BCE reports its first quarter 2003 results


	BCE reports its first quarter 2003 results (All figures are in Cdn$, unless otherwise indicated) - EPS from Continuing Operations up 19% - Comparable Revenue up 4.4%; Comparable EBITDA up 7.4% MONTREAL, (QUEBEC),April 30 2003 --For the first quarter of 2003, BCE Inc. (TSX, NYSE: BCE) reported earnings per share from continuing operations of $0.50 (total earnings applicable to common shares of $458 million), up 19% compared to $0.42 per common share (total earnings applicable to common shares of $342 million) last year. On a comparable basis, excluding the impacts of the sale of Bell Canada's directories business on November 29, 2002, and the May 30, 2002 CRTC Price Cap decision, BCE's total revenue growth was 4.4% and total EBITDA(1) growth was 7.4%. Reported total revenue was $4.9 billion, an increase of 0.8% over last year, and reported EBITDA was $1.8 billion, up 0.7% over last year. "Despite challenges in our industry, we delivered a reasonably balanced performance for the quarter," said Michael Sabia, President and CEO of Bell Canada Enterprises. "While we continue to face pressures in certain areas of our business, we have achieved solid growth in others. We now have more than four million subscribers in our wireless operation and strong demand for DSL High-speed Internet grew our subscriber base by 39%." "We continue to execute on our plans to improve our productivity and tightly manage our capital expenditures," concluded Mr. Sabia. "For the quarter, our operations delivered free cash flow (after CAPEX and dividends) of $236 million. With now close to $2 billion of consolidated cash, we are well positioned to reduce debt levels and strengthen our balance sheet." << Operational Highlights _________________________________________________________________________ _________________________________________________________________________ Q1 2003 As at March 31, 2003 _________________________________________________________________________ Cellular and PCS 70,000 net additions 3,989,000 subscribers _________________________________________________________________________ High-speed Internet (DSL) 96,000 net additions 1,206,000 subscribers _________________________________________________________________________ Bell ExpressVu (DTH) 13,000 net additions 1,317,000 subscribers _________________________________________________________________________ Bell Globemedia revenue Up 7% to $335 million - _________________________________________________________________________ Data revenue Up 3% to $933 million - _________________________________________________________________________ Productivity initiatives $138 million - _________________________________________________________________________ _________________________________________________________________________ >> - Excluding the impacts of the sale of Bell Canada's directories business and the Price Cap decision, EBITDA as a percentage of revenues was at 37.6% in the first quarter of 2003 compared to 36.5% for the same period last year. - Excluding the impacts of the sale of Bell Canada's directories business and the Price Cap decision, operating income (operating revenues less operating expenses, amortization expense and net benefits plan expense) increased by $75 million or 8.1% as a result of increased EBITDA partially offset by higher net benefit (pension) plans expense. Reported operating income decreased by $40 million to $1.0 billion. - Earnings per share from continuing operations increased by 19% as a result of growth in operations and higher foreign exchange gains due to a strengthened Canadian dollar. Additionally, earnings per share for the first quarter of 2003 reflected the benefit of regaining 100% of Bell Canada's earnings as well as shareholders' dilution due to the issuance of new debt and equity in 2002 to partially finance BCE's return to full ownership of Bell Canada. - Free cash flow (after CAPEX and dividends) of $236 million for the first quarter of 2003 improved significantly from the negative $654 million from the same period last year. This resulted from reduced capital expenditures, increased cash from operations, and the impact of cash tax refunds of $237 million relating to utilized capital losses compared to taxes paid of $288 million mainly on capital gains last year. Outlook BCE confirmed its annual financial guidance of $19.3 billion to $20.0 billion for revenue, $7.4 billion to $7.8 billion for EBITDA, and $1.85 to $1.95 for net earnings per share (before non-recurring items) (2). BCE now expects Bell ExpressVu total year end subscribers of 1.41 million to 1.46 million (previously 1.45 million to 1.55 million). BCE expects Bell ExpressVu's revenue growth to be at the low end of its 2003 guidance of 20% to 25% and confirms previously stated guidance of approximately 50% EBITDA growth. RESULTS BY BUSINESS GROUP (unaudited) BCE operated under four segments as at March 31, 2003: Bell Canada, Bell Globemedia, BCE Emergis and BCE Ventures (which consists of BCE's other investments). << _________________________________________________________________________ (Cdn$ millions, except per share amounts) _________________________________________ First quarter For the period ended March 31 2003 2002 _________________________________________________________________________ _________________________________________________________________________ Revenue Bell Canada 4,259 4,303 Bell Globemedia 335 312 BCE Emergis 124 132 BCE Ventures 308 263 Corporate and Other, including Inter-segment eliminations (124) (148) __________ __________ Total revenue 4,902 4,862 _________________________________________________________________________ _________________________________________________________________________ EBITDA Bell Canada 1,724 1,755 Bell Globemedia 37 33 BCE Emergis 15 (20) BCE Ventures 84 77 Corporate and Other, including Inter-segment eliminations (40) (37) __________ __________ Total EBITDA 1,820 1,808 _________________________________________________________________________ _________________________________________________________________________ Net earnings (loss) Bell Canada 427 314 Bell Globemedia (2) 1 BCE Emergis 6 (15) BCE Ventures 39 24 Corporate and Other, including Inter-segment eliminations 3 31 _________________________________________________________________________ Earnings from continuing operations 473 355 _________________________________________________________________________ Discontinued operations - (45) Dividends on preferred shares (15) (13) _________________________________________________________________________ Net earnings applicable to common shares 458 297 _________________________________________________________________________ Net earnings per common share 0.5 0.37 _________________________________________________________________________ Effect on earnings per common share - discontinued operations - 0.05 _________________________________________________________________________ Earnings from continuing operations 0.5 0.42 _________________________________________________________________________ >> Note: Refer to Note 1 of the attached BCE Q1 2003 Financial Statements for information on changes to accounting policies. FIRST QUARTER REVIEW (Q1 2003 vs. Q1 2002, unless otherwise indicated) BELL CANADA The Bell Canada segment includes Bell Canada, Aliant, Bell ExpressVu (at 100%) and Bell Canada's interests in other Canadian telcos. << _________________________________________________________________________ (Cdn$ millions) _______________________ First quarter For the period ended March 31 2003 2002 _________________________________________________________________________ _________________________________________________________________________ Bell Canada Revenue Local and access 1,500 1,519 Long distance 646 648 Wireless 570 504 Data 933 905 DTH Satellite Services 177 151 Terminal sales & other 433 444 Directory advertising - 132 _______ _______ Total Bell Canada revenue 4,259 4,303 _________________________________________________________________________ >> - Excluding the impact of the sale of the directories business and the Price Cap decision, revenues for the quarter increased by $122 million or 2.9%. Wireline - Local and access revenues decreased by 1.3%, due mainly to the effects of the Price Cap decision and a 0.8% decrease in residential and business local access lines. - Long distance revenues were relatively stable, as competitive pricing pressures continued to offset the effects of a 5% increase in quarterly conversation minutes and higher network access and other fees. Wireless - Wireless revenues were up 13% due to continued strong growth in cellular and PCS subscribers. - Wireless postpaid net additions were at 52,000. Total postpaid wireless churn was at a historically low level of 1.3% and reflected our priority on customer service. - Wireless EBITDA increased by 23% to reach $219 million, due to the increase in revenues and productivity initiatives. Data - Data revenues increased by 3%. Higher Sympatico ISP, I/P Broadband and Managed Network Services revenues more than offset continued softness in demand from the Business and Wholesale markets as well as the effects of the Price Cap decision. - Total Internet (High-speed and dial-up) subscribers reached 2,146,000 as at March 31. Total High-speed Internet subscribers grew by 39%. DTH (Direct to Home) Satellite Services - Increases in Bell ExpressVu's subscriber base and pricing for some packages contributed to its 17% improvement in revenues. There were 15% more subscribers compared to the first quarter of 2002. EBITDA and CAPEX - Excluding the impact of the sale of the directories business and the Price Cap decision, Bell Canada's EBITDA increased by $84 million or 5% in the first quarter due to continued cost management and productivity gains of $131 million. - Bell's quarter-end CAPEX intensity (capital expenditures as a percentage of revenue) was 13%, down from 18% in the first quarter of 2002, due to the focus on capital efficiency and the weighting of certain capital projects towards subsequent quarters. BELL GLOBEMEDIA Bell Globemedia includes CTV and The Globe and Mail. - Total revenue was $335 million in the quarter compared with revenue of $312 million for the same period last year. - Television advertising revenues increased by 13% compared to the first quarter of 2002 due to stronger programming and the strengthening of the overall television advertising market. - EBITDA improved by 12% to $37 million, reflecting the increase in revenues and management's cost control efforts. BCE EMERGIS - Revenue was $124 million in the first quarter, compared with $132 million for the same period in 2002 and $131 million in the fourth quarter of 2002. - Year-over-year quarterly EBITDA increased by $35 million to reach $15 million, reflecting management's success in containing costs through restructuring and productivity improvements and the exit from non-core businesses. EBITDA decreased by $5 million compared to fourth quarter 2002 EBITDA. BCE VENTURES BCE Ventures includes the activities of CGI, Telesat and other investments. - BCE Ventures' revenue was $308 million in the quarter, an increase of 17% when compared with the same period of 2002, due mainly to CGI's January 2003 acquisition of Cognicase Inc. - EBITDA was $84 million in the quarter compared with $77 million in the first quarter of 2002, due mainly to CGI's acquisition of Cognicase. BELL CANADA STATUTORY RESULTS Bell Canada "statutory" includes Bell Canada, and Bell Canada's interests in Aliant, Bell ExpressVu (at 52%), and other Canadian telcos. Bell Canada's reported revenue was $4.3 billion in the first quarter of 2003, up 20% due to the consolidation of Aliant and Bell ExpressVu effective December 31, 2002. Net earnings applicable to common shares were $495 million in the first quarter of 2003, compared to net earnings applicable to common shares of $473 million for the same period last year. ABOUT BCE BCE is Canada's largest communications company. It has 25 million customer connections through the wireline, wireless, data/Internet and satellite services it provides, largely under the Bell brand. BCE's media interests are held by Bell Globemedia, including CTV and The Globe and Mail. As well, BCE has e-commerce capabilities provided under the BCE Emergis brand. BCE shares are listed in Canada, the United States and Europe. Supplementary BCE Financial Information: ---------------------------------------- Bell Canada Enterprises' 2003 First Quarter Shareholder Report and other relevant financial materials are available at www.bce.ca/en/investors, under "Investor Briefcase". Call with Financial Analysts: ----------------------------- BCE will hold a teleconference / Webcast (audio only) for financial analysts to discuss its first quarter results on Wednesday, April 30, 2003 at 8:00 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. Interested participants are asked to dial (416) 405-9328 between 7:50 AM and 7:58 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, April 30, 2003 and 12:00 PM on Wednesday, May 7, 2003. To access the replay facility, please dial (416) 695-5800 and enter access code 1406519. The Webcast will also be archived on our Web site. Call with the Media: -------------------- BCE will hold a teleconference / Webcast (audio only) for media to discuss its first quarter results on Wednesday, April 30, 2003 at 1:00 PM (Eastern). Michael Sabia will be present for this teleconference. Interested participants are asked to dial (416) 406-6419 or 888 575-8232 between 12:50 PM and 12:58 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 non-recurring items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after the date hereof. Other factors that could cause results or events to differ materially from current expectations include, among other things: general economic conditions, the level of consumer confidence and spending and the state of capital markets; the impact of adverse changes in laws or regulations or of adverse regulatory initiatives or proceedings; the level of demand, including in particular by the enterprise sector, and prices, for products and services in the telecom (e.g., data, IP broadband and voice services), media and e?business markets; BCE Inc.'s and its subsidiaries' ability to manage costs, generate productivity improvements and decrease capital intensity while maintaining quality of service; the intensity of competitive activity, from both traditional and new competitors, and its resulting impact on the ability to retain existing, and attract new, customers, and the consequent impact on pricing strategies, revenues and net income; the risk of low returns on pension plan assets continuing resulting in the erosion of our pension fund surpluses which could require us to commence making pension fund contributions and/or recognize pension expenses; the financial condition and credit risk of customers and uncertainties regarding collectibility of receivables; the availability and cost of capital required to implement BCE Inc.'s and its subsidiaries' financing plans and fund capital and other expenditures; the ability to deploy new technologies and offer new products and services rapidly and achieve market acceptance thereof; the ability to package and cross sell various services offered by the BCE group of companies; the ability of the BCE group companies' strategies to produce the expected benefits and growth prospects; stock market volatility; the availability of, and ability to retain, key personnel; and the final outcome of pending or future litigation. For additional information with respect to certain of these and other factors, refer to BCE Inc.'s First Quarter 2003 Management's Discussion and Analysis filed 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 the expectations of BCE Inc. and its subsidiaries as of April 30, 2003 and, accordingly, are subject to change after such date. However, BCE Inc. and its subsidiaries disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. (1) The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning prescribed by Canadian GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. We define it as operating revenues less operating expenses, which means it represents operating income before amortization expense, net benefit plans (credit) expense and restructuring and other charges. EBITDA is presented on a basis that is consistent from period to period. We believe EBITDA to be an important measure as it allows us to assess the operating performance of our ongoing businesses without the effects of amortization expense, net benefit plans (credit) expense and restructuring and other charges. We exclude amortization expense and net benefit plans (credit) expense because they substantially depend on the accounting methods and assumptions a company uses, as well as non-operating factors such as the historical cost of capital assets and the fund performance of a company's pension plans. We exclude restructuring and other charges because they are transitional in nature. EBITDA allows us to compare our operating performance on a consistent basis. We also believe that EBITDA is used by certain investors and analysts to measure a company's ability to service debt and to meet other payment obligations or as a valuation measurement that is commonly used in the telecommunications industry. EBITDA should not be confused with net cash flows from operating activities. The most comparable Canadian GAAP earnings measure is operating income. The following is a reconciliation of EBITDA to operating income on a consolidated and segmented basis: << _________________________________________________________________________ _________________________________________________________________________ Bell Corpora- BCE Bell Globe- BCE BCE te and Consoli- in $ millions Canada media Emergis Ventures other dated _________________________________________________________________________ _________________________________________________________________________ For the three months ended March 31, 2003 EBITDA 1,724 37 15 84 (40) 1,820 Amortization expense 735 17 14 28 (18) 776 Net benefit plans expense (credit) 44 1 - - (3) 42 _________________________________________________________________________ _________________________________________________________________________ Operating income (loss) 945 19 1 56 (19) 1,002 _________________________________________________________________________ _________________________________________________________________________ For the three months ended March 31, 2002 EBITDA 1,755 33 (20) 77 (37) 1,808 Amortization expense 715 17 23 32 (15) 772 Net benefit plans expense (credit) (8) 1 - - 1 (6) _________________________________________________________________________ _________________________________________________________________________ Operating income (loss) 1,048 15 (43) 45 (23) 1,042 _________________________________________________________________________ _________________________________________________________________________ >> (2) The term net earnings before non-recurring items does not have any standardized meaning prescribed by Canadian GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. We define it as net earnings applicable to common shares adjusted for non-recurring items, which include (on an after-tax basis) BCE's share of: net gains (losses) on investments, impairment charges, the results of discontinued operations and restructuring and other charges. Net earnings before non-recurring items are presented on a basis that is consistent from period to period. We use net earnings before non-recurring items to assess our profitability without regard to net gains (losses) on investments, impairment charges, the results of discontinued operations and restructuring and other charges. We exclude these items because they are considered to be of a non-operational or non-recurring nature and accordingly affect the period-to-period comparability of our results. Net earnings before non-recurring items allows us to compare our profitability on a consistent basis. The most comparable Canadian GAAP earnings measure is net earnings applicable to common shares. << CONSOLIDATED FINANCIAL STATEMENTS - BCE INC. CONSOLIDATED STATEMENTS OF OPERATIONS _________________________________________________________________________ For the three months ended March 31 ($ millions, except share amounts) (unaudited) 2003 2002(1) _________________________________________________________________________ Operating revenues 4,902 4,862 ______________________ Operating expenses 3,082 3,054 Amortization expense 776 772 Net benefit plans expense (credit) 42 (6) ______________________ ______________________ Total operating expenses 3,900 3,820 ______________________ Operating income 1,002 1,042 Other income (Note 4) (48) (2) Interest expense (Note 5) 284 261 ______________________ Earnings from continuing operations before income taxes and non-controlling interest 766 783 Income taxes 245 292 Non-controlling interest 48 136 ______________________ Earnings from continuing operations 473 355 Discontinued operations (Note 6) - (45) ______________________ Net earnings 473 310 Dividends on preferred shares (15) (13) _________________________________________________________________________ Net earnings applicable to common shares 458 297 _________________________________________________________________________ _________________________________________________________________________ Net earnings per common share - basic (Note 7) Continuing operations 0.50 0.42 Net earnings 0.50 0.37 Net earnings per common share - diluted (Note 7) Continuing operations 0.50 0.42 Net earnings 0.50 0.36 Dividends per common share 0.30 0.30 Average number of common shares outstanding (millions) 917.1 808.6 _________________________________________________________________________ CONSOLIDATED STATEMENTS OF DEFICIT _________________________________________________________________________ For the three months ended March 31 ($ millions) (unaudited) 2003 2002(1) _________________________________________________________________________ Balance at beginning of period, as previously reported (6,149) (7,468) Adjustment for change in accounting policy (Note 1) (286) (218) ______________________ Balance at beginning of period, as restated (6,435) (7,686) Net earnings 473 310 Dividends - Preferred shares (15) (13) - Common shares (275) (243) ______________________ (290) (256) Premium on redemption of preferred shares (Note 10) (7) (6) Other 1 (3) _________________________________________________________________________ Balance at end of period (6,258) (7,641) _________________________________________________________________________ _________________________________________________________________________ (1) Refer to Note 1, Significant accounting policies, for changes in accounting policies. CONSOLIDATED BALANCE SHEETS _________________________________________________________________________ March 31 December 31 ($ millions) (unaudited) 2003 2002(1) _________________________________________________________________________ ASSETS Current assets Cash and cash equivalents 1,988 306 Accounts receivable (net of allowance for doubtful accounts of $210 million and $207 million for 2003 and 2002, respectively) 2,228 2,343 Other current assets 1,015 783 ______________________ Total current assets 5,231 3,432 Capital assets 20,513 20,640 Other long-term assets 3,980 4,016 Indefinite-life intangible assets (Note 8) 906 900 Goodwill (Note 9) 10,189 10,118 _________________________________________________________________________ _________________________________________________________________________ Total assets 40,819 39,106 _________________________________________________________________________ LIABILITIES Current liabilities Accounts payable and accrued liabilities 3,534 3,834 Debt due within one year 1,612 2,026 ______________________ Total current liabilities 5,146 5,860 Long-term debt 15,045 13,395 Other long-term liabilities 3,993 3,652 ______________________ Total liabilities 24,184 22,907 ______________________ Non-controlling interest 3,641 3,584 ______________________ Commitments and contingencies (Note 12) SHAREHOLDERS' EQUITY Preferred shares (Note 10) 1,670 1,510 ______________________ ______________________ Common shareholders' equity Common shares (Note 10) 16,581 16,520 Contributed surplus 1,019 1,010 Deficit (6,258) (6,435) Currency translation adjustment (18) 10 ______________________ Total common shareholders' equity 11,324 11,105 ______________________ Total shareholders' equity 12,994 12,615 _________________________________________________________________________ Total liabilities and shareholders' equity 40,819 39,106 _________________________________________________________________________ _________________________________________________________________________ (1) Refer to Note 1, Significant accounting policies, for changes in accounting policies. CONSOLIDATED STATEMENTS OF CASH FLOWS _________________________________________________________________________ For the three months ended March 31 ($ millions) (unaudited) 2003 2002(1) _________________________________________________________________________ Cash flows from operating activities Earnings from continuing operations 473 355 Adjustments to reconcile earnings from continuing operations to cash flows from operating activities: Amortization expense 776 772 Net benefit plans expense (credit) 42 (6) Future income taxes (2) (5) Non-controlling interest 48 136 Other items 6 (37) Changes in non-cash working capital (157) (657) ______________________ 1,186 558 ______________________ ______________________ Cash flows from investing activities Capital expenditures (601) (861) Investments (61) (94) Divestitures 5 148 Other items (37) (30) ______________________ (694) (837) ______________________ Cash flows from financing activities Decrease in notes payable and bank advances (113) (29) Issue of long-term debt 1,792 1,252 Repayment of long-term debt (381) (100) Issue of common shares 5 2 Issue of preferred shares 510 510 Redemption of preferred shares (357) (306) Issue of equity securities and convertible debentures by subsidiaries to non-controlling interest 73 7 Redemption of preferred shares by subsidiaries (19) - Dividends paid on common and preferred shares (268) (250) Dividends paid by subsidiaries to non-controlling interest (44) (71) Other items (5) (6) ______________________ 1,193 1,009 ______________________ ______________________ Effect of exchange rate changes on cash and cash equivalents (3) - ______________________ ______________________ Cash provided by continuing operations 1,682 730 Cash used in discontinued operations - (407) ______________________ Net increase in cash and cash equivalents 1,682 323 Cash and cash equivalents at beginning of period 306 569 ______________________ Cash and cash equivalents at end of period 1,988 892 _________________________________________________________________________ _________________________________________________________________________ (1) Refer to Note 1, Significant accounting policies, for changes in accounting policies. >> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - BCE INC. The interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2002, as set out on pages 54 to 81 of BCE Inc.'s 2002 Annual Report. Figures in these notes are unaudited. 1. Significant accounting policies We have prepared the consolidated financial statements in accordance with Canadian generally accepted accounting principles (GAAP) using the same accounting policies as outlined in Note 1 to the annual consolidated financial statements for the year ended December 31, 2002, except as noted below. We have reclassified some of the figures for previous periods in the consolidated financial statements to make them consistent with the presentation in the current period. We have restated financial information for 2002 to reflect: - the accounting treatment of BCE Inc.'s investment in Teleglobe Inc. (Teleglobe) as a discontinued operation - the adoption of the fair value-based method of accounting for employee stock options - the change in the method of accounting for subscriber acquisition costs from a deferral and amortization method to an expense as incurred method. Stock-based compensation and other stock-based payments Effective January 1, 2002, we adopted the new recommendations in section 3870 of the CICA Handbook, Stock-based compensation and other stock-based payments, on a prospective basis as permitted by the standard. This section sets standards for recognizing, measuring and disclosing stock-based compensation and other stock-based payments made in exchange for goods and services. The standards require us to use a fair value-based method for: - all stock-based awards to non-employees - direct awards of stock and stock appreciation rights to employees - awards to employees that are settled in cash or other assets. The standards also encourage companies to use a fair value-based method for all other awards granted to employees. Awards that are settled in stock are recorded as equity. Awards that are required to be, or are usually, settled in cash are recorded as liabilities. In 2002, upon adoption, of the standard we accounted for employee stock options by measuring the compensation cost of the options. This is the amount that the quoted market price of BCE Inc.'s common shares on the date of the grant exceeds the exercise price an employee must pay to buy the common shares. Effective January 1, 2003, we account for employee stock options by measuring the compensation cost for options granted on or after January 1, 2002 under the fair value-based method of accounting using a Black-Scholes option pricing model. As a result of applying this change in accounting policy, we restated the comparative figures for 2002, and recorded a compensation expense of $2 million for the three months ended March 31, 2002. The effect as at January 1, 2003 was to increase the deficit by $27 million, decrease non-controlling interest by $3 million and increase contributed surplus by $30 million. Please see Note 11, Stock-based compensation plans, for the assumptions used under the fair value method. Subscriber acquisition costs Prior to 2003, we accounted for the costs of acquiring subscribers, which as follows: - we deferred and amortized the costs of acquiring Direct-to-Home (DTH) satellite service subscribers into earnings over three years - we deferred and amortized the costs of acquiring wireless subscribers into earnings over the terms of the contracts. The terms are normally up to 24 months - we expensed all other subscriber acquisition costs as they were incurred. The costs we deferred and amortized consisted mainly of hardware subsidies, net of revenues from the sale of wireless handsets. Effective January 1, 2003, we changed our accounting method as permitted by Canadian GAAP, and began expensing all subscriber acquisition costs as they are incurred and began presenting the revenues generated from the sale of wireless handsets. As a result of applying this change in accounting policy, we restated the comparative figures for 2002. For the three months ended March 31, 2003, we: - increased operating revenues by $46 million - increased operating expenses by $34 million - increased income taxes by $5 million - decreased non-controlling interest by $1 million. For the three months ended March 31, 2002, we: - increased operating revenues by $28 million - increased operating expenses by $30 million - decreased income taxes by $1 million - increased non-controlling interest by $1 million. The effect as at December 31, 2002 was to: - decrease other current assets by $133 million - decrease other long-term assets by $339 million - increase goodwill by $15 million - decrease future income tax liability by $189 million - decrease non-controlling interest by $9 million - increase the deficit by $259 million. Impairment of long-lived assets The CICA recently issued a new section in the CICA Handbook, section 3063, Impairment of long-lived assets. It provides guidance on recognizing, measuring and disclosing the impairment of long-lived assets. It replaces the write-down provisions in section 3061 of the CICA Handbook, Property, plant and equipment. The new section requires us to recognize an impairment loss for a long- lived asset to be held and used when its carrying value exceeds the total undiscounted cash flows expected from its use and eventual disposition. The impairment loss is the amount by which the carrying value of the asset exceeds its fair value. This section comes into effect in 2004. We do not expect that adopting this standard in 2004 will affect our consolidated financial statements. Disposal of long-lived assets and discontinued operations The CICA recently issued a new section in the CICA Handbook, section 3475, Disposal of long-lived assets and discontinued operations. It provides guidance on recognizing, measuring, presenting and disclosing long-lived assets to be disposed of. It replaces the disposal provisions in section 3061, Property, plant and equipment, and section 3475, Discontinued operations. The new section provides criteria for classifying assets as held for sale. It requires an asset classified as held for sale to be measured at fair value less disposal costs. It also provides criteria for classifying a disposal as a discontinued operation and specifies the presentation of and disclosures for discontinued operations and other disposals of long-lived assets. This section comes into effect for disposal activities started on or after May 1, 2003. We do not expect that adopting this standard on or after May 1, 2003 will affect our consolidated financial statements. Disclosure of guarantees Effective January 1, 2003, we adopted Accounting Guideline 14 (AcG-14), Disclosure of guarantees. This guideline provides assistance regarding the identification of guarantees and requires a guarantor to disclose the significant details of guarantees that have been given regardless of whether it will have to make payments under the guarantees. Please see Note 12, Contractual obligations, commercial commitments and contingencies, for more information. Although the disclosure requirements of this guideline have been mostly harmonized with similar guidance in the United States, unlike the U.S. standard, this guideline does not require the fair value recognition of guarantees on the balance sheet and does not extend to product warranties. Consolidation of variable interest entities In April 2003, the CICA approved a draft accounting guideline on the consolidation of special purpose entities. The guideline provides clarification on the consolidation of those entities defined as "Variable Interest Entities," when equity investors are not considered to have a controlling financial interest or they have not invested enough equity to allow the entity to finance its activities without additional subordinated financial support from other parties. Variable interest entities are commonly referred to as special purpose entities. The guideline is consistent, in all material respects, with the recently issued U.S. standard. The guideline comes into effect in 2004. We currently conduct certain transactions through special purpose entities and are assessing the structure of these transactions against the criteria set out in the guideline. Asset retirement obligations The CICA recently issued a new section in the CICA Handbook, section 3110, Asset retirement obligations. This standard focuses on the recognition and measurement of liabilities related to legal obligations associated with the retirement of property, plant and equipment. Under this standard, these obligations are initially measured at fair value and subsequently adjusted for the accretion of discount and any changes in the underlying cash flows. The asset retirement cost is to be capitalized to the related asset and amortized into earnings over time. This section comes into effect in 2004. We are currently evaluating the impact of this standard on our financial statements. 2. Segmented information We operate under four segments, the Bell Canada segment, Bell Globemedia, BCE Emergis and BCE Ventures. Our segments are organized by products and services, and reflect how we classify our operations for planning and measuring performance. Effective January 1, 2003, the results of Bell Canada Holdings Inc., Bell Canada's holding company, are now classified under Corporate and other, whereas previously they were classified under the Bell Canada Segment. << _________________________________________________________________________ For the three months ended March 31 ($ millions) 2003 2002(1) _________________________________________________________________________ Operating revenues Bell Canada Segment - External 4,229 4,261 - Inter-segment 30 42 ______________________ 4,259 4,303 Bell Globemedia - External 326 302 - Inter-segment 9 10 ______________________ 335 312 BCE Emergis - External 100 93 - Inter-segment 24 39 ______________________ 124 132 BCE Ventures - External 246 204 - Inter-segment 62 59 ______________________ 308 263 Corporate and other - External 1 2 - Inter-segment 4 4 ______________________ 5 6 ______________________ Less: Inter-segment eliminations (129) (154) _________________________________________________________________________ Total operating revenues 4,902 4,862 _________________________________________________________________________ Net earnings applicable to common shares Bell Canada Segment 427 314 Bell Globemedia (2) 1 BCE Emergis 6 (15) BCE Ventures 39 24 Corporate and other, including inter-segment eliminations 3 31 ______________________ Total earnings from continuing operations 473 355 Discontinued operations - (45) Dividends on preferred shares (15) (13) _________________________________________________________________________ Total net earnings applicable to common shares 458 297 _________________________________________________________________________ _________________________________________________________________________ (1) Refer to Note 1, Significant accounting policies, for the basis of presentation. 3. Business acquisitions and dispositions CGI Group Inc. (CGI)'s acquisition of Cognicase Inc. (Cognicase) During the first quarter of 2003, CGI acquired 100% of the outstanding common shares of Cognicase for $347 million, representing a total cash consideration of $206 million and a total share consideration of $141 million. As a result of the acquisition, BCE Inc.'s equity ownership interest in CGI was reduced from 31.5% to 29.9%, and a dilution gain of $5 million was recognized. Our proportionate share of the preliminary purchase price allocation was to tangible assets ($59 million), liabilities ($95 million) and goodwill and other intangible assets ($140 million). 4. Other income _________________________________________________________________________ For the three months ended March 31 ($ millions) 2003 2002 _________________________________________________________________________ Foreign currency (gains) losses (33) - Other (15) (2) _________________________________________________________________________ Other income (48) (2) _________________________________________________________________________ _________________________________________________________________________ 5. Interest expense _________________________________________________________________________ For the three months ended March 31 ($ millions) 2003 2002 _________________________________________________________________________ Interest expense on long-term debt 272 245 Interest expense on other debt 12 16 _________________________________________________________________________ Total interest expense 284 261 _________________________________________________________________________ _________________________________________________________________________ 6. Discontinued operations The net loss of $45 million in the first quarter of 2002 relates to operating losses of Teleglobe. The financial results of Teleglobe were reclassified as a discontinued operation effective April 24, 2002. The table below provides a summarized statement of operations for the discontinued operations. _________________________________________________________________________ For the three months ended March 31 ($ millions) 2003 2002 _________________________________________________________________________ Revenue - 411 _________________________________________________________________________ Operating loss from discontinued operations, before tax - (76) Income tax recovery on operating loss - 20 Non-controlling interest - 11 _________________________________________________________________________ Net loss from discontinued operations - (45) _________________________________________________________________________ _________________________________________________________________________ As at March 31, 2003 and December 31, 2002, included in our balance sheet is an investment in Bell Canada International Inc. (BCI) of $50 million. The financial results of BCI were reclassified as a discontinued operation effective January 1, 2002. 7. Earnings per share disclosures The following is a reconciliation of the numerators and the denominators of the basic and diluted earnings per common share computations for earnings from continuing operations: _________________________________________________________________________ For the three months ended March 31 2003 2002(1) _________________________________________________________________________ Earnings from continuing operations (numerator) ($ millions) Earnings from continuing operations 473 355 Dividends on preferred shares (15) (13) _________________________________________________________________________ Earnings from continuing operations - basic 458 342 Assumed exercise of put options by CGI shareholders 4 3 _________________________________________________________________________ Earnings from continuing operations - diluted 462 345 _________________________________________________________________________ _________________________________________________________________________ Weighted average number of common shares outstanding (denominator) (millions) Weighted average number of common shares outstanding - basic 917.1 808.6 Assumed exercise of stock options 1.9 2.6 Assumed exercise of put options by CGI shareholders 9.1 13.0 _________________________________________________________________________ Weighted average number of common shares outstanding - diluted 928.1 824.2 _________________________________________________________________________ _________________________________________________________________________ (1) Refer to Note 1, Significant accounting policies, for basis of presentation. 8. Indefinite-life intangible assets _________________________________________________________________________ ($ millions) 2003 _________________________________________________________________________ Intangible assets, January 1 900 Capitalized interest on spectrum licences 6 _________________________________________________________________________ Intangible assets, March 31 906 _________________________________________________________________________ Consisting of: Spectrum licences 760 Television licences 128 Cable licences 18 _________________________________________________________________________ Total 906 _________________________________________________________________________ _________________________________________________________________________ Capitalized interest on spectrum licences for the three-month period ended March, 31, 2002 was $4 million. 9. Goodwill _________________________________________________________________________ ($ millions) 2003 _________________________________________________________________________ Goodwill, January 1 10,118 Goodwill acquired during the period 83 Other (12) _________________________________________________________________________ Goodwill, March 31 10,189 _________________________________________________________________________ _________________________________________________________________________ 10. Share capital (i) Preferred shares On February 28, 2003, BCE Inc. issued 20 million Series AC preferred shares for total proceeds of $510 million. 6 million of the 20 million Series AC preferred shares were issued under a public offering for a subscription price of $153 million. The remaining 14 million Series AC preferred shares were issued to the holders of BCE Inc.'s 14 million Series U preferred shares. BCE Inc. elected to exercise its option to buy all of the Series U preferred shares for $357 million (including a $7 million premium on redemption). The holders of the Series U preferred shares then used the proceeds from the sale of their shares to buy the 14 million Series AC preferred shares for the subscription price of $357 million. ii) Common shares and Class B shares The table below provides details about the outstanding common shares of BCE Inc. No Class B Shares were outstanding at March 31, 2003. _________________________________________________________________________ Stated Number capital of shares ($ millions) _________________________________________________________________________ Outstanding, January 1, 2003 915,867,928 16,520 Shares issued (under employee stock option, employee savings and dividend reinvestment plans) 2,186,302 61 _________________________________________________________________________ Outstanding, March 31, 2003 918,054,230 16,581 _________________________________________________________________________ _________________________________________________________________________ 11. Stock-based compensation plans BCE Inc. stock options The table below provides a summary of the status of BCE Inc.'s stock option programs. _________________________________________________________________________ Weighted Number average of shares exercise price _________________________________________________________________________ Outstanding, January 1, 2003 20,470,700 $ 33 Granted 5,351,051 $ 28 Exercised (73,198) $ 14 Expired/forfeited (447,610) $ 35 _________________________________________________________________________ Outstanding, March 31, 2003 25,300,943 $ 32 _________________________________________________________________________ Exercisable, March 31, 2003 9,385,310 $ 34 _________________________________________________________________________ _________________________________________________________________________ Teleglobe stock options Since we acquired a controlling interest in Teleglobe in November 2000, holders of Teleglobe stock options have been allowed to exercise their options under their original terms, except that when they exercise their options, they will receive 0.91 of one BCE Inc. common share for every Teleglobe stock option they hold. The table below provides a summary of the status of Teleglobe's stock option programs, which are incremental to BCE Inc.'s stock option programs. _________________________________________________________________________ Number Weighted of BCE Inc. average shares exercise price _________________________________________________________________________ Outstanding, January 1, 2003 4,266,723 $ 37 Exercised (64,847) $ 22 Expired/forfeited (338,336) $ 40 _________________________________________________________________________ Outstanding, March 31, 2003 3,863,540 $ 35 _________________________________________________________________________ _________________________________________________________________________ Exercisable, March 31, 2003 3,863,540 $ 35 _________________________________________________________________________ _________________________________________________________________________ Assumptions used in stock option pricing model The table below shows the assumptions used in determining stock-based compensation expense under the Black-Scholes option pricing model. _________________________________________________________________________ For the three months ended March 31 2003 2002 _________________________________________________________________________ Compensation cost ($ millions) 8 2 Dividend yield 3.6% 3.2% Expected volatility 30% 30% Risk-free interest rate 4.1% 4.7% Expected life (years) 4.5 4.5 Number of options granted 5,351,051 6,716,134 Weighted average fair value of options granted ($) 6 8 _________________________________________________________________________ _________________________________________________________________________ 12. Contractual obligations, commercial commitments and contingencies Contractual obligations The table below provides a summary of our contractual obligations at March 31, 2003 and for the full years ended thereafter. _________________________________________________________________________ There- ($ millions) 2003 2004 2005 2006 2007 after Total _________________________________________________________________________ Long-term debt (excluding capital leases) 1,302 2,195 1,347 1,136 1,865 8,142 15,987 Capital leases (a) 94 111 64 50 38 97 454 Notes payable and bank advances 216 - - - - - 216 Operating leases 361 390 356 306 285 1,694 3,392 Purchase obligations 472 318 209 200 135 346 1,680 Other contractual obligations 313 186 109 36 5 11 660 _________________________________________________________________________ Total 2,758 3,200 2,085 1,728 2,328 10,290 22,389 _________________________________________________________________________ _________________________________________________________________________ (a) The imputed interest to be paid in connection with the capital leases amounts to $108 million. Commercial commitments _________________________________________________________________________ ($ millions) Non- Committed Committed Total _________________________________________________________________________ BCE Inc. bridge facility 834 834 Commercial paper credit lines 1,451 2,000 3,451 Other credit facilities including letters of credit 1,711 455 2,166 _________________________________________________________________________ Total 3,996 2,455 6,451 _________________________________________________________________________ Drawn 2,137 98 2,235 Undrawn 1,859 2,357 4,216 _________________________________________________________________________ _________________________________________________________________________ >> In addition, BCE Inc. and Bell Canada can issue Class E Notes which may be extended in certain circumstances and are not supported by committed lines of credit. The maximum principal amount of Class E Notes that BCE Inc. may issue is $360 million and that Bell Canada may issue is $400 million. At March 31, 2003, Bell Canada had $30 million Class E Notes outstanding and BCE Inc. had no Class E Notes outstanding. Included in the drawn portion of our commercial commitments are issued letters of credit of $192 million under our committed facilities and $80 million under our non-committed facilities. At March 31, 2003, BCE Inc. and Bell Canada had no amounts outstanding under their commercial paper programs. Canadian Radio-Television and Telecommunications Commission (CRTC) Price Cap decision The Price Cap decision of May 2002 made a number of changes to the rules governing local service in Canada's telecommunications industry for the next four years. One of the changes is a new mechanism, called the deferral account, which will be used to fund initiatives such as service improvement or reduced rates and/or rebates. We estimate our commitment relating to this decision to be $83 million at March 31, 2003. Guarantees In the normal course of our operations, we execute agreements that provide for indemnification and guarantees to counterparties in transactions such as business dispositions, the sale of assets, the sale of services, securitization agreements and operating leases. These indemnification undertakings and guarantees may require us to compensate the counterparties for costs and losses incurred as a result of various events including breaches of representations and warranties, intellectual property right infringement, loss of or damages to property, environmental liabilities, changes in or in the interpretation of laws and regulations (including tax legislation), valuation differences, claims that may arise while providing services, or as a result of litigation that may be suffered by the counterparties. Also, in the context of the sale of all or a part of a business, we may from time to time agree to compensate the purchaser for certain costs that may result from certain future events such as the failure of the disposed business to reach certain operational thresholds (earn-out guarantees), the resolution of contingent liabilities of the disposed businesses or the reassessment of prior tax filings of the corporations carrying on the business. Certain indemnification undertakings can extend for an unlimited period and generally do not provide for any limit on the maximum potential amount, although certain agreements do contain a specified maximum potential exposure representing a cumulative amount of approximately $4.3 billion. The nature of substantially all of the indemnification undertakings prevents us from making a reasonable estimate of the maximum potential amount we could be required to pay counterparties as the agreements do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, we have not made any significant payments under such indemnifications. As at March 31, 2003, an aggregate amount of $42 million has been accrued in the consolidated balance sheet with respect to these indemnification undertakings, relating mainly to environmental liabilities. Off-balance sheet arrangements Sale of accounts receivable Bell Canada sold accounts receivable to a securitization trust for a total of $900 million in cash, under an agreement that came into effect on December 12, 2001 and expires on December 12, 2006. Bell Canada carried a retained interest in the transferred accounts receivable of $124 million at March 31, 2003, which equalled the amount of overcollateralization in the receivables transferred. Aliant Inc. (Aliant) sold accounts receivable to a securitization trust for a total of $135 million in cash, under an agreement that came into effect on December 13, 2001 and expires on December 13, 2006. Aliant carried a retained interest in the transferred accounts receivable of $30 million at March 31, 2003. Bell Canada and Aliant continue to service the accounts receivable. The buyers' interest in collections of these accounts receivable ranks ahead of the interest of Bell Canada and Aliant. Bell Canada and Aliant remain exposed to certain risks of default on the amount of receivables under securitization and have provided various credit enhancements in the form of overcollateralization and subordination of its retained interests. The buyers will reinvest the amounts collected by buying additional interests in the Bell Canada and Aliant accounts receivable until the agreements expire. The buyers and their investors have no claim on Bell Canada's and Aliant's other assets if customers fail to pay amounts owed on time. Shared services agreement Effective June 22, 2001, Bell Canada entered into a 10-year service contract with a special purpose entity. This contract will allow Bell Canada to reduce systems and administrative costs over time by streamlining and enhancing its systems and processes. Bell Canada is committed to paying approximately $150 million in service fees over the first three years of the agreement. In 2004, Bell Canada may: - exercise an option to buy the special purpose entity at fair market value, or - maintain the service contract for the remaining seven years and commit to paying at least $420 million more in service fees to the special purpose entity. As at March 31, 2003, the special purpose entity had $113 million of total assets, of which $92 million are capital assets, and $127 million of total liabilities, of which $121 million is long-term debt. Sale leaseback transactions In our long-term debt balance at March 31, 2003, we had capital leases of $72 million net of loans receivable of $316 million. These obligations were from agreements that Bell Canada entered into in 1999 and 2001 to sell and lease back telecommunication equipment for total proceeds of $399 million. Some of the proceeds were invested in interest-bearing loans receivable. Contingencies Agreement with Manitoba Telecom Services Inc. (MTS) The agreement between Bell Canada and MTS to create Bell West Inc. (Bell West) includes put and call options relating to MTS' 40% ownership of Bell West. Under the terms of the put option, MTS can require Bell Canada to buy its interest in Bell West: - in February 2004 at a guaranteed floor value of $458 million plus ongoing incremental funding invested by MTS. The put price includes an 8% return on the incremental funding. The floor value was $574 million at March 31, 2003 - in January 2007 at fair market value less 12.5% - at fair market value less 12.5%, under certain circumstances. If MTS does not exercise its put option, Bell Canada can exercise its call option. Under the terms of the call option, Bell Canada has the option to buy MTS' interest: - in March 2004 at the greater of the floor value described above and fair market value - in February 2007 at fair market value - at fair market value if control of MTS goes to a party other than Bell Canada or its affiliates. Bell Canada has not received any formal notice from MTS that it plans to exercise the put option. Agreement with CGI We entered into an agreement on July 1, 1998 with CGI's three majority individual shareholders. The agreement includes put and call options, and rights of first refusal, on the CGI shares held by these shareholders. The put options initially gave these CGI shareholders the right to gradually sell a portion of their shares to us until January 4, 2004. The call option initially gave us the one-time right to buy all of their CGI shares that would not have already bought, during the period from January 5, 2004 to January 4, 2006. The exercise price per share of any put or call option is 115% of the 20- day average market price of CGI shares before the exercise date, payable in BCE Inc. common shares. If the options are fully exercised, our equity ownership interest in CGI will increase to approximately 40%. In December 2002, we informed CGI that our prior publicly stated intention to dispose of the control block in CGI following the exercise of the put and call rights in 2003 and 2004 is no longer our preferred course of action. We began discussions with CGI about the future of our investment in CGI. No final decisions have been made, but we have started discussions to develop a plan to: - realize the maximum value of our investment in CGI - enhance the value of CGI by taking steps to retain CGI's management and to ensure that the company continues to deliver high-quality services to its customers. In December 2002, in order allow enough time for these discussions, CGI's three majority individual shareholders had agreed to defer the exercise date of the put options until April 15, 2003. On April 15, 2003, BCE Inc. and CGI confirmed that their discussions are continuing and while no final decisions have been made, they are committed to reaching a final agreement by August 1, 2003. However, there can be no assurance as to the outcome of these discussions. To allow enough time to conclude these discussions: - CGI's three majority individual shareholders have agreed to defer the exercise date of the put options until after August 1, 2003 - BCE Inc. has agreed that its disposition rights will not be exercisable until after August 1, 2003 - both parties have agreed to extend the termination date of the put options from January 4, 2004 to August 1, 2004, defer the commencement of BCE Inc.'s two-year call option period from January 6, 2004 to August 2, 2004, and defer the final termination date of the agreement from January 5, 2006 to August 1, 2006. Litigation Teleglobe lending syndicate lawsuit On July 12, 2002, some members of the Teleglobe and Teleglobe Holdings (U.S.) Corporation lending syndicate (the plaintiffs) filed a lawsuit against BCE Inc. in the Ontario Superior Court of Justice. The claim makes several allegations, including that BCE Inc. and its management, in effect, made a legal commitment to repay the advances the plaintiffs made as members of the lending syndicate, and that the court should disregard Teleglobe as a corporate entity and hold BCE Inc. responsible to repay the advances as Teleglobe's alter ego. The plaintiffs claim damages of US$1.19 billion, plus interest and costs, which they allege is equal to the amount they advanced. This represents approximately 95.2% of the total US$1.25 billion that the lending syndicate advanced. While we cannot predict the outcome of any legal proceeding, based on information currently available, BCE Inc. believes that it has strong defences, and it intends to vigorously defend its position. Kroll Restructuring lawsuit In February 2003, a lawsuit was filed in the Ontario Superior Court of Justice by Kroll Restructuring Ltd., in its capacity as interim receiver of Teleglobe, against five former directors of Teleglobe. This lawsuit was filed in connection with Teleglobe's redemption of its third series preferred shares in April 2001 and the retraction of its fifth series preferred shares in March 2001. The plaintiff is seeking a declaration that such redemption and retraction were prohibited under the Canada Business Corporations Act and that the five former directors should be held jointly and severally liable to restore to Teleglobe all amounts paid or distributed on such redemption and retraction, being an aggregate of approximately $661 million, plus interest. While BCE Inc. is not a defendant in this lawsuit, Teleglobe was at the relevant time a subsidiary of BCE Inc. Pursuant to standard policies and subject to applicable law, the five former Teleglobe directors are entitled to seek indemnification from BCE Inc. in connection with this lawsuit. While we cannot predict the outcome of any legal proceeding, based on information currently available, BCE Inc. believes that the defendants have strong defences and that the claims of the plaintiffs will be vigorously defended against. Other litigation We become involved in various other claims and litigation as a regular part of our business. While no one can predict the final outcome of claims and litigation that were pending at March 31, 2003, management believes that the resolution of these claims and litigation will not have a material and negative effect on our consolidated financial position or results of operations. -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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