BCE Reports Third Quarter Results


	BCE Reports Third Quarter Results (All figures are in Cdn$, unless otherwise indicated) - Revenues of $4.8 billion; EBITDA up 4% - High-speed Internet (DSL) subscribers surpass 1 million MONTREAL, Québec,Oct. 23 2002 --For the third quarter of 2002, BCE Inc. (TSX, NYSE: BCE) reported total revenue of $4.8 billion, EBITDA(1) of $2.0 billion, and net earnings applicable to common shares of $368 million ($0.43 per common share). Net earnings before non-recurring items(2) were $393 million ($0.45 per common share). "The communications industry continues to face many challenges, and in this environment the prudent management of costs and the implementation of productivity initiatives is essential," said Michael Sabia, President and Chief Executive Officer of BCE Inc. "Although, we have experienced weakness in the business wholesale and enterprise retail data markets, our efforts in cost management have resulted in EBITDA growth of 4% compared to the third quarter of 2001." << Operational Highlights (Q3 2002 vs. Q3 2001 unless otherwise indicated) _________________________________________________________________________ Quarter Subscriber Total /Revenue Growth _________________________________________________________________________ High-speed Internet 93,000 net 60% 1,002,000 subscribers (DSL) additions _________________________________________________________________________ Cellular and PCS 62,000 net 16% 3,707,000 subscribers additions _________________________________________________________________________ Bell ExpressVu 45,000 net 31% 1,221,000 subscribers additions _________________________________________________________________________ Data revenue $926 million 5% n.a. _________________________________________________________________________ Bell Globemedia $273 million 11% n.a. revenue _________________________________________________________________________ Productivity $150 million n.a. Year to date: $515 million _________________________________________________________________________ >> __________________________________ (1) EBITDA is defined as operating revenues less operating expenses and therefore reflects earnings before interest, taxes, depreciation and amortization, as well as any non-recurring items. BCE uses EBITDA, amongst other measures, to assess the operating performance of its on-going businesses. The term EBITDA does not have a standardized meaning prescribed by Canadian generally accepted accounting principles and therefore may not be comparable to similarly titled measures presented by other publicly traded companies. EBITDA should not be construed as the equivalent of net cashflows from operating activities. (2) Refer to the discussion under the caption "Overview" for further details. "During the third quarter, we reached a significant milestone at Bell Canada when we signed up our one millionth High-speed Internet subscriber," Mr. Sabia said. "Our wireless and Direct-to-Home (DTH) satellite operations also experienced sustained growth." "Bell Globemedia had a strong third quarter with increased revenues primarily from higher demand for advertising as well as improved EBITDA," Mr. Sabia added. "We believe BCE Emergis is making progress in achieving disciplined profitability." OVERVIEW Total revenue at BCE was $4.8 billion, essentially flat when compared to the same period last year. Excluding the impact of regulatory changes, revenue growth at BCE was at 2%. Local and access service revenues decreased as a result of the impact of regulatory decisions while data revenue growth weakened due to lower business wholesale and enterprise demand. Additionally, BCE Emergis reported lower revenues due to a decline in non-recurring and recurring revenues. These decreases were offset by the underlying growth in key areas: a 14.5% increase in wireless revenues, increased DTH (Direct-to- Home) satellite entertainment services revenues of 33% and an 11% increase in revenues at Bell Globemedia. EBITDA increased by $75 million or 4% compared to the same period last year, mainly due to careful cost management across all areas. Consolidated net earnings applicable to common shares were $368 million, a significant improvement from the loss of $144 million reported last year. During the third quarter, BCE recorded an after-tax charge of $37 million relating to the pay equity settlement at Bell Canada as well as a $12 million dilution gain from the issuance of common shares by BCE Emergis to third parties. Excluding these items, net earnings applicable to common shares were $0.45 for the quarter. OUTLOOK On October 7, 2002, the Company confirmed the lower end of its financial guidance for the full year 2002, excluding discontinued operations (Teleglobe and BCI), at approximately $19.5 billion in revenue, $7.5 billion in EBITDA and net earnings per share (before non-recurring items) of $1.80. RESULTS BY BUSINESS GROUP (unaudited) BCE's core operations as at September 30, 2002, included the Bell Canada segment, Bell Globemedia, and BCE Emergis. BCE Ventures consists of BCE's other investments. << ________________________________________________________________________ (Cdn$ millions, except per share amounts) _____________________________________________ For the period ended Third quarter Nine months September 30 2002 2001 2002 2001 ________________________________________________________________________ Revenue Bell Canada 4,314 4,326 12,957 12,666 Bell Globemedia 273 246 911 849 BCE Emergis 135 173 409 475 BCE Ventures 258 262 782 757 Corporate and Other, including Inter- segment eliminations (158) (189) (463) (520) ______ ______ _______ ________ Total revenue 4,822 4,818 14,596 14,227 ________________________________________________________________________ _________________________________________________________________________ EBITDA 1,891 1,818 5,501 5,172 Bell Canada 17 (6) 108 65 Bell Globemedia 19 35 10 92 BCE Emergis 67 73 217 202 BCE Ventures Corporate and Other, including Inter- segment eliminations (42) (43) (127) (116) ______ ______ _______ ________ Total EBITDA 1,952 1,877 5,709 5,415 _________________________________________________________________________ _________________________________________________________________________ Net earnings (loss) Bell Canada 336 272 1,016 764 Bell Globemedia (11) (52) 1 (125) BCE Emergis 19 (70) (58) (236) BCE Ventures 16 137 99 229 Corporate and Other, including Inter- segment eliminations 24 50 5 3,029 _________________________________________________________________________ Earnings from continuing operations 384 337 1,063 3,661 _________________________________________________________________________ Discontinued operations - (465) (340) (2,862) Dividends on preferred shares (16) (16) (43) (50) _________________________________________________________________________ Net earnings (loss) applicable to common shares 368 (144) 680 749 _________________________________________________________________________ Net earnings (loss) per common share 0.43 (0.18) 0.82 0.93 _________________________________________________________________________ Non-recurring items included in net earnings (loss) per common share Amortization of goodwill - (0.29) - (0.91) Other items (3) (0.03) (0.33) (0.55) 0.52 _________________________________________________________________________ >> (3) Other items for the third quarter of 2001 included discontinued operations of $370 million (excluding goodwill amortization), after- tax gains on sale of investments and dilution gains of $153 million, and other after-tax charges of $48 million. THIRD QUARTER REVIEW (Q3 2002 vs. Q3 2001, unless otherwise indicated) BELL CANADA The Bell Canada segment includes Bell Canada, Aliant, Bell ExpressVu and Bell Canada's interests in other Canadian telcos. - Total revenue in the third quarter decreased slightly over last year mainly as a result of the effects of recent CRTC decisions and slower data revenue growth. - Excluding the impact of the regulatory changes (see below), revenues for the quarter increased by 2%. - Reported local and access revenues decreased by 7% to $1.5 billion. Excluding the effects of the 2001 CRTC local contribution and May 30, 2002 CRTC Price Caps decisions, local and access revenues decreased by 1%. - Although long distance market share is stable, revenue decreased by $12 million. Competitive pressures more than offset the effects of a 6% increase in conversation minutes. - Wireless revenue was up 14.5% to $561 million due to continued growth in cellular and PCS subscribers. - Data revenue increased 5% to $926 million, due to higher IP/Broadband and Sympatico ISP revenues. Data revenue growth has slowed when compared to the growth of 14% in the first quarter and 8% in the second quarter as a result of lower demand from business wholesale and enterprise retail data customers. - Total Internet (High-speed and dial-up) subscribers reached 1,987,000 as at September 30. - Bell ExpressVu revenue increased by 33% as a result of the increase in the subscriber base. - Bell Canada's EBITDA grew by $73 million or 4% in the third quarter to reach $1.9 billion due to continued cost management. - Productivity gains at Bell Canada were $145 million for the quarter. - Year-to-date capex intensity (capital expenditures to revenue) improved from 28% as of September 30, 2001 to 19% as of September 30, 2002. BELL GLOBEMEDIA Bell Globemedia includes CTV, The Globe and Mail and Bell Globemedia Interactive. - Total revenue was $273 million in the quarter compared with revenue of $246 million for the same period last year. This increase includes organic growth of 7% as well as the impact of the acquisitions of CFCF- TV, CKY-TV and ROB TV, which were purchased in the latter part of 2001. - Advertising revenue was $180 million in the quarter, an increase of 10% compared to the third quarter of 2001. A stronger economic climate in the advertising sector as well as higher interactive revenues contributed to the increase. - Subscriber revenues increased by 13% to reach $72 million due to higher subscription to the new digital specialty channels and an increase in print circulation revenues. - EBITDA was $17 million in the third quarter compared with a shortfall of $6 million for the same period last year, reflecting the increase in revenues and management's cost control efforts. BCE EMERGIS - BCE Emergis' sequential quarter over quarter revenues decreased by $7 million mainly due to lower recurring revenues. Revenue was $135 million in the quarter, compared with $173 million for the same period in 2001. - Third quarter EBITDA of $19 million compared favorably to the second quarter EBITDA of $11 million. The improvement in sequential quarter over quarter EBITDA was mainly related to cost savings resulting from the restructuring plan BCE Emergis implemented in the second quarter. Year-over-year quarterly EBITDA decreased by 46% to $19 million, reflecting the shortfall in revenues. - In the quarter, 43% of BCE Emergis' total revenue was from its U.S. operations. BCE VENTURES BCE Ventures includes the activities of CGI, Telesat and other investments. - BCE Ventures' revenue was $258 million in the quarter, a decrease of 2% when compared with the same period of 2001. Revenues at CGI were higher, offset by lower revenues at the other Ventures' businesses. - EBITDA was $67 million in the quarter compared with $73 million in the third quarter of 2001. BELL CANADA STATUTORY RESULTS Bell Canada "statutory" includes Bell Canada, Bell Canada's interests in other Canadian telcos, and Bell Canada's 39% interest in Aliant (equity- accounted). Bell Canada's reported revenue was $3.6 billion in the third quarter, 2% lower when compared to the same quarter of 2001. The net earnings applicable to common shares were $478 million in the quarter, compared to $410 million for the same period last year. ABOUT BCE BCE is Canada's largest communications company. It has 24 million customer connections through the wireline, wireless, data/Internet and satellite services it provides, largely under the Bell brand. BCE leverages those connections with extensive content creation capabilities through Bell Globemedia which features some of the strongest brands in the industry - CTV, Canada's leading private broadcaster, The Globe and Mail, the leading Canadian daily national newspaper and Sympatico.ca, a leading Canadian Internet portal. As well, BCE has extensive e-commerce capabilities provided under the BCE Emergis brand. BCE shares are listed in Canada, the United States and Europe. SUPPLEMENTARY BCE FINANCIAL INFORMATION: ---------------------------------------- BCE's Third Quarter, 2002 Investor Briefing and other relevant financial materials are available in the "Investor Relations" section of BCE's Web site at www.bce.ca. CALL WITH FINANCIAL ANALYSTS: ----------------------------- BCE Inc. (TSX:BCE, NYSE:BCE) will hold a teleconference / Webcast (audio only) for financial analysts to discuss its third quarter results on Wednesday, October 23, 2002 at 8:30 AM (Eastern). The media is 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 the teleconference / Webcast. Interested participants are asked to dial (416) 695-5806 between 8:20 AM and 8:28 AM. If you are disconnected from the call, simply redial the number. If you need assistance during the teleconference, you can reach the operator by pressing "0". This teleconference will also be Webcast live (audio only) on our Web site at www.bce.ca. A replay facility will be available between 12:00 PM on Wednesday, October 23, 2002 and 12:00 PM on Wednesday, October 30, 2002. To access the replay facility, please dial (416) 695-5800 and enter access code 1253888. The Webcast will also be archived on our Web site. CALL WITH THE MEDIA: -------------------- BCE will hold a teleconference for media on Wednesday, October 23, 2002 at 12:30 PM (Eastern). Michael Sabia will be present for this teleconference. Interested participants are asked to dial (800) 273-9672 or (416) 695-5806 between 12:20 PM and 12:28 PM. If you are disconnected from the call, simply redial the number. If you need assistance during the teleconference, you can reach the operator by pressing "0". This teleconference will also be Webcast live (audio only) on our Web site at www.bce.ca. CAUTION CONCERNING FORWARD-LOOKING STATEMENTS Certain statements made in this press 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 dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced after the date hereof. Other factors which could cause results or events to differ materially from current expectations include, among other things: the timing and extent of economic expansion in Canada and of improvement in consumer confidence and spending; the level of demand and prices for data, IP broadband and voice services; BCE's ability to manage costs and generate productivity improvements; the financial condition and credit risk of customers and uncertainties regarding collectibility of receivables; uncertainty as to whether BCE's strategies will yield the expected benefits, synergies and growth prospects; the intensity of competitive activity, and its resulting impact on the ability to retain existing, and attract new, customers, and the consequent impact on pricing strategies, revenues and network capacity; the level of capital expenditures necessary to expand operations, increase the number of customers, provide new services, build and update networks and maintain or improve quality of service; the availability and cost of capital required to implement BCE's financing plan and fund capital and other expenditures; the Internet economy growing at a slower pace than is currently anticipated; the ability to deploy new technologies and offer new products and services rapidly and achieve market acceptance thereof; the ability to carry out cross selling of the various services offered by the BCE group of companies; stock market volatility; the risk of credit rating downgrades; the availability of, and ability to retain, key personnel; the impact of adverse changes in laws or regulations or of adverse regulatory initiatives or proceedings (including the outcome of the appeal of the CRTC's price cap decision); the possibility of further deterioration in the state of capital markets and the telecommunications industry; BCE's ability to implement its financing plan in order to finance the purchase of SBC Communications Inc.'s remaining minority interest in Bell Canada (including the risk of not completing the debt offering); the risk that the closing of the Bell Canada directories sale may be delayed or not occur; and the final outcome of pending or future litigation. For additional information with respect to certain of these and other factors, refer to BCE's 2002 quarterly MD&As filed by BCE with the U.S. Securities and Exchange Commission under Form 6-K and with the Canadian securities commissions. The forward-looking statements contained in this press release represent BCE's expectations as of October 23, 2002 and, accordingly, are subject to change after such date. However, BCE disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. << CONSOLIDATED FINANCIAL STATEMENTS - BCE INC. CONSOLIDATED STATEMENTS OF OPERATIONS _________________________________________________________________________ For the period ended September 30 Three months Nine months ($ millions, except share _______________________________________________ amounts) (unaudited) 2002 2001(1) 2002 2001(1) _________________________________________________________________________ Operating revenues 4,822 4,818 14,596 14,227 _______________________________________________ Operating expenses 2,870 2,941 8,887 8,812 Amortization expense 771 963 2,352 2,878 Net benefit plans credit (7) (26) (25) (90) Restructuring and other charges (Note 4) 79 - 492 239 _______________________________________________ Total operating expenses 3,713 3,878 11,706 11,839 _______________________________________________ Operating income 1,109 940 2,890 2,388 Other income (expense) (Note 5) (4) 69 226 4,026 _______________________________________________ Earnings from continuing operations before the under-noted items 1,105 1,009 3,116 6,414 _______________________________________________ Interest expense - long-term debt 269 235 763 709 - other debt 19 20 49 92 _______________________________________________ Total interest expense 288 255 812 801 _______________________________________________ Earnings from continuing operations before income taxes and non- controlling interest 817 754 2,304 5,613 Income taxes 303 368 840 1,728 Non-controlling interest 130 49 401 224 _______________________________________________ Earnings from continuing operations 384 337 1,063 3,661 Discontinued operations (Note 6) - (465) (340) (2,862) _______________________________________________ Net earnings (loss) 384 (128) 723 799 Dividends on preferred shares (16) (16) (43) (50) _______________________________________________ Net earnings (loss) applicable to common shares 368 (144) 680 749 _________________________________________________________________________ Net earnings (loss) per common share - basic (Note 7) Continuing operations 0.43 0.40 1.23 4.47 Net earnings (loss) 0.43 (0.18) 0.82 0.93 Net earnings (loss) per common share - diluted (Note 7) Continuing operations 0.42 0.39 1.22 4.43 Net earnings (loss) 0.42 (0.18) 0.82 0.92 Dividends per common share 0.30 0.30 0.90 0.90 Average number of common shares outstanding (millions) 864.1 807.9 827.3 807.8 _________________________________________________________________________ The following is a reconciliation of net earnings to reflect the comparative impact of the non-amortization of goodwill and indefinite -life intangible assets effective January 1, 2002 (Refer to Note 1): Adjusted net earnings (loss) Net earnings (loss), as reported 384 (128) 723 799 Amortization expense on goodwill and indefinite -life intangible assets - 237 - 737 _______________________________________________ Net earnings, adjusted 384 109 723 1,536 _________________________________________________________________________ Adjusted net earnings per common share Basic 0.43 0.12 0.82 1.84 Diluted 0.42 0.11 0.82 1.82 _________________________________________________________________________ (1) Refer to Note 1 "Significant accounting policies" for basis of presentation. CONSOLIDATED FINANCIAL STATEMENTS - BCE INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT) _________________________________________________________________________ For the period ended Three months Nine months September 30 _______________________________________________ ($ millions) (unaudited) 2002 2001 2002 2001 _________________________________________________________________________ Balance at beginning of period, as previously reported (7,649) 1,627 712 1,339 Adjustment for change in accounting policy (Note 1) - - (8,180) - _______________________________________________ Balance at beginning of period, as restated (7,649) 1,627 (7,468) 1,339 Net earnings 384 (128) 723 799 Dividends - Preferred shares (16) (16) (43) (50) - Common shares (272) (243) (757) (727) _______________________________________________ (288) (259) (800) (777) Costs relating to the issuance of common shares (62) - (62) - Premium on redemption of common and preferred shares - - (6) (108) Other 10 (2) 8 (15) _______________________________________________ Balance at end of period (7,605) 1,238 (7,605) 1,238 _________________________________________________________________________ CONSOLIDATED FINANCIAL STATEMENTS - BCE INC. CONSOLIDATED BALANCE SHEETS _________________________________________________________________________ September 30 December 31 ($ millions) (unaudited) 2002(1) 2001 _________________________________________________________________________ ASSETS Current assets Cash and cash equivalents(2) 2,870 569 Accounts receivable 2,547 4,118 Other current assets 871 1,213 ____________________________ Total current assets 6,288 5,900 Investments 987 1,106 Capital assets 20,158 25,861 Future income taxes 728 1,031 Other long-term assets 3,266 3,363 Indefinite-life intangible assets 879 866 Goodwill 6,677 15,947 ____________________________ Total assets 38,983 54,074 _________________________________________________________________________ LIABILITIES Current liabilities Accounts payable and accrued liabilities 3,722 5,792 Income and other taxes payable 33 681 Debt due within one year 2,780 5,263 ____________________________ Total current liabilities 6,535 11,736 Long-term debt 12,470 14,861 Future income taxes 922 924 Other long-term liabilities 2,998 4,129 ____________________________ Total liabilities 22,925 31,650 ____________________________ Non-controlling interest 4,937 5,625 ____________________________ SHAREHOLDERS' EQUITY Preferred shares 1,510 1,300 ____________________________ Common shareholders' equity Common shares(3) 16,217 13,827 Contributed surplus 980 980 Retained earnings (deficit) (7,605) 712 Currency translation adjustment 19 (20) ____________________________ Total common shareholders' equity 9,611 15,499 ____________________________ Total shareholders' equity 11,121 16,799 ____________________________ Total liabilities and shareholders' equity 38,983 54,074 _________________________________________________________________________ (1) Refer to Note 1 "Significant accounting policies" for basis of presentation. (2) At December 31, 2001, cash and cash equivalents include $233 million of restricted cash (nil at September 30, 2002). This amount represented BCE's share of Telecom Américas Ltd.'s cash used by it to collaterallize short-term bank loans of certain of its subsidiaries. (3) At September 30, 2002, 905,025,009 (808,514,211 at December 31, 2001) BCE Inc. common shares and 22,027,936 (18,527,376 at December 31, 2001) BCE Inc. stock options were outstanding. 94 million common shares were issued during the third quarter of 2002 in connection with the repurchase by BCE Inc. of SBC Communications Inc.'s indirect minority interest in Bell Canada (refer to Note 3 "Business acquisitions and dispositions"). The stock options were issued under BCE's Long-Term Incentive Stock Option Programs and are exercisable on a one-for-one basis for common shares of BCE Inc. Additionally, Teleglobe stock option holders will receive, upon exercise of their stock options, 0.91 of a BCE Inc. common share for each Teleglobe stock option held. At September 30, 2002, the Teleglobe stock options outstanding were exercisable into 6,073,878 BCE Inc. common shares (10,204,966 at December 31, 2001). CONSOLIDATED FINANCIAL STATEMENTS - BCE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS _________________________________________________________________________ For the period ended Three months Nine months September 30 _______________________________________________ ($ millions) (unaudited) 2002 2001(1) 2002 2001(1) _________________________________________________________________________ Cash flows from operating activities Earnings from continuing operations 384 337 1,063 3,661 Adjustments to reconcile earnings from continuing operations to cash flows from operating activities: Amortization expense 771 963 2,352 2,878 Restructuring and other charges 67 (19) 472 184 Net gains on investments (11) (147) (175) (4,038) Future income taxes 109 160 (10) 503 Other items 14 280 134 (103) Changes in non-cash working capital components 152 (327) (496) (111) ______________________________________________ 1,486 1,247 3,340 2,974 ______________________________________________ Cash flows from investing activities Capital expenditures (904) (1,034) (2,697) (3,803) Investments (1,399) (253) (1,507) (383) Divestitures 14 14 469 4,608 Other items 18 38 5 (49) ______________________________________________ (2,271) (1,235) (3,730) 373 ______________________________________________ Cash flows from financing activities Increase (decrease) in notes payable and bank advances (60) (238) 426 (2,527) Issue of long-term debt 1,105 780 2,400 2,056 Repayment of long-term debt (299) (235) (802) (963) Issue of common shares 2,381 10 2,390 66 Costs relating to the issuance of common shares (78) - (78) - Purchase of common shares for cancellation - - - (191) Issue of preferred shares - - 510 - Redemption of preferred shares - - (306) - Dividends paid on common and preferred shares (255) (259) (758) (777) Issue of common shares, preferred shares, convertible debentures and equity-settled notes by subsidiaries to non- controlling interest 44 3 201 1,370 Redemption of preferred shares by subsidiaries - - - (346) Dividends paid by subsidiaries to non- controlling interest (134) (117) (321) (268) Other items (40) (17) (36) 17 ______________________________________________ 2,664 (73) 3,626 (1,563) ______________________________________________ Effect of exchange rate changes on cash and cash equivalents 1 (1) 1 (1) ______________________________________________ Cash provided by (used in) continuing operations 1,880 (62) 3,237 1,783 Cash used in discontinued operations - (643) (936) (955) ______________________________________________ Net increase (decrease) in cash and cash equivalents 1,880 (705) 2,301 828 Cash and cash equivalents at beginning of period 990 1,793 569 260 Cash and cash equivalents at end of period 2,870 1,088 2,870 1,088 _________________________________________________________________________ (1) Refer to Note 1 "Significant accounting policies" for basis of presentation. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BCE INC. The interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements as at December 31, 2001 and 2000 and for each of the years in the three-year period ended December 31, 2001, dated July 23, 2002. 1. SIGNIFICANT ACCOUNTING POLICIES The interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"), using the same accounting policies as outlined in Note 1 of the annual consolidated financial statements as at December 31, 2001 and 2000 and for each of the years in the three-year period ended December 31, 2001, dated July 23, 2002 except as noted below. Certain comparative figures in the consolidated financial statements have been reclassified to conform to the current period presentation. BASIS OF PRESENTATION All financial information for periods prior to the second quarter of 2002 were restated to reflect the accounting treatment of BCE's investments in Teleglobe Inc. ("Teleglobe") and Bell Canada International Inc. ("BCI") as discontinued operations (refer to Note 6 "Discontinued operations"), and the adoption of the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1650 regarding the accounting treatment of foreign currency translation (refer to "Recent pronouncements") effective in the first quarter of 2002. In addition, effective in the second quarter of 2002, BCE ceased to consolidate the financial results of Teleglobe and BCI, and now holds these investments at cost. (refer to Note 6 "Discontinued operations"). RECENT PRONOUNCEMENTS Business Combinations, Goodwill and Other Intangible Assets ----------------------------------------------------------- The CICA issued new Handbook Sections 1581, Business Combinations, and 3062, Goodwill and Other Intangible Assets. Effective July 1, 2001, the standards require that all business combinations be accounted for using the purchase method. Additionally, effective January 1, 2002, goodwill and intangible assets with an indefinite life are no longer being amortized to earnings and will be assessed for impairment on an annual basis in accordance with the new standards, including a transitional impairment test whereby any resulting impairment was charged to opening retained earnings. BCE's management allocated its existing goodwill and intangible assets with an indefinite life to its reporting units and completed the assessment of the quantitative impact of the transitional impairment test on its financial statements. In 2002, an impairment of $8,180 million was charged to opening retained earnings as of January 1, 2002, as required by the transitional provisions of the new CICA Handbook section 3062, relating to impaired goodwill of reporting units within Teleglobe ($7,516 million), Bell Globemedia ($545 million) and BCE Emergis ($119 million). The following represents a reconciliation of the stated goodwill as at September 30, 2002: _________________________________________________________________________ ($ millions) _________________________________________________________________________ Goodwill, January 1, 2002 15,947 Transitional goodwill impairment charge (8,652) Goodwill acquired during the year(1) 1,065 Deconsolidation of Teleglobe and BCI (1,754) Other 71 __________ Goodwill, September 30, 2002 6,677 _________________________________________________________________________ (1) The goodwill acquired during 2002 relates primarily to the repurchase by Bell Canada Holdings Inc. ("BCH") for cancellation of a portion of its outstanding shares from SBC Communications Inc. ("SBC") for a purchase price of $1.3 billion, resulting in an increase in BCE Inc.'s ownership in BCH to 83.5%. Foreign Currency Translation ---------------------------- Effective January 1, 2002, BCE also adopted the revised recommendations of CICA Handbook Section 1650, Foreign Currency Translation. The standards require that all unrealized translation gains and losses on assets and liabilities denominated in foreign currencies be included in earnings for the year, including gains and losses on long-term monetary assets and liabilities, such as long-term debt, which were previously deferred and amortized on a straight-line basis over the remaining lives of the related items. These amendments were applied retroactively with restatement of prior periods. The cumulative effect as at January 1, 2002 was to decrease other long-term assets by $288 million, increase future income taxes by $27 million, decrease non-controlling interest by $70 million and decrease retained earnings by $191 million. Stock-Based Compensation and Other Stock-Based Payments ------------------------------------------------------- BCE also adopted the new recommendations of CICA Handbook Section 3870, Stock-based compensation and other stock-based payments, effective January 1, 2002. This Section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock- based payments made in exchange for goods and services. The standard requires that all stock-based awards made to non-employees be measured and recognized using a fair value based method. The standard encourages the use of a fair value based method for all awards granted to employees, but only requires the use of a fair value based method for direct awards of stock, stock appreciation rights, and awards that call for settlement in cash or other assets. Awards that a company has the ability to settle in stock are recorded as equity, whereas awards that the entity is required to or has a practice of settling in cash are recorded as liabilities. For BCE, this Section applies to all awards granted on or after January 1, 2002. BCE has elected to account for employee stock options by measuring compensation cost for options as the excess, if any, of the quoted market price of BCE Inc.'s common shares at the date of grant over the amount an employee must pay to acquire the common shares. The following outlines the impact and assumptions used if the compensation cost for BCE's stock options was determined under the fair value based method of accounting for awards granted on or after January 1, 2002. _________________________________________________________________________ For the period ended September 30, 2002 Three Months Nine Months _________________________________________________________________________ Net earnings, as reported ($ millions) 384 723 Pro forma impact ($ millions) (15) (21) ____________________________ Pro forma net earnings ($ millions) 369 702 Pro forma net earnings per common share (basic) ($) 0.41 0.80 Pro forma net earnings per common share (diluted) ($) 0.41 0.79 Assumptions used in Black Scholes option pricing model: Dividend yield 3.6% 3.3% Expected volatility 30% 30% Risk-free interest rate 3.9% 4.6% Expected life (years) 4.2 4.5 Number of options granted 1,119,845 7,946,979 Weighted average fair value of options granted ($) $5 $7 _________________________________________________________________________ 2. SEGMENTED INFORMATION Effective April 24, 2002, BCE centers its activities around three core operating segments, based on products and services, reflecting the way that management classifies its operations for purposes of planning and performance management. The three core operating segments are the Bell Canada segment, Bell Globemedia and BCE Emergis. All other businesses are combined, for management purposes, in the BCE Ventures segment. _________________________________________________________________________ For the period ended Three months Nine months September 30 _______________________________________________ ($ millions) 2002 2001 2002 2001 _________________________________________________________________________ Operating revenues Bell Canada External 4,260 4,289 12,819 12,570 Inter-segment (1) 54 37 138 96 ______________________________________________ 4,314 4,326 12,957 12,666 Bell Globemedia External 263 240 880 831 Inter-segment 10 6 31 18 ______________________________________________ 273 246 911 849 BCE Emergis External 102 126 299 346 Inter-segment 33 47 110 129 ______________________________________________ 135 173 409 475 BCE Ventures External 197 162 594 474 Inter-segment 61 100 188 283 ______________________________________________ 258 262 782 757 Corporate and other External - 1 4 6 Inter-segment 39 10 121 55 ______________________________________________ 39 11 125 61 ______________________________________________ Less: Inter-segment eliminations (1) (197) (200) (588) (581) ______________________________________________ Total operating revenues 4,822 4,818 14,596 14,227 _________________________________________________________________________ EBITDA (2) Bell Canada 1,891 1,818 5,501 5,172 Bell Globemedia 17 (6) 108 65 BCE Emergis 19 35 10 92 BCE Ventures 67 73 217 202 Corporate and other, including inter-segment eliminations (42) (43) (127) (116) ______________________________________________ Total EBITDA 1,952 1,877 5,709 5,415 _________________________________________________________________________ Net earnings (loss) applicable to common shares Bell Canada 336 272 1,016 764 Bell Globemedia (11) (52) 1 (125) BCE Emergis 19 (70) (58) (236) BCE Ventures 16 137 99 229 Corporate and other, including inter-segment eliminations 24 50 5 3,029 ______________________________________________ Total earnings from continuing operations 384 337 1,063 3,661 Discontinued operations - (465) (340) (2,862) Dividends on preferred shares (16) (16) (43) (50) ______________________________________________ Total net earnings (loss) applicable to common shares 368 (144) 680 749 _________________________________________________________________________ (1) Certain comparative figures have been reclassified to conform to the current period presentation. (2) "EBITDA" is defined as operating revenues less operating expenses and therefore reflects earnings before interest, taxes, depreciation and amortization, as well as any non-recurring items. BCE uses "EBITDA", amongst other measures, to assess the operating performance of its on- going businesses. The term "EBITDA" does not have a standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similarly titled measures presented by other publicly traded companies. EBITDA should not be construed as the equivalent of net cash flows from operating activities. 3. BUSINESS ACQUISITIONS AND DISPOSITIONS BCE ACQUISITION OF SBC'S 20% INTEREST IN BCH On June 28, 2002, BCE Inc., BCH and entities controlled by SBC entered into agreements that will lead to the repurchase by BCE Inc. of SBC's 20% indirect interest in BCH, the holding company of Bell Canada, for $6.3 billion. Pursuant to these agreements, on June 28, 2002, BCH purchased for cancellation a portion of its outstanding shares from SBC for a purchase price of $1.3 billion, resulting in an increase in BCE Inc.'s ownership in BCH to 83.5%. In addition, BCE Inc. has the option ("BCE option") to repurchase and SBC has the option ("SBC option") to sell the remaining 16.5% interest in BCH, in each case at an aggregate price of $4.99 billion. The BCE option can only be exercised between October 15, 2002 and November 15, 2002, whereas the SBC option can only be exercised between January 3, 2003 and February 3, 2003. BCE Inc. will exercise the BCE option within the prescribed period, and the transaction is expected to close on or before January 3, 2003, at BCE Inc.'s discretion. BCE Inc. has completed or intends to complete the following steps towards raising the necessary funds to finance the $6.3 billion repurchase price of SBC's indirect interest in Bell Canada: - $1.1 billion drawn on July 15, 2002 under a $3.3 billion two-year non- revolving credit agreement; - proceeds from the issuance on July 15, 2002 of nine million BCE Inc. common shares for $250 million ($27.63 per share), by way of a private placement to SBC; - net proceeds from the public issuance on August 12, 2002 of 85 million common shares of BCE Inc. for $2 billion ($24.45 per share); - net proceeds expected to be received from the proposed public issuance by BCE Inc. of $1.5 to $2 billion of long-term notes, expected to close by the end of October 2002; - $1 to $1.5 billion expected to be accessed from Bell Canada, representing a portion of the net after-tax proceeds expected to flow to BCE Inc. from the sale of Bell Canada's and certain affiliates' directories business (see "Sale of Directories Business"); and - a second private placement to SBC of up to $250 million, planned on the second closing expected on or before January 3, 2003. In the event BCE Inc. does not secure financing for all of the remaining balance of the $6.3 billion repurchase price on or before January 3, 2003, BCE Inc.'s current intention is to draw down on the remaining available balance of the two-year non-revolving credit agreement. Although BCE Inc. does not currently intend to do so, should amounts drawn under the two-year non- revolving credit agreement together with the proceeds resulting from the sources of financing referred to above be insufficient, BCE Inc. could pay the remaining balance of the $6.3 billion repurchase price by issuing notes to SBC. As part of the agreements, BCE Inc. will also purchase, at face value, on or before December 31, 2004, $314 million of BCH Convertible Series B Preferred Securities held by SBC. In connection with the arrangements described above, on June 28, 2002, BCH granted to SBC an option ("BCH option") to purchase 20% of the then outstanding common shares of BCH at an exercise price of approximately $39.48 per share, representing an approximate 25% premium to the June 28, 2002 negotiated repurchase price of the BCH shares, exercisable no later than April 24, 2003. SALE OF DIRECTORIES BUSINESS On September 13, 2002, BCE Inc. announced the sale by Bell Canada and certain affiliates of their directories business for $3 billion cash (subject to certain post-closing adjustments) to an entity ultimately controlled by Kohlberg Kravis Roberts & Co. L.P. and the Ontario Teachers' Merchant Bank, the private equity arm of the Ontario Teachers' Pension Plan Board (collectively, the "Purchasers"). The sale includes 209 print White Pages and Yellow Pages directories in Ontario and Québec, the electronic yellowpages.ca, canadatollfree.ca and Canada411.ca directories and Bell ActiMedia's 12.86% interest in the Aliant ActiMedia General Partnership. $1 to $1.5 billion of the net proceeds from the sale are expected to flow to BCE Inc. to finance part of the repurchase of SBC's remaining indirect interest in Bell Canada, with the remaining proceeds being used by Bell Canada for its ongoing financing needs. The Purchasers will own an approximate 90% equity interest of an acquisition vehicle that will hold the directories business. Bell Canada or one of its affiliates will acquire an approximate 10% equity interest in the acquisition vehicle for approximately $80 million, which will give it the right to appoint one member of such vehicle's Board of Directors. Bell Canada has entered into a long-term, strategic working relationship with the entity operating the directories business pursuant to operating agreements. The closing of the sale of the directories business is expected to take place no later than November 30, 2002. The Purchasers' obligation to complete the transaction is subject to conditions precedent, including the obtaining of all requisite regulatory approvals and the Purchasers obtaining the appropriate financing required for the purposes of the transaction. CREATION OF BELL WEST INC. ("BELL WEST") In April 2002, Bell Canada and Manitoba Telecom Services Inc. ("MTS"), a related party, combined their interests of the wireline assets of BCE Nexxia Inc. in Alberta and British Columbia with Bell Intrigna Inc. to create Bell West, a company providing telecommunications services in those two provinces. Bell West operates under the Bell brand and is owned 60% by Bell Canada and 40% by MTS. The terms of the agreement between Bell Canada and MTS also include certain put and call options with respect to MTS 40% ownership of Bell West. The put options for MTS are as follows: - In February 2004, MTS can sell its interest in Bell West to Bell Canada at a guaranteed floor value of $458 million plus incremental funding (including an 8% return on that incremental funding) invested by MTS going forward (floor value). In January 2007, MTS can sell its interest in Bell West to Bell Canada at fair market value less 12.5%. MTS can also sell its interest in Bell West to Bell Canada at fair market value less 12.5% upon the occurrence of certain change events affecting Bell West. The call options for Bell Canada should MTS not exercise its put options are as follows: - In March 2004, Bell Canada has the option to purchase MTS interest at the greater of the floor value and fair market value. In February 2007, Bell Canada has the option to purchase MTS interest at fair market value. Bell Canada can also purchase MTS interest at fair market value upon a change of control of MTS to a party other than Bell Canada or its affiliates. CREATION OF THE BELL NORDIQ INCOME FUND In April 2002, Bell Canada announced the completion of an initial public offering of units of a newly created income fund (the "Bell Nordiq Income Fund"). The Fund acquired from Bell Canada a 36% interest in each of Télébec Limited Partnership and Northern Telephone Limited Partnership. Bell Canada retains management control over both partnerships and holds a 64% interest in the partnerships. Bell Canada received gross proceeds of $324 million and recorded a gain on sale of $222 million. 4. RESTRUCTURING AND OTHER CHARGES SETTLEMENT OF PAY EQUITY COMPLAINTS On September 27, 2002, the Canadian Telecommunications Employees' Association ("CTEA") ratified a settlement reached with Bell Canada with respect to the 1994 pay equity complaints filed by members of the CTEA before the Canadian Human Rights Tribunal. The settlement includes a cash payout of $128 million and related pension benefits of approximately $50 million. As a result of the settlement, Bell Canada recorded a one- time charge of $79 million (BCE's share is $37 million on an after-tax basis) in the third quarter of 2002, which corresponds to the $128 million cash payout, net of a previously recorded provision. The pension benefits will be deferred and amortized into earnings over the estimated average remaining service life of active employees and average remaining life of retired employees. WRITE-DOWN OF BELL CANADA'S ACCOUNTS RECEIVABLE Coincident with the development of a new billing platform, Bell Canada has adopted a new and more precise methodology to analyze the amount of receivables by customer as well as by service line and which permits a more accurate determination of the validity of customer balances to Bell Canada. This analysis indicated that as at June 30, 2002, a write-down of accounts receivable amounting to $272 million (BCE's share is $142 million on an after-tax basis) is appropriate. As these amounts arose from legacy billing systems and processes, Bell Canada has carried out a detailed review of billings and adjustments for the period from 1997 to 2002. This review determined that these amounts arose as the cumulative result of a series of individually immaterial events and transactions pertaining to its legacy accounts receivable systems dating back to the early 1990's. BCE EMERGIS RESTRUCTURING PLAN BCE Emergis recorded a pre-tax charge of $119 million (BCE's share is $63 million on an after-tax basis) in the second quarter of 2002, representing restructuring and other charges of $100 million and $19 million, respectively, related to the write-off of certain assets, employee severance and other employee costs, contract settlements and costs of leased properties no longer in use, which resulted primarily from the streamlining of BCE Emergis' service offerings and reduction in its operating cost structure. The restructuring program is expected to be substantially complete in 2002, and as at September 30, 2002, the remaining unpaid balance of this restructuring provision was $37 million. 5. OTHER INCOME (EXPENSE) _________________________________________________________________________ For the period ended September 30 Three months Nine months ($ millions) _____________________________________________ 2002 2001 2002 2001 _________________________________________________________________________ Gains (losses) on investments (a) 12 147 181 4,037 Foreign currency gains (losses) (18) (61) 37 (75) Other 2 (17) 8 64 _________________________________________________________________________ Other income (expense) (4) 69 226 4,026 _________________________________________________________________________ (a) During the first nine months of 2002, other income included: (i) net gains on investments of $256 million, primarily from the creation of the Bell Nordiq Income Fund (refer to Note 3); (ii) a $103 million loss, primarily on the write-down of BCE's remaining portfolio investment in Nortel Networks Corporation; and (iii) a gain of $28 million resulting from the reorganization of BCE's investment in TMI Communications and Company Limited Partnership. 6. DISCONTINUED OPERATIONS _________________________________________________________________________ For the period ended September 30 Three months Nine months ($ millions) ______________________________________________ 2002 2001 2002 2001 _________________________________________________________________________ Teleglobe (a) - (205) (149) (2,636) BCI (b) - (260) (191) (226) _________________________________________________________________________ Net loss from discontinued operations - (465) (340) (2,862) _________________________________________________________________________ (a) Teleglobe provides a range of international voice and data telecommunications services. Until the second quarter of 2002, Teleglobe also provided, through its investment in the Excel Communications group ("Excel"), retail telecommunications services such as long distance, paging and Internet services to residential and business customers in North America and the U.K. The results of operations of Teleglobe include an impairment charge of $2,049 million recorded in the first quarter of 2001 after completion of an assessment of the carrying value of Teleglobe's investment in Excel. On April 24, 2002, BCE Inc. announced that it would cease further long-term funding to Teleglobe. BCE Inc.'s decision was based on a number of factors, including a revised business plan and outlook of the principal operating segment of Teleglobe with associated funding requirements, a revised assessment of its prospects, and a comprehensive analysis of the state of its industry. In light of that decision, Teleglobe announced that it would pursue a range of financial restructuring alternatives, potential partnerships and business combinations. Also on April 24, 2002, all BCE Inc.-affiliated board members of Teleglobe tendered their resignation from the Teleglobe board. The effective result of these events was the exit by BCE of the Teleglobe business and the eventual material reduction in BCE's approximate 96% economic and voting interest in Teleglobe as a result of the ongoing restructuring of Teleglobe. Accordingly, effective April 24, 2002, BCE reclassified the financial results of Teleglobe as a discontinued operation. BCE's management completed its assessment of the net realizable value of BCE's interest in the net assets of Teleglobe and determined it to be nil, resulting in a loss from discontinued operations of $73 million, which is in addition to the transitional impairment charge of $7,516 million to opening retained earnings as at January 1, 2002, as required by the transitional provisions of the new CICA Handbook section 3062 (refer to Note 1). A valuation allowance has been provided against the entire amount of the tax benefit associated with the loss on this investment. On May 15, 2002 and thereafter, Teleglobe and certain of its subsidiaries filed for court protection under insolvency statutes in Canada, the United States, the United Kingdom and elsewhere. Operating under court protection and with the assistance of a Monitor, appointed in the Canadian insolvency proceedings, Teleglobe has sought and received court approval of its decision to discontinue its hosting and certain other businesses, to proceed with the orderly shut-down of its Globesystem network and to proceed with a process for the sale of its remaining core telecommunications business. Such sale process is being conducted by the Monitor under court supervision. On September 19, 2002, Teleglobe announced the execution of an agreement for the sale to affiliates of TenX Capital Partners and Cerberus Capital Management (the "Purchasers") of its core telecommunications business for U.S. $155 million, subject to certain adjustments. The parties also indicated that they intend to enter into an agreement for the management by the Purchasers of the core telecommunications business upon satisfaction of certain conditions, including the consent of Bell Canada to the assignment of its contracts with Teleglobe to the Purchasers. Subject to the foregoing and the granting of all regulatory approvals, closing is expected to occur in early 2003. The foregoing transaction being subject to a number of conditions, there can be no assurance that it will be completed on the agreed terms or at all, so that service can continue to be provided to the customers of BCE on an uninterrupted basis. The failure of the sale process may result in a decision to proceed with a shutdown of Teleglobe's business and a liquidation of its remaining assets. An affiliate of BCE Inc. has provided Teleglobe with a borrowing facility of approximately U.S. $94 million on a debtor-in-possession basis (the "DIP Facility") as well as a U.S. $25 million facility to allow Teleglobe to meet its obligations under an Employee Severance and Retention Plan (the "Employee Facility"). On September 20, 2002, following the closing of the sale by Teleglobe of its equity interest in Intelsat, Ltd. for U.S. $65 million, all outstanding borrowings under the DIP Facility (U.S. $55 million) were repaid and the availability thereunder was reduced from U.S. $93.6 million to U.S. $50 million. The revised DIP Facility provides that Teleglobe will not be allowed to borrow thereunder until such time as all the remaining proceeds of the Intelsat, Ltd. sale will have been used to fund Teleglobe's operations. Effective September 30, 2002, the availability under the DIP Facility was further reduced to U.S. $30 million and its maturity extended to the earlier of the date of execution of the management agreement referred to above and November 30, 2002. As of October 23, 2002, no amount is outstanding under the DIP Facility and the Employee Facility (an aggregate of U.S. $7.4 million previously advanced under the Employee Facility has been repaid by way of set-off). There can be no assurance that Teleglobe will be able to repay amounts advanced by BCE under the DIP Facility and the Employee Facility or that realization of any security will be sufficient to repay BCE. BCE does not expect to realize any material amount from its investment in Teleglobe. Since (i) BCE's management does not expect any future economic benefits from its approximate 96% economic and voting interest in Teleglobe, (ii) BCE has not guaranteed any of Teleglobe's obligations, and (iii) BCE has ceased further long-term funding to Teleglobe, BCE deconsolidated Teleglobe's financial results effective May 15, 2002, and now accounts for the investment at cost. Therefore, all future financial results of Teleglobe will not affect BCE's future financial results. The following are amounts relating to BCE's interest in the net assets of Teleglobe on May 15, 2002: current assets of $1.4 billion, non-current assets of $4.3 billion, current liabilities of $3.6 billion, and non-current liabilities of $2.1 billion. Refer to Note 8 "Contingencies" for a description of the lending syndicate lawsuit filed against BCE Inc. (b) BCI develops and operates advanced communications companies in markets outside Canada, with a focus on Latin America. Effective January 1, 2002, BCE adopted a formal plan of disposal of its operations in BCI. Consequently, the results of BCI have been reported as discontinued operations. On July 12, 2002, BCI shareholders and holders of BCI's 11% senior unsecured notes due September 2004 (the "Noteholders") voted to approve a court-supervised plan of arrangement of BCI pursuant to section 192 of the Canada Business Corporations Act (the "Plan of Arrangement"). On July 17, 2002, BCI obtained court approval of the Plan of Arrangement, which includes the sale by BCI of its interest in Telecom Américas Ltd., through which BCI held the majority of its investments, to América Movil S.A. de C.V. and, following the disposition of all assets of BCI and the determination of all claims against BCI, the liquidation of BCI and the final distribution to BCI's creditors and shareholders with the approval of the court and ultimately the dissolution of BCI. BCI completed the sale of its interest in Telecom Américas Ltd. in July 2002, and is currently proceeding, under court supervision, to implement the remaining elements of the Plan of Arrangement. As a result of these events, BCE deconsolidated BCI's financial results effective June 30, 2002, and now accounts for the investment at cost. Therefore, all future financial results of BCI will not affect BCE's future financial results. BCE recorded a charge of $191 million in the second quarter of 2002 representing a write-down of its investment in BCI to its net realizable value, which was reported as a loss from discontinued operations. Amounts included in the consolidated balance sheets relating to discontinued operations are as follows: _________________________________________________________________________ September 30 December 31 ($ millions) 2002 2001 _________________________________________________________________________ Current assets - 1,957 Non-current assets 175 16,576 Current liabilities - (5,855) Non-current liabilities - (5,250) _________________________________________________________________________ Net assets of discontinued operations 175 7,428 _________________________________________________________________________ The summarized statements of operations for the discontinued operations are as follows: _________________________________________________________________________ For the period ended September 30 Three months Nine months ($ millions) _____________________________________________ 2002 2001 2002 2001 _________________________________________________________________________ Revenue - 854 681 2,711 _____________________________________________ Operating loss from discontinued operations, before tax - (375) (123) (3,156) Gain (loss) on discontinued operations, before tax - (86) (282) 461 Income tax recovery on operating loss - 69 40 134 Income tax recovery (expense) on gain (loss) - - 18 (45) Non-controlling interest - (73) 7 (256) _________________________________________________________________________ Net loss from discontinued operations - (465) (340) (2,862) _________________________________________________________________________ 7. EARNINGS PER SHARE DISCLOSURES The following is a reconciliation of the numerators and the denominators of the basic and diluted earnings per common share computations for earnings from continuing operations: _________________________________________________________________________ For the period Three months Nine months ended September 30 _____________________________________________ 2002 2001 2002 2001 _________________________________________________________________________ Earnings from continuing operations (numerator) ($ millions) Earnings from continuing operations 384 337 1,063 3,661 Dividends on preferred shares (16) (16) (43) (50) _____________________________________________ Earnings from continuing operations - basic 368 321 1,020 3,611 Exercise of put options by CGI shareholders 3 - 9 (1) _________________________________________________________________________ Earnings from continuing operations - diluted 371 321 1,029 3,610 _________________________________________________________________________ Weighted average number of common shares outstanding (denominator) (millions) Weighted average number of common shares outstanding - basic 864.1 807.9 827.3 807.8 Exercise of stock options 1.9 2.2 2.1 2.3 Exercise of put options by CGI shareholders 13.0 5.6 13.0 5.6 _________________________________________________________________________ Weighted average number of common shares outstanding - diluted 879.0 815.7 842.4 815.7 _________________________________________________________________________ 8. COMMITMENTS AND CONTINGENCIES TELEGLOBE LENDING SYNDICATE LAWSUIT Certain members of the Teleglobe lending syndicate (the "Plaintiffs") filed a lawsuit against BCE Inc. in the Ontario Superior Court of Justice on July 12, 2002. The Plaintiffs seek damages from BCE Inc. in the aggregate amount of US$1.19 billion (together with interests and costs), which they allege is equal to the amount they advanced as members of the Teleglobe Inc. and Teleglobe Holdings (U.S.) Corporation lending syndicate. The Plaintiffs' claim is based on several allegations, including that the actions and representations of BCE Inc. and its management in effect constituted a legal commitment of BCE Inc. that the advances would be repaid. The Plaintiffs represent approximately 95.2% of the US$1.25 billion advanced by the members of such lending syndicate. While the final outcome of any legal proceeding cannot be predicted with certainty, based upon information currently available, BCE Inc. is of the view that it has strong defences and it intends to vigorously defend its position. CRTC SECOND PRICE CAP DECISION 2002-34 On May 30, 2002, the CRTC released Decision 2002-34, "Second Price Cap Decision", making a number of changes to the rules governing Canada's telecommunications industry with respect to local service for the next four years. One of the changes resulting from this Decision is that there be a mechanism (referred to in the Decision as the "deferral account") to provide to the majority of residential customers a combination of certain enhanced services, reduced rates and/or rebates, and certain other adjustments. Bell Canada will propose the manner in which it will implement these directives to the CRTC in March 2003. As at September 30, 2002, Bell Canada's commitment associated with this Decision is estimated at $40 million. 9. SUBSEQUENT EVENTS LAUNCH OF PUBLIC DEBT OFFERING On October 22, 2002, BCE Inc. announced that it has initiated a Canadian public offering of debt securities to raise approximately $1.5 billion. A draft prospectus supplement to the short form base shelf prospectus dated August 1, 2002 was filed on October 21, 2002 with all Canadian provincial securities regulatory authorities. The proceeds will be used to finance part of the repurchase of SBC's remaining indirect interest in Bell Canada (refer to Note 3). >> -30- For further information: Nick Kaminaris, Communications, (514) 786-3908; Isabelle Morin, Investor Relations, (514) 786-3845; Web Site: www.bce.ca

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