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Notes to Consolidated Financial Statements


NOTE 7 | OTHER INCOME 

 

FOR THE YEAR ENDED DECEMBER 31NOTE  2012  2011 
Gains on investments  256  89 
Net mark-to-market gain on economic hedges  22  75 
Losses on disposal/retirement of software, plant and equipment  (36)(45)
Interest income  6  21 
Impairment of assets  3  (33)
Equity income14 1  24 
Other  18  (2)
Other income  270  129 


Gains on Investments

In December 2012, Inukshuk Limited Partnership (Inukshuk), a joint venture owned 50% by BCE, sold certain spectrum licences and network equipment to its owners at fair market value. BCE and the non-related venturer each purchased 50% of the assets having a fair market value of $1,181 million and a carrying value of $250 million. As a result, BCE recorded:

  • a gain on investment of $233 million representing BCE’s 50% share of the Inukshuk gain relating to the assets sold to the non-related venturer
  • spectrum licences and network equipment of $358 million representing the fair value of the assets purchased less BCE’s share of the Inukshuk gain
  • a decrease of $125 million in its investment in Inukshuk representing the carrying value of the assets sold.

A gain of $89 million was realized in 2011 on our previously held 15% equity interest in CTV at the acquisition date. As a result, we reclassified unrealized gains of $89 million from Accumulated other comprehensive income to Other income.

Impairment of Assets

Impairment charges of $33 million in 2011 consist mainly of:

  • a $17 million goodwill impairment of a CGU within Bell Wireline that will cease operations in 2013
  • an impairment charge of $14 million relating to our Calgary Westwinds campus that is under a finance lease, resulting from an arrangement to sublease the premises in their entirety. The charge was determined by comparing the carrying value of our leasehold interest to its fair value less costs to sell, based on the expected future discounted cash flows using a discount rate of 3.8% for the period of March 1, 2011 to November 1, 2028.
    The carrying value of our leasehold interest was $67 million prior to the impairment. In June 2012, the sublessee occupied the property and assumed the majority of our lease obligation and the asset now is considered sold.


NOTE 8 | INCOME TAXES 

The following table shows the significant components of income taxes deducted from net earnings.

FOR THE YEAR ENDED DECEMBER 31 2012  2011 
Current taxes      
   Current taxes(817)(758)
   Resolution of uncertain tax positions131  158 
   Change in estimate relating to prior periods48  63 
   Effect of change in provincial corporate tax rate2   
   Other  12 
Deferred taxes      
   Deferred taxes relating to the origination and reversal of temporary differences(30)(79)
   Effect of change in provincial corporate tax rate(37) 
   Change in estimate relating to prior periods(39)(28)
   Recognition and utilization of loss carryforwards(130)(75)
   Resolution of uncertain tax positions52   
   Other(5)(13)
Total income taxes(825)(720)


The following table reconciles the amount of reported income taxes in the income statements with income taxes calculated at statutory income tax rates of 26.6% in 2012 and 28.2% in 2011. The decrease in the statutory income tax rate is explained by a federal rate reduction of 1.5% that became effective on January 1, 2012. Our statutory income tax rate is the combined Canadian rates applicable in the jurisdictions in which we do business.

FOR THE YEAR ENDED DECEMBER 31 2012  2011 
Earnings before income taxes3,878  3,294 
Applicable tax rate26.6%28.2%
Income taxes computed at applicable statutory rates(1,032)(929)
Non-taxable portion of gains on investments66  25 
Resolution of uncertain tax positions183  158 
Effect of change in provincial corporate tax rate(35) 
Change in estimate relating to prior periods9  35 
Other(16)(9)
Total income taxes(825)(720)
Average effective tax rate21.3%21.9%


The following table shows aggregate current and deferred taxes relating to items recognized outside the income statements.

AT DECEMBER 31  20122011
  OTHER
COMPREHENSIVE
INCOME
  DEFICIT OTHER
COMPREHENSIVE
INCOME
 DEFICIT NON-
CONTROLLING
INTEREST
 
Current taxes 231  2 267 1  
Deferred taxes 230  3 (25)6 4 
Total income tax recovery 461  5 242 7 4 


The following table shows deferred taxes resulting from temporary differences between the carrying amounts of assets and liabilities recognized in the statements of financial position and their corresponding tax basis, as well as tax loss carryforwards.

NET DEFERRED TAX LIABILITYNON-
CAPITAL
LOSS CARRY-
FORWARDS
 POST-
EMPLOYMENT
BENEFIT
PLANS
 INDEFINITE-
LIFE
INTANGIBLE
ASSETS
 PROPERTY,
PLANT AND
EQUIPMENT
AND
FINITE-LIFE
INTANGIBLE
ASSETS
 INVESTMENT
TAX CREDITS
 PARTNERSHIP
INCOME
DEFERRAL

(1)

OTHER TOTAL 
January 1, 2011219 836 (808)(284)(137)(104)253 (25)
Income statement(75)(55)(43)(98)31 7 38 (195)
Other comprehensive income (14)    (11)(25)
Deficit      6 6 
Acquisition of CTV90 23 (361)(51)  63 (236)
Non-controlling interest      4 4 
Other      (81)(81)
December 31, 2011234 790 (1,212)(433)(106)(97)272 (552)
Income statement(130)(24)(57)(20)46 9 (13)(189)
Other comprehensive income 231     (1)230 
Deficit      3 3 
Other      (9)(9)
December 31, 2012104 997 (1,269)(453)(60)(88)252 (517)

 

At December 31, 2012, BCE had $484 million of non-capital loss carryforwards. We:

  • recognized a deferred tax asset of $104 million, of which $86 million relates to Bell Media, for approximately $400 million of the non-capital loss carryforwards. These non-capital loss carryforwards expire in varying annual amounts from 2025 to 2032.
  • did not recognize a deferred tax asset for approximately $84 million of non-capital loss carryforwards. This balance expires in varying annual amounts from 2016 to 2030.

At December 31, 2012, BCE had $772 million of unrecognized capital loss carryforwards which can be carried forward indefinitely.

At December 31, 2011, BCE had $965 million of non-capital loss carryforwards. We:

  • recognized a deferred tax asset of $234 million, of which $116 million related to Bell Aliant, for approximately $870 million of the non-capital loss carryforwards. These non-capital loss carryforwards expire in varying annual amounts from 2026 to 2031.
  • did not recognize a deferred tax asset for approximately $95 million of non-capital loss carryforwards. This balance expires in varying annual amounts from 2016 to 2030.

At December 31, 2011, BCE had $1,278 million of unrecognized capital loss carryforwards which can be carried forward indefinitely.


NOTE 9 | EARNINGS PER SHARE 

The following table shows the components used in the calculation of basic and diluted earnings per common share for earnings attributable to common shareholders.

FOR THE YEAR ENDED DECEMBER 31 2012  2011 
Net earnings attributable to common shareholders – basic2,624  2,221 
Dividends declared per common share (in dollars)2.2200  2.0450 
Weighted average number of common shares outstanding (in millions)

 

 

 

 

Weighted average number of common shares outstanding – basic774.3  771.4 
Assumed exercise of stock options(1)0.3  0.4 
Weighted average number of common shares outstanding – diluted774.6  771.8 

 

 


NOTE 10 | TRADE AND OTHER RECEIVABLES 

 

FOR THE YEAR ENDED DECEMBER 31 2012  2011 
Trade receivables(1)2,975  3,021 
Allowance for doubtful accounts(97)(105)
Allowance for revenue adjustments(90)(74)
ITCs25  176 
Other accounts receivable97  95 
Total trade and other receivables2,910  3,113 

 


NOTE 11 | INVENTORY 

 

FOR THE YEAR ENDED DECEMBER 31 2012  2011 
Work in progress 70  64 
Finished goods 347  391 
Provision (25 )(28)
Total inventory 392  427 


The total amount of inventories subsequently recognized as an expense in cost of revenues was $2,385 million in 2012 and $2,380 million in 2011.


NOTE 12 | PROPERTY, PLANT AND EQUIPMENT 

 

FOR THE YEAR ENDED DECEMBER 31, 2012

NETWORK

INFRASTRUCTURE

AND EQUIPMENT

 

 

LAND AND

BUILDINGS

 

 

ASSETS UNDER

CONSTRUCTION

 TOTAL

(1)

COST        
January 1, 201250,241 4,134 1,164 55,539 
Additions2,576 54 1,529 4,159 
Transfers1,191 49 (1,491)(251)
Retirements and disposals(539)(32) (571)
December 31, 201253,469 4,205 1,202 58,876 
         
ACCUMULATED DEPRECIATION        
January 1, 201234,851 1,903  36,754 
Depreciation2,526 148  2,674 
Retirements and disposals(486)(29) (515)
Other(52)8  (44)
December 31, 201236,839 2,030  38,869 
         
NET CARRYING AMOUNT        
At January 1, 201215,390 2,231 1,164 18,785 
At December 31, 201216,630 2,175 1,202 20,007 

 

 

FOR THE YEAR ENDED DECEMBER 31, 2011NETWORK
INFRASTRUCTURE
AND EQUIPMENT
 LAND AND
BUILDINGS
 ASSETS UNDER
CONSTRUCTION
 TOTAL

(1)

         
COST        
January 1, 201147,709 3,851 870 52,430 
Additions1,734 72 1,493 3,299 
Acquisition through business combinations170 251 33 454 
Transfers1,024 (21)(1,232)(229)
Retirements and disposals(396)(19) (415)
December 31, 201150,241 4,134 1,164 55,539 
         
ACCUMULATED DEPRECIATION        
January 1, 201132,873 1,782  34,655 
Depreciation2,400 138  2,538 
Retirements and disposals(342)(18) (360)
Other(80)1  (79)
December 31, 201134,851 1,903  36,754 
         
NET CARRYING AMOUNT        
At January 1, 201114,836 2,069 870 17,775 
At December 31, 201115,390 2,231 1,164 18,785 

 

Finance Leases

BCE’s significant finance leases are for satellites and office premises. The office leases have a typical lease term of 15 years. The leases for satellites, used to provide programming to our Bell TV customers, have lease terms ranging from 12 to 15 years. The satellite leases are non-cancellable.

The following table shows additions to and the net carrying amount of assets under finance leases.

FOR THE YEAR ENDED DECEMBER 31ADDITIONS NET CARRYING AMOUNT
2012  2011  2012  2011 
Network infrastructure and equipment814  263 1,596  913 
Land and buildings  5 596  634 
Total814  268 2,192  1,547 


The following table provides a reconciliation of our minimum future lease payments to the present value of our finance lease obligations.

AT DECEMBER 31, 20122013 2014 2015 2016 2017 THEREAFTER TOTAL 
Minimum future lease payments548 431 267 236 235 1,837 3,554 
Less:              
   Future finance costs(162)(147)(134)(125)(116)(525)(1,209)
Present value of future lease obligations386 284 133 111 119 1,312 2,345


NOTE 13 | INTANGIBLE ASSETS 

 

YEAR ENDED
DECEMBER 31, 2012
FINITE-LIFE  INDEFINITE-LIFETOTAL
INTANGIBLE
ASSETS
 
SOFTWARE CUSTOMER
RELATION-
SHIPS
 OTHER PROGRAM
AND
FEATURE
FILM RIGHTS
 TOTAL BRAND SPECTRUM
AND OTHER
LICENCES
 BROADCAST
LICENCES
 TOTAL 
COST                    
January 1, 20125,788 847 278 364 7,277 2,242 1,687 1,293 5,222 12,499 
Additions225   437 662  345  345 1,007 
Transfers354    354     354 
Retirements and disposals(418) (8) (426)    (426)
Amortization included in
   operating costs
   (538)(538)    (538)
December 31, 20125,949 847 270 263 7,329 2,242 2,032 1,293 5,567 12,896 
                     
ACCUMULATED                    
AMORTIZATION                    
January 1, 20124,140 274 72  4,486     4,486 
Amortization642 51 21  714     714 
Retirements and disposals(411) (8) (419)    (419)
Other28    28     28 
December 31, 20124,399 325 85  4,809     4,809 
                     
NET CARRYING                    
AMOUNT                    
January 1, 20121,648 573 206 364 2,791 2,242 1,687 1,293 5,222 8,013 
December 31, 20121,550 522 185 263 2,520 2,242 2,032 1,293 5,567 8,087 

 

YEAR ENDED
DECEMBER 31, 2011
FINITE-LIFE  INDEFINITE-LIFETOTAL
INTANGIBLE
ASSETS
 
SOFTWARE CUSTOMER
RELATION-
SHIPS
 OTHER PROGRAM
AND
FEATURE
FILM RIGHTS
 TOTAL BRAND SPECTRUM
AND OTHER
LICENCES
 BROADCAST
LICENCES
 TOTAL 
COST                    
January 1, 20115,210 846 218  6,274 2,024 1,687  3,711 9,985 
Additions244   330 574     574 
Acquisition through business
   combinations
70  65 416 551 218  1,293 1,511 2,062 
Transfers336 3 (5) 334     334 
Retirements and disposals(72)(2)  (74)    (74)
Amortization included in
   operating costs
   (382)(382)    (382)
December 31, 20115,788 847 278 364 7,277 2,242 1,687 1,293 5,222 12,499 
                     
ACCUMULATED                    
AMORTIZATION                    
January 1, 20113,505 224 55  3,784     3,784 
Amortization656 50 17  723     723 
Retirements and disposals(70)(2)  (72)    (72)
Other49 2   51     51 
December 31, 20114,140 274 72  4,486     4,486 
                     
NET CARRYING                    
AMOUNT                    
January 1, 20111,705 622 163  2,490 2,024 1,687  3,711 6,201 
December 31, 20111,648 573 206 364 2,791 2,242 1,687 1,293 5,222 8,013 

 


NOTE 14 | INVESTMENTS IN ASSOCIATES AND JOINT VENTURES 

Q9 Networks Inc. (Q9)

In October 2012, an investor group comprising BCE, Ontario Teachers’ Pension Plan Board (Teachers’), Providence Equity Partners LLC (Providence) and Madison Dearborn Partners LLC (Madison Dearborn) completed its acquisition of Canadian data centre operator Q9. Of the $1.1 billion purchase price, Teachers’, Providence and Madison Dearborn together contributed $430 million and BCE provided $185 million of the equity funding. New debt financing by Q9 also funded a portion of the acquisition price. Our 35.3% ownership in Q9 is accounted for using the equity method.

Concurrent with the closing, BCE and its partners settled the reverse break-fee proceedings initiated in 2008 after the termination of the proposed privatization of BCE. Under the settlement, BCE received certain non cash considerations, including increased equity ownership in Q9, and an option at a favourable valuation to acquire the partners’ entire equity interest in Q9 in the future.

Maple Leaf Sports and Entertainment Ltd. (MLSE)

In August 2012, BCE, together with the BCE Master Trust Fund (Master Trust), in a joint ownership arrangement with Rogers Communications Inc. (Rogers), acquired a net 75% ownership position in MLSE. BCE’s net cash contribution totalled $398 million.

Through a co-investment arrangement with BCE, the Master Trust, an independent trust that holds pension fund investments serving the pension obligations of BCE group pension plans, contributed $135 million toward the MLSE acquisition. BCE and the Master Trust own an aggregate 37.5% interest in MLSE through a holding company controlled by BCE in which BCE and the Master Trust hold approximate interests of 75% and 25%, respectively. BCE recorded an investment in MLSE totalling $533 million and a liability of $135 million for BCE’s obligation to repurchase the Master Trust’s interest at a price not less than an agreed minimum price should the Master Trust exercise its put option. BCE accounts for the 37.5% interest in MLSE using the equity method. The obligation to repurchase is recorded in Other non-current liabilities and is marked to market each reporting period. The gain or loss is recorded in Other income.

As required by the terms of the National Hockey League’s approval of the MLSE acquisition, BCE’s governance rights with respect to our ownership interest in the Montreal Canadiens Hockey Club were modified. While our ownership interest in the Montreal Canadiens Hockey Club remains unchanged, we no longer have the ability to exercise significant influence over its operations. As such, the investment was reclassified from investment in associates to AFS investments and is included in Other non-current assets.

Summarized financial information in respect to BCE’s associates and joint ventures are tabled below.

FOR THE YEAR ENDED DECEMBER 31ASSOCIATES AND JOINT VENTURES(1)
2012  2011 
Assets4,136  1,338 
Liabilities2,198  582 
Total net assets1,938  756 
BCE’s share of net assets897  307 
Revenues546  490 
Expenses(534)(407)
Total net earnings12  83 
BCE’s share of net earnings1  24 

 

 

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