/FIRST AND FINAL ADD - MO287 - BCE INC. EARNINGS/ CASH FROM
OPERATING ACTIVITIES Cash from operating activities increased 0.6%
or $10 million to $1,828 million in Q3 2004, compared to Q3 2003,
with the receipt of a $75 million settlement payment from MTS being
almost entirely offset by unfavourable changes in working capital.
Working capital in Q3 2004 has been impacted by the new billing
platform which resulted in anticipated delays in invoicing at
quarter-end. Working capital is expected to return to a more
normalized level by year end. In the first nine months of 2004,
cash from operating activities decreased 3.6% or $158 million to
$4,212 million, compared to 2003, as the settlement payment from
MTS and improved operating performance were more than offset by
less favourable changes in working capital. CAPITAL EXPENDITURES We
continue to make investments to expand and update our networks and
to meet customer demand for new services. Capital expenditures were
$811 million in Q3 2004, or 17.0% of revenues. This was relatively
stable compared with capital expenditures of $791 million, or 17.1%
of revenues, for the same period last year. In the first nine
months of 2004, capital expenditures were $2.3 billion, or 16.3% of
revenues, up from $2.1 billion, or 15.0% of revenues, for the same
period last year. The increase reflects a mix of higher spending in
the growth businesses and reduced spending in the legacy areas. In
addition, the increase in capital expenditures for the quarter
reflected construction of Telesat's new satellites, the main one
being Anik F2. Declines in capital spending at Aliant resulted from
the work disruption. Bell Canada's consolidated capital intensity
ratio increased to 17.5% in Q3 2004 (16.3% in the first nine months
of 2004), compared to 17.0% in Q3 2003 (15.4% in the first nine
months of 2003). Bell Canada's consolidated capital expenditures
accounted for over 85% of our consolidated capital expenditures in
the first nine months of 2004 and over 90% of our consolidated
capital expenditures in the first nine months of 2003. OTHER
INVESTING ACTIVITIES Cash from other investing activities of $133
million in the first nine months of 2004 included $179 million of
insurance proceeds that Telesat received for a malfunction on the
Anik F1 satellite. Cash from other investing activities of $155
million in Q3 2003 included: - $83 million of proceeds from the
settlement of dividend rate swaps. These swaps hedged dividend
payments on some of BCE Inc.'s preferred shares. - $62 million of
insurance proceeds that Telesat and ExpressVu received for a
malfunction on the Nimiq 2 satellite. COMMON DIVIDENDS We paid a
dividend of $0.30 per common share in Q3 2004. This was the same as
the dividend we paid in Q3 2003. We realized a cash benefit of $16
million in Q3 2003 ($55 million in the first nine months of 2003)
because we issued treasury shares to fund BCE Inc.'s dividend
reinvestment plan instead of buying shares on the open market.
Effective Q1 2004, we started buying all of the shares needed for
the dividend reinvestment plan on the open market to avoid
dilution. This removed any further cash benefits related to issuing
treasury shares. As a result, total dividends paid on common shares
increased 6.9% or $18 million to $277 million in Q3 2004, compared
to Q3 2003 and 7.9% or $61 million to $831 million in the first
nine months of 2004, compared to 2003. BUSINESS ACQUISITIONS We
invested $646 million in business acquisitions in Q3 2004. This
consisted entirely of Bell Canada's acquisition of MTS's 40%
interest in Bell West. Bell Canada now owns 100% of Bell West.
Investments of $306 million in the first half of 2004 consisted of:
- business acquisitions at Bell Canada of $138 million, which
included purchases in the Enterprise and SMB business units - our
28.9% proportionate share of the cash paid for CGI's acquisition of
AMS of $168 million. We invested $73 million in business
acquisitions during the first nine months of 2003. This consisted
mainly of our proportionate share of the cash paid for CGI's
acquisition of Cognicase Inc. BUSINESS DISPOSITIONS We received $55
million for business dispositions during the first nine months of
2003 for Bell Canada's sale of its 89.9% ownership interest in
Certen Inc. (Certen). Bell Canada received $89 million in cash,
which was reduced by $34 million of Certen's cash and cash
equivalents at the time of sale. CHANGE IN INVESTMENTS ACCOUNTED
FOR UNDER THE COST AND EQUITY METHODS In Q3 2004, we sold our
remaining 3.24% interest in YPG General Partner Inc. for net cash
proceeds of $123 million and our 15.96% interest in MTS for net
cash proceeds of $584 million. EQUITY INSTRUMENTS During the first
nine months of 2003, BCE Inc. issued 20 million Series AC preferred
shares for $510 million and redeemed 14 million Series U preferred
shares for $357 million, which included a $7 million premium on
redemption. DEBT INSTRUMENTS We issued $85 million of debt (net of
repayments) in Q3 2004. We made $217 million of debt repayments
(net of issues) in the first nine months of 2004. The repayments
were mainly at Bell Canada, BCE Inc. and Bell Globemedia. At Bell
Canada, the repayments included the Series M-15 debentures for $500
million and the Series DU debentures for $126 million. In addition,
in 2004, BCE Inc. redeemed all of its outstanding Series P
retractable preferred shares for $351 million. The issuances were
mainly at Bell Canada and Bell Globemedia. At Bell Canada, the
issuances included the Series M-17 debentures for $450 million. At
Bell Globemedia, the issuances included $300 million of senior
notes. At September 30, 2004, BCE had approximately $1.4 billion of
cash on hand. A portion of this cash will be used to repay $425
million of debt maturing at Bell Canada in Q4 2004, all of which
was paid in October 2004. The remaining cash on hand will be used
primarily for capital expenditures, dividend payments and the
payment of contractual obligations in 2005. CASH RELATING TO
DISCONTINUED OPERATIONS In the first nine months of 2004, cash
provided by discontinued operations of $196 million consisted
mainly of the net cash proceeds of $315 million from the sale of
our investment in Emergis which were partly offset by the
deconsolidation of Emergis' cash on hand of $137 million at
December 31, 2003. CREDIT RATINGS In June 2004 Standard &
Poor's (S&P) upgraded BCE Inc.'s preferred shares rating. The
table below lists BCE Inc.'s and Bell Canada's key credit ratings
at November 2, 2004. > LIQUIDITY Our ability to generate cash in
the short term and in the long term, when needed, and to provide
for planned growth and to fund development activities, depends on
our sources of liquidity and on our cash requirements. Our sources
of liquidity and cash requirements remain substantially unchanged
from those described in the BCE 2003 MD&A, except for those
listed below. Commitment under deferral account The deferral
account is a new mechanism resulting from the CRTC's price cap
decision of May 2002, which will be used to fund initiatives such
as service improvements, reduced rates and/or rebates. We estimate
our commitment relating to the deferral account to be approximately
$195 million at September 30, 2004. Employee departure program
Under both phases of the program, employees are entitled to receive
a special cash allowance. This will result in total cash payments
of approximately $314 million which we expect to pay in the coming
months. The program will reduce Bell Canada's pension plan
surpluses, which may, subject to plan returns and the next periodic
actuarial valuation, affect future funding requirements. Provision
for contract loss In 2001, we entered into a contract with the
Government of Alberta to build a next generation network to bring
high-speed internet and broadband capabilities to rural communities
in Alberta. This contract is accounted for using the percentage of
completion method. During the second quarter of 2004, as part of
our regular update of the estimated costs to complete construction
of the network, potential cost overruns were identified.
Construction is to be complete in late 2004. The costs of this last
phase of construction are higher than previously estimated, due to
changes necessitated in construction methods to connect individual
government buildings to the network and higher average costs of
construction. We recorded a provision of $110 million for this
contract in the second quarter of 2004. Our estimated costs to
complete are unchanged at September 30, 2004. Agreement to purchase
Canadian operations of 360networks Corporation In May 2004, Bell
Canada announced an agreement to purchase the Canadian operations
of 360networks Corporation for $275 million in cash. The purchase
includes the shares of 360networks' subsidiary GT Group Telecom
Services Corporation, and certain related U.S. interconnect assets.
Bell Canada plans to retain all of 360networks' business,
facilities and customer base in western Canada, and has an
agreement to sell the retail customer operations and certain assets
in central and eastern Canada to Call-Net Enterprises Inc. while
continuing to provide network and other services to the central and
eastern customer base for a share of future revenues. All
regulatory approvals have been obtained and we expect to close the
transaction in November 2004, subject to usual closing conditions.
RECENT DEVELOPMENTS IN LEGAL PROCEEDINGS This section provides a
description of new legal proceedings involving BCE and of recent
developments in certain of the legal proceedings involving BCE
described in the BCE 2003 AIF as subsequently updated in BCE Inc.'s
2004 First Quarter MD&A dated May 4, 2004 (BCE 2004 First
Quarter MD&A) and BCE Inc.'s 2004 Second Quarter MD&A dated
August 3, 2004 (BCE 2004 Second Quarter MD&A). LAWSUITS RELATED
TO BELL CANADA Potential Class Action Concerning Wireless Access
Charges On August 9, 2004, a statement of claim was filed under the
Class Actions Act (Saskatchewan) in the Court of Queen's Bench,
Judicial Centre of Regina, Saskatchewan by certain alleged
customers or former customers of Bell Canada and other Canadian
telecommunications providers ("Canadian Telcos") for wireless and
cellular services. The lawsuit has not been certified as a class
action and it is too early to determine whether it will qualify for
certification. The statement of claim alleges breach of contract
and duty to inform, breach of warranties and covenants, deceit,
misrepresentation, negligence, wrongful acts and omissions,
collusion, and breach of statutory duty or obligation under the
Competition Act (Canada), in connection with certain "system access
fees" and "system licensing charges" invoiced by Bell Canada and
the other Canadian Telcos to their customers. The plaintiffs seek
unspecified damages and punitive damages from Bell Canada and the
other Canadian Telcos. While no one can predict the outcome of any
legal proceeding, based on information currently available, we
believe that we have strong defences and we intend to vigorously
defend our position. Potential Class Action Concerning Bell
Mobility Billing System On October 28, 2004, a motion seeking
certification to proceed as a class action against Bell Mobility, a
wholly-owned subsidiary of Bell Canada, was filed with the Quebec
Superior Court. The lawsuit has not been certified to proceed as a
class action and it is too early to determine whether it will
qualify for certification. The lawsuit was filed on behalf of all
physical persons residing in the Province of Quebec, who entered
into a contract with Bell Mobility for the provision of wireless
telephone services, and alleges that such persons have unjustly
incurred expenses as a result of billing errors made by Bell
Mobility or as a result of Bell Mobility wrongfully disconnecting
service to such customers. In addition to the reimbursement of such
expenses, the class action would, if authorized, also seek payment
of damages by Bell Mobility in the amount of $100 per class member
of inconvenience as well as punitive damages in the amount of $200
per class member. While no one can predict the outcome of any legal
proceeding, based on information currently available, we believe
that we have strong defences and we intend to vigorously defend our
position. Bell Distribution Inc. lawsuit On September 1, 2004, Bell
Distribution Inc.'s franchisees and Bell Canada entered into an
agreement for the settlement of this action. LAWSUITS RELATED TO
TELEGLOBE INC. (TELEGLOBE) Teleglobe lending syndicate lawsuit As
indicated in the BCE 2003 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. On November 2, 2004, two of
the plaintiffs, Canadian Imperial Bank of Commerce and Canadian
Imperial Bank of Commerce, N.Y. Agency, which had advanced
approximately U.S.$104 million to Teleglobe and Teleglobe Holdings
(U.S.) Corporation, filed a notice of discontinuance with the Court
and are therefore no longer plaintiffs in this action. The damages
sought by the remaining plaintiffs now amount to approximately
U.S.$1.09 billion (down from approximately U.S.$1.19 billion), plus
interest and costs, representing approximately 87% (down from
approximately 95%) of the U.S.$1.25 billion that the members of
that lending syndicate advanced to Teleglobe and Teleglobe Holdings
(U.S.) Corporation. Teleglobe unsecured creditors lawsuit As
indicated in the BCE 2004 Second Quarter MD&A, a lawsuit was
filed in the United States Bankruptcy Court for the District of
Delaware against BCE Inc. and ten 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
lawsuit alleges breach of an alleged funding commitment of BCE Inc.
towards the debtors, promissory estoppel, misrepresentation by BCE
Inc., and breach and aiding and abetting breaches of fiduciary duty
by the defendants. By order dated September 8, 2004, the automatic
reference of this action to the Bankruptcy Court was withdrawn and
the action is now pending in the District Court for the District of
Delaware. On September 15, 2004, BCE Inc. and the other defendants
filed a motion to dismiss the action for lack of standing and for
failure to state a claim. BCE Inc. and the other defendants also
contend that plaintiffs should not be allowed to transform a
contract claim into tort claims. On October 14, 2004, the Court
denied defendants' motion to stay discovery pending disposition of
defendants' motion to dismiss. LAWSUITS RELATED TO BELL CANADA
INTERNATIONAL INC. (BCI) BCI common shareholders lawsuits As
indicated in the BCE 2003 AIF, an appeal to the Ontario Court of
Appeal was filed in March 2004 by the plaintiffs in two lawsuits
seeking damages from BCE Inc. and BCI in connection with the issue
of BCI common shares under BCI's recapitalization plan and the
implementation of BCI's plan of arrangement. These lawsuits had
been dismissed on January 5, 2004 by the Ontario Superior Court of
Justice as failing to disclose a reasonable cause of action against
BCE Inc. or BCI, and abused the process of the court, and ordering
that neither of the two plaintiffs may amend his statement of claim
to bring these lawsuits before the court again. As indicated in the
BCE 2004 Second Quarter MD&A, the appeal was heard on July 12,
2004, and on July 23, 2004 the Ontario Court of Appeal issued its
decision and reasons, upholding the lower court's decision and
dismissing the lawsuits as failing to disclose a reasonable cause
of action. On September 29, 2004, the plaintiffs filed an
application with the Supreme Court of Canada seeking leave to
appeal the decision of the Court of Appeal for Ontario, and
indicated, in their application, that if the appeal court decision
is reversed, they intend to proceed with only one of the actions.
The defendants have filed joint responding materials. LAWSUITS
RELATED TO BELL GLOBEMEDIA As indicated in the BCE 2003 AIF, on
February 5, 2001, Bell Globemedia Publishing Inc., a subsidiary of
Bell Globemedia, was added as a defendant to a $100 million class
action lawsuit relating to copyright infringement. The claim is
that the defendants (which include The Globe and Mail newspaper and
magazines it publishes) 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. On October 3, 2001,
the Ontario Superior Court of Justice rejected the plaintiff's
motion for partial summary judgment (including the rejection of a
requested injunction at this stage) on certain proposed common
issues. The plaintiff appealed this decision, and the defendants
cross- appealed some issues. The Ontario Court of Appeal provided
its majority decision on October 6, 2004, and affirmed the initial
refusal of summary judgement. Both the plaintiff and the defendants
have 60 days from October 6, 2004 to apply for leave to appeal to
the Supreme Court of Canada. 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, cash flows or business of one or more BCE
group companies. Part of managing our business is to understand
what these potential risks could be and to minimize them where we
can. Because no one can predict whether an event will happen or its
consequences, the actual effect of any event on our business could
be materially different from what we currently anticipate. In
addition, the risks described below and elsewhere in this MD&A
do not include all possible risks, and there may be other risks
that we are currently not aware of. In the BCE 2004 First Quarter
MD&A, we provided a detailed review of the risks that could
affect our financial condition, results of operations, cash flows
or business and that could cause actual results to differ
materially from those expressed in our forward-looking statements.
This detailed description of risks was updated in the BCE 2004
Second Quarter MD&A and is further updated in this MD&A.
These risks include risks associated with: - our ability to
complete within our targeted timeframe, and the impact on our
financial results of, the migration of our multiple service-
specific networks to a single IP-based network; - our ability to
implement our strategies and plans in order to produce the expected
benefits and growth prospects, including meeting targets for
revenue, earnings per share, free cash flow and capital intensity;
- general economic and market conditions and the level of consumer
confidence and spending, and the demand for, and prices of, our
products and services; - the intensity of competitive activity from
both traditional and new competitors, Canadian or foreign,
including cross-platform competition, which is increasing following
the introduction of new technologies such as Voice over Internet
Protocol (VoIP) which have reduced barriers to entry that existed
in the industry, and its resulting impact on the ability to retain
existing, and attract new, customers, and on pricing strategies and
financial results; - the ability to improve productivity and
contain capital intensity while maintaining quality of services; -
the ability to anticipate, and respond to, changes in technology,
industry standards and client needs and migrate to and deploy new
technologies, including VoIP, and offer new products and services
rapidly and achieve market acceptance thereof; - the availability
and cost of capital required to implement our financing plans and
fund capital and other expenditures; - our ability to retain major
customers; - our ability to find suitable companies to acquire or
to partner with; - the impact of pending or future litigation and
of adverse changes in laws or regulations, including tax laws, or
in how they are interpreted, or of adverse regulatory initiatives
or proceedings, including decisions by the CRTC affecting our
ability to compete effectively, including, more specifically,
decisions concerning the regulation of VoIP services; - the risk of
litigation should BCE stop funding a subsidiary or change the
nature of its investment, or dispose of all or part of its
interest, in a subsidiary; - the risk of increased pension plan
contributions resulting from Bell Canada's recent early retirement
program and from the risk of low returns on pension plan assets; -
our ability to manage effectively labour relations, negotiate
satisfactory labour agreements, including new agreements replacing
expired labour agreements, while avoiding work stoppages, and
maintain service to customers and minimize disruptions during
strikes and other work stoppages; - events affecting the
functionality of our networks or of the networks of other
telecommunications carriers on which we rely to provide our
services; - stock market volatility; - our ability to increase the
number of customers who buy multiple products; - our ability to
implement the significant changes in processes, in how we approach
our markets, and in products and services, required by our
strategic direction; - Canadian government action in respect of the
foreign ownership restrictions that apply to telecommunications
carriers and to broadcasting distribution undertakings; - the risk
that the amount of the expected annual savings relating to Bell
Canada's recent employee voluntary departure program will be lower
than anticipated due to various factors including the incurrence of
outsourcing, replacement and other costs; and - launch and in-orbit
risks, including the ability to obtain appropriate insurance
coverage at favourable rates, concerning Telesat's satellites,
certain of which are used by Bell ExpressVu to provide services.
For a more complete description of the risks that could affect our
business, please see the BCE 2004 First Quarter MD&A, as
updated in the BCE 2004 Second Quarter MD&A and this MD&A,
filed by BCE Inc. with the Canadian securities commissions (
available on BCE Inc.'s site at http://www.bce.ca/ and on SEDAR at
http://www.sedar.com/ ) and with the U.S. Securities and Exchange
Commission (SEC) under Form 6-K ( available on EDGAR at
http://www.sec.gov/ ). Please refer to the BCE 2003 AIF filed by
BCE Inc. with the Canadian securities commissions and with the SEC
under Form 40-F for a detailed description of: - the principal
legal proceedings involving BCE; - certain regulatory initiatives
and proceedings concerning the Bell Canada companies. Please see
Recent Developments in Legal Proceedings in this MD&A, in the
BCE 2004 First Quarter MD&A and in the BCE 2004 Second Quarter
MD&A for a description of new legal proceedings involving us
and of recent developments, since the BCE 2003 AIF, in the
principal legal proceedings involving us. In addition, please see
Updates to the Description of Risks below, Updates to the
Description of Risks in the BCE 2004 Second Quarter MD&A and
Risks that could affect certain BCE group companies - Bell Canada
companies - Changes to wireline regulations in the BCE 2004 First
Quarter MD&A, for a description of recent developments, since
the BCE 2003 AIF, in the principal regulatory initiatives and
proceedings concerning the Bell Canada companies. 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 18 to 31 of the BCE 2004 First
Quarter MD&A as updated in the BCE 2004 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 First Quarter MD&A.
RISKS THAT COULD AFFECT ALL BCE GROUP COMPANIES RENEGOTIATING
LABOUR AGREEMENTS A new collective agreement between Bell Canada
and the CEP, representing approximately 7,100 craft and services
employees, was signed on August 19, 2004 and will expire in
November 2007. As well, a collective agreement between Aliant
Telecom Inc. (a wholly-owned subsidiary of Aliant) and the CATU,
representing approximately 4,300 employees, was signed on September
16, 2004 and will expire on December 31, 2007. Accordingly, the
actual or potential adverse effects of the events preceding the
execution of these collective agreements have now ceased to exist.
RISKS THAT COULD AFFECT CERTAIN BCE GROUP COMPANIES BELL CANADA
COMPANIES Contract with the Government of Alberta In 2001, we
entered into a contract with the Government of Alberta to build a
next generation network to bring high-speed internet and broadband
capabilities to rural communities in Alberta. Construction is to be
completed in late 2004. However, the final costs to complete the
network will not be known until completion of the network and final
acceptance by the Government of Alberta which is expected to occur
during 2005. Changes to Wireline Regulations Decision on Incumbent
Affiliates On September 23, 2003, the CRTC issued a decision that
requires Bell Canada and its carrier affiliates to include a
detailed description of the bundled services they provide to
customers when they file tariffs with the CRTC. Bell Canada's
appeal of this decision to the Federal Court of Canada was
dismissed on September 14, 2004. As a result, Bell Canada is now
re-filing tariffs for those contracts with bundles that have not
yet expired in order to provide more detailed descriptions of the
bundled services. Application seeking consistent regulation On
November 6, 2003, Bell Canada filed an application requesting that
the CRTC start a public hearing to review how similar services
offered by cable companies and telephone companies are regulated.
On April 7, 2004, the CRTC invited comments on its preliminary
views regarding the regulation of VoIP services and invited
interested parties to participate in a public consultation relating
to the regulatory framework for VoIP. Bell Canada provided its
comments to the CRTC on June 18, 2004. Between September 21 and
September 23, 2004, the CRTC held the public consultation relating
to the regulatory framework for VoIP. Bell Canada filed reply
comments on October 13, 2004. A decision is expected in the first
quarter of 2005. There is a risk that the CRTC might decide to
regulate VoIP services provided by the Bell Canada companies and
other Incumbent Local Exchange Carriers but not by certain other
competitors. Accordingly, these proceedings could determine the
rules for competition with other service providers, could affect
the flexibility of the Bell Canada companies when competing in the
future and could result in delays for launching new services as
well as restrictions on our marketing flexibility (such as pricing
rules, bundling restrictions, etc.) for such services. Licences for
Broadcasting As indicated in the BCE 2004 Second Quarter MD&A,
Bell Canada has applied to the CRTC for licences to operate
broadcasting distribution undertakings, using its wireline
facilities, to serve large cities in Southern Ontario and Quebec.
The CRTC held a public hearing, as required under the Broadcasting
Act, in August 2004. Cable operators were seeking delays to the
licensing and other conditions that would inhibit Bell Canada's
ability to compete with them. A decision is expected in November
2004. TELESAT Anik F2 As indicated in the BCE 2004 Second Quarter
MD&A, on July 17, 2004, Telesat launched the Anik F2 satellite.
It successfully entered commercial service, following commissioning
and testing, in October 2004. Accordingly, the risks described in
the BCE 2004 Second Quarter MD&A relating to Anik F2's
construction, launch and commissioning no longer apply. Our
Accounting Policies We have prepared our consolidated financial
statements according to Canadian GAAP. See Note 1 to the
consolidated financial statements for more information about the
accounting policies we used to prepare our financial statements.
The key estimates and assumptions that management has made and
their impact on the amounts reported in the financial statements
and notes remain substantially unchanged from those described in
the BCE 2003 MD&A. We have not changed our accounting policies
other than those described in the BCE 2003 MD&A and in Note 1
to the consolidated financial statements. > END FIRST AND FINAL
ADD DATASOURCE: BCE INC. CONTACT: PRNewswire - Nov. 3
Copyright