | ||||
|
||||||||||||||
Total operating revenues |
4,951 | 4,778 | 3.6% | 14,790 | 14,195 | 4.2% | ||||||||
|
||||||||||||||
Operating income |
||||||||||||||
Consumer |
479 | 569 | (15.8% | ) | 1,557 | 1,655 | (5.9% | ) | ||||||
Business |
213 | 245 | (13.1% | ) | 674 | 713 | (5.5% | ) | ||||||
Aliant |
105 | 71 | 47.9% | 291 | 245 | 18.8% | ||||||||
Other Bell Canada |
111 | (898 | ) | n.m. | 349 | (649 | ) | n.m. | ||||||
|
||||||||||||||
Total Bell Canada |
908 | (13 | ) | n.m. | 2,871 | 1,964 | 46.2% | |||||||
Other BCE |
49 | 38 | 28.9% | 252 | 177 | 42.4% | ||||||||
|
||||||||||||||
Total operating income |
957 | 25 | n.m. | 3,123 | 2,141 | 45.9% | ||||||||
|
||||||||||||||
|
||||||||||||||
n.m.: not meaningful | ||||||||||||||
Consumer revenues increased by 1.1% in the third quarter of 2005 and by 1.5% for the first nine months of 2005 to $1,929 million and $5,675 million, respectively. Video, data, wireless, and terminal sales and other revenues contributed 2.0%, 1.1%, 1.0%, and 0.6%, respectively, to overall consumer revenue growth in Q3 2005, offset partly by a negative contribution of 2.4% from long distance and 1.2% from local and access services. In the first nine months of the year, wireless, video, data and terminal sales and other revenues contributed 1.5%, 1.4%, 1.2%, and 0.3% to the overall growth, offset partly by a negative contribution from long distance and local and access services of 1.0% and 1.9%, respectively. Both the quarterly and year-to-date results for 2005 were driven by the continued expansion of our wireless, video and high-speed Internet subscriber bases and an increase in video ARPU, offset partly by lower long distance revenues due to ongoing price competition, as well as a decline in local and access revenues brought about by an acceleration in NAS losses and continued wireless long distance prepaid and VoIP substitution. Although overall consumer revenue growth slowed somewhat compared with previous quarters, this result was anticipated given increased competition from cable telephony offerings and other alternative VoIP providers, which adversely affected long distance and local and access service revenues. WirelessConsumer wireless revenues increased year-over-year both this quarter and year-to-date, mainly as a result of a higher average number of customers compared with last year and price increases for certain services and features. Although subscriber momentum continued during the third quarter of 2005, fuelled by attractive new handsets, applications such as our 10-4 service and seasonal back-to-school promotions, overall revenue growth was dampened by a higher proportion of customers choosing prepaid service or postpaid monthly rate plans that included up to six months of free unlimited local airtime. In addition, on a year-to-date basis, revenue growth was impacted negatively by the billing and retention credits issued in Q1 2005 to |
16 Bell Canada Enterprises 2005 Quarterly Report
compensate
customers for billing errors and delays that occurred following implementation
of our new billing platform last year. The issuance of customer credits
returned to normal levels in Q2 2005. Video
Our video revenues
grew by 17.8% this quarter to $251 million from $213 million
last year, as a result of a higher average number of subscribers and higher
ARPU. Similarly, on a year-to-date basis, our video revenues grew by 12.2%
to $708 million. Data Consumer data revenues grew this quarter and year-to-date, fuelled by growth of 24% in our high-speed Internet subscriber base and an increase in revenues from our Sympatico.MSN.ca web portal and Bell Sympatico value-added services. Our Sympatico.MSN.ca portal revenues increased by 58% over the third quarter of 2004. The portal currently averages 16.3 million unique visitors per month, or 85% of online Canadians. |
17 Bell Canada Enterprises 2005 Quarterly Report
Managements
Discussion and Analysis
|
||
Consumer high-speed Internet net additions
were stronger this quarter and year-to-date compared with last year. This
was driven by the introduction of our Basic Lite service in the Ontario
market, as well as by footprint expansion, focused selling efforts and
improved retention strategies. The introduction of lower priced high-speed
services, such as Basic Lite, that are geared towards the very price sensitive
segments of the market has expanded the overall high-speed market, stimulating
high-speed service growth and accelerating the rate of erosion of dial-up
Internet service. In Q3 2005, 58% of Internet gross activations subscribed
to high-speed products. Local and access
revenues, which represents the largest proportion of our Consumer segment
revenues, declined this quarter and year-to-date compared with the same
periods last year, due mainly to NAS declines which resulted in lower
NAS and related SmartTouch feature revenues, offset partly by an increase
in wireline maintenance plans. NAS decreased both this quarter and year-to-date
as a result of losses to competitive local exchange carriers (CLECs),
cable telephony offerings, VoIP providers, continued pressure from growth
in high-speed Internet access which reduces the need for second telephone
lines, and customers substituting wireline with wireless telephone service.
The rate of year-over-year NAS losses increased this quarter as a competitor
expanded the footprint of its low-priced cable telephony offering in Québec,
while several other cable operators launched new telephony offerings in
certain Ontario and Québec markets.
Our Consumer segment reported operating income of $479 million this quarter, down 15.8% compared with the third quarter of 2004. This decrease was due primarily to a higher rate of decline in our high-margin residential NAS wireline customer base, higher expected acquisition costs from stronger wireless subscriber growth, higher marketing costs related to an increased level of advertising, higher contact centre costs driven by increased customer call volume and handle time, as well as to higher amortization expense and increased net benefit plans cost. This was partially offset by higher revenues and savings associated with our Galileo cost-reduction initiatives. For the first nine months of the year, despite revenue growth of 1.5%, operating income decreased by 5.9%, year-over-year, to $1,557 million as a result of higher wireless bad debt expense in Q1 2005 and the expense pressures discussed previously. Business revenues Business segment revenues for the three and nine months ended September 30, 2005 were $1,516 million and $4,493 million, respectively, representing increases of 5.3% and 4.1% compared with the same periods one year |
18 Bell Canada Enterprises 2005 Quarterly Report
earlier. Our SMB and Enterprise units contributed 2.8% and 1.7%, respectively, of the total growth in business revenues for Q3 2005, while our other business units (comprised of Bell West and Group Telecom) contributed 0.8%. On a year-to-date basis, our SMB and Enterprise units accounted for the entire improvement, contributing 2.7% and 1.4%, respectively. For both the quarter and year-to-date, the increases in data and wireless revenues from our Enterprise and SMB units were partially offset by declines in long distance and local and access revenues, due to further erosion of our legacy wireline business as competitive pressures intensified and as our customers continued migrating their voice and data traffic to IP-based systems. The results for 2005 include the positive contribution to revenues from the acquisition of Group Telecom in November 2004. Enterprise Revenues for
our Enterprise unit were positively impacted this quarter by strong wireless
growth, which was fuelled by customers subscribing to higher-priced plans
and greater long distance and roaming usage, and by higher data revenues,
which included proceeds from the sale of customer contracts related to
legacy point-of-sales systems. Data revenue growth was more organic in
Q3 2005 as we have now realized the full benefit of the Infostream Technologies Inc.
and Elix Inc. acquisitions made in Q2 2004. In addition, lower long
distance and local and access revenues, stemming from the ongoing erosion
of legacy voice and data services and the re-price of some existing wireline
business in response to competition within the large enterprise market
segment, negatively impacted revenue growth this year.
The SMB unit delivered its best quarter since the launch of its VCIO strategy in 2003, contributing significantly to the solid financial performance of our Business segment. Revenues generated from SMB customers increased this quarter and on a year-to-date basis as increases in data, wireless and terminal sales and other revenues more than compensated for the decreases in long distance and local and access revenues. Despite a highly competitive market environment, data revenue growth was driven by the continued strong traction of our VCIO strategy and cross-selling opportunities with companies acquired in the last year (including Nexxlink Technologies Inc. and CSB Systems, which are a part of Bell Business Solutions Inc.), which resulted in higher terminal equipment and VAS sales. The growth in data revenues in Q3 2005 was tempered somewhat by a reduction in the number of new DSL high-speed Internet access service connections, due mainly to service issues associated with the Entourage labour dispute. Long distance revenues decreased, due mainly to the combined impact of lower volumes and competitive pricing pressures, and a weakening pay-phone business that is directly attributable to wireless and Internet substitution. Similarly, local and access revenues were also lower due to pressure from our declining pay-phone business, NAS losses to alternative telephony providers, and lower wireline access installation fees resulting from reduced order activity. |
19 Bell Canada Enterprises 2005 Quarterly Report
Managements
Discussion and Analysis
|
||
Bell West
Bell West continued to grow its Enterprise and SMB customer bases leading to increases in local and access and long distance revenues both this quarter and on a year-to-date basis. However, data revenues decreased, reflecting lower construction revenue in 2005 compared with last year from a contract to build a next-generation network for the Government of Alberta (GOA) (Alberta SuperNet). At the end of Q3 2005, we completed construction of the Alberta SuperNet and currently are awaiting completion of service acceptance by the GOA. Continued strong fibre and customer premise equipment (CPE) sales, particularly from wholesale customers, contributed to higher terminal sales and other revenue for both the third quarter and first nine months of 2005. Group TelecomIn November 2004, we acquired the Canadian operations of 360networks Corporation, including GT Group Telecom Inc., (collectively 360networks) as well as certain U.S. network assets. This acquisition increased our customer base and gave us an extensive fibre network across major cities in Western Canada. The Business segment now reflects the retail portion of this acquisition, operating in Western Canada as the Group Telecom unit within Bell Canada. Business operating income
Business segment
operating income for the third quarter and first nine months of 2005 decreased
by 13.1% and 5.5%, respectively, to $213 million and $674 million,
due mainly to higher net benefits plans cost and amortization expense,
as well as to margin pressure from the loss of higher-margin legacy voice
and data business brought to the competition and the continuing shift
of voice and data traffic to lower-margin IP-based growth services. These
negative impacts were partially offset by a year-over-year increase in
revenues. Aliant revenues Aliant segment revenues were $520 million in the third quarter and $1,562 million year-to-date, reflecting increases of $23 million, or 4.6%, and $35 million, or 2.3%, respectively, compared with the same periods last year. Continued strong growth in wireless and Internet services, as well as |
20 Bell Canada Enterprises 2005 Quarterly Report
a recovery from the 2004 labour disruption offset declines in other areas
due to impacts of competition, wireless and Internet substitution, and
regulatory restrictions. Aliants operating income was $105 million in the third quarter and $291 million year-to-date, reflecting an increase of $34 million, or 47.9%, and $46 million, or 18.8%, respectively, compared with the same periods last year. The full impact of growth and recovery from the 2004 labour disruption was partially offset by the impact of the CDN decision and an increase in pension and other post-employment benefits costs. Operating expense increases required to drive revenue growth were contained by sound expense management and reflected the cost savings from Aliants 2004 voluntary early retirement program. Other Bell Canada revenuesOther Bell Canada segment revenues of $500 million for the quarter and $1,464 million for the first nine months of 2005, reflected increases of $14 million, or 2.9%, and $36 million, or 2.5%, respectively, compared with the same periods last year. These improvements were due mainly to higher revenues at our wholesale unit, resulting from the acquisition of the wholesale portion of 360networks in the fourth quarter of last year, fibre and access capacity sales in Q3 2005, the early termination of a cross-border facilities contract in Q2 2005 and a favourable ruling by the CRTC with respect to subsidies for serving |
21 Bell Canada Enterprises 2005 Quarterly Report
Managements
Discussion and Analysis
|
||
high cost areas at Télébec Limited Partnership (Télébec) in Q1 2005. This was partly offset by the impact of the CDN decision, which reduced revenues by $15 million in Q3 2005 and $41 million year-to-date, and by continued pressure on long distance and data revenues due to competitive pricing and customers migrating services onto their own network facilities. Other Bell Canada operating income Operating income for the Other Bell Canada segment was $111 million this quarter, up from a loss of $898 million in Q3 2004, while on a year-to-date basis operating income was $349 million compared with a loss of $649 million in the same period last year. The year-over-year increases resulted mainly from restructuring and other items recorded in Q3 2004 related mostly to the employee departure program, various Galileo-related cost saving initiatives and an improvement in year-to-date bad debt expense. These impacts were partially offset by incremental salaries and higher cost of goods sold associated with the wholesale operations of 360networks acquired in Q4 2004, the impact of the CDN decision and higher costs associated with a larger volume of termination minutes stemming from a greater southbound U.S. traffic. Other BCE Revenues Bell Globemedias
revenues for the quarter were $335 million, up 10.9% from Q3 of last
year. On a year-to-date basis, Bell Globemedias revenues grew
7.4% to $1,090 million. Total advertising revenues grew by 11.5%
this quarter and by 8.0% year-to-date, reflecting strong television ratings
as CTV Television held 10 of the top 10 and 15 of the top 20 regularly
scheduled programs during the summer season among all viewers and increased
classified and national advertising sales at The Globe and Mail. On a
year-to-date basis strong growth in advertising revenues in conventional
and specialty television helped to offset the loss of advertising from
hockey broadcasts on our sports specialty channels TSN and RDS. Bell Globemedias
subscriber revenues grew by 8.2% this quarter and by 5.9% year-to-date,
reflecting strong specialty channel growth and increased online subscription
at The Globe and Mail, as well as an increase in the home delivery rate
for The Globe and Mail implemented at the beginning of 2005. |
Q3 2005 | Q3 2004 | % CHANGE | YTD 2005 | YTD 2004 | % CHANGE | |||||||||
|
||||||||||||||
Bell Globemedia |
335 | 302 | 10.9% | 1,090 | 1,015 | 7.4% | ||||||||
Telesat |
112 | 91 | 23.1% | 357 | 260 | 37.3% | ||||||||
CGI |
270 | 274 | (1.5% | ) | 818 | 736 | 11.1% | |||||||
Other |
15 | 12 | 25.0% | 50 | 41 | 22.0% | ||||||||
|
||||||||||||||
Other BCE revenues |
732 | 679 | 7.8% | 2,315 | 2,052 | 12.8% | ||||||||
|
||||||||||||||
|
22 Bell Canada Enterprises 2005 Quarterly Report
Our share of CGI revenues decreased this quarter by 1.5% to $270 million as it was no longer benefiting from a year-over-year uplift in revenues from its purchase of AMS last year. However, on a year-to-date basis revenues increased by 11.1% to $818 million, reflecting the contribution from the AMS acquisition. Other BCE operating income Operating income
for the Other BCE segment grew by 29% this quarter to $49 million
and by 42% to $252 million on a year-to-date basis, reflecting growth
in operating income at Bell Globemedia, Telesat and CGI. |
Product Line Analysis |
||||||||||||||
REVENUES | Q3 2005 | Q3 2004 | % CHANGE | YTD 2005 | YTD 2004 | % CHANGE | ||||||||
|
||||||||||||||
Local and access | 1,367 | 1,395 | (2.0% | ) | 4,103 | 4,175 | (1.7% | ) | ||||||
Long distance | 510 | 589 | (13.4% | ) | 1,566 | 1,767 | (11.4% | ) | ||||||
Wireless | 801 | 727 | 10.2% | 2,285 | 2,076 | 10.1% | ||||||||
Data | 1,001 | 915 | 9.4% | 2,918 | 2,677 | 9.0% | ||||||||
Video | 251 | 213 | 17.8% | 708 | 631 | 12.2% | ||||||||
Terminal sales and other | 396 | 367 | 7.9% | 1,213 | 1,158 | 4.7% | ||||||||
|
||||||||||||||
Total Bell Canada | 4,326 | 4,206 | 2.9% | 12,793 | 12,484 | 2.5% | ||||||||
|
||||||||||||||
|
Local
and access revenues of $1,367 million for the quarter and $4,103 million
year-to-date decreased by 2.0% and 1.7%, respectively, compared with the
same periods in 2004, mainly as a result of lower NAS and lower Smart-Touch
feature revenues, partly offset by gains from wireline insurance and maintenance
plans. |
23 Bell Canada Enterprises 2005 Quarterly Report
Managements
Discussion and Analysis
|
||
Long distance
Long distance revenues were $510 million for the quarter and $1,566 million for the first nine months of 2005, reflecting year-over-year decreases of 13.4% and 11.4%, respectively, compared with the same periods in 2004. Lower long distance revenues affected all Bell Canada segments, particularly our Consumer and Business segments. Overall minute volumes increased slightly both this quarter and year-to-date by 1.1% and 1.7%, respectively, to 4,484 million and 13,739 million conversation minutes, compared with the same periods in 2004. However, ARPM decreased by $0.015 in both the third quarter and first nine months in 2005 to reach $0.105 and $0.104, respectively, reflecting competitive pricing pressures in our consumer, business and wholesale markets, the impact of our $5 Long Distance Bundle (which we stopped offering at the beginning of Q3 2005), and a higher volume of minutes from international prepaid calling cards. Wireless
Gross wireless activations increased by 27% this quarter to 358,000, up from 281,000 for the same period last year. Postpaid gross activations accounted for 68%, or 243,000, of the total number of gross activations this quarter, representing a 14.1% increase compared with Q3 2004, while prepaid gross activations improved by 69% to make up the other 115,000 gross activations. Postpaid growth was |
|
Q3 2005 | Q3 2004 | % CHANGE | YTD 2005 | YTD 2004 | % CHANGE | ||||||||
|
||||||||||||||
ARPU ($ / month) |
51 | 50 | 2.0% | 49 | 49 | | ||||||||
Postpaid |
63 | 63 | | 60 | 61 | (1.6% | ) | |||||||
Prepaid |
14 | 12 | 16.7% | 13 | 12 | 8.3% | ||||||||
Cellular & PCA Gross |
||||||||||||||
Activations (k) |
358 | 281 | 27.4% | 1,016 | 811 | 25.3% | ||||||||
Postpaid |
243 | 213 | 14.1% | 717 | 622 | 15.3% | ||||||||
Prepaid |
115 | 68 | 69.1% | 299 | 189 | 58.2% | ||||||||
Churn (average per month) |
1.5% | 1.2% | (0.3 | ) pts |
1.6% | 1.3% | (0.3 | ) pts | ||||||
Postpaid |
1.5% | 1.0% | (0.5 | ) pts |
1.5% | 1.1% | (0.4 | ) pts | ||||||
Prepaid |
1.6% | 1.9% | 0.3 | pts | 1.8% | 1.9% | 0.1 | pts | ||||||
Cellular & PCS Net |
||||||||||||||
Activations (k)(1) |
123 | 109 | 12.8% | 306 | 296 | 3.4% | ||||||||
Postpaid(1) |
50 | 95 | (47.4% |
) | 162 | 242 | (33.1% | ) | ||||||
Prepaid |
73 | 14 | n.m. | 144 | 54 | n.m. | ||||||||
Cellular & PCS |
||||||||||||||
Subscribers (k) |
5,231 | 4,708 | 11.1% | 5,231 | 4,708 | 11.1% | ||||||||
Postpaid |
3,886 | 3,595 | 8.1% | 3,886 | 3,595 | 8.1% | ||||||||
Prepaid |
1,345 | 1,113 | 20.8 % | 1,345 | 1,113 | 20.8% | ||||||||
|
||||||||||||||
|
(1) | In Q1 2005, we cancelled 45,000 non-paying postpaid customer accounts due to some residual issues stemming from our 2004 billing system migration. | ||
n.m.: not meaningful |
24 Bell Canada Enterprises 2005 Quarterly Report
fuelled by the launch of several new handsets, innovative applications
such as our 10-4 service, competitive rate-plan promotions,
as well as our increased presence in western Canada. The significantly
higher number of prepaid gross activations was driven mainly by the successful
launch of Solo Mobile and the contribution of subscribers from Virgin
Mobile. These results were achieved despite aggressive wireless offers
in the market from our competitors that featured zero-dollar handsets
and the longer-than-expected extension of certain seasonal promotions.
Similarly, on a year-to-date basis, we had 1,016,000 gross activations,
representing a 25.3% increase over the same period last year, comprising
717,000 postpaid gross activations and 299,000 prepaid gross activations. |
25 Bell Canada Enterprises 2005 Quarterly Report
Managements
Discussion and Analysis
|
||
with the first nine months of 2004. The decrease can be attributed mainly
to both the higher take-up rate of lower-priced plans and the application
of customer billing and retention credits in Q1 2005. Data
Our data revenues
increased by 9.4% this quarter and by 9.0% on a year-to-date basis to
$1,001 million and $2,918 million, respectively, compared with
the same periods last year. In the third quarter, we continued to benefit
from growth in our high-speed Internet customer base and our ICT (or VAS)
and VCIO strategies in our Enterprise and SMB business units. Data revenues
also were impacted favourably by the sales of certain customer contracts
and fibre and access capacity in our Enterprise and wholesale units. The
year-to-date improvement was driven primarily by growth in high-speed
Internet, ICT (or VAS) and IP-based services, as well as to business acquisitions
completed over the last twelve months. In addition, the year-to-date results
also reflected a one-time benefit from the early termination of a cross-border
facilities contract in Q2 2005. For 2005, the year-over-year increases
in both the quarter and year-to-date were partially offset by lower construction
revenues from the GOA contract, a decline in legacy data revenues, price
competition and the CDN decision which adversely affected revenues by
$16 million in Q3 and $47 million year-to-date. Video See discussion under Consumer Segment. Terminal sales and other Terminal sales and other revenues were $397 million this quarter, or 8.2% higher than Q3 2004, and $1,214 million year-to-date, or 4.8% higher than the same period last year. In each case, the increase was due mainly to the favourable impact from several acquisitions (including those of Group Telecom and Entourage), growth in |
26 Bell Canada Enterprises 2005 Quarterly Report
hardware sales primarily at Aliant and recovery from the Aliant labour disruption in 2004. This was offset partially by the impact of consumer promotions on wireless handset revenues despite an increase in the volume of devices sold. On a year-to-date basis, the increase was also due to higher equipment sales to business customers. Other ItemsOther income (expense) Other expense of $1 million in Q3 2005 represents a decrease of $334 million over Q3 2004. The difference resulted mainly from:
partly offset by:
On a year-to-date basis, other income decreased by $363 million to $30 million, which was further impacted by a $20 million charge in Q2 2005 relating to the tax loss monetization program between Bell Canada and BCI. Interest expenseInterest expense of $247 million in Q3 2005 and $741 million on a year-to-date basis in 2005 represents declines of 2.4% and 2.2%, respectively, compared to the same periods last year. This was mainly from lower average interest rates from the refinancing of debt at lower rates. Income taxesIncome taxes of $193 million in Q3 2005 reflected a significant increase compared to an income tax credit of $44 million for the same period last year. On a year-to-date basis, income taxes increased by $176 million to $687 million compared to the first nine months of 2004. The increases were primarily from:
Non-controlling interest of $57 million in Q3 2005 represents an
increase of 21%, compared to the same period last year, which is mainly
due to higher net earnings at Aliant and Bell Globemedia. Discontinued operations of $28 million on a year-to-date basis in 2004 consist mainly of a $26 million net gain on the sale of our 64% interest in Emergis Inc. (Emergis). |
27 Bell Canada Enterprises 2005 Quarterly Report
Managements
Discussion and Analysis
|
||||||
Financial
and Capital Management
|
Financial and Capital Management Capital Structure |
|||||
|
Q3 2005 | Q4 2004 | ||||
|
||||||
Debt due within one year |
1,263 | 1,276 | ||||
Long-term debt |
12,630 | 11,809 | ||||
Less: Cash and cash equivalents |
(475 | ) | (380 | ) | ||
|
||||||
Total net debt |
13,418 | 12,705 | ||||
Non-controlling interest |
2,892 | 2,908 | ||||
Total shareholders equity |
14,610 | 14,024 | ||||
|
||||||
Total capitalization |
30,920 | 29,637 | ||||
|
||||||
Net debt to capitalization |
43.4% | 42.9% | ||||
|
||||||
Outstanding share data (in millions) |
||||||
Common shares |
927.3 | 925.9 | ||||
Stock options |
26.9 | 28.5 | ||||
|
||||||
|
||||||
|
Cash Flows The table
below is a summary of the flow of cash in to and out of BCE. |
||||||||||
YTD | YTD | |||||||||
Q3 2005 | Q3 2004 | 2005 | 2004 | |||||||
|
||||||||||
Cash flows from operating activities |
1,686 | 1,828 | 4,075 | 4,212 | ||||||
Capital expenditures |
(968 | ) | (811 | ) |
(2,619 | ) |
(2,318 | ) | ||
Other investing activities |
| (2 | ) | (26 | ) | 133 | ||||
Cash dividends paid on common shares |
(306 | ) | (277 | ) | (889 | ) | (831 | ) | ||
Cash dividends paid on preferred shares |
(21 | ) | (21 | ) | (64 | ) | (64 | ) | ||
Cash dividends paid by subsidiaries to non-controlling interest |
(47 | ) | (44 | ) | (157 | ) | (139 | ) | ||
|
||||||||||
Free cash flow |
344 | 673 | 320 | 993 | ||||||
|
||||||||||
Business acquisitions |
(62 | ) | (646 | ) | (180 | ) | (952 | ) | ||
Business dispositions |
| 4 | | 20 | ||||||
Increase in investments |
(75 | ) | (12 | ) | (216 | ) | (20 | ) | ||
Decrease in investments |
| 707 | 7 | 713 | ||||||
Net issuance of equity instruments |
12 | 8 | 25 | 16 | ||||||
Net issuance (repayment) of debt instruments |
(76 | ) | 85 | 270 | (217 | ) | ||||
Financing activities of subsidiaries with third parties |
(21 | ) | (4 | ) | (59 | ) | (51 | ) | ||
Other financing activities |
(27 | ) | (18 | ) | (82 | ) | (34 | ) | ||
Cash provided by discontinued operations |
| 12 | 10 | 196 | ||||||
|
||||||||||
Net increase in cash and cash equivalents |
95 | 809 | 95 | 664 | ||||||
|
||||||||||
|
28 Bell Canada Enterprises 2005 Quarterly Report
Cash from operating activities Cash from operating activities decreased 7.8%, or $142 million, to $1,686 million in Q3 2005, compared to Q3 2004. This was mainly a result of:
Cash from operating activities decreased 3.3%, or $137 million, to $4,075 million in the first nine months of 2005. Year-to-date cash from operating activities was further impacted by:
which were substantially offset by:
Our free cash flow this quarter was $344 million, down from free cash flow of $673 million in the third quarter of last year. The decrease is due mainly to:
Year-to-date free cash flow of $320 million, down from free cash flow of $993 million, was impacted further by Telesat insurance proceeds of $179 million received in the first nine months of 2004. Capital expendituresCapital expenditures were $968 million in Q3 2005, or 20.0% of revenues. This was 19.4% higher than the capital expenditures of $811 million, or 17.0% of revenues, in Q3 2004. On a year-to-date basis, capital expenditures were $2,619 million in the first nine months of 2005, or 17.7% of revenues. This was 13.0% higher than the capital expenditures of $2,318 million, or 16.3% of revenues, in the same period last year. The increases reflect the strategic investments in the Consumer segment, which include the FTTN expansion, the initial deployment of EVDO in certain of our markets, information technology (IT) efficiency projects to deliver cost savings, growth-related spending to support higher customer demand, as well as a return to more normal spending levels at Aliant after its labour disruption in 2004. Other investing activitiesCash from other investing activities increased by $2 million in Q3 2005, compared to Q3 2004, and decreased by $159 million in the first nine months of 2005, compared to the same period last year. In 2004, cash from other investing activities included insurance proceeds that Telesat received for a malfunction on the Anik F1 satellite, amounting to $136 million in Q2 2004 and $179 million in the first nine months of 2004. Cash dividends paid on common shares We paid a dividend
of $0.33 per common share in Q3 2005, which is $0.03 more than the dividend
we paid in Q3 2004. On a year-to-date basis, we paid $0.99 per common
share in the first nine months of 2005, compared to $0.90 per common share
in the same period in 2004. |
29 Bell Canada Enterprises 2005 Quarterly Report
Managements Discussion and Analysis
|
||
April 15, 2005, we expect to pay quarterly dividends on BCE Inc.s common shares of approximately $306 million, based on the revised dividend policy. This assumes that there are no significant changes in the number of outstanding common shares. The total quarterly dividends equal $0.33 per common share, based on approximately 927 million common shares outstanding at September 30, 2005. Business acquisitions We invested $62 million
in business acquisitions in Q3 2005 and $180 million in the first
nine months of 2005. This consisted mainly of Bell Canadas
acquisition of Nexxlink in the first half of the year for $68 million
and a number of other businesses.
Cash flows used
for investments increased by $63 million to $75 million in Q3
2005, compared to the same period last year, due to an increase in highly
liquid short-term investments. We repaid $76 million
of debt, net of issues, in Q3 2005. The repayments included $150 million
in debentures at Bell Canada, decreased borrowings in notes payable
and bank advances of $65 million, and a $25 million reduction
in Bell Globemedias borrowings under its credit facilities.
The issuances consisted of $200 million in debentures at Bell Canada. |
30 Bell Canada Enterprises 2005 Quarterly Report
Cash relating to discontinued operations Cash provided by discontinued operations was $196 million in the first nine months of 2004. This consisted mainly of net cash proceeds of $315 million from the sale of Emergis and $285 million from the sale of Emergis U.S. health operations and $96 million of cash generated from Emergis operations. This was partly offset by the deconsolidation of Emergis cash on hand of $512 million at December 31, 2003. Credit RatingsThe table below lists our key credit ratings at November 1, 2005. On May 4, 2005, S&P(1) and DBRS(2) confirmed their ratings for BCE Inc. and Bell Canada, but revised their outlooks from stable to negative. On May 16, 2005, Moodys(3) confirmed its ratings for BCE Inc. and Bell Canada, but revised its outlook from stable to negative. Related Party Transaction BCI loss utilization transaction On April 15, 2005,
3787915 Canada Inc., a wholly-owned subsidiary of Bell Canada,
acquired $17 billion in preferred shares from 3787923 Canada Inc.,
a wholly-owned subsidiary of BCI. 3787923 Canada Inc. used the proceeds
to advance $17 billion to BCI through a subordinated interest-free
loan. BCI then advanced $17 billion to 3787915 Canada Inc. by
way of a subordinated interest-bearing demand loan, the funds being used
to repay a daylight loan granted to 3787915 Canada Inc. to make the
initial preferred share investment. The dividend rate on the preferred
shares was equal to 5.1%, which was essentially the same as the interest
rate on the loan.
|
|
BCE INC. | BELL CANADA | ||||||||||||
|
S&P | DBRS | MOODYS | S&P | DBRS | MOODYS | ||||||||
|
||||||||||||||
Commercial paper |
A-1 (mid) | R-1 (low) / stable | P-2 / stable | A-1 (mid) | R-1 (mid) / negative | P-2 / stable | ||||||||
Extendable commercial notes |
A-1 (mid) | R-1 (low) / stable | | A-1 (mid) | R-1 (mid) / negative | | ||||||||
Long-term debt |
A- / negative | A / negative | Baa1 / negative | A / negative | A (high) / negative | A3 / negative | ||||||||
Preferred shares |
P-2 (high) | Pfd-2 / negative | | P-2 (high) | Pfd-2 (high) / negative | | ||||||||
|
||||||||||||||
|
(1) |
Standard & Poors, a division of The McGraw Hill Companies, Inc. |
||
(2) |
Dominion Bond Rating Services Limited |
||
(3) |
Moodys Investors Service Inc. |
31 Bell Canada Enterprises 2005 Quarterly Report
Managements Discussion and Analysis
|
||
Recent
Developments in Legal Proceedings |
Liquidity Our sources of liquidity and cash requirements remain substantially unchanged from those described in the BCE 2004 MD&A. Commitment under the deferral account The deferral account resulted from the CRTCs second price cap decision of May 2002, which requires us to fund initiatives such as service improvements, reduced customer rates and/or customer rebates. We estimate our commitment under the deferral account to be approximately $148 million at September 30, 2005 and anticipate that it will be reduced to approximately $130 million by December 31, 2005, primarily due to the impact of the CDN decision. We expect to clear most of this amount in 2006 by implementing the initiatives that are approved by the CRTC for this purpose. Recent Developments in Legal Proceedings Lawsuits related to Bell Canada International Inc. (BCI) 6.75% and 6.50% Debenture holders lawsuit On September 1, 2005,
BCE and BCI announced that the Ontario Superior Court of Justice
(Court) had approved the agreement reached on August 18, 2005
dismissing a class action lawsuit by former holders of BCIs $250 million
6.75% convertible unsecured subordinated debentures against BCI, BCE and
certain current and former directors of BCI. The Court approval provided
for the dismissal of the action as against all defendants and completely
disposed of the litigation without any payment by any such defendants
in respect of damages. |
|
A risk is the
possibility that an event might happen in the future that could have a
negative effect on the financial condition, results of operations or business
of one or more BCE group companies. Part of managing our business
is to understand what these potential risks could be and to minimize them
where we can.
|
32 Bell Canada Enterprises 2005 Quarterly Report
Risks
That Could Affect Our Business
Please
see Recent Developments in Legal Proceedings, at pages 22 and 23
of the BCE 2005 First Quarter MD&A, at page 30 of the BCE 2005
Second Quarter MD&A and in this MD&A, for a description of recent
developments, since the BCE 2004 AIF, in the principal legal proceedings
involving us. |
Updates to the Description of Risks The following are updates to the description of risks contained in the section entitled Risks That Could Affect Our Business set out on pages 32 to 41 of the BCE 2004 AIF as updated at pages 23 to 26 in the BCE 2005 First Quarter MD&A and at pages 30 to 34 of the BCE 2005 Second Quarter MD&A. For ease of reference, the updates to the description of risks below have been presented under the same headings and in the same order contained in the section entitled Risks That Could Affect Our Business set out in the BCE 2004 AIF. Risks that could affect certain BCE group companies Bell Canada companiesChanges to Wireline Regulation Competitor Digital Network
Service
|
33 Bell Canada Enterprises 2005 Quarterly Report
Managements Discussion and Analysis
|
||
amounts before September 23, 2005. In a letter dated September 1, 2005, the CRTC postponed the due date for the filing of updated estimates until certain outstanding issues related to CDN services currently before the CRTC are resolved. The CRTC also stated that it will provide direction to the incumbent telephone companies regarding the deadline to provide the updated deferral account estimates when it releases its decision regarding the issues being examined in Public Notice 2004-1: Review and disposition of deferral accounts for the second price cap period, which is expected before the end of the year. Application
Seeking Consistent Regulation and Regulatory Framework for VoIP Wireless Number
Portability Application
to Change Bundling Rates Bell Canada
Proposals to Telecom Policy Review Panel |
34 Bell Canada Enterprises 2005 Quarterly Report
proposal included detailed suggestions for significant changes to the
Telecommunications Act and related statutes, and for the realignment
of responsibilities for the CRTC, Industry Canada and the Competition
Bureau. The proposal also recommended that the Minister of Industry issue
a policy direction to the CRTC which would result in significant regulatory
reform. Licences for
Broadcasting Licences and
Changes to Wireless Regulation Access to Bell Canada
Loops for CLECs Customers Served Via Remotes During the third quarter of 2005, Telesat confirmed the insurance renewal on Nimiq 1. Nimiq 1 is now insured until the second quarter of 2006 for approximately its book value. |
35 Bell Canada Enterprises 2005 Quarterly Report
Managements Discussion and Analysis
|
||
As indicated in the BCE 2004 AIF, in August 2001, the manufacturer of the Anik F1 satellite advised Telesat of a gradual decline in power on the satellite. This power decline required Telesat to construct and launch another satellite to maintain continuity of service to its customers. Anik F1R was successfully launched in September 2005 in time to ensure that service to Anik F1’s customers was not interrupted. Anik F1R is insured until the third quarter of 2006 for approximately its book value. |
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. |
36 Bell Canada Enterprises 2005 Quarterly Report
Consolidated Statements of Operations
|
||||||||||
FOR THE PERIOD ENDED SEPTEMBER 30 |
THREE MONTHS |
NINE MONTHS |
||||||||
(in $ millions, except share amounts) (unaudited) |
2005 | 2004 | 2005 | 2004 | ||||||
|
||||||||||
Operating revenues |
4,951 | 4,778 | 14,790 | 14,195 | ||||||
|
||||||||||
Operating expenses |
(3,052 | ) | (2,842 | ) | (8,952 | ) | (8,462 | ) | ||
Amortization expense |
(803 | ) | (769 | ) | (2,368 | ) | (2,305 | ) | ||
Net benefit plans cost (Note 4) |
(108 | ) | (61 | ) | (315 | ) | (189 | ) | ||
Restructuring and other items (Note 5) |
(31 | ) | (1,081 | ) | (32 | ) | (1,098 | ) | ||
|
||||||||||
Total operating expenses |
(3,994 | ) | (4,753 | ) | (11,667 | ) | (12,054 | ) | ||
|
||||||||||
Operating income |
957 | 25 | 3,123 | 2,141 | ||||||
Other income (expense) |
(1 | ) | 333 | 30 | 393 | |||||
Interest expense |
(247 | ) | (253 | ) | (741 | ) | (758 | ) | ||
|
||||||||||
Pre-tax earnings from continuing operations |
709 | 105 | 2,412 | 1,776 | ||||||
Income taxes (Note 6) |
(193 | ) | 44 | (687 | ) | (511 | ) | |||
Non-controlling interest |
(57 | ) | (47 | ) | (193 | ) | (134 | ) | ||
|
||||||||||
Earnings from continuing operations |
459 | 102 | 1,532 | 1,131 | ||||||
Discontinued operations |
| (2 | ) | (1 | ) | 28 | ||||
|
||||||||||
Net earnings |
459 | 100 | 1,531 | 1,159 | ||||||
Dividends on preferred shares |
(18 | ) | (18 | ) | (53 | ) | (53 | ) | ||
|
||||||||||
Net earnings applicable to common shares |
441 | 82 | 1,478 | 1,106 | ||||||
|
||||||||||
Net earnings per common share basic |
||||||||||
Continuing operations |
0.48 | 0.09 | 1.60 | 1.17 | ||||||
Discontinued operations |
| | | 0.03 | ||||||
Net earnings |
0.48 | 0.09 | 1.60 | 1.20 | ||||||
Net earnings per common share diluted |
||||||||||
Continuing operations |
0.48 | 0.09 | 1.60 | 1.16 | ||||||
Discontinued operations |
| | | 0.03 | ||||||
Net earnings |
0.48 | 0.09 | 1.60 | 1.19 | ||||||
Dividends per common share |
0.33 | 0.30 | 0.99 | 0.90 | ||||||
Average number of common shares outstanding basic (millions) |
927.0 | 924.6 | 926.6 | 924.4 | ||||||
|
||||||||||
|
Consolidated Statements of Deficit
|
||||||||||
FOR THE PERIOD ENDED SEPTEMBER 30 |
THREE MONTHS |
NINE MONTHS |
||||||||
(in $ millions) (unaudited) |
2005 | 2004 | 2005 | 2004 | ||||||
|
||||||||||
Balance at beginning of period, as previously reported |
(5,005 | ) | (5,368 | ) | (5,424 | ) | (5,837 | ) | ||
Accounting policy change (Note 1) |
| (8 | ) | (8 | ) | (8 | ) | |||
|
||||||||||
Balance at beginning of period, as restated |
(5,005 | ) | (5,376 | ) | (5,432 | ) | (5,845 | ) | ||
Net earnings |
459 | 100 | 1,531 | 1,159 | ||||||
Dividends declared on preferred shares |
(18 | ) | (18 | ) | (53 | ) | (53 | ) | ||
Dividends declared on common shares |
(306 | ) | (277 | ) | (918 | ) | (832 | ) | ||
Other |
(1 | ) | | 1 | | |||||
|
||||||||||
Balance at end of period |
(4,871 | ) | (5,571 | ) | (4,871 | ) | (5,571 | ) | ||
|
||||||||||
|
37 Bell Canada Enterprises 2005 Quarterly Report
Consolidated Balance Sheets
|
||||||
SEPTEMBER 30, | DECEMBER 31, | |||||
(in $ millions) (unaudited) |
2005 | 2004 | ||||
|
||||||
|
||||||
Assets |
||||||
Current assets |
||||||
Cash and cash equivalents |
475 | 380 | ||||
Accounts receivable |
1,951 | 2,096 | ||||
Other current assets |
1,501 | 1,212 | ||||
|
||||||
Total current assets |
3,927 | 3,688 | ||||
Capital assets |
22,217 | 21,398 | ||||
Other long-term assets |
2,682 | 2,656 | ||||
Indefinite-life intangible assets |
2,973 | 2,916 | ||||
Goodwill |
8,577 | 8,413 | ||||
Non-current assets of discontinued operations |
104 | 50 | ||||
|
||||||
Total assets |
40,480 | 39,121 | ||||
|
||||||
|
||||||
Liabilities |
||||||
Current liabilities |
||||||
Accounts payable and accrued liabilities |
3,557 | 3,692 | ||||
Interest payable |
266 | 183 | ||||
Dividends payable |
325 | 297 | ||||
Debt due within one year |
1,263 | 1,276 | ||||
|
||||||
Total current liabilities |
5,411 | 5,448 | ||||
Long-term debt |
12,630 | 11,809 | ||||
Other long-term liabilities |
4,850 | 4,932 | ||||
Non-current liabilities of discontinued operations |
87 | | ||||
|
||||||
Total liabilities |
22,978 | 22,189 | ||||
|
||||||
Non-controlling interest |
2,892 | 2,908 | ||||
|
||||||
|
||||||
Shareholders equity |
||||||
Preferred shares |
1,670 | 1,670 | ||||
|
||||||
Common shareholders equity |
||||||
Common shares |
16,806 | 16,781 | ||||
Contributed surplus |
1,076 | 1,061 | ||||
Deficit |
(4,871 | ) | (5,432 | ) | ||
Currency translation adjustment |
(71 | ) | (56 | ) | ||
|
||||||
Total common shareholders equity |
12,940 | 12,354 | ||||
|
||||||
Total shareholders equity |
14,610 | 14,024 | ||||
|
||||||
Total liabilities and shareholders equity |
40,480 | 39,121 | ||||
|
||||||
|
38 Bell Canada Enterprises 2005 Quarterly Report
Consolidated Statements of Cash Flows
|
||||||||||
FOR THE PERIOD ENDED SEPTEMBER 30 |
THREE MONTHS |
NINE MONTHS |
||||||||
(in $ millions) (unaudited) |
2005 | 2004 | 2005 | 2004 | ||||||
|
||||||||||
Cash flows from operating activities |
||||||||||
Earnings from continuing operations |
459 | 102 | 1,532 | 1,131 | ||||||
Adjustments to reconcile earnings from continuing operations to cash flows from operating activities: |
||||||||||
Amortization expense |
803 | 769 | 2,368 | 2,305 | ||||||
Net benefit plans cost |
108 | 61 | 315 | 189 | ||||||
Restructuring and other items |
31 | 1,081 | 32 | 1,098 | ||||||
Net gains on investments |
| (325 | ) | (34 | ) | (331 | ) | |||
Future income taxes |
111 | (183 | ) | 285 | (96 | ) | ||||
Non-controlling interest |
57 | 47 | 193 | 134 | ||||||
Contributions to employee pension plans |
(33 | ) | (32 | ) | (161 | ) | (88 | ) | ||
Other employee future benefit plan payments |
(24 | ) | (13 | ) | (69 | ) | (59 | ) | ||
Payments of restructuring and other items |
(24 | ) | (12 | ) | (153 | ) | (39 | ) | ||
Operating assets and liabilities |
198 | 333 | (233 | ) | (32 | ) | ||||
|
||||||||||
Cash flows from operating activities |
1,686 | 1,828 | 4,075 | 4,212 | ||||||
|
||||||||||
Cash flows from investing activities |
||||||||||
Capital expenditures |
(968 | ) | (811 | ) | (2,619 | ) | (2,318 | ) | ||
Business acquisitions |
(62 | ) | (646 | ) | (180 | ) | (952 | ) | ||
Business dispositions |
| 4 | | 20 | ||||||
Increase in investments |
(75 | ) | (12 | ) | (216 | ) | (20 | ) | ||
Decrease in investments |
| 707 | 7 | 713 | ||||||
Other investing activities |
| (2 | ) | (26 | ) | 133 | ||||
|
||||||||||
Cash flows used in investing activities |
(1,105 | ) | (760 | ) | (3,034 | ) | (2,424 | ) | ||
|
||||||||||
Cash flows from financing activities |
||||||||||
Increase (decrease) in notes payable and bank advances |
(65 | ) | 173 | 121 | 123 | |||||
Issue of long-term debt |
200 | 10 | 1,191 | 1,410 | ||||||
Repayment of long-term debt |
(211 | ) | (98 | ) | (1,042 | ) | (1,750 | ) | ||
Issue of common shares |
12 | 8 | 25 | 16 | ||||||
Issue of equity securities by subsidiaries to non-controlling interest |
1 | | 1 | 7 | ||||||
Redemption of equity securities by subsidiaries from non-controlling interest |
(22 | ) | (4 | ) | (60 | ) | (58 | ) | ||
Cash dividends paid on common shares |
(306 | ) | (277 | ) | (889 | ) | (831 | ) | ||
Cash dividends paid on preferred shares |
(21 | ) | (21 | ) | (64 | ) | (64 | ) | ||
Cash dividends paid by subsidiaries to non-controlling interest |
(47 | ) | (44 | ) | (157 | ) | (139 | ) | ||
Other financing activities |
(27 | ) | (18 | ) | (82 | ) | (34 | ) | ||
|
||||||||||
Cash flows used in financing activities |
(486 | ) | (271 | ) | (956 | ) | (1,320 | ) | ||
|
||||||||||
Cash provided by continuing operations |
95 | 797 | 85 | 468 | ||||||
Cash provided by discontinued operations |
| 12 | 10 | 196 | ||||||
|
||||||||||
Net increase in cash and cash equivalents |
95 | 809 | 95 | 664 | ||||||
Cash and cash equivalents at beginning of period |
380 | 577 | 380 | 722 | ||||||
|
||||||||||
Cash and cash equivalents at end of period |
475 | 1,386 | 475 | 1,386 | ||||||
|
||||||||||
|
39 Bell Canada Enterprises 2005 Quarterly Report
Notes to Consolidated Financial Statements
|
||
The interim consolidated financial statements should be read in conjunction
with BCE Inc.s annual consolidated financial statements for
the year ended December 31, 2004, on pages 82 to 121 of BCE Inc.s
2004 annual report. |
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, 2004, except as noted below. Comparative figuresWe have reclassified some of the figures for the comparative periods in the consolidated financial statements to make them consistent with the presentation for the current period. We have restated financial information for previous periods to reflect:
Change in accounting policy Effective January 1, 2005, we defer and amortize revenues and expenses from Aliants directory business over the period of circulation, which is usually 12 months. Prior to January 1, 2005, we recognized revenues and expenses from Aliants directory business on the publication date. The impact on our consolidated statements of operations for the three months and nine months ended September 30, 2005 and the comparative periods was negligible. We did not restate the statements of operations for prior periods. At December 31, 2004, the restatement of the balance sheet resulted in:
|
40 Bell Canada Enterprises 2005 Quarterly Report
Note 2: Segmented information The table
below is a summary of financial information by segment. |
|||||||||||
|
|
THREE MONTHS |
NINE MONTHS |
||||||||
FOR THE PERIOD ENDED SEPTEMBER 30 |
2005 | 2004 | 2005 | 2004 | |||||||
|
|||||||||||
Operating revenues |
|
||||||||||
Consumer |
External |
1,902 | 1,893 | 5,620 | 5,552 | ||||||
|
Inter-segment |
27 | 15 | 55 | 39 | ||||||
|
|||||||||||
|
|
1,929 | 1,908 | 5,675 | 5,591 | ||||||
|
|||||||||||
Business |
External |
1,471 | 1,400 | 4,361 | 4,139 | ||||||
|
Inter-segment |
45 | 40 | 132 | 177 | ||||||
|
|||||||||||
|
|
1,516 | 1,440 | 4,493 | 4,316 | ||||||
|
|||||||||||
Aliant |
External |
482 | 467 | 1,454 | 1,421 | ||||||
|
Inter-segment |
38 | 30 | 108 | 106 | ||||||
|
|||||||||||
|
|
520 | 497 | 1,562 | 1,527 | ||||||
|
|||||||||||
Other Bell Canada |
External |
459 | 435 | 1,317 | 1,294 | ||||||
|
Inter-segment |
41 | 51 | 147 | 134 | ||||||
|
|||||||||||
|
|
500 | 486 | 1,464 | 1,428 | ||||||
|
|||||||||||
Inter-segment eliminations Bell Canada |
(139 | ) | (125 | ) | (401 | ) | (378 | ) | |||
|
|||||||||||
Bell Canada |
|
4,326 | 4,206 | 12,793 | 12,484 | ||||||
|
|||||||||||
Other BCE |
External |
638 | 583 | 2,039 | 1,789 | ||||||
|
Inter-segment |
94 | 96 | 276 | 263 | ||||||
|
|||||||||||
|
|
732 | 679 | 2,315 | 2,052 | ||||||
|
|||||||||||
Inter-segment eliminations Other |
(107 | ) | (107 | ) | (318 | ) | (341 | ) | |||
|
|||||||||||
Total operating revenues |
|
4,951 | 4,778 | 14,790 | 14,195 | ||||||
|
|||||||||||
Operating income (loss) |
|||||||||||
Consumer |
|
479 | 569 | 1,557 | 1,655 | ||||||
Business |
|
213 | 245 | 674 | 713 | ||||||
Aliant |
|
105 | 71 | 291 | 245 | ||||||
Other Bell Canada |
|
111 | (898 | ) | 349 | (649 | ) | ||||
|
|||||||||||
Bell Canada |
|
908 | (13 | ) | 2,871 | 1,964 | |||||
Other BCE |
|
49 | 38 | 252 | 177 | ||||||
|
|||||||||||
Total operating income |
|
957 | 25 | 3,123 | 2,141 | ||||||
Other income (expense) |
|
(1 | ) | 333 | 30 | 393 | |||||
Interest expense |
|
(247 | ) | (253 | ) | (741 | ) | (758 | ) | ||
Income taxes |
|
(193 | ) | 44 | (687 | ) | (511 | ) | |||
Non-controlling interest |
|
(57 | ) | (47 | ) | (193 | ) | (134 | ) | ||
|
|||||||||||
Earnings from continuing operations |
459 | 102 | 1,532 | 1,131 | |||||||
|
|||||||||||
|
41 Bell Canada Enterprises 2005 Quarterly Report
Notes to Consolidated Financial Statements
|
||||
The consolidated financial statements include the results of acquired businesses
from the date they were acquired. |
Note 3: Business acquisitions During the first
nine months of 2005, we made a number of business acquisitions which included
100% of the outstanding common shares of Nexxlink Technologies Inc.,
provider of integrated IT solutions, and several other providers of value-added
and security services.
|
|||
|
||||
Consideration received: |
||||
Non-cash working capital |
(14 | ) | ||
Capital assets |
104 | |||
Other long-term assets |
3 | |||
Indefinite-life intangible assets |
20 | |||
Goodwill |
156 | |||
Long-term debt |
(61 | ) | ||
Other long-term liabilities |
(16 | ) | ||
|
||||
|
192 | |||
Cash and cash equivalents at acquisition |
19 | |||
|
||||
Net assets acquired |
211 | |||
|
||||
Consideration given(1): |
||||
Cash |
194 | |||
Acquisition costs |
5 | |||
Non-cash |
12 | |||
|
||||
|
211 | |||
|
||||
|
(1) | Contingent payments of $11 million that may be paid out should certain criteria specified in the agreements be met are not included in the consideration given. If the contingencies are realized, the amounts will be allocated to goodwill. |
42 Bell Canada Enterprises 2005 Quarterly Report
Note 4: Employee benefit plans The table below
shows the components of the net benefit plans cost. |
||||||||||||||||||
|
THREE MONTHS | NINE MONTHS | ||||||||||||||||
|
PENSION BENEFITS | OTHER BENEFITS | PENSION BENEFITS | OTHER BENEFITS | ||||||||||||||
FOR THE PERIOD ENDED SEPTEMBER 30 |
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | ||||||||||
|
||||||||||||||||||
Current service cost |
64 | 58 | 9 | 7 | 185 | 182 | 26 | 23 | ||||||||||
Interest cost on accrued benefit obligation |
219 | 201 | 27 | 26 | 657 | 604 | 82 | 78 | ||||||||||
Expected return on plan assets |
(235 | ) | (237 | ) | (3 | ) | (2 | ) | (709 | ) | (714 | ) | (8 | ) | (7 | ) | ||
Amortization of past service costs |
2 | 2 | | | 7 | 7 | 1 | | ||||||||||
Amortization of net actuarial losses |
26 | 8 | | 1 | 77 | 24 | | 1 | ||||||||||
Amortization of transitional |
||||||||||||||||||
(asset) obligation |
(2 | ) | (11 | ) | 6 | 7 | (5 | ) | (33 | ) | 19 | 22 | ||||||
Increase (decrease) in valuation allowance |
(6 | ) | 1 | | | (18 | ) | 2 | | | ||||||||
Other |
1 | | | | 1 | | | | ||||||||||
|
||||||||||||||||||
Net benefit plans cost |
69 | 22 | 39 | 39 | 195 | 72 | 120 | 117 | ||||||||||
|
||||||||||||||||||
Comprised of: |
||||||||||||||||||
Defined benefit plans cost |
62 | 16 | 39 | 39 | 176 | 58 | 120 | 117 | ||||||||||
Defined contribution plans cost |
7 | 6 | | | 19 | 14 | | | ||||||||||
|
||||||||||||||||||
|
The table below shows the amounts we contributed to the defined benefit
and defined contribution plans and the payments made to beneficiaries under
other employee future benefit plans. |
||||||||||||||||||
|
THREE MONTHS | NINE MONTHS | ||||||||||||||||
|
PENSION BENEFITS | OTHER BENEFITS | PENSION BENEFITS | OTHER BENEFITS | ||||||||||||||
FOR THE PERIOD ENDED SEPTEMBER 30 |
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | ||||||||||
|
||||||||||||||||||
Aliant |
20 | 16 | 1 | 1 | 121 | 54 | 4 | 3 | ||||||||||
Bell Canada |
6 | 5 | 23 | 12 | 20 | 14 | 65 | 56 | ||||||||||
Bell Globemedia |
5 | 8 | | | 14 | 13 | | | ||||||||||
BCE Inc. |
2 | 3 | | | 6 | 7 | | | ||||||||||
|
||||||||||||||||||
Total |
33 | 32 | 24 | 13 | 161 | 88 | 69 | 59 | ||||||||||
|
||||||||||||||||||
Comprised of: |
||||||||||||||||||
Contributions to defined benefit plans |
31 | 26 | 24 | 13 | 152 | 74 | 69 | 59 | ||||||||||
Contributions to defined contribution plans |
2 | 6 | | | 9 | 14 | | | ||||||||||
|
||||||||||||||||||
|
43 Bell Canada Enterprises 2005 Quarterly Report
Notes to Consolidated Financial Statements
|
||||||||||
Note 5: Restructuring and other items
|
||||||||||
|
THREE MONTHS |
NINE MONTHS |
||||||||
|
2005 | 2004 | 2005 | 2004 | ||||||
|
||||||||||
Employee departure programs |
(31 | ) | (985 | ) | (30 | ) | (985 | ) | ||
Provision for contract loss |
| | | (110 | ) | |||||
Settlement with Manitoba Telecom Services Inc. |
| | | 75 | ||||||
Other charges |
| (96 | ) | (2 | ) | (78 | ) | |||
|
||||||||||
Restructuring and other items |
(31 | ) | (1,081 | ) | (32 | ) | (1,098 | ) | ||
|
||||||||||
|
Employee departure programs The table
below provides an update on the liability relating to the employee departure
programs which were implemented in 2004. |
||||||||
|
BELL CANADA | ALIANT |
CONSO- LIDATED |
|||||
|
||||||||
Balance in accounts payable and accrued liabilities at December 31, 2004 |
120 | 67 | 187 | |||||
Less: |
||||||||
Cash payments |
(53 | ) | (53 | ) | (106 | ) | ||
Reversal of excess provision |
(25 | ) | | (25 | ) | |||
|
||||||||
Balance in accounts payable and accrued liabilities at September 30, 2005 |
42 | 14 | 56 | |||||
|
||||||||
|
||||||||
These charges were partly offset by a $25 million reversal of restructuring provisions in the first quarter of 2005 that were no longer necessary since the actual payments made to employees were lower than estimated. |
44 Bell Canada Enterprises 2005 Quarterly Report
Note 6: Income taxes Bell Canada International Inc. (BCI) loss utilization transaction On April 15, 2005,
3787915 Canada Inc., a wholly-owned subsidiary of Bell Canada,
acquired $17 billion in preferred shares from 3787923 Canada Inc.,
a wholly-owned subsidiary of BCI. 3787923 Canada Inc. used the proceeds
to advance $17 billion to BCI through a subordinated interest-free
loan. BCI then advanced $17 billion to 3787915 Canada Inc. by
way of a subordinated interest-bearing demand loan, the funds being used
to repay a daylight loan granted to 3787915 Canada Inc. to make the
initial preferred share investment. The dividend rate on the preferred
shares was equal to 5.1%, which was essentially the same as the interest
rate on the loan.
|
45 Bell Canada Enterprises 2005 Quarterly Report
Notes to Consolidated Financial Statements
|
||
Note 7: Stock-based compensation plans Restricted share units (RSUs) The table below is a summary of the status of RSUs. |
NUMBER OF | ||||
RSUs | ||||
|
||||
Outstanding, January 1, 2005 |
1,996,522 | |||
Granted |
490,927 | |||
Dividends credited |
73,927 | |||
Expired/forfeited |
(79,472 | ) | ||
|
||||
Outstanding, September 30, 2005 |
2,481,904 | |||
|
||||
|
For the three months and nine months ended September 30, 2005, we recorded compensation expense for RSUs of $19 million and $31 million, respectively. For the three months and nine months ended September 30, 2004, we recorded compensation expense for RSUs of $7 million and $17 million, respectively. BCE Inc. stock options The table below
is a summary of the status of BCE Inc.s stock option programs. |
||||||
WEIGHTED | ||||||
AVERAGE | ||||||
NUMBER | EXERCISE | |||||
OF SHARES | PRICE | |||||
|
||||||
Outstanding, January 1, 2005 |
28,481,679 | $32 | ||||
Granted |
773,824 | $29 | ||||
Exercised |
(1,348,062 | ) | $18 | |||
Expired/forfeited |
(990,769 | ) | $34 | |||
|
||||||
Outstanding, September 30, 2005 |
26,916,672 | $33 | ||||
|
||||||
Exercisable, September 30, 2005 |
16,561,534 | $34 | ||||
|
||||||
|
Assumptions used in stock option pricing model The table below shows the assumptions
used to determine the stock-based compensation expense using the Black-Scholes
option pricing model. |
||||||||||
|
THREE MONTHS |
NINE MONTHS |
||||||||
FOR THE PERIOD ENDED SEPTEMBER 30 |
2005 | 2004 | 2005 | 2004 | ||||||
|
||||||||||
Compensation expense ($ millions) |
6 | 9 | 17 | 23 | ||||||
Number of stock options granted |
60,600 | 139,700 | 773,824 | 5,589,476 | ||||||
Weighted average fair value per option granted ($) |
2 | 3 | 3 | 3 | ||||||
Weighted average assumptions |
||||||||||
Dividend yield |
4.3% | 4.3% | 4.5% | 4.0% | ||||||
Expected volatility |
16% | 26% | 22% | 27% | ||||||
Risk-free interest rate |
3.4% | 3.7% | 3.4% | 3.1% | ||||||
Expected life (years) |
3.7 | 3.5 | 3.5 | 3.5 | ||||||
|
||||||||||
|
46 Bell Canada Enterprises 2005 Quarterly Report
Note 8: Commitments and contingencies Teleglobe lending syndicate lawsuit As described in Note 24 to BCEs audited Consolidated Financial Statements for the year ended December 31, 2004, a lawsuit was filed in the Ontario Superior Court of Justice (Court) on July 12, 2002 against BCE Inc. by certain of the members of the Teleglobe and Teleglobe Holdings (U.S.) Corporation lending syndicate. BNP Paribas (Canada), which had advanced approximately US$50 million to Teleglobe, filed a notice of discontinuance with the Court on May 3, 2005 and is therefore no longer a plaintiff in this action. Following such discontinuance, the damages sought by the remaining plaintiffs amount to approximately US$1.04 billion (down from approximately US$1.09 billion), plus interest and costs, representing approximately 83% (down from approximately 87%) of the US$1.25 billion that the members of the lending syndicate advanced to Teleglobe and Teleglobe Holdings (U.S.) Corporation. |
47 Bell Canada Enterprises 2005 Quarterly Report
-- 30 --
For further information: | |
Pierre Leclerc | Thane Fotopoulos |
Media Relations | Investor Relations |
(514) 391-2007 | (514) 870-4619 |
1 877 391-2007 | thane.fotopoulos@bell.ca |
pierre.leclerc@bell.ca | |
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)
Siim A. Vanaselja |
|
Siim A.
Vanaselja Chief Financial Officer |
||
Date: November 2, 2005 |