Skip to main content | Go to site map | Read our accessibility commitment

Notes to Consolidated Financial Statements

 


NOTE 20 | POST-EMPLOYMENT BENEFIT PLANS 


Post-employment Benefit Plans Cost

We provide pension and other benefits for most of our employees. These include DB pension plans, DC pension plans and OPEBs. The costs of these plans are tabled below.

Components of Post-employment Benefit Plans Service Cost

FOR THE YEAR ENDED DECEMBER 312012 2011 
DB pension(214)(220)
DC pension(72)(61)
OPEBs(6)(5)
Plan amendment gain on OPEBs24  
Less:    
   Capitalized benefit plans cost43 45 
Total post-employment benefit plans service cost included in operating costs(225)(241)
Other net benefits (cost) income recognized in Severance, acquisition and other costs(44)13 
Total post-employment benefit plans service cost(269)(228)


Components of Post-employment Benefit Plans Financing Cost

FOR THE YEAR ENDED DECEMBER 31DB PENSION PLANS OPEB PLANS TOTAL 
2012 2011 2012 2011 2012 2011 
Interest on obligations(877)(887)(81)(86)(958)(973)
Expected return on post-employment benefit
   plan assets
1,056 1,018 13 14 1,069 1,032 
Post-employment benefit plans net
   financing income (cost)
179 131 (68)(72)111 59 


The statements of comprehensive income include the following amounts before income taxes.

 2012 2011 
Cumulative losses recognized directly in equity, January 1(2,297)(1,358)
   Actuarial losses in other comprehensive income(1)(1,846)(962)
   Decrease in the effect of the asset limit155 23 
Cumulative losses recognized directly in equity, December 31(3,988)(2,297)

 

Components of Post-employment Benefit (Obligations) Assets

The following table shows the change in post-employment benefit obligations and fair value of plan assets.

 DB PENSION PLANS OPEB PLANS TOTAL 
2012 2011 2012 2011 2012 2011 
Post-employment benefit obligations,
   beginning of year
(17,472)(16,298)(1,638)(1,608)(19,110)(17,906)
   Current service cost(214)(220)(6)(5)(220)(225)
   Interest on obligations(877)(887)(81)(86)(958)(973)
   Actuarial losses(1)(1,996)(647)(81)(9)(2,077)(656)
   Net curtailment (loss) gain(44)13 24  (20)13 
   Business combinations (420) (1) (421)
   Benefit payments1,069 992 75 77 1,144 1,069 
   Employee contributions(7)(8)  (7)(8)
   Other(1)3  (6)(1)(3)
Post-employment benefit obligations, end
   of year
(19,542)(17,472)(1,707)(1,638)(21,249)(19,110)
Fair value of plan assets, beginning of year16,384 14,835 207 209 16,591 15,044 
   Expected return on plan assets(2)1,056 1,018 13 14 1,069 1,032 
   Actuarial gains (losses) 229 (244)2 (14)231 (258)
   Business combinations 329    329 
   Benefit payments(1,069)(992)(75)(77)(1,144)(1,069)
   Employer contributions1,120 1,435 73 75 1,193 1,510 
   Employee contributions7 8   7 8 
   Transfers to DC pension plans (5)   (5)
Fair value of plan assets, end of year17,727 16,384 220 207 17,947 16,591 
Plan deficit(1,815)(1,088)(1,487)(1,431)(3,302)(2,519)
Effect of asset limit(14)(169)  (14)(169)
Post-employment benefit obligations, end
   of year
(1,829)(1,257)(1,487)(1,431)(3,316)(2,688)
Post-employment benefit assets included
   in other non-current assets
106 31   106 31 
Post-employment benefit obligations(1,935)(1,288)(1,487)(1,431)(3,422)(2,719)

 


Selected Historical Information

FOR THE YEAR ENDED DECEMBER 312010 
Present value of post-employment benefit obligations(17,906)
Fair value of plan assets15,044 
Plan deficit(2,862)
Experience adjustments arising on plan liabilities(69)
Experience adjustments arising on plan assets560 


Funded Status of Post-employment Benefit Plans Cost

The following table shows the funded status of our post-employment benefit obligations.

FOR THE YEAR ENDED DECEMBER 31FUNDED 

PARTIALLY FUNDED(1)

 

UNFUNDED(2)

 TOTAL 
2012 2011 2012 2011 2012 2011 2012 2011 
Present value
   of post-employment benefit
   obligations
(19,007)(17,005)(1,868)(1,735)(374)(370)(21,249)(19,110)
Fair value of plan assets17,697 16,360 250 231   17,947 16,591 
Plan deficit(1,310)(645)(1,618)(1,504)(374)(370)(3,302)(2,519)

 


Significant Assumptions

We used the following key assumptions to measure the post-employment benefit obligations and the net benefit plans cost for the DB pension plans and OPEB plans. These assumptions are long-term, which is consistent with the nature of post-employment benefit plans.

FOR THE YEAR ENDED DECEMBER 31DB PENSION PLANS OPEB PLANS
2012 2011 2012 2011 
Post-employment benefit obligations        
   Discount rate4.4%5.1%4.4%5.1%
   Rate of compensation increase3.0%3.0%3.0%3.0%
For the year ended December 31        
Net post-employment benefit plans cost        
   Discount rate5.1%5.5%5.1%5.5%
   Expected return on plan assets6.8%7.0%6.8%7.0%
   Rate of compensation increase3.0%3.0%3.0%3.0%


We assumed an annual cost of living indexation rate of 1.75% for our DB pension plans for 2012 and 2011.

We assumed the following trend rates in healthcare costs:

  • an annual increase of 4.5% in the cost per person of covered healthcare benefits for 2012 and the foreseeable future

  • an annual increase of 5.0% for retirees under age 65 and 4.5% for retirees over age 65 in the cost of medication for 2012 and the foreseeable future.

Assumed trend rates in healthcare costs have a significant effect on the amounts reported for the healthcare plans.

The following table shows the effect of a 1% change in the assumed trend rates in healthcare costs.

 1% INCREASE 1% DECREASE 
Effect on post-employment benefits – total service and interest cost6 (5)
Effect on post-employment benefits – post-employment benefit obligations149 (127)


DISCOUNT RATE SENSITIVITY ANALYSIS

Starting in 2013, the expected long-term rate of return will be the same as the discount rate as required by IAS 19. The following table shows the impact of a 0.5% increase and a 0.5% decrease in the discount rate on the net post-employment benefit plans cost for 2013 and the post-employment benefit obligations at December 31, 2013.

 IMPACT ON
NET POST-
EMPLOYMENT
BENEFIT PLANS
COST FOR 2013
INCREASE
(DECREASE)
 IMPACT ON
POST-EMPLOYMENT
BENEFIT
OBLIGATIONS AT
DECEMBER 31, 2013
INCREASE
(DECREASE)
 
Discount rate increased to 4.9%    
   Bell Wireline(60)(1,139)
   Bell Wireless(3)(24)
   Bell Media(2)(33)
   Bell Aliant(16)(296)
   Total(81)(1,492)
Discount rate decreased to 3.9%    
   Bell Wireline56 1,212 
   Bell Wireless2 24 
   Bell Media2 35 
   Bell Aliant15 315 
   Total75 1,586 


Post-employment Benefit Plan Assets

The investment strategy for the post-employment benefit plan assets is to maintain a diversified portfolio of assets invested in a prudent manner to maintain the security of funds while maximizing returns within our guidelines. The expected rate of return assumption is based on our target asset allocation policy and the expected future rates of return on these assets.

The following table shows the allocation of our post-employment benefit plan assets at December 31, 2012 and 2011, target allocations for 2012 and the expected long-term rate of return by asset class.

 WEIGHTED AVERAGE
TARGET ALLOCATION
 PERCENTAGE OF
TOTAL PLAN ASSETS FAIR VALUE
AT DECEMBER 31
 WEIGHTED
AVERAGE EXPECTED
LONG-TERM RATE
OF RETURN
 
ASSET CATEGORY2012 2012 2011 2012 
Equity securities35% – 55%41%40%10.0%
Debt securities45% – 65%59%60%3.5%
Total/average  100%100%6.8%


Equity securities included approximately $10 million of BCE common shares, or 0.06% of total plan assets, at December 31, 2012 and approximately $9 million of BCE common shares or 0.05% of total plan assets, at December 31, 2011.

Debt securities included approximately $14 million of Bell Canada and Bell Aliant debentures, or 0.08% of total plan assets, at December 31, 2012 and approximately $19 million of Bell Canada and Bell Aliant debentures, or 0.12% of total plan assets, at December 31, 2011.

Cash Flows

We are responsible for adequately funding our DB pension plans. We make contributions to them based on various actuarial cost methods that are permitted by pension regulatory bodies. Contributions reflect actuarial assumptions about future investment returns, salary projections and future service benefits.

We contribute to the DC pension plans as employees provide service.

The following table shows the amounts we contributed to the DB pension and DC pension plans and the payments made to beneficiaries under OPEB plans.

FOR THE YEAR ENDED DECEMBER 31PENSION PLANS OPEB PLANS 
2012 2011 2012 2011 
Bell Canada(989)(1,055)(64)(66)
Bell Media(45)(30)  
Bell Aliant(158)(406)(9)(9)
Total(1,192)(1,491)(73)(75)
Comprised of:        
   Contributions to DB pension plans(1)(1,120)(1,435)(73)(75)
   Contributions to DC pension plans(72)(56)  

 

We expect to contribute approximately $250 million to our DB pension plans in 2013, subject to actuarial valuations being completed. We expect to pay approximately $85 million to beneficiaries under post-employment benefit plans and to contribute approximately $75 million to the DC pension plans in 2013.


NOTE 21 | OTHER NON-CURRENT LIABILITIES 

 

FOR THE YEAR ENDED DECEMBER 31NOTE 2012 2011 
CRTC deferral account obligation22 284 304 
Long-term disability benefits obligation(1)  236 220 
Deferred revenue on long-term contracts  98 129 
Future tax liabilities  136 326 
MLSE financial liability14 135  
CRTC tangible benefits obligation22, 27 112 174 
Other  428 408 
Total other non-current liabilities  1,429 1,561 

 

 


NOTE 22 | FINANCIAL AND CAPITAL MANAGEMENT 


Financial Management

Management’s objectives are to protect BCE and its subsidiaries on a consolidated basis against material economic exposures and variability of results against various financial risks that include credit risk, liquidity risk, interest rate risk, foreign currency risk and equity price risk.

Derivatives

We use derivative instruments to manage our exposure to foreign currency risk, interest rate risk and changes in the price of BCE common shares under our share-based payment plans. We do not use derivative instruments for speculative purposes, as such we are not exposed to any significant liquidity risks relating to them.

The following derivative instruments were outstanding at December 31, 2012 and 2011:

  • foreign currency forward contracts that hedge foreign currency risk on a portion of our long-term debt due within one year

  • foreign currency forward contracts that manage the foreign currency risk of certain purchase commitments

  • interest rate swaps that hedge interest rate risk on a portion of our long-term debt

  • interest rate locks on future debt issuances

  • forward contracts on BCE common shares that mitigate the cash flow exposure related to share-based payment plans.

In 2012, we recognized a loss of $33 million on the hedging instrument for our fair value hedge of certain long-term debt and a gain on the long-term debt of $31 million. In 2011, we recognized a gain of $36 million on the hedging instrument and a loss on the long-term debt of $42 million.

Credit Risk

We are exposed to credit risk from operating activities and certain financing activities, the maximum exposure of which is represented by the carrying amounts reported on the statements of financial position.

We are exposed to credit risk if counterparties to our trade receivables and derivative instruments are unable to meet their obligations. The concentration of credit risk from our customers is minimized because we have a large and diverse customer base. We regularly monitor our credit risk and credit exposure. There was minimal credit risk relating to derivative instruments at December 31, 2012 and 2011. We deal with institutions that have investment-grade credit ratings and as such we expect that they will be able to meet their obligations.

The following table provides the change in allowance for doubtful accounts for trade receivables.

AT DECEMBER 312012 2011 
Balance, beginning of the year(105)(95)
Additions(126)(105)
Use134 100 
Acquisition through business combinations (5)
Balance, end of the year(97)(105)


For many of our customers, trade receivables are written off directly to bad debt expense if the account has not been collected after a predetermined period of time.

The following table provides further details on trade receivables not impaired.

AT DECEMBER 312012 2011 
Trade receivables not past due2,140 2,132 
Trade receivables past due and not impaired    
   Under 60 days351 359 
   60 to 120 days364 385 
   Over 120 days23 40 
Trade receivables, net of allowance for doubtful accounts2,878 2,916 


Liquidity Risk

We generate enough cash from our operating activities to fund our operations and fulfill our obligations as they become due.

We have sufficient committed bank facilities in place should our cash requirements exceed cash generated from our operations.

Financial liabilities that are due within one year have been classified as current in the statements of financial position.

The following table is a maturity analysis for recognized financial liabilities at December 31, 2012 for each of the next five years and thereafter.

AT DECEMBER 31, 2012NOTE 2013 2014 2015 2016 2017 THEREAFTER TOTAL 
Long-term debt  116 1,877 1,377 1,217 1,149 6,298 12,034 
Notes payable and
   bank advances
18 698      698 
Minimum future
   lease payments under finance
   leases
12 548 431 267 236 235 1,837 3,554 
Loan secured by
   trade receivables
18 935      935 
Interest payable on long-term
   debt, notes payable, bank
   advances and loan secured by
   trade receivables
  687 595 532 471 419 4,627 7,331 
MLSE financial liability      135  135 
Net interest receipts on derivatives  (28)(25)(24)(22)(11) (110)
Total  2,956 2,878 2,152 1,902 1,927 12,762 24,577 


Market Risk

CURRENCY EXPOSURES

We use cross-currency swaps and foreign currency forward contracts to hedge debt that is denominated in foreign currencies. We also use foreign currency forward contracts to manage foreign currency risk related to anticipated transactions, including certain purchase commitments.

The effect on net earnings of a 10% increase or decrease in the Canadian/US dollar exchange rate was $11 million at December 31, 2012, with all other variables held constant. The effect on other comprehensive income of a 10% change in the Canadian/US dollar exchange rate on the value of our foreign currency forward contracts was $42 million at December 31, 2012, with all other variables held constant.

The following table provides further details on our outstanding cross-currency swaps and foreign currency forward contracts as at December 31, 2012 and 2011.

 TYPE OF
HEDGE
 BUY
CURRENCY
 AMOUNTS
TO RECEIVE
IN USD
 SELL
CURRENCY
 AMOUNTS
TO PAY
IN CAD
 MATURITY HEDGED ITEM 
At December 31, 2012Cash flow USD 408 CAD 400 2013 Purchase commitments 
 Cash flow USD 117 CAD 116 2014 Purchase commitments 
 Cash flow USD 50 CAD 51 2015 – 2017 Purchase commitments 
 Economic USD 14 CAD 24 2013 Debt due within one year 
     589   591     
At December 31, 2011Cash flow USD 659 CAD 668 2012 Purchase commitments 
 Cash flow USD 380 CAD 373 2013 Purchase commitments 
 Cash flow USD 70 CAD 70 2014 – 2017 Purchase commitments 
 Economic USD 200 CAD 194 2012 Purchase commitments 
 Economic USD 14 CAD 24 2013 Long-term debt 
     1,323   1,329     


INTEREST RATE EXPOSURES

We use interest rate swaps to manage the mix of fixed and floating interest rates of our debt. We also use interest rate locks to hedge the interest rates on future debt issuances. The effect on net earnings and other comprehensive income of a 100 basis point increase or decrease in interest rates was $18 million and $23 million, respectively, at December 31, 2012, with all other variables held constant. The interest rate locks, which mature in 2013, are cash flow hedges, with a notional amount of $750 million, for the issuance of 5 year term debt whereby the Government of Canada yield is locked in at an average rate of 1.36%. The following table shows interest rate swaps outstanding at December 31, 2012 and 2011.

 TYPE OF
HEDGE
 NOTIONAL
AMOUNT
 RECEIVE
INTEREST
RATE
 PAY
INTEREST RATE
 MATURITY HEDGED ITEM 
At December 31, 2011 and 2012Fair value 700 5.00%3-month CDOR(1) + 0.42% 2017 Long-term debt 

 


EQUITY PRICE EXPOSURES

We use equity forward contracts to economically hedge the cash flow exposure of BCE’s common shares related to share-based payment plans. See Note 24, Share-Based Payments for details on our share-based payment arrangements.

The effect on net earnings of a 10% change in the market price of BCE’s common shares was $41 million at December 31, 2012, with all other variables held constant.

Fair Value

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

Certain fair value estimates are affected by assumptions we make about the amount and timing of estimated future cash flows and discount rates, all of which reflect varying degrees of risk. Income taxes and other expenses that would be incurred on disposition of financial instruments are not reflected in the fair values. As a result, the fair values are not the net amounts that would be realized if these instruments were settled.

The carrying values of our cash and cash equivalents, trade and other receivables, trade payables and accruals, compensation payable, interest payable and short-term obligations approximates fair value because they are short-term.

The following table provides the fair value details of financial instruments measured at amortized cost in the statements of financial position.

 DECEMBER 31, 2012DECEMBER 31, 2011
CARRYING
VALUE
 FAIR
VALUE
 CARRYING
VALUE
 FAIR
VALUE
 
CRTC deferral account obligation337 352 367 387 
CRTC tangible benefits obligation174 178 236 239 
Long-term debt13,607 16,123 12,743 14,668 


The fair value of hedged long-term debt carried at fair value is $782 million (2011 – $813 million), valued using observable market data. All other assets, liabilities and derivatives carried at fair value are individually immaterial.

Capital Management

We have various capital policies, procedures and processes which are utilized to achieve our objectives for capital management. These include optimizing our cost of capital and maximizing shareholder return while balancing the interests of our stakeholders.

Our definition of capital includes equity attributable to BCE shareholders, debt, and cash and cash equivalents.

In order to meet our objectives of maintaining a net debt to Adjusted EBITDA(1)(2) ratio of between 1.5 and 2.0 times and an Adjusted EBITDA to net interest expense(3) ratio greater than 7.5 times, we monitor our capital structure and make adjustments, including to our dividend policy, as required. At December 31, 2012, we had marginally exceeded our net debt to Adjusted EBITDA ratio by 0.15. This increase over our internal ratio does not create risk to our investment-grade credit rating.

On February 6, 2013, the board of directors of BCE approved an increase in the annual dividend on BCE’s common shares of 2.6% from $2.27 to $2.33 per common share. In addition, the board of directors declared a quarterly dividend of $0.5825 per common share, payable on April 15, 2013 to shareholders of record at March 15, 2013.

In 2012, the board of directors of BCE approved an increase in the annual dividend on BCE’s common shares as follows:

  • 4.6%, from $2.17 per common share to $2.27 per common share in August 2012.

In 2011, the board of directors of BCE approved increases in the annual dividend on BCE’s common shares as follows:

  • 5.1%, from $1.97 per common share to $2.07 per common share in May 2011

  • 4.8%, from $2.07 per common share to $2.17 per common share in December 2011.

The details of BCE’s 2011 normal course issuer bid (NCIB) program are set out in Note 23, Share Capital.

The following table summarizes some of our key ratios used to monitor and manage Bell Canada’s capital structure. These ratios are calculated for BCE, excluding Bell Aliant.

AT DECEMBER 312012 2011 
Net debt to Adjusted EBITDA2.15 2.02 
Adjusted EBITDA to net interest expense8.81 8.94 
­ ­