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: May 2005 | Commission
File Number: 1-8481 |
BCE Inc.
(Translation of Registrants name into English)
1000,
rue de La Gauchetière Ouest, Bureau 3700, Montréal, Québec
H3B 4Y7, (514) 397-7000
(Address of principal executive offices)
Indicate by check mark whether the Registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F | Form 40-F | X
|
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 FIRST QUARTER RESULTS
| Solid revenue and EBITDA growth | |
| Continuing operational improvements | |
| Project Galileo delivers on service and savings |
Montréal (Québec), May 4, 2005 For the first quarter of 2005, BCE Inc. (TSX, NYSE: BCE) reported revenues of $4.9 billion, up 4.8% and EBITDA(1) of $1.9 billion, up 5.1% when compared to the same period last year. Operating income increased by 5.4% year over year to reach $1.1 billion. Earnings per share (EPS) were $0.51, an increase of one cent over EPS before gains reported in the first quarter of 2004.(2)
This is a solid start to the year. Our revenue and EBITDA performance continued to improve reflecting progress on many fronts across the business, said Michael Sabia, President and CEO of Bell Canada Enterprises. Contributing to our financial results were cost savings of $120 million realized from initiatives under Project Galileo and the benefits of last years employee departure program. In addition, top line growth was driven by a 6.6% increase in our data revenues reflecting in part the good performance of our DSL service this quarter.
In December 2004, Bell Canada outlined three key priorities driving its strategy to deliver unrivaled communications to its customers while setting the standard in Internet Protocol (IP). During the first quarter the Company made progress in all three areas, for example:
| Delivering
an enhanced customer experience while significantly lowering our costs.
We substantially reduced provisioning time for large Enterprise customers
with the launch of a new standardized IP-Virtual Private Network (IP-VPN)
solution. In the consumer segment, we made progress on initiatives to
improve first call resolution resolving a customer issue on the
first contact. At the same time, we took initiatives to improve order
resolution ensuring that products and services are delivered as
specified by the customer. |
|
| Delivering
abundant, reliable and secure bandwidth that can provide all the services
of the future. Fibre-to-the-node (FTTN) roll-out accelerated with
the provisioning of 386 additional neighbourhood nodes, more than all
of 2004, for a total of 762. |
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| Providing
next generation services that customers want. Bell Canada introduced
several next generation services, including Bell Digital Voice,
our feature-rich Voice over Internet Protocol (VoIP) product and Bell
10-4, a combined walkie talkie and cell phone service.
|
We continue to deliver on our plan to redefine Bell Canada, added Mr. Sabia. Despite some temporary softness in our Mobility unit during the first part of the quarter, the operational transformation of our business is very much on track.
Key operational achievements
High-speed Internet
Sympatico high-speed Internet additions of 128,000 in the first three months of the year represented the strongest quarterly increase in the last three years. The high-speed subscriber base increased to over 1.9 million by the end of the quarter, up by approximately 24% over the first quarter of last year. This increase was largely driven by our footprint expansion and focused marketing activities. Subscriptions to Value-Added Services (VAS) such as MSN Premium, Security Services and Home Networking grew by 142,000 more than double the number a year ago.
Sympatico.MSN continued to be the countrys most popular online destination with 84% of all online Canadians visiting the site. Portal revenues increased by over 185% and VAS revenues by 121%, year over year.
Bell introduced services providing enhanced customer care, both online and in our call centres. The virtual EmilyTM service, a user-friendly self-help tool, allows customers to resolve technical issues themselves, resulting in fewer calls to our customer care centres.
First call resolution rates continued to improve thanks to advanced applications that allow customer service representatives to remotely assess and resolve customer technical issues. New subscribers, especially those new to the Internet, appreciate this as Internet access installation, by its nature, prompts more customer queries than other services.
Video
ExpressVu net additions for the quarter were 29,000, representing an 81% increase, year over year. Total subscribers grew to reach more than 1.5 million, or a 9% increase over the first quarter of 2004. Our lower churn rate of 0.8% compared to 0.9% in the first quarter of last year was also a contributing factor to this solid growth.
Revenues increased by 7% year-over-year despite the absence of National Hockey League (NHL) programming. This impact was mitigated at the end of the quarter by a pricing increase which was communicated to customers in January and began to flow through in March.
Disciplined cost containment, including the negotiation of a favourable supply contract for set-top boxes, resulted in a lower cost of acquisition in the quarter and positive EBITDA for ExpressVu.
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Wireless
Wireless added 82,000 new subscribers to our customer base during the quarter compared to 92,000 in first quarter of last year.
Prepaid net activations were strong particularly in January and February with approximately 42,000 subscribers added during the quarter. Christmas promotions led to a high level of activations of new prepaid subscribers in January and the March launch of Virgin Mobile further contributed to the strong prepaid total for the quarter.
Postpaid net activations for the quarter totaled almost 40,000 with the majority of these coming in the second half of the quarter, as a result of promotions initiated in March. The launch of Bells 10-4 walkie-talkie service in March contributed to the increasing momentum in postpaid activations, a trend which continued into April.
In the quarter, approximately 45,000 non-paying postpaid accounts were cancelled resulting in net additions of 37,000. Blended churn was 1.6% per month, up from 1.3% in the first quarter of last year, largely as a function of the cancellation of these non-paying postpaid accounts. Absent our decision to cancel these accounts, the underlying rate of churn would have continued at 1.2%.
Revenues grew by 9.5% year-over-year and were in line with subscriber growth of 10%. ARPU declined to approximately $46 from $47 in the first quarter of the previous year. EBITDA margin was again above 40% reflecting effective cost containment and lower cost of acquisition during the quarter.
Consumer segment highlights
Consumer segment revenues grew by 1.7%, year over year, to $1.9 billion, with our strategy of simplification and cost management driving an increase in EBITDA for the quarter.
Bell introduced Bell Digital Voice, our feature-rich consumer VoIP service, in Québec City, Sherbrooke and Trois-Rivières. Customer reaction has been positive and we are satisfied with the early acquisition numbers and the insights gathered through our initial offering in this next generation services market.
In the first quarter, more than 107,000 customers signed on to the Digital Bundle. Furthermore, 46% of our customers added at least one new service, deepening their relationship with Bell. We now have over 554,000 bundle customers who have taken advantage of the offer since the launch of the program. Also, by the end of the quarter, over 820,000 customers had chosen Bells One Bill for their wireline, Internet and video services.
Revenue growth during the first quarter in the business segment was the strongest since the creation in 2003 of two distinct business units to serve this market. Business segment revenues were $1,478 million this quarter or 3% higher compared to the first quarter of 2004. But most importantly, increases in data, wireless and terminal sales and other revenues more than offset declines in long distance and local and access revenues.
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In our small and medium-sized business unit (SMB), performance was driven by our Virtual Chief Information Officer (VCIO) strategy and in Enterprise, by Internet Protocol (IP) and other advanced solutions.
Sales of bundled services were ahead of expectations while Value Added Services (VAS) revenues grew at 38% for the quarter and showed continuing signs of acceleration.
Bell completed the acquisition of Nexxlink Technologies Inc. and announced that we would combine it with Charon Systems Inc., which was acquired in 2004, into a new wholly-owned subsidiary to be named Bell Business Solutions. With 1,100 IT professionals and offices in major centres across the country, we have bolstered our ability to act as a technology advisor to small and medium businesses.
Bell completed customer trials and in April launched PC Care and Network Care which provide technical support for critical needs including connectivity, software and hardware, as well as for networking. This unique service offers live telephone or online assistance as well as onsite support from a technical expert, 24 hours a day, 7 days a week, further strengthening our position as the VCIO for the SMB market.
Enterprise
Enterprise added 13,000 IP-enabled voice lines on customer premises equipment during the quarter for a total of 158,000. Sales of Value Added Solutions (VAS), including security, contact centre management and other solutions, increased by 47% year over year.
The VAS growth strategy is showing strong momentum. Enterprise announced a four-year, $17.3 million contract with the National Bank of Canada to provide integrated call centre solutions and telephony. In addition, The Institutional Trade Management Solution (ITMS) which enables near realtime trading was implemented for Desjardins Securities and several other leading financial institutions.
In February, Bell Canada launched Bell Security Solutions Inc. (BSSI), which provides network and information security solutions to government and the private sector. Enterprise customers can now benefit from end-to-end IP security solutions with access to more than 200 security professionals coast-to-coast through a single point of contact.
Telesat Canada
Telesats revenues grew by approximately 29% to $108 million. This growth was due in part to its acquisition of The SpaceConnection, Inc., a provider of satellite transmission services to major television networks and cable programmers in the U.S. It also stemmed from revenues from Anik F2, the worlds first satellite to commercialize the Ka-band, and from ExpressVus use of the Nimiq 3 satellite.
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The Anik F3 satellite program is proceeding well, with launch scheduled for the second half of 2006. The Anik F1R satellite is now in the final stages of system testing, with launch scheduled for mid-summer. Anik F1R should be ready for service in the fourth quarter of 2005.
Bell Globemedia
Bell Globemedias revenues for the first quarter increased by 4.1% over the same period last year to reach $356 million. Improved profitability both at CTV and The Globe and Mail delivered an impressive 60% increase in operating income over the same period last year.
CTVs strong schedule continued to lead the way in Canada with 18 of the top 20 regularly scheduled programs among all viewers in the September 2004 to March 2005 time period. This was a major factor driving an increase of 5.7% in television advertising revenues compared to the first quarter of last year.
Strong growth in advertising revenues in conventional and specialty television helped offset the loss of advertising on hockey broadcasts on the sports specialty channels TSN and RDS.
Bell Globemedia subscriber revenues grew by 4.1% this quarter reflecting specialty channel growth and online subscription growth at The Globe and Mail. According to the latest NADBank and PMB statistics, The Globe and Mail continues to lead its national competitor in readership by 60% on weekdays and 78% on Saturdays.
BCE Financial Performance
Revenues for the quarter were $4,859 million compared to $4,638 million for the first quarter of last year, representing a 4.8% increase. Operating income for this quarter was $1,066 million, up 5.4% from last years $1,011 million first quarter result.
EBITDA was $1,938 million, an increase of 5.1% from $1,844 million last year while EBITDA margin increased to 39.9% from 39.8% last year. Net earnings applicable to common shares for the first quarter were $474 million ($0.51 per common share), slightly above net earnings of $470 million (also $0.51 per common share) last year. Net earnings in the first quarter of 2004 included a gain of $7 million related to the disposition of the e-health operations of BCE Emergis.
Cash from operating activities was $939 million during the quarter. Free cash flow(3) was negative $162 million, down from $256 million in the first quarter of 2004. This was due to a number of anticipated impacts including cash taxes paid and higher pension and other benefit plan payments which more than offset EBITDA growth and lower interest payments. With first quarter free cash flow results in-line with our plan, BCE expects to achieve its free cash flow target of $700 to $900 million for 2005.
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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 first quarter of 2005, Bell Canadas reported statutory revenue was $4.2 billion, up 2.5% compared to the same period last year. Net earnings applicable to common shares were $528 million in the first quarter of 2005, compared to net earnings applicable to common shares of $548 million for the same period last year, a decrease of 3.6%.
Outlook
BCE Inc. confirmed its annual full year 2005 guidance, as previously issued:
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. |
(b) | Cash from operating activities less capital expenditures, total dividends and other investing activities (please see note 2 for additional details). |
(c) | Capital expenditures as a percentage of revenues. |
About BCE
BCE is Canadas largest communications company. Through its 27 million customer connections, BCE provides the most comprehensive and innovative suite of communication services to residential and business customers in Canada. Under the Bell brand, the companys services include local, long distance and wireless phone services, high-speed and wireless Internet access, IP-broadband services, valueadded 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.
Notes
(1) The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP). Please refer to the section of BCE Inc.s 2005 First Quarter MD&A, dated May 3, 2005, entitled Non-GAAP Financial Measures included in this news release for more details on EBITDA including a reconciliation of EBITDA to operating income.
(2) 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 First Quarter MD&A, dated May 3, 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
-7-
earnings applicable to common shares on a total and per share basis.
(3) 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 First Quarter MD&A, dated May 3, 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 First Quarter Financial Information
BCEs 2005 First Quarter Shareholder Report (which contains BCEs 2005 first quarter MD&A and unaudited consolidated financial statements) and other relevant financial materials are available at www.bce.ca/en/investors, under Investor Briefcase. BCEs 2005 First Quarter Shareholder Report is also available on the Web site maintained by the Canadian securities regulators at www.sedar.com. It is also available upon request from BCEs Investor Relations Department (e-mail: investor.relations@bce.ca tel.: 1 800 339-6353; fax: (514) 786-3970).
BCEs 2005 First Quarter Shareholder Report will be sent to BCEs shareholders who have requested to receive it, on or about May 11, 2005.
Call with Financial Analysts
BCE will hold a teleconference for financial analysts to discuss its first quarter results on Wednesday, May 4, 2005 at 8:00 a.m. (Eastern). Media are welcome to participate on a listen only basis. Michael Sabia, President and Chief Executive Officer, and Siim Vanaselja, Chief Financial Officer, will be present for this teleconference.
To participate, please dial (416) 405-9328 or 1-877-387-6216 shortly before the start of the call. This teleconference will also be Webcast live (audio only) on our Web site at www.bce.ca. An archive will be available for 90 days.
Call with the Media
BCE will hold a teleconference for media to discuss its first quarter results on Wednesday, May 4, 2005 at 1:30 p.m. (Eastern). Michael Sabia, President and Chief Executive Officer, will be present for this teleconference.
To participate, please dial (416) 405-9310 or 1-877-211-7911 shortly before 1:30 p.m. This teleconference will also be Webcast live (audio only) on our Web site at www.bce.ca. An archive will be available for 90 days.
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
-8-
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 section entitled Risks That Could Affect Our Business contained in BCE Inc.s Annual Information Form for the year ended December 31, 2004 filed by BCE Inc. with the Canadian securities commissions (available at www.bce.ca or on SEDAR at www.sedar.com) and with the U.S. Securities and Exchange Commission under Form 40-F (available on EDGAR at www.sec.gov) as updated in BCE Inc.s 2005 First Quarter MD&A dated May 3, 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 May 4, 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.
Nathalie Moreau
Communications
(514) 391-2007
1 877 391-2007
na.moreau@bell.ca
George Walker
Investor relations
(514) 870-2488
george.walker@bell.ca
The
Quarter at a Glance
|
||
The Quarter at a Glance (1)
|
This
quarter, we continued to make significant progress on our strategic initiatives
and on growing our business profitably. Our revenues grew by 4.8% at BCE
and by 2.5% at Bell Canada. Driven by revenue growth and our focus
on cost reduction, our operating income grew 5.4% at BCE and by 2.3% at
Bell Canada.
|
Customer Connections | ||||||
Q1 2005 | 31-MAR-05 | |||||
CONNECTIONS | NET | CONNEC- | ||||
(IN THOUSANDS) | ACTIVATIONS | TIONS | ||||
|
||||||
Wireless | 37 | * | 4,962 | |||
DSL | 128 | 1,936 | ||||
ExpressVu | 29 | 1,532 | ||||
NAS | (60 | ) | 12,845 | |||
|
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|
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*82,000 before cancellation of 45,000 non-paying customer accounts. | ||||||
|
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|
(1) |
Certain statements made in this Quarter at a Glance including, but not limited
to, our 2005 free cash flow target, and other statements that are not historical
facts, are forward-looking statements and are subject to important risks,
uncertainties and assumptions. Forward-looking statements may include words
such as anticipate, believe, could, expect, goal, guidance, intend, may,
objective, outlook, plan, seek, should, strive, target and will.
Forward-looking statements in this Quarter at a Glance describe our
expectations at May 3, 2005. The results or events predicted in
the forward-looking statements contained in this Quarter at a Glance may
differ materially from actual results or events. For additional information
on forward-looking statements and on factors that could cause actual results
or events to differ materially from our current expectations, please refer
to the sections entitled About Forward-Looking Statements and Risks
That Could Affect Our Business contained in BCE Inc.s 2005
First Quarter MD&A dated May 3, 2005. |
||
(2) |
EBITDA, free cash flow and net earnings excluding the impact of restructuring and other items and net gains on investments 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 First Quarter MD&A dated May 3, 2005. |
2 Bell Canada Enterprises 2005 Quarterly Report
Operating Revenues
Our revenues this quarter were $4,859 million, or 4.8% higher than the same period last year. This growth reflected higher revenue performance at Bell Canada driven by increases in the Business segment, particularly in data and wireless, and by growth in the Consumer and Aliant segments. Focused execution of our VCIO, VAS and IP strategies, including recent acquisitions, contributed to this growth. Double digit revenue growth at CGI and Telesat and single digit growth at Bell Globemedia also increased revenue performance. Operating Income and EBITDA(2)
Operating
income this quarter was $1,066 million, up $55 million or 5.4%
compared with the same period last year. Higher revenues and cost savings
from our Galileo program more than offset higher net benefit plans cost
and amortization expenses. Net Earnings / Earnings Per Share Net
earnings applicable to common shares for Q1 2005 were $474 million,
or $0.51 per common share, similar to net earnings of $470 million
for the same period last year. Included in the first quarter earnings
this year were $2 million of net gains on investments and restructuring
and other items compared with $6 million in Q1 2004. Excluding
the impact of these items, net earnings of $472 million, or $0.51
per common share, were up $8 million or $0.01 per share representing
an increase of 2.0% over last year.(2)
This improvement stemmed
mainly from growth in operations and lower interest expense which was
partly offset by the significant increase in net benefit plans cost, higher
amortization expense and lower foreign exchange gains realized this quarter. |
(2) |
EBITDA, free cash flow and net earnings excluding the impact of restructuring and other items and net gains on investments 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 First Quarter MD&A dated May 3, 2005. |
3 Bell Canada Enterprises 2005 Quarterly Report
The Quarter at a Glance
Capital Expenditures Capital expenditures totalled $737 million in the first quarter. As a percentage of revenues, capital expenditures increased to 15.2% from 14.7% in Q1 of last year. The year-over-year increase in spending relates to an increased investment in next generation service platforms including investments in the expansion of our fiber-to-the-node footprint, IPTV, and the acquisition of spectrum licences. Free cash flow(2) Our free cash flow this quarter was negative $162 million, down from free cash flow of $256 million in the first quarter of last year, due to a number of anticipated impacts, which more than offset our growth in EBITDA and lower interest payments. These impacts were:
With first quarter free cash flow results in line with our plan, we expect to achieve our free cash flow target for 2005. |
(2) |
EBITDA, free cash flow and net earnings excluding the impact of restructuring and other items and net gains on investments 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 First Quarter MD&A dated May 3, 2005. |
4 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 (Q1) ended March 31, 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. |
5 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. |
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. |
|||||
BCE | Q1 2005 | Q1 2004 | ||||
|
||||||
EBITDA | 1,938 | 1,844 | ||||
Amortization expense | (773 | ) | (767 | ) | ||
Net benefit plans cost | (103 | ) | (63 | ) | ||
Restructuring and other items | 4 | (3 | ) | |||
|
||||||
Operating income | 1,066 | 1,011 | ||||
|
||||||
|
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BELL CANADA |
Q1 2005 | Q1 2004 | ||||
|
||||||
EBITDA | 1,815 | 1,755 | ||||
Amortization expense | (732 | ) | (732 | ) | ||
Net benefit plans cost | (106 | ) | (60 | ) | ||
Restructuring and other items | 5 | (3 | ) | |||
|
||||||
Operating income | 982 | 960 | ||||
|
||||||
|
Operating Income Before Restructuring and Other Items 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. |
Q1 2005 | Q1 2004 | |||||
|
||||||
Operating income | 1,066 | 1,011 | ||||
Restructuring and other items | (4 | ) | 3 | |||
|
||||||
Operating income before restructuring and other items |
1,062 | 1,014 | ||||
|
||||||
|
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. 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.
|
Q1 2005 | Q1 2004 |
|||||||||
TOTAL | PER SHARE | TOTAL | PER SHARE | |||||||
|
||||||||||
Net earnings applicable to common shares |
474 | 0.51 | 470 | 0.51 | ||||||
Restructuring and other items |
(2 | ) | | 1 | | |||||
Net gains on investments |
| | (7 | ) | (0.01 | ) | ||||
|
||||||||||
Net earnings before restructuring and other items and net gains on investments |
472 | 0.51 | 464 | 0.50 | ||||||
|
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|
6 Bell Canada Enterprises 2005 Quarterly Report
We
consider free cash flow to be an important indicator of the financial
strength and performance of our business because it shows how much cash
is available to repay debt and to reinvest in our company. We believe
that certain investors and analysts use free cash flow when valuing a
business and its underlying assets. |
||||||
Q1 2005 | Q1 2004 | |||||
|
||||||
Cash from operating activities | 939 | 1,260 | ||||
Capital expenditures | (737 | ) | (681 | ) | ||
Total dividends paid | (349 | ) | (342 | ) | ||
Other investing activities | (15 | ) | 19 | |||
|
||||||
Free cash flow | (162 | ) | 256 | |||
|
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|
An overview of our products and services and our objectives and strategy are described in the BCE 2004 MD&A. Strategic PrioritiesWe have three key priorities supporting our strategy to deliver unrivalled integrated communications to customers, while taking a leadership position in setting the standard in IP. During the quarter, we made significant progress on each of these priorities. 1) Delivering an enhanced customer experience while significantly lowering costs (our Galileo program) In our Consumer segment:
|
7 Bell Canada Enterprises 2005 Quarterly Report
Managements Discussion and Analysis
|
||
In
our Business segment:
Overall, our various initiatives led to cost reductions this quarter of $120 million. These savings were primarily from:
2) Deliver abundant bandwidth to enable next-generation services We continued
our fiber-to-the-node (FTTN) rollout by deploying another 386 neighbourhood
nodes, raising the total number of nodes served to 762. We are not yet
providing video services through these nodes. 3) Create next-generation services to drive future growth In Q1, our Consumer segment:
Our small and medium-sized businesses (SMB) unit:
We also announced an alliance with Clearwire Corporation (Clearwire) whereby Bell Canada will become Clearwires exclusive strategic partner for the provision of VoIP services in the United States. This alliance will enable us to develop our capabilities with the wireless broadband data technology provided by Clearwire. |
8 Bell Canada Enterprises 2005 Quarterly Report
Quarterly
Financial Information
|
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The
table below shows selected consolidated financial data for the eight most
recently completed quarters.
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2005 | 2004 |
2003
|
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Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | ||||||||||
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||||||||||||||||||
Operating revenues |
4,859 | 4,986 | 4,778 | 4,779 | 4,638 | 4,815 | 4,624 | 4,670 | ||||||||||
EBITDA |
1,938 | 1,831 | 1,936 | 1,953 | 1,844 | 1,847 | 1,895 | 1,895 | ||||||||||
Amortization expense |
(773 | ) | (803 | ) | (769 | ) | (769 | ) | (767 | ) | (775 | ) | (801 | ) | (774 | ) | ||
Net benefit plans cost |
(103 | ) | (67 | ) | (61 | ) | (65 | ) | (63 | ) | (46 | ) | (44 | ) | (43 | ) | ||
Restructuring and other items |
4 | (126 | ) | (1,081 | ) | (14 | ) | (3 | ) | (13 | ) | (1 | ) | | ||||
|
||||||||||||||||||
Operating income |
1,066 | 835 | 25 | 1,105 | 1,011 | 1,013 | 1,049 | 1,078 | ||||||||||
Earnings from continuing operations |
492 | 367 | 102 | 544 | 485 | 486 | 453 | 466 | ||||||||||
Discontinued operations |
(1 | ) | (2 | ) | (2 | ) | 27 | 3 | (86 | ) | 11 | 12 | ||||||
Extraordinary gain |
| 69 | | | | | | | ||||||||||
Net earnings |
491 | 434 | 100 | 571 | 488 | 400 | 464 | 478 | ||||||||||
Net earnings applicable to common shares |
474 | 417 | 82 | 554 | 470 | 386 | 446 | 461 | ||||||||||
|
||||||||||||||||||
Included in net earnings: |
||||||||||||||||||
Net gains on investments |
||||||||||||||||||
Continuing operations |
1 | 64 | 325 | | | 84 | | | ||||||||||
Discontinued operations |
(1 | ) | (2 | ) | (2 | ) | 31 | 7 | (94 | ) | 8 | | ||||||
Restructuring and other items |
2 | (62 | ) | (725 | ) | 16 | (1 | ) | (9 | ) | 6 | | ||||||
|
||||||||||||||||||
Net earnings per common share |
||||||||||||||||||
Continuing operations basic |
0.51 | 0.38 | 0.09 | 0.57 | 0.51 | 0.50 | 0.48 | 0.49 | ||||||||||
Continuing operations diluted |
0.51 | 0.38 | 0.09 | 0.57 | 0.51 | 0.50 | 0.47 | 0.49 | ||||||||||
Net earnings basic |
0.51 | 0.45 | 0.09 | 0.60 | 0.51 | 0.41 | 0.49 | 0.50 | ||||||||||
Net earnings diluted |
0.51 | 0.45 | 0.09 | 0.60 | 0.51 | 0.41 | 0.48 | 0.50 | ||||||||||
Average number of common shares outstanding (millions) |
926.2 | 925.3 | 924.6 | 924.3 | 924.1 | 923.4 | 921.5 | 919.3 | ||||||||||
|
||||||||||||||||||
|
9 Bell Canada Enterprises 2005 Quarterly Report
Managements
Discussion and Analysis
|
||||||||
Financial Results Analysis
|
Consolidated Analysis |
|||||||
|
Q1 2005 | Q1 2004 | % CHANGE | |||||
|
||||||||
Operating revenues |
4,859 | 4,638 | 4.8% | |||||
Operating expenses |
(2,921 | ) | (2,794 | ) | (4.5% | ) | ||
|
||||||||
EBITDA |
1,938 | 1,844 | 5.1% | |||||
Amortization expense |
(773 | ) | (767 | ) | (0.8% | ) | ||
Net benefit plans cost |
(103 | ) | (63 | ) | (63.5% | ) | ||
Restructuring and other items |
4 | (3 | ) | n.m. | ||||
|
||||||||
Operating income |
1,066 | 1,011 | 5.4% | |||||
Other income |
7 | 36 | (80.6% | ) | ||||
Interest expense |
(247 | ) | (252 | ) | 2.0% | |||
|
||||||||
Pre-tax earnings from continuing operations |
826 | 795 | 3.9% | |||||
Income taxes |
(271 | ) | (262 | ) | (3.4% | ) | ||
Non-controlling interest |
(63 | ) | (48 | ) | (31.3% | ) | ||
|
||||||||
Earnings from continuing operations |
492 | 485 | 1.4% | |||||
Discontinued operations |
(1 | ) | 3 | n.m. | ||||
|
||||||||
Net earnings |
491 | 488 | 0.6% | |||||
Dividends on preferred shares |
(17 | ) | (18 | ) | 5.6% | |||
|
||||||||
Net earnings applicable to common shares |
474 | 470 | 0.9% | |||||
|
||||||||
EPS |
0.51 | 0.51 | | |||||
|
||||||||
|
||||||||
n.m.: not meaningful
|
Operating revenues
Our revenues this quarter were $4,859 million, or 4.8% higher than the same period last year. This is the fifth consecutive quarter that our revenue growth rate has improved. This growth reflected higher revenue performance at Bell Canada driven by increases in the Business segment, particularly in data and wireless, and by growth in the Consumer and Aliant segments. Focused execution of our VCIO, VAS and IP strategies, including recent acquisitions, contributed to this growth. The Other BCE segment also contributed to our revenue growth, with double digit revenue growth at CGI and Telesat and single digit growth at Bell Globemedia. Operating income Our
operating income this quarter was $1,066 million, or 5.4% higher
than the same period last year reflecting our strong revenue growth and
the impact of cost savings initiatives and lower acquisitions costs partly
offset by increases in wireless bad debt expense, net benefit plans cost
and amortization expense. |
10 Bell Canada Enterprises 2005 Quarterly Report
Our EBITDA
for the quarter was $1,938 million, an increase of $94 million
or 5.1% compared with last year, reflecting increases in all segments.
Bell Canadas EBITDA this quarter was $1,815 million, or
3.4% higher than last year, reflecting EBITDA improvements in wireline,
wireless, and video. Amortization expense increased 0.8% or $6 million to $773 million in Q1 2005, compared to Q1 2004. 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 increased by 64% or $40 million to $103 million in Q1 2005, compared to Q1 2004. The increase resulted mainly from:
Restructuring and other items We recorded a credit for restructuring and other items of $4 million in Q1 2005, which included a $25 million credit for the reversal of restructuring provisions that were no longer necessary, since the actual payments made to employees were lower than estimated. We recognized a $21 million charge mainly for relocating employees and closing real estate facilities that are no longer needed because of the reduction in the workforce from the 2004 employee departure program. Net earnings / Earnings per Share (EPS) Net earnings applicable to common shares for Q1 2005 were $474 million, or $0.51 per common share, essentially flat compared with net earnings of $470 million or $0.51 per common share for the same period last year. The improvements in EBITDA and interest expense were offset by higher net benefit plans cost and amortization expense. |
11 Bell Canada Enterprises 2005 Quarterly Report
Managements Discussion and Analysis Segmented Analysis |
|
% | |||||||
OPERATING REVENUES |
Q1 2005 | Q1 2004 | CHANGE | |||||
|
||||||||
Consumer |
1,856 | 1,825 | 1.7% | |||||
Business |
1,478 | 1,435 | 3.0% | |||||
Aliant |
524 | 504 | 4.0% | |||||
Other Bell Canada |
479 | 474 | 1.1% | |||||
Inter-segment eliminations |
(128 | ) | (132 | ) | 3.0% | |||
|
||||||||
Bell Canada |
4,209 | 4,106 | 2.5% | |||||
Other BCE |
748 | 651 | 14.9% | |||||
Inter-segment eliminations |
(98 | ) | (119 | ) | 17.6% | |||
|
||||||||
Total operating revenues |
4,859 | 4,638 | 4.8% | |||||
|
||||||||
|
% | ||||||||
OPERATING INCOME | Q1 2005 | Q1 2004 | CHANGE | |||||
|
||||||||
Consumer | 526 | 526 | | |||||
Business | 240 | 241 | (0.4% | ) | ||||
Aliant | 87 | 82 | 6.1% | |||||
Other Bell Canada | 129 | 111 | 16.2% | |||||
|
||||||||
Bell Canada Consolidated | 982 | 960 | 2.3% | |||||
Other BCE | 84 | 51 | 64.7% | |||||
|
||||||||
Total operating income | 1,066 | 1,011 | 5.4% | |||||
|
||||||||
|
Consumer revenues this quarter grew by 1.7% to $1,856 million reflecting continued strength in our growth services, such as Internet access, wireless and video driven by gains in the respective subscriber bases of these services. Growth in these services more than offset declines in long distance and local and access revenues. WirelessConsumer wireless revenues for Q1 2005 increased year-over-year, mainly as a result of a higher average number of customers in our subscriber base compared to Q1 2004. Revenue growth during the quarter was impacted by an increased number of postpaid customers in collection status whose wireless services were suspended for account non-payment. Due to last years billing delays stemming from our billing system migration, a large number of postpaid customers accumulated past due balances because of their inability to pay multiple invoices that were received within a relatively short period of time. Revenues for Q1 were also impacted by the issuance of billing and retention credits to compensate customers for billing errors and delays that occurred following implementation of the new billing platform. Moreover, as we addressed higher-than-normal call volumes regarding customer billing inquiries early in the first quarter, our call centre agents were limited in their ability to sell additional services to new and existing customers. (For further information about our wireless subscriber base, please see Wireless within our Product Line Analysis.) Video
Video revenues grew by 6.8%, year-over-year, to $221 million this quarter from $207 million last year, mainly as a result of a higher average number of subscribers. We added 29,000 net new video customers in the first quarter of 2005, an 81% increase compared with the 16,000 net activations achieved for the same quarter in 2004. This brought our total video customer base to 1,532,000, compared with 1,403,000 customers at the end of Q1 2004. The notable improvement in net activations was driven by the positive impact of our STB rental program, VDSL |
12 Bell Canada Enterprises 2005 Quarterly Report
growth,
traction from certain marketing initiatives at our own stores and with
third-party retailers, as well as by aggressive churn management.
Consumer data
revenues grew this quarter driven by growth of approximately 23% in our
High-Speed Internet subscriber base and an increase in revenues from our
Sympatico.MSN.ca web portal. Local and
access revenues declined for the quarter compared with the same period
last year due mainly to NAS declines (leading to both lower NAS revenues
and related SmartTouch feature revenues), partly offset by higher revenues
from wireline insurance and maintenance plans. NAS decreased as a result
of losses to competitive local exchange carriers (CLECs) and continued
pressure from growth in high-speed Internet access which reduces the need
for second telephone lines. NAS declines also increased in the quarter
due to an increase in customers substituting wireline with wireless telephone
service and the launch of a low-priced cable telephony offering in certain
of our Québec markets as well as from losses to other VoIP providers. Consumer operating income The
Consumer segment achieved operating income of $526 million this quarter,
unchanged from the same period in 2004. Increases in net benefit
plans cost, amortization expenses, and wireless bad debt expense offset
Consumer segment EBITDA growth from revenue gains and the benefits of
cost savings initiatives. |
13 Bell Canada Enterprises 2005 Quarterly Report
Managements Discussion and Analysis
|
||
Business revenues Business segment revenues were $1,478 million this quarter, or 3.0% higher compared with Q1 2004. Increases in data, wireless and terminal sales and other revenues were partially offset by declines in long distance and local and access revenues. Enterprise Revenues
from enterprise customers increased this quarter as increases in wireless,
data, and terminal sales and other revenues more than offset declines
in local and access and long distance revenues. Revenues from SMB customers increased this quarter as increases in data, wireless and terminal sales and other revenues more than offset revenue declines in long distance and local and access revenues. The recent business acquisition of Nexxlink, combined with improved rates of growth from Accutel Conferencing Systems Inc. (Accutel) and Charon Systems Inc. (Charon) acquired in 2004, contributed significantly to this quarters growth. Continued growth in DSL high-speed Internet access services and VAS also contributed to data revenue growth. Subscriptions to VAS increased by 10,000 this quarter, ending the quarter with 93,000 subscribers. Long distance revenues declined due to significant competitive pricing pressures and the weakening of our payphone business. Local and access revenues were also lower in our payphone business. Bell WestBell West continued to grow its customer base leading to increases in local and access and long distance revenues this quarter. However, data revenues decreased, reflecting lower construction revenue compared with last year from a contract to build a next generation network for the Government of Alberta (GOA). Group Telecom In November 2004,
we acquired the Canadian operations of 360networks Corporation (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. Business operating income Business segment operating income this quarter was $240 million, or 0.4% lower than the same period last year, as higher amortization expenses and net benefits plans costs more than offset strong EBITDA growth from revenue gains and the impact of cost savings initiatives. |
14 Bell Canada Enterprises 2005 Quarterly Report
In
the Enterprise unit operating income increased this quarter reflecting
revenue growth and cost savings initiatives, partially offset by the operating
expenses of businesses acquired over the past year (Infostream Technologies Inc.
and Elix Inc.). Aliant revenues Aliant
segment revenues of $524 million for the quarter increased 4.0% compared
with the same period last year. Strong growth in wireless and Internet
services and IT and other product sales for the quarter offset declines
in other areas due to regulatory restrictions, which relate to bundling
and packaging of local service with other non-regulated services and to
limitations in customer win-back promotions, and the impacts of competition. Aliant’s operating income for the first quarter was $87 million reflecting an increase of $5 million, or 6.1%, compared with the same period last year reflecting revenue growth partially offset by the impact of the Canadian Radio-television and Telecommunications Commissions (CRTC) decision with respect to Competitor Digital Network services (the CDN decision) and an increase in pension and other post-employment benefits cost. The CDN decision has led to the lowering of prices of many services provided to competitors on a going forward basis. Operating expense |
15 Bell Canada Enterprises 2005 Quarterly Report
Managements
Discussion and Analysis
|
||
increases required to drive revenue growth were offset by sound expense management, including the productivity savings from Aliants 2004 voluntary early retirement incentive program. Other Bell Canada revenuesOther Bell Canada segment revenues for the quarter were $479 million, or 1.1% higher compared with the same period last year. Our wholesale unit had higher revenues resulting from the acquisition of the wholesale portion of 360networks in the fourth quarter of last year partly offset by lower revenues resulting from the CDN decision. This increase also reflects a favourable ruling by the CRTC with respect to subsidies for serving high cost areas at Télébec. Other Bell Canada operating income Operating income for the Other Bell Canada segment was $129 million this quarter, or 16.2% higher than Q1 2004. Cost savings initiatives and the impact of the favourable high-cost serving area ruling for Télébec, offset the impact of the CDN decision to our wholesale unit. Operating income also reflects the positive impact of a $25 million credit for the reversal of restructuring provisions that were no longer necessary, since the actual payments were lower than expected, partly offset by a $19 million charge for relocating employees and closing real estate facilities that are no longer needed because of the employee departure program. Other BCE
revenues |
% | ||||||||
Q1 2005 | Q1 2004 | CHANGE | ||||||
|
||||||||
Bell Globemedia | 356 | 342 | 4.1% | |||||
Telesat | 108 | 84 | 28.6% | |||||
CGI | 273 | 214 | 27.6% | |||||
Other | 11 | 11 | 0.0% | |||||
|
||||||||
Other BCE revenues | 748 | 651 | 14.9% | |||||
|
||||||||
|
Revenues
from the Other BCE segment for the first quarter of the year were $748 million
or 14.9% higher than Q1 2004. This increase reflects higher revenues
at Bell Globemedia, Telesat and CGI. Other BCE operating income Operating
income for the Other BCE segment grew by 65% this quarter to $84 million
driven by growth in operating income in Bell Globemedia, Telesat
and CGI. |
16 Bell Canada Enterprises 2005 Quarterly Report
expenses and higher amortization related to Anik F2 and SpaceConnection. CGIs operating income grew by 19.0% reflecting its acquisition of AMS. Product Line
Analysis |
||||||||
% | ||||||||
Q1 2005 | Q1 2004 | CHANGE | ||||||
|
||||||||
Local and access |
1,368 | 1,379 | (0.8% | ) | ||||
Long distance |
538 | 606 | (11.2% | ) | ||||
Wireless |
713 | 651 | 9.5% | |||||
Data |
951 | 892 | 6.6% | |||||
Video |
221 | 207 | 6.8% | |||||
Terminal sales and other |
418 | 371 | 12.7% | |||||
|
||||||||
Total Bell Canada Consolidated |
4,209 | 4,106 | 2.5% | |||||
|
||||||||
|
||||||||
Local
and access revenues of $1,368 million for the quarter declined by
0.8% compared with last year mainly as a result of lower network access
services (NAS) and lower SmartTouch feature revenues, partly offset by
gains from wireline insurance and maintenance plans. Long distance Long
distance revenues were $538 million for the quarter, reflecting a
year-over-year decrease of 11.2% compared with the same period in 2004.
Lower long distance revenues affected both our Consumer and Business markets.
The Consumer segment long distance revenues were lower than the same period
in 2004, reflecting both lower ARPM as well as lower volumes of conversation
minutes partially offset by the success of international prepaid calling
card sales. Business segment long distance revenues were lower as a result
of lower minute volumes and pricing declines resulting from competitive
pressures. Wireless |
17 Bell Canada Enterprises 2005 Quarterly Report
Managements
Discussion and Analysis
|
||
% | ||||||||
Q1 2005 | Q1 2004 | CHANGE | ||||||
|
||||||||
ARPU ($/month) | 46 | 47 | (2.1% | ) | ||||
Postpaid |
57 | 59 | (3.4% | ) | ||||
Prepaid |
11 | 11 | 0.0% | |||||
Cellular & PCS Gross | ||||||||
Activations (k) |
277 | 261 | 6.1% | |||||
Postpaid |
193 | 204 | (5.4% | ) | ||||
Prepaid |
84 | 57 | 47.4% | |||||
Churn (average per month) |
1.6% | 1.3% | (0.3 pts | ) | ||||
Postpaid |
1.6% | 1.1% | (0.5 pts | ) | ||||
Prepaid |
1.8% | 1.7% | (0.1 pts | ) | ||||
Cellular & PCS Net | ||||||||
Activations (k) (1) |
37 | 92 | (59.8% | ) | ||||
Postpaid (1) |
(5 | ) | 69 | n.m. | ||||
Prepaid (1) |
42 | 23 | 82.6% | |||||
Cellular & PCS | ||||||||
Subscribers (k) |
4,962 | 4,504 | 10.2% | |||||
Postpaid |
3,719 | 3,422 | 8.7% | |||||
Prepaid |
1,243 | 1,082 | 14.9% | |||||
|
||||||||
|
||||||||
n.m.: not meaningful |
(1) |
We added 82,000 new customers in Q1 2005 (40,000 postpaid customers and 42,000 prepaid customers) and cancelled 45,000 non-paying postpaid customer accounts.
|
Wireless
service revenues of $713 million for the quarter represented an increase
of 9.5%, compared with the first quarter of 2004. This year-over-year
improvement was driven by subscriber growth of 10.2%, partly offset by
a decline in blended ARPU. |
18 Bell Canada Enterprises 2005 Quarterly Report
of 2004, of which 76% were postpaid. Including paging subscribers,
our total wireless customer base reached 5,366,000. Data
Data revenues
of $951 million in Q1 2005 increased by 6.6% compared with the
same period last year, reflecting our highest rate of data revenue growth
since Q2 2002. The improvement was a result of growth in high-speed Internet,
VAS, and IP-based services, which more than offset declines from lower
construction revenues from the GOA contract, legacy data revenues and
price competition. Our growth in VAS was in part due to the various business
acquisitions completed over the last twelve months. Video See discussion under Consumer Segment. Terminal sales and other Terminal sales and other revenues were $418 million this quarter, or 12.7% higher than the same period last year, reflecting growth in Aliants equipment sales. Our revenue growth also reflects the impact of several business acquisitions. Other Items Other income Other income decreased 81% or $29 million to $7 million in Q1 2005, compared to Q1 2004, reflecting decreases in:
Interest expense Interest expense declined 2.0% or $5 million to $247 million in Q1 2005, compared to Q1 2004. This was a result of lower average debt levels, mainly from the net debt repayments made in the last twelve months.
|
19 Bell Canada Enterprises 2005 Quarterly Report
Managements Discussion and Analysis
|
||
Income taxes Income taxes increased 3.4% or $9 million to $271 million in Q1 2005, compared to Q1 2004. The increase was primarily from higher pre-tax earnings. The effective tax rate was 32.8% in Q1 2005 and 33.0% in Q1 2004. Non-controlling interestNon-controlling interest increased 31% or $15 million to $63 million in Q1 2005, compared to Q1 2004. The increase was mainly a result of:
|
Financial and Capital Management |
Financial and Capital Management Capital Structure
|
|||||
Q1 2005 | Q4 2004 | |||||
|
||||||
Debt due within one year |
1,428 | 1,276 | ||||
Long-term debt |
12,280 | 11,809 | ||||
Less: Cash and cash equivalents |
(526 | ) | (380 | ) | ||
|
||||||
Total net debt |
13,182 | 12,705 | ||||
Non-controlling interest |
2,914 | 2,908 | ||||
Total shareholders equity |
14,208 | 14,024 | ||||
|
||||||
Total capitalization |
30,304 | 29,637 | ||||
|
||||||
Net debt to capitalization |
43.5% | 42.9% | ||||
|
||||||
Outstanding share data (in millions) |
||||||
Common shares |
926.4 | 925.9 | ||||
Stock options |
28.2 | 28.5 | ||||
|
||||||
|
||||||
The table below is a summary of the flow of cash into and out of BCE in Q1 2005 and Q1 2004. |
|
|
Q1 2005 | Q1 2004 | |||
|
|
|||||
|
Cash from operating activities |
939 | 1,260 | |||
|
Capital expenditures |
(737 | ) | (681 | ) | |
|
Other investing activities |
(15 | ) | 19 | ||
|
Cash dividends paid on common shares |
(278 | ) | (277 | ) | |
|
Cash dividends paid on preferred shares |
(21 | ) | (22 | ) | |
|
Cash dividends paid by subsidiaries to non-controlling interest |
(50 | ) | (43 | ) | |
|
|
|||||
|
Free cash flow |
(162 | ) | 256 | ||
|
Business acquisitions |
(83 | ) | (59 | ) | |
|
Business dispositions |
| 16 | |||
|
Change in investments accounted for under the cost and equity methods |
(126 | ) | 6 | ||
|
Issue of common shares |
9 | 4 | |||
|
Net issuance of debt instruments |
546 | 411 | |||
|
Financing activities of subsidiaries with third parties |
(17 | ) | (35 | ) | |
|
Other financing activities |
(30 | ) | (48 | ) | |
|
Cash provided by discontinued operations |
9 | 238 | |||
|
|
|||||
|
Net increase in cash and cash equivalents |
146 | 789 | |||
|
|
|||||
|
|
|||||
|
Free cash flow Free cash flow was negative $162 million in Q1 2005, compared to positive $256 million in Q1 2004. The decrease of $418 million year-over-year is mainly due to lower cash from operating activities and higher capital expenditures. Cash from operating activities Cash from operating activities decreased 25% or $321 million to $939 million in Q1 2005, compared to Q1 2004. This was mainly a result of:
|
20 Bell Canada Enterprises 2005 Quarterly Report
|
These were partly offset by improved operating performance in Q1 2005 as a result of higher EBITDA and lower interest costs. Capital expendituresCapital expenditures were $737 million in Q1 2005, or 15.2% of revenues. This was 8.2% higher than the capital expenditures of $681 million, or 14.7% of revenues, in Q1 2004. The increase reflects mainly the strategic investments in the Consumer segment, which include the FTTN rollout, VDSL deployment, IPTV platform and the acquisition of spectrum licences. Other investing activitiesCash from other investing activities decreased by $34 million in Q1 2005, compared to Q1 2004. In Q1 2004, cash from other investing activities included $43 million of insurance proceeds that Telesat received for a malfunction on the Anik F1 satellite. Cash dividends paid on common shares We paid a
dividend of $0.30 per common share in Q1 2005, which is the same
as the dividend we paid in Q1 2004. We invested
$83 million in business acquisitions in Q1 2005. This consisted
mainly of Bell Canadas acquisition of an 89% interest in Nexxlink.
The remaining 11% interest was acquired in April 2005.
Change in investments accounted for under the cost and equity methods In Q1 2005, Bell Canada invested US $100M for an approximate 12% interest in Clearwire, a privately-held company that offers advanced IP-based wireless broadband communications services. Bell Canada is now Clearwires exclusive strategic partner in the U.S. and preferred provider beyond North America of VoIP and other value-added IP services and applications. Debt instruments We issued
$546 million of debt (net of repayments) in Q1 2005. In particular,
Bell Canada issued $700 million in debentures. We also repaid
$155 million of notes payable and bank advances, mainly at Bell
Canada. |
21 Bell Canada Enterprises 2005 Quarterly Report
|
Managements
Discussion and Analysis
|
|
Recent
Developments in Legal Proceedings |
|
preferred shares, Bell Globemedia, which repaid $355 million under its credit facilities, and Bell Canada, which repaid $126 million in debentures. Cash relating to discontinued operations There was
no significant cash provided by discontinued operations in Q1 2005. Transactions with Related Parties 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. Our key credit ratings at May 3, 2005 remained unchanged from those listed in the BCE 2004 MD&A. LiquidityOur 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 is a mechanism resulting 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 $179 million at March 31, 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 Teleglobe Inc. (Teleglobe) Teleglobe Lending Syndicate Lawsuit As indicated in the BCE 2004 AIF, a lawsuit was filed in the Ontario Superior Court of Justice 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, notified BCE Inc. that it will shortly file a notice of discontinuance with the Court and will therefore no longer be a plaintiff in this action. Following such discontinuance, the damages sought by the remaining plaintiffs will 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 |
22 Bell Canada Enterprises 2005 Quarterly Report
Risks
That Could Affect Our Business For a more complete description of the risks that could affect our business, please see the section entitled Risks That Could Affect Our Business set out on pages 32 to 41 of the BCE 2004 AIF filed by BCE Inc. with the Canadian securities commissions (available on BCE Inc.s site at www.bce.ca and on SEDAR at www.sedar.com) and with the U.S. Securities and Exchange Commission (SEC) under Form 40-F (available on EDGAR at www.sec.gov), as updated in this MD&A. Please also refer to the BCE 2004 AIF for a detailed description of:
Please see Recent Developments in Legal Proceedings in this MD&A for a description of new legal proceedings involving us and of recent developments, since the BCE 2004 AIF, in the principal legal proceedings involving us. In addition, please see Updates to the Description of Risks in this MD&A for a description of recent developments, since the BCE 2004 AIF, in the principal regulatory initiatives and proceedings concerning the Bell Canada companies. |
|
US $1.25 billion that the members of the lending syndicate advanced to Teleglobe and Teleglobe Holdings (U.S.) Corporation. BNP Paribas (Canada) Lawsuit As indicated in the BCE 2004 AIF, a lawsuit was filed by BNP Paribas (Canada) in the Ontario Superior Court of Justice on December 23, 2004 against BCE Inc. and five former directors of Teleglobe. The statement of claim was finally served on the defendants, subject to their right of challenging jurisdiction, on April 15, 2005. Teleglobe Unsecured Creditors Lawsuit As indicated
in the BCE 2004 AIF, a lawsuit was filed in the United States Bankruptcy
Court for the District of Delaware against BCE Inc. and the former
directors and officers of Teleglobe and certain of its subsidiaries on
May 26, 2004. The plaintiffs are comprised of Teleglobe Communications
Corporation, certain of its affiliated debtors and debtors in possession,
and the Official Committee of Unsecured Creditors of these debtors. The
action is now pending in the District Court for the District of Delaware. Lawsuit related to Bell Globemedia As indicated
in the BCE 2004 AIF, on February 5, 2001, Bell Globemedia
Publishing Inc., a subsidiary of Bell Globemedia, was added as a
defendant to a class action lawsuit relating to copyright infringement.
The claim is that The Globe and Mail newspaper and magazines do not have
the right to archive and publish certain freelanced and employee material
from the newspaper or magazines in any format other than print. In 2001,
the Ontario Superior Court of Justice rejected the plaintiffs motion
for partial summary judgment (including the rejection of a requested injunction
at this stage) on certain proposed common issues. Risks That Could Affect Our Business 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.
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23 Bell Canada Enterprises 2005 Quarterly Report
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Managements
Discussion and Analysis
|
|
|
|
|
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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. 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.
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24 Bell Canada Enterprises 2005 Quarterly Report
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Risks That Could Affect All BCE Group Companies Renegotiating labour agreements On April 30, 2005, Bell Canada completed the purchase of all the issued and outstanding shares that it did not already own of Entourage Technology Solutions Inc. (Entourage), its installation and repair supplier. Entourage has 1,400 technicians in Ontario and 900 technicians in Québec, all unionized with the Communications Energy and Paperworkers Union (CEP). The collective agreements between Entourage and the CEP expired on September 30, 2004 and the Ontario technicians went on strike on March 24, 2005. During the week of April 4, 2005, a final offer was made to both the Ontario and Québec technicians. The offer was rejected by the Ontario technicians who continue to be on strike, while the Québec technicians approved the new collective agreement. Although Bell Canada has implemented a number of measures seeking to minimize disruptions and ensure that customers continue to receive normal service in Ontario, there is no assurance that service to Bell Canadas customers will not be adversely affected should the strike in Ontario continue. Software and system upgrades As indicated in the BCE 2004 AIF, many aspects of the BCE group companies businesses including, but not limited to, customer billing, depend to a large extent on various IP systems and software, which must be improved and upgraded on a regular basis and replaced from time to time. For example, last year, Bell Mobility migrated its wireless customers to a new billing platform which provided additional features and functionality and which also enabled the consolidation of wireless into a single bill. As we addressed accounts receivable concerns related to this billing system migration in the first quarter of 2005, we cancelled a number of post-paid subscriber accounts which were in default of our credit policy, but to whom we had granted payment extensions or term payment options as a result of billing delays, and we increased our allowance for doubtful accounts. Although we believe that the adjustments made to our post-paid subscriber base in the first quarter of 2005 reflect non-paying subscriber accounts relating to our billing conversion, there is a risk that there could be additional cancellations of post-paid subscriber accounts, leading to a possible increase in churn and wireless bad debt expense. Risks That Could Affect Certain BCE Group Companies Bell Canada companiesChanges to Wireline Regulation Retail quality
of service indicators Allstream and
Call-Net application concerning customer-specific arrangements
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25 Bell Canada Enterprises 2005
Quarterly Report
|
|
Managements
Discussion and Analysis
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Application
Seeking Consistent Regulation .Forbearance
from regulation of local exchange services Price
floor safeguards for retail services Notably, the CRTC made no changes to the imputation test (a test that must be satisfied based on studies that demonstrate that revenues derived from a service exceed its costs) requirements for customer-specific arrangements, though it reminded the incumbent telephone companies to provide sufficient costing information in support of their tariff applications, in the format required by the CRTC, or risk a CRTC denial of such tariff applications. Although the CRTC decision rejected most of its preliminary proposals, it made minor changes to the imputation tests to be satisfied by incumbent telephone companies with respect to stand-alone services, generally offered in bundles, and term and volume contracts. In some circumstances, the changes will, in the future, result in higher price floors for new services and bundles which could negatively limit Bell Canadas ability to compete. Wireless
Number Portability
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26 Bell Canada Enterprises 2005 Quarterly Report
Bell ExpressVu
On March 31, 2005, the Québec Superior Court overruled the Court of Québecs decision in R. v. DArgy and Theriault and upheld the constitutional validity of the provisions of the Radiocommunication Act (Canada) making it a criminal offence to manufacture, offer for sale or sell any device used to decode an encrypted subscription signal relating to the unauthorized reception of satellite signals. The defendants have been granted leave to appeal the ruling of the Québec Superior Court to the Québec Court of Appeal. TelesatTelesat has placed launch insurance and one year of in-orbit insurance for Anik F1R covering its approximate 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.
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27 Bell Canada Enterprises 2005 Quarterly Report
Consolidated
Statements of Operations
|
||||||
FOR THE THREE MONTHS ENDED MARCH 31 |
||||||
(in $ millions, except share amounts) (unaudited) |
2005 | 2004 | ||||
|
||||||
Operating revenues |
4,859 | 4,638 | ||||
|
||||||
Operating expenses |
(2,921 | ) | (2,794 | ) | ||
Amortization expense |
(773 | ) | (767 | ) | ||
Net benefit plans cost (Note 3) |
(103 | ) | (63 | ) | ||
Restructuring and other items (Note 4) |
4 | (3 | ) | |||
|
||||||
Total operating expenses |
(3,793 | ) | (3,627 | ) | ||
|
||||||
Operating income |
1,066 | 1,011 | ||||
Other income |
7 | 36 | ||||
Interest expense |
(247 | ) | (252 | ) | ||
|
||||||
Pre-tax earnings from continuing operations |
826 | 795 | ||||
Income taxes |
(271 | ) | (262 | ) | ||
Non-controlling interest |
(63 | ) | (48 | ) | ||
|
||||||
Earnings from continuing operations |
492 | 485 | ||||
Discontinued operations |
(1 | ) | 3 | |||
|
||||||
Net earnings |
491 | 488 | ||||
Dividends on preferred shares |
(17 | ) | (18 | ) | ||
|
||||||
Net earnings applicable to common shares |
474 | 470 | ||||
|
||||||
Net earnings per common share basic |
||||||
Continuing operations |
0.51 | 0.51 | ||||
Discontinued operations |
| | ||||
Net earnings |
0.51 | 0.51 | ||||
Net earnings per common share diluted |
||||||
Continuing operations |
0.51 | 0.51 | ||||
Discontinued operations |
| | ||||
Net earnings |
0.51 | 0.51 | ||||
Dividends per common share |
0.33 | 0.30 | ||||
Average number of common shares outstanding basic (millions) |
926.2 | 924.1 | ||||
|
||||||
|
Consolidated
Statements of Deficit
|
||||||
FOR THE THREE MONTHS ENDED MARCH 31 |
||||||
(in $ millions) (unaudited) |
2005 | 2004 | ||||
|
||||||
Balance at beginning of period, as previously reported |
(5,424 | ) | (5,837 | ) | ||
Accounting policy change (Note 1) |
(8 | ) | (8 | ) | ||
|
||||||
Balance at beginning of period, as restated |
(5,432 | ) | (5,845 | ) | ||
Net earnings |
491 | 488 | ||||
Dividends declared on preferred shares |
(17 | ) | (18 | ) | ||
Dividends declared on common shares |
(306 | ) | (277 | ) | ||
Other |
| (1 | ) | |||
|
||||||
Balance at end of period |
(5,264 | ) | (5,653 | ) | ||
|
||||||
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28 Bell Canada Enterprises 2005 Quarterly Report
Consolidated
Balance Sheets
|
||||||
MARCH 31, | DECEMBER 31, | |||||
(in $ millions) (unaudited) |
2005 | 2004 | ||||
|
||||||
|
||||||
Assets |
||||||
Current assets |
||||||
Cash and cash equivalents |
526 | 380 | ||||
Accounts receivable |
2,074 | 2,096 | ||||
Other current assets |
1,364 | 1,212 | ||||
|
||||||
Total current assets |
3,964 | 3,688 | ||||
Capital assets |
21,376 | 21,398 | ||||
Other long-term assets |
2,747 | 2,656 | ||||
Indefinite-life intangible assets |
2,951 | 2,916 | ||||
Goodwill |
8,482 | 8,413 | ||||
Non-current assets of discontinued operations |
50 | 50 | ||||
|
||||||
Total assets |
39,570 | 39,121 | ||||
|
||||||
|
||||||
Liabilities |
||||||
Current liabilities |
||||||
Accounts payable and accrued liabilities |
3,313 | 3,692 | ||||
Interest payable |
283 | 183 | ||||
Dividends payable |
325 | 297 | ||||
Debt due within one year |
1,428 | 1,276 | ||||
|
||||||
Total current liabilities |
5,349 | 5,448 | ||||
Long-term debt |
12,280 | 11,809 | ||||
Other long-term liabilities |
4,819 | 4,932 | ||||
|
||||||
Total liabilities |
22,448 | 22,189 | ||||
|
||||||
Non-controlling interest |
2,914 | 2,908 | ||||
|
||||||
|
||||||
Shareholders equity |
||||||
Preferred shares |
1,670 | 1,670 | ||||
|
||||||
Common shareholders equity |
||||||
Common shares |
16,790 | 16,781 | ||||
Contributed surplus |
1,065 | 1,061 | ||||
Deficit |
(5,264 | ) | (5,432 | ) | ||
Currency translation adjustment |
(53 | ) | (56 | ) | ||
|
||||||
Total common shareholders equity |
12,538 | 12,354 | ||||
|
||||||
Total shareholders equity |
14,208 | 14,024 | ||||
|
||||||
Total liabilities and shareholders equity |
39,570 | 39,121 | ||||
|
||||||
|
29 Bell Canada Enterprises 2005 Quarterly Report
Consolidated
Statements of Cash Flows
|
||||||
FOR THE THREE MONTHS ENDED MARCH 31 |
||||||
(in $ millions) (unaudited) |
2005 | 2004 | ||||
|
||||||
Cash flows from operating activities |
||||||
Earnings from continuing operations |
492 | 485 | ||||
Adjustments to reconcile earnings from continuing operations to cash flows from operating activities: |
||||||
Amortization expense |
773 | 767 | ||||
Net benefit plans cost |
103 | 63 | ||||
Restructuring and other items |
(4 | ) | 3 | |||
Net gains on investments |
(2 | ) | (5 | ) | ||
Future income taxes |
109 | 54 | ||||
Non-controlling interest |
63 | 48 | ||||
Contributions to employee pension plans |
(94 | ) | (29 | ) | ||
Other employee future benefit plan payments |
(23 | ) | (24 | ) | ||
Payments of restructuring and other items |
(101 | ) | (19 | ) | ||
Operating assets and liabilities |
(377 | ) | (83 | ) | ||
|
||||||
Cash flows from operating activities |
939 | 1,260 | ||||
|
||||||
Cash flows from investing activities |
||||||
Capital expenditures |
(737 | ) | (681 | ) | ||
Business acquisitions |
(83 | ) | (59 | ) | ||
Business dispositions |
| 16 | ||||
Change in investments accounted for under the cost and equity methods |
(126 | ) | 6 | |||
Other investing activities |
(15 | ) | 19 | |||
|
||||||
Cash flows used in investing activities |
(961 | ) | (699 | ) | ||
|
||||||
Cash flows from financing activities |
||||||
Increase (decrease) in notes payable and bank advances |
(155 | ) | 19 | |||
Issue of long-term debt |
785 | 1,326 | ||||
Repayment of long-term debt |
(84 | ) | (934 | ) | ||
Issue of common shares |
9 | 4 | ||||
Issue of equity securities by subsidiaries to non-controlling interest |
| 7 | ||||
Redemption of equity securities by subsidiaries from non-controlling interest |
(17 | ) | (42 | ) | ||
Cash dividends paid on common shares |
(278 | ) | (277 | ) | ||
Cash dividends paid on preferred shares |
(21 | ) | (22 | ) | ||
Cash dividends paid by subsidiaries to non-controlling interest |
(50 | ) | (43 | ) | ||
Other financing activities |
(30 | ) | (48 | ) | ||
|
||||||
Cash flows from (used in) financing activities |
159 | (10 | ) | |||
|
||||||
Cash provided by continuing operations |
137 | 551 | ||||
Cash provided by discontinued operations |
9 | 238 | ||||
|
||||||
Net increase in cash and cash equivalents |
146 | 789 | ||||
Cash and cash equivalents at beginning of period |
380 | 722 | ||||
|
||||||
Cash and cash equivalents at end of period |
526 | 1,511 | ||||
|
||||||
Consists of: |
||||||
Cash and cash equivalents of continuing operations |
526 | 1,135 | ||||
Cash and cash equivalents of discontinued operations |
| 376 | ||||
|
||||||
Total |
526 | 1,511 | ||||
|
||||||
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30 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. These notes are unaudited. All amounts are in millions of Canadian dollars, except where noted. We, us, our and BCE mean BCE Inc., its subsidiaries and joint ventures. |
Note 1: Significant accounting policies We have prepared the consolidated financial statements 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 ended March 31, 2005 and the comparative period was negligible and we did not restate the statements of operations for prior periods. At December 31, 2004, this resulted in:
|
31 Bell Canada Enterprises 2005 Quarterly Report
Notes
to Consolidated Financial Statements
|
Note 2: Segmented information The table below is a summary of financial information by segment.
|
|||||||
FOR THE THREE MONTHS ENDED MARCH 31 | 2005 | 2004 | |||||
|
|||||||
Operating revenues | |||||||
Consumer | External | 1,839 | 1,813 | ||||
Inter-segment | 17 | 12 | |||||
|
|||||||
1,856 | 1,825 | ||||||
|
|||||||
Business | External | 1,434 | 1,354 | ||||
Inter-segment | 44 | 81 | |||||
|
|||||||
1,478 | 1,435 | ||||||
|
|||||||
Aliant | External | 488 | 464 | ||||
Inter-segment | 36 | 40 | |||||
|
|||||||
524 | 504 | ||||||
|
|||||||
Other Bell Canada | External | 434 | 438 | ||||
Inter-segment | 45 | 36 | |||||
|
|||||||
479 | 474 | ||||||
|
|||||||
Inter-segment eliminations Bell Canada | (128 | ) | (132 | ) | |||
|
|||||||
Bell Canada | 4,209 | 4,106 | |||||
|
|||||||
Other BCE | External | 664 | 569 | ||||
Inter-segment | 84 | 82 | |||||
|
|||||||
748 | 651 | ||||||
|
|||||||
Inter-segment eliminations Other | (98 | ) | (119 | ) | |||
|
|||||||
Total operating revenues | 4,859 | 4,638 | |||||
|
|||||||
Operating income | |||||||
Consumer | 526 | 526 | |||||
Business | 240 | 241 | |||||
Aliant | 87 | 82 | |||||
Other Bell Canada | 129 | 111 | |||||
|
|||||||
Bell Canada | 982 | 960 | |||||
Other BCE | 84 | 51 | |||||
|
|||||||
Total operating income | 1,066 | 1,011 | |||||
Other income | 7 | 36 | |||||
Interest expense | (247 | ) | (252 | ) | |||
Income taxes | (271 | ) | (262 | ) | |||
Non-controlling interest | (63 | ) | (48 | ) | |||
|
|||||||
Earnings from continuing operations | 492 | 485 | |||||
|
|||||||
|
32 Bell Canada Enterprises 2005 Quarterly Report
Note 3: Employee benefit plans The table below
shows the components of the net benefit plans cost. |
||||||||||
|
PENSION BENEFITS |
OTHER BENEFITS |
||||||||
FOR THE THREE MONTHS ENDED MARCH 31 |
2005 | 2004 | 2005 | 2004 | ||||||
|
||||||||||
Current service cost |
60 | 60 | 9 | 8 | ||||||
Interest cost on accrued benefit obligation |
219 | 201 | 27 | 26 | ||||||
Expected return on plan assets |
(237 | ) | (237 | ) | (2 | ) | (2 | ) | ||
Amortization of past service costs |
2 | 2 | | | ||||||
Amortization of net actuarial losses |
26 | 8 | | | ||||||
Amortization of transitional (asset) obligation |
(1 | ) | (11 | ) | 6 | 7 | ||||
Increase (decrease) in valuation allowance |
(6 | ) | 1 | | | |||||
|
||||||||||
Net benefit plans cost |
63 | 24 | 40 | 39 | ||||||
|
||||||||||
Comprised of: |
||||||||||
Defined benefit plans cost |
56 | 21 | 40 | 39 | ||||||
Defined contribution plans cost |
7 | 3 | | | ||||||
|
||||||||||
|
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. |
||||||||||
PENSION BENEFITS |
OTHER BENEFITS |
|||||||||
FOR THE THREE MONTHS ENDED MARCH 31 |
2005 | 2004 | 2005 | 2004 | ||||||
|
||||||||||
Aliant |
81 | 19 | 1 | 1 | ||||||
Bell Canada |
7 | 5 | 22 | 23 | ||||||
Bell Globemedia |
4 | 3 | | | ||||||
BCE Inc. |
2 | 2 | | | ||||||
|
||||||||||
Total |
94 | 29 | 23 | 24 | ||||||
|
||||||||||
Comprised of: |
||||||||||
Contributions to defined benefit plans |
91 | 26 | 23 | 24 | ||||||
Contributions to defined contribution plans |
3 | 3 | | | ||||||
|
||||||||||
|
Note 4: Restructuring and other items Employee departure programs The table below
provides an update on the liability relating to the employee departure
programs which were implemented in 2004. |
||||||||
CONSO- | ||||||||
BELL CANADA | ALIANT | LIDATED | ||||||
|
||||||||
Balance in accounts payable and accrued liabilities at December 31, 2004 |
120 | 67 | 187 | |||||
Less: |
||||||||
Cash payments |
(48 | ) | (33 | ) | (81 | ) | ||
Reversal of excess provision |
(25 | ) | | (25 | ) | |||
|
||||||||
Balance in accounts payable and accrued liabilities at March 31, 2005 |
47 | 34 | 81 | |||||
|
||||||||
|
33 Bell Canada Enterprises 2005 Quarterly Report
Notes
to Consolidated Financial Statements
|
||||
During the first quarter of 2005, we recorded a pre-tax charge of $21 million primarily for relocating employees and closing real estate facilities that are no longer needed because of the employee departure program. We expect to spend approximately $45 million in the future for similar costs that will be expensed as incurred. These charges were offset by a credit of $25 million relating to the reversal of restructuring provisions that were no longer necessary since the actual payments were lower than estimated. Note 5: 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 | 187,130 | |||
Dividends credited | 20,032 | |||
Expired/forfeited | (30,625 | ) | ||
|
||||
Outstanding, March 31, 2005 | 2,173,059 | |||
|
||||
Vested, March 31, 2005 | | |||
|
||||
|
For the three months ended March 31, 2005 and March 31, 2004, we recorded compensation expense for RSUs of $9 million and $4 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 |
477,524 | $29 | ||||
Exercised |
(438,096 | ) | $20 | |||
Expired/forfeited |
(311,069 | ) | $35 | |||
|
||||||
Outstanding, March 31, 2005 |
28,210,038 | $32 | ||||
|
||||||
Exercisable, March 31, 2005 |
17,500,109 | $34 | ||||
|
||||||
|
34 Bell Canada Enterprises 2005 Quarterly Report
Assumptions used in stock option pricing model The table below
shows the assumptions used to determine the stock-based compensation expense
using the Black-Scholes option pricing model. |
||||||
FOR THE PERIOD ENDED MARCH 31 | 2005 | 2004 | ||||
|
||||||
Compensation expense ($ millions) |
6 | 8 | ||||
Number of stock options granted |
477,524 | 5,394,776 | ||||
Weighted average fair value per option granted ($) |
3 | 3 | ||||
Weighted average assumptions |
||||||
Dividend yield |
4.5% | 4.0% | ||||
Expected volatility |
24% | 27% | ||||
Risk-free interest rate |
3.3% | 3.1% | ||||
Expected life (years) |
3.6 | 3.5 | ||||
|
||||||
|
Note 6: Subsequent events 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. Teleglobe Lending Syndicate Lawsuit As indicated 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 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 $50M to Teleglobe, notified BCE Inc. that it will shortly file a notice of discontinuance with the Court and will therefore no longer be a plaintiff in this action. Following such discontinuance, the damages sought by the remaining plaintiffs will 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. |
35 Bell Canada Enterprises 2005 Quarterly Report
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: May 4, 2005 |