Notes to Consolidated Financial Statements
- 2012 Annual Report
- Consolidated Financial Statements
- Management's Discussion and Analysis
- Notes to Consolidated Financial Statements
- Reports on Internal Control
- Note 23: Share Capital
- Note 24: Share-Based Payments
- Note 25: Commitments and Contingencies
- Note 26: Related Party Transaction
- Note 27: Acquisition of CTV
BCE’s articles of amalgamation provide for an unlimited number of First Preferred Shares and Second Preferred Shares, all without par value. The terms set out in the articles authorize BCE’s directors to issue the shares in one or more series and to set the number of shares and the conditions for each series.
The following table is a summary of the principal terms of BCE’s First Preferred Shares. There were no Second Preferred Shares issued and outstanding at December 31, 2012. BCE’s articles of amalgamation, as amended, describe the terms and conditions of these shares in detail.
|CONVERSION DATE||REDEMPTION DATE||REDEMPTION|
|NUMBER OF SHARES||STATED CAPITAL|
|Q||floating||Series R||December 1, 2015||At any time||$25.50||8,000,000||–||–||–|
|R||4.49||%||Series Q||December 1, 2015||December 1, 2015||$25.00||8,000,000||8,000,000||200||200|
|S||floating||Series T||November 1, 2016||At any time||$25.50||8,000,000||3,606,225||90||90|
|T||3.393||%||Series S||November 1, 2016||November 1, 2016||$25.00||8,000,000||4,393,775||110||110|
|Y||floating||Series Z||December 1, 2017||At any time||$25.50||10,000,000||8,772,468||219||203|
|Z||3.152||%||Series Y||December 1, 2017||December 1, 2017||$25.00||10,000,000||1,227,532||31||47|
|AA||3.45||%||Series AB||September 1, 2017||September 1, 2017||$25.00||20,000,000||10,144,302||259||257|
|AB||floating||Series AA||September 1, 2017||At any time||$25.50||20,000,000||9,855,698||251||253|
|AC||4.60||%||Series AD||March 1, 2013||March 1, 2013||$25.00||20,000,000||9,244,555||236||236|
|AD||floating||Series AC||March 1, 2013||At any time||$25.50||20,000,000||10,755,445||274||274|
|AE||floating||Series AF||February 1, 2015||At any time||$25.50||24,000,000||1,422,900||36||36|
|AF||4.541||%||Series AE||February 1, 2015||February 1, 2015||$25.00||24,000,000||14,577,100||364||364|
|AG||4.50||%||Series AH||May 1, 2016||May 1, 2016||$25.00||22,000,000||10,841,056||271||271|
|AH||floating||Series AG||May 1, 2016||At any time||$25.50||22,000,000||3,158,944||79||79|
|AI||4.15||%||Series AJ||August 1, 2016||August 1, 2016||$25.00||22,000,000||10,754,990||269||269|
|AJ||floating||Series AI||August 1, 2016||At any time||$25.50||22,000,000||3,245,010||81||81|
|AK||4.15||%||Series AL||December 31, 2016||December 31, 2016||$25.00||25,000,000||25,000,000||625||345|
|AL(1)||floating||Series AK||December 31, 2021||25,000,000||–||–||–|
All of the issued and outstanding preferred shares at December 31, 2012 are non-voting, except under special circumstances, when the holders are entitled to one vote per share.
Entitlement to Dividends
Holders of Series R, T, Z, AA, AC, AF, AG, AI and AK shares are entitled to fixed cumulative quarterly dividends. The dividend rate on these shares is reset every five years, as set out in BCE’s articles of amalgamation, as amended.
Holders of Series S, Y, AB, AD, AE, AH and AJ shares are entitled to floating adjustable cumulative monthly dividends. The floating dividend rate on these shares is calculated every month, as set out in BCE’s articles of amalgamation, as amended.
All of the issued and outstanding preferred shares at December 31, 2012 are convertible at the holder’s option into another associated series of preferred shares on a one-for-one basis according to the terms set out in BCE’s articles of amalgamation, as amended.
BCE may redeem each of Series R, T, Z, AA, AC, AF, AG, AI and AK shares at $25.00 per share on the applicable redemption date and every five years after that date. BCE may redeem each of Series Q, if issued, and Series S, Y, AB, AD, AE, AH and AJ shares at $25.50 per share at any time.
Conversion of Preferred Shares
On March 1, 2013, BCE converted 4,415,295 of its 9,244,555 Cumulative Redeemable First Preferred Shares, Series AC (Series AC Preferred Shares), on a one-for-one basis, into Cumulative Redeemable First Preferred Shares, Series AD (Series AD Preferred Shares). In addition, on March 1, 2013, 240,675 of BCE’s 10,755,445 Series AD Preferred Shares were converted, on a one-for-one basis, into Series AC Preferred Shares. As a result, 5,069,935 Series AC Preferred Shares and 14,930,065 Series AD Preferred Shares remain outstanding.
For the five-year period beginning on March 1, 2013, the Series AC Preferred Shares will pay a quarterly fixed dividend based on an annual dividend rate of 3.550%. The Series AD Preferred Shares will continue to pay a monthly floating adjustable cash dividend.
On December 1, 2012, BCE converted 1,108,623 of its 1,873,670 Cumulative Redeemable First Preferred Shares, Series Z (Series Z Preferred Shares), on a one-for-one basis, into Cumulative Redeemable First Preferred Shares, Series Y (Series Y Preferred Shares). In addition, on December 1, 2012, 462,485 of BCE’s 8,126,330 Series Y Preferred Shares were converted, on a one-for-one basis, into Series Z Preferred Shares.
On September 1, 2012, BCE converted 2,957,474 of its 10,081,586 Cumulative Redeemable First Preferred Shares, Series AA (Series AA Preferred Shares), on a one-for-one basis, into Cumulative Redeemable First Preferred Shares, Series AB (Series AB Preferred Shares). In addition, on September 1, 2012, 3,020,190 of BCE’s 9,918,414 Series AB Preferred Shares were converted, on a one-for-one basis, into Series AA Preferred Shares.
On November 1, 2011, 1,794,876 of BCE’s 5,720,209 Cumulative Redeemable First Preferred Shares, Series T (Series T Preferred Shares) were converted, on a one-for-one basis, into Cumulative Redeemable First Preferred Shares, Series S (Series S Preferred Shares). In addition, on November 1, 2011, 468,442 of BCE’s 2,279,791 Series S Preferred Shares were converted, on a one-for-one basis, into Series T Preferred Shares.
On August 1, 2011, 3,245,010 of BCE’s 14,000,000 Cumulative Redeemable First Preferred Shares, Series AI (Series AI Preferred Shares) were converted, on a one-for-one basis, into Cumulative Redeemable First Preferred Shares, Series AJ (Series AJ Preferred Shares).
On May 1, 2011, 370,067 of BCE’s 10,051,751 Cumulative Redeemable First Preferred Shares, Series AG (Series AG Preferred Shares) were converted, on a one-for-one basis, into Cumulative Redeemable First Preferred Shares, Series AH (Series AH Preferred Shares). In addition, on May 1, 2011, 1,159,372 of BCE’s 3,948,249 Series AH Preferred Shares were converted, on a one-for-one basis, into Series AG Preferred Shares.
Dividends on all series of preferred shares will be paid as and when declared by the board of directors of BCE.
Issuance of Preferred Shares
On July 5, 2011, BCE issued 13,800,000 Cumulative Redeemable First Preferred Shares, Series AK (Series AK Preferred Shares) for total gross proceeds of $345 million. Issuance costs were $11 million. On January 4, 2012, BCE issued 11,200,000 additional Series AK Preferred Shares for total gross proceeds of $280 million. Issuance costs were $8 million.
Common Shares and Class B Shares
BCE’s articles of amalgamation provide for an unlimited number of voting common shares and non-voting Class B shares, all without par value. The common shares and the Class B shares rank equally in the payment of dividends and in the distribution of assets if BCE is liquidated, dissolved or wound up, after payments due to the holders of preferred shares. No Class B shares were outstanding at December 31, 2012 and 2011.
The following table provides details about the outstanding common shares of BCE.
|NOTE||DECEMBER 31, 2012||DECEMBER 31, 2011|
|Outstanding, beginning of year||775,444,200||13,566||752,267,409||12,691|
|Shares issued under employee stock option plan(1)||24||1,296,962||43||5,090,918||172|
|Shares issued upon acquisition of CTV||27||–||–||21,729,239||764|
|Shares issued under ESP||1,102,022||48||–||–|
|Shares repurchased and cancelled||(2,461,539||)||(46||)||(3,500,466||)||(61||)|
|Outstanding, end of year||775,381,645||13,611||775,444,200||13,566|
2011 NCIB Program
|DECEMBER 31, 2012||DECEMBER 31, 2011|
|Common shares repurchased and cancelled||(1,381,539||)||(57||)||(3,500,466||)||(143||)|
|Common shares subject to cancellation in 2011 and cancelled in 2012||(1,222,900||)||(50||)||1,222,900||50|
|Private purchase agreement||(1,080,000||)||(44||)||1,080,000||44|
In December 2011, BCE announced its plan to repurchase up to $250 million of its outstanding common shares through a NCIB. In December 2011, BCE repurchased and cancelled a total of 3,500,466 common shares for a total cost of $143 million. An additional 1,381,539 common shares were purchased and cancelled under the 2011 NCIB for a total of $57 million during the first quarter of 2012.
In January 2012, BCE settled a $44 million liability related to an agreement with a financial institution to purchase an additional 1,080,000 common shares. Also in January 2012, we cancelled and paid for 142,900 common shares that were purchased in December 2011 for a total cost of $6 million. All of these common shares were included in outstanding common shares as at December 31, 2011 and were cancelled in January 2012.
The NCIB program was complete in March 2012.
Contributed surplus resulted from the distribution of fund units to the holders of BCE common shares by way of a return of capital upon the conversion of Bell Aliant from a corporate structure to an income fund in 2006 and premium in excess of par value upon the issuance of BCE common shares.
The following share-based payment amounts are included in the income statements as operating costs.
|FOR THE YEAR ENDED DECEMBER 31||2012||2011|
|Deferred share plans – Bell Aliant||(11||)||(10||)|
|Total share-based payments||(80||)||(54||)|
Description of the Plans
ESPs are designed to encourage employees of BCE and its participating subsidiaries to own shares of BCE. Each year, employees can choose to have a certain percentage of their eligible annual earnings withheld through regular payroll deductions for the purchase of BCE common shares. In some cases, the employer also will contribute a percentage of the employee’s eligible annual earnings to the plan, up to a specified maximum. Dividends are credited to the participant’s account on each dividend payment date and are equivalent in value to the dividends paid on BCE common shares.
Each participating company decides on its maximum percentage contribution. For Bell Canada, employees can contribute up to 12% of their annual earnings. Bell Canada contributes up to 2%.
Employer contributions to the plan are subject to employees holding their shares for a two-year vesting period. Dividends related to employer contributions are also subject to the two-year vesting period.
The trustee of the ESP buys BCE common shares for the participants on the open market, by private purchase or from treasury. BCE determines the method the trustee uses to buy the shares.
At December 31, 2012, 12,411,790 common shares were authorized for issuance under the ESP.
The following table summarizes the status of unvested ESPs at December 31, 2012 and 2011.
|NUMBER OF ESPs||2012||2011|
|Unvested contributions, January 1||1,029,621||360,081|
|Unvested contributions, December 31||1,290,286||1,029,621|
RSUs are granted to executives and other key employees. The value of an RSU at the grant date is equal to the value of one BCE common share. Dividends in the form of additional RSUs are credited to the participant’s account on each dividend payment date and are equivalent in value to the dividend paid on BCE common shares. Executives and other key employees are granted a specific number of RSUs for a given performance period based on their position and level of contribution. RSUs vest fully after three years of continuous employment from the date of grant and, in certain cases, if performance objectives are met as determined by the board of directors.
The following table summarizes outstanding RSUs at December 31, 2012 and 2011.
|NUMBER OF RSUs||2012||2011|
|Outstanding, January 1||1,257,523||3,956,697|
|Outstanding, December 31||2,468,405||1,257,523|
|Vested, December 31||–||21,871|
Under BCE’s long-term incentive plans, BCE may grant options to executives to buy BCE common shares. The subscription price of a grant is based on the higher of:
the volume-weighted average of the trading price on the trading day immediately prior to the effective date of the grant
the volume-weighted average of the trading price for the last five consecutive trading days ending on the trading day immediately prior to the effective date of the grant.
At December 31, 2012, 28,641,835 common shares were authorized for issuance under these plans.
Options vest fully after three years of continuous employment from the date of grant. All options become exercisable when they vest and can be exercised for a period of up to ten years from the date of grant. Special vesting provisions may apply if:
there is a change in control of BCE and the option holder’s employment ends
the option holder is employed by a designated subsidiary of BCE and BCE’s ownership interest in that subsidiary falls below the percentage set out in the plan.
The following table summarizes BCE’s outstanding stock options at December 31, 2012 and 2011.
EXERCISE PRICE ($)
EXERCISE PRICE ($)
|Outstanding, January 1||4,027,309||$33||8,491,226||$32|
|Outstanding, December 31||5,310,356||$37||4,027,309||$33|
|Exercisable, December 31||420,822||$30||1,725,634||$30|
The following table provides additional information about BCE’s stock option plans at December 31, 2012.
|RANGE OF EXERCISE PRICES||STOCK OPTIONS OUTSTANDING|
EXERCISE PRICE ($)
|$20 – $29||65,822||1.7||$29|
|$30 – $39||2,592,606||4.5||$35|
|$40 or more||2,651,928||6.1||$40|
ASSUMPTIONS USED IN STOCK OPTION PRICING MODEL
The fair value of options granted was determined using a variation of a binomial option pricing model that takes into account factors specific to the share incentive plans, such as the vesting period. The following table shows the principal assumptions used in the valuation.
|Weighted average fair value per option granted ($)||3|
|Weighted average share price ($)||40|
|Weighted average exercise price ($)||40|
|Risk-free interest rate||1.4||%|
|Expected life (years)||4.5|
Expected volatilities are based on the historical volatility of BCE’s share price. The risk-free rate used is equal to the yield available on Government of Canada bonds at the date of grant with a term equal to the expected life of the options.
Eligible bonuses and RSUs may be paid in the form of DSUs when executives or other key employees elect to or are required to participate in the plan. The value of a DSU at the issuance date is equal to the value of one BCE common share. For non-management directors, compensation is paid in DSUs until the minimum share ownership requirement is met or as elected by the directors thereafter. There are no vesting requirements relating to DSUs. Dividends in the form of additional DSUs are credited to the participant’s account on each dividend payment date and are equivalent in value to the dividends paid on BCE common shares. DSUs are settled when the holder leaves the company.
The following table summarizes the status of outstanding DSUs at December 31, 2012 and 2011.
|NUMBER OF DSUs||2012||2011|
|Outstanding, January 1||3,351,526||3,477,365|
|Outstanding, December 31||3,305,861||3,351,526|
The following table is a summary of our contractual obligations at December 31, 2012 that are due in each of the next five years and thereafter.
|Commitments for property, plant and|
equipment and intangible assets
BCE’s significant operating leases are for office premises and retail outlets with lease terms ranging from 1 to 30 years. These leases are non-cancellable and are renewable at the end of the lease period. Rental expense relating to operating leases was $269 million in 2012 and $253 million in 2011.
Purchase obligations consist of contractual obligations under service and product contracts, for both operating and capital expenditures. Our commitments for capital expenditures include investments to expand and update our networks, and to meet customer demand.
Proposed Acquisition of Astral
On March 16, 2012, BCE announced the signing of a definitive agreement to acquire all of the issued and outstanding shares of Astral. Astral is a media company that operates specialty and pay TV channels, radio stations, digital media properties and out-of-home advertising platforms in Québec and across the rest of Canada. The transaction was valued at approximately $3.38 billion, including net debt of $380 million. On May 24, and May 25, 2012, the transaction was approved by over 99% of Astral shareholders and by the Québec Superior Court, respectively.
To partially fund the proposed acquisition of Astral, on June 13, 2012, Bell Canada entered into an unsecured committed credit agreement with a syndicate of lenders, maturing three years after the closing of the Astral acquisition, under which $2 billion is currently available.
On October 18, 2012, the CRTC issued Broadcasting Decision CRTC 2012-574 denying BCE’s original application to acquire Astral. On November 19, 2012, Astral and BCE amended the terms of the proposed transaction and subsequently submitted a new proposal to the CRTC for approval. The new application outlines a number of divestitures and other commitments designed to address the concerns outlined in the CRTC’s October 2012 decision.
The new proposal also includes a revised package of tangible benefits in an amount of $174.6 million to create programming, promote Canadian talent, connect communities and enhance consumer participation. The CRTC tangible benefits will be recorded as an acquisition cost in Severance, Acquisition and Other Costs upon closing.
The CRTC announced that it will hold a public hearing commencing the week of May 6, 2013 to consider the new proposal for BCE’s acquisition of Astral. On March 4, 2013, BCE received Competition Bureau clearance for its proposed acquisition of Astral based on a consent agreement under which BCE is required to divest the same TV services and radio stations identified in BCE’s revised proposal to the CRTC.
On March 4, 2013, BCE reached an agreement with Corus Entertainment Inc. (Corus) whereby Corus will acquire Astral’s share of six TV joint ventures as well as two Astral radio stations in Ottawa. Valued at $400.6 million, the Corus transaction is also subject to applicable regulatory approvals.
As a result of the amendments made to the terms of the original definitive agreement between Astral and BCE, BCE’s regulatory covenants have been modified and the outside date for completion of the transaction was postponed to June 1, 2013 with each of Astral and BCE having the right to further postpone it to July 31, 2013, if required to obtain the remaining necessary regulatory approvals. A break-up fee of $150 million is payable by BCE to Astral should the proposed transaction not close before the outside date for failure to obtain regulatory approvals.
We become involved in various legal proceedings as a part of our business. While we cannot predict the final outcome of the legal proceedings pending at December 31, 2012, based on the information currently available and management’s assessment of the merits of such legal proceedings, management believes that the resolutions of these legal proceedings will not have a material and negative effect on our financial statements. We believe that we have strong defences and we intend to vigorously defend our positions.
The following table shows BCE’s significant subsidiaries at December 31, 2012. BCE has other subsidiaries which have not been included in the table as each represents less than 10% individually and less than 20% in aggregate of total consolidated revenues. All of these subsidiaries are incorporated in Canada and provide services to each other in the normal course of operations. The value of these transactions is eliminated on consolidation.
|Bell Mobility Inc.||100.0||%||100.0||%|
|Bell Aliant Inc.||44.1||%||44.1||%|
|Bell ExpressVu Limited Partnership||100.0||%||100.0||%|
|Bell Media Inc.||100.0||%||100.0||%|
Transactions with Joint Ventures and Associates
During 2012 and 2011, BCE provided and received services in the normal course of business and on an arm’s length basis to and from its joint ventures and associates. Our joint ventures are comprised of MLSE, Inukshuk, Enstream Inc., and Dome Productions Partnership. Our associates are comprised of Summerhill Ventures LLP, Q9, Viewer’s Choice Canada Inc., The NHL Network Inc., Cirque du Soleil Media Limited Partnership and, until August 2012, the Montreal Canadiens Hockey Club and the Bell Centre.
BCE recognized revenues and incurred expenses with our associates and joint ventures of $11 million (2011 – $21 million) and $72 million (2011 – $78 million), respectively.
BCE Master Trust Fund
Bimcor Inc. (Bimcor), a wholly-owned subsidiary of Bell Canada, is the administrator of the Master Trust. Bimcor recognized management fees of $13 million and $11 million from the Master Trust for 2012 and 2011, respectively. The details of BCE’s post-employment benefit plans are set out in Note 20, Post-employment Benefit Plans. Additionally, in 2012, BCE completed a co-investment arrangement with the Master Trust with respect to MLSE for which the details are set out in Note 14, Investments in Associates and Joint Ventures.
Compensation of Key Management Personnel and Board of Directors
The following table includes compensation of the key management personnel and board of directors for the years ended December 31, 2012 and 2011 included in our income statements. Key management personnel are the company’s Chief Executive Officer (CEO) and the executives who report directly to the CEO.
|FOR THE YEAR ENDED DECEMBER 31||2012||2011|
|Wages, salaries and related taxes and benefits||(22||)||(22||)|
|Post-employment benefit plans and OPEBs||(3||)||(3||)|
|Key management personnel and board of directors compensation expense||(42||)||(39||)|
On April 1, 2011, BCE acquired the remaining 85% of CTV common shares that we did not already own. We acquired CTV because it allows us to better leverage content across multiple platforms.
The purchase price allocation was completed in 2011 and included certain estimates. The following table summarizes the fair value of the consideration given and the fair value assigned to each major class of asset and liability.
|Issuance of BCE common shares(1)||597|
|Fair value of previously held interest||221|
|Total cost to be allocated||1,746|
|Trade and other receivables||462|
|Property, plant and equipment||454|
|Finite-life intangible assets||551|
|Indefinite-life intangible assets||1,511|
|Other non-current assets||35|
|Trade payables and other liabilities||(419||)|
|Debt due within one year||(1,039||)|
|Deferred tax liabilities||(236||)|
|Post-employment benefit obligations||(92||)|
|Other non-current liabilities||(197||)|
|Cash and cash equivalents||33|
|Fair value of net assets acquired||353|
As part of its approval of the acquisition, the CRTC ordered BCE to spend $239 million over seven years to benefit the Canadian broadcasting system. The present value of this tangible benefits obligation, amounting to $164 million, net of $57 million assumed by CTV’s previous shareholders, was recorded as an acquisition cost in Severance, acquisition and other costs in 2011. Total acquisition costs relating to CTV, including the tangible benefits obligation and a pension curtailment gain of $13 million, amounted to $160 million for the year ended December 31, 2011.
The acquisition date fair value of our previously held 15% AFS equity interest in CTV immediately before the acquisition was $221 million, resulting in a gain on remeasurement of $89 million, which was reclassified from Accumulated other comprehensive income to Other income in 2011.
Revenues of $1,507 million and net earnings of $165 million are included in the income statements in 2011 from the date of acquisition.
BCE’s consolidated operating revenues and net earnings for the year ended December 31, 2011 would have been $19,952 million and $2,557 million, respectively, had the CTV acquisition occurred on January 1, 2011. These pro forma amounts reflect the elimination of intercompany transactions, financing related to the acquisition, the amortization of certain elements of the purchase price allocation and related tax expense.