Cash from operating activities
Cash from operating activities decreased 7.8%, or $142 million,
to $1,686 million in Q3 2005, compared to Q3 2004. This was mainly
a result of:
partly offset by:
Cash from operating activities decreased 3.3%, or $137 million, to
$4,075 million in the first nine months of 2005. Year-to-date cash
from operating activities was further impacted by:
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an increase of $106 million in payments relating to the employee departure programs at Bell Canada and Aliant
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an increase of $83 million in pension and other benefit plan payments, due mainly to Aliant’s voluntary contribution of
$60 million in Q1 2005
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a net increase in income taxes paid of $61 million, primarily related to the final instalment for 2004 paid in Q1 2005
which were substantially offset by:
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an improvement in cash earnings coming from higher EBITDA
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an
improvement in accounts receivable collections, partly due to 2004
being impacted negatively by the implementation of a new wireless
billing platform.
Free cash flow
Our free cash flow this quarter was $344 million, down from free
cash flow of $673 million in the third quarter of last year. The
decrease is due mainly to:
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a decrease of $142 million in cash from operating activities, as described above
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an increase in capital expenditures of $157 million
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an increase in dividends paid of $32 million.
Year-to-date free cash flow of $320 million, down from free cash
flow of $993 million, was impacted further by Telesat insurance
proceeds of $179 million received in the first nine months of 2004.
Capital expenditures
Capital expenditures were $968 million in Q3 2005, or 20.0% of
revenues. This was 19.4% higher than the capital expenditures of
$811 million, or 17.0% of revenues, in Q3 2004. On a year-to-date
basis, capital expenditures were $2,619 million in the first nine
months of 2005, or 17.7% of revenues. This was 13.0% higher than the
capital expenditures of $2,318 million, or 16.3% of revenues, in
the same period last year. The increases reflect the strategic
investments in the Consumer segment, which include the FTTN expansion,
the initial deployment of EVDO in certain of our markets, information
technology (IT) efficiency projects to deliver cost savings,
growth-related spending to support higher customer demand, as well as a
return to more normal spending levels at Aliant after its labour
disruption in 2004.
Other investing activities
Cash from other investing activities increased by $2 million in Q3
2005, compared to Q3 2004, and decreased by $159 million in the
first nine months of 2005, compared to the same period last year. In
2004, cash from other investing activities included insurance proceeds
that Telesat received for a malfunction on the Anik F1 satellite,
amounting to $136 million in Q2 2004 and $179 million in the
first nine months of 2004.
Cash dividends paid on common shares
We paid a dividend of $0.33 per common share in Q3 2005, which is $0.03
more than the dividend we paid in Q3 2004. On a year-to-date basis, we
paid $0.99 per common share in the first nine months of 2005, compared
to $0.90 per common share in the same period in 2004.
In December 2004, the board of
directors of BCE Inc. approved an increase of 10% or $0.12 per
common share in the annual dividend on BCE Inc.’s common shares.
As a result, starting with the quarterly dividend paid on
April 15, 2005, we expect to pay quarterly dividends on
BCE Inc.’s common shares of approximately $306 million, based
on the revised dividend policy. This assumes that there are no
significant changes in the number of outstanding common shares. The
total quarterly dividends equal $0.33 per common share, based on
approximately 927 million common shares outstanding at
September 30, 2005.
Business acquisitions
We invested $62 million in business acquisitions in Q3 2005 and
$180 million in the first nine months of 2005. This consisted
mainly of Bell Canada’s acquisition of Nexxlink in the first half
of the year,
for $68 million and a number of other businesses.
We invested $646 million in business
acquisitions in Q3 2004 and $952 million in the first nine months
of 2004. This consisted of:
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our
purchase of MTS’ 40% interest in Bell West in Q3 2004 for
$646 million to give Bell Canada 100% ownership of
Bell West
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our 28.9% proportionate share of the cash paid for CGI’s acquisition of American Management Systems
Incorporated (AMS) for $168 million
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Bell Canada’s purchase of:
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a 100% interest in Infostream Technologies Inc.
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100% of the assets required to carry on the business of Charon Systems Inc.
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a 100% interest in Accutel Conferencing Systems Inc. (Canada) and certain branches of Accutel Conferencing Systems (U.S.)
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a 75.8% interest in Elix Inc.
Increase in investments
Cash flows used for investments increased by $63 million to
$75 million in Q3 2005, compared to the same period last year, due
to an increase in highly liquid short-term investments.
On a year-to-date basis, cash flows used
for investments increased by $196 million to $216 million for
the first nine months of 2005, compared to the same period last year.
Year-to-date investment activity in 2005 reflects an investment by
Bell Canada in Q1 2005 of US $100 million, for an
approximate 12% interest, in Clearwire Corporation, a
privately held company that offers advanced IP-based wireless broadband
communications services.
Debt instruments
We repaid $76 million of debt, net of issues, in Q3 2005. The
repayments included $150 million in debentures at
Bell Canada, decreased borrowings in notes payable and bank
advances of $65 million, and a $25 million reduction in
Bell
Globemedia’s borrowings under its credit facilities. The issuances
consisted of $200 million in debentures at Bell Canada.
On a year-to-date basis in 2005, we
issued $270 million of debt, net of repayments. The issuances
included $900 million in debentures at Bell Canada and
$150 million in medium-term notes at
Aliant. The repayments included $750 million in debentures at
Bell Canada.
We issued $85 million of debt, net
of repayments, in Q3 2004. The issues included a net increase of
$173 million in notes payable and bank advances. The repayments
included a $60 million reduction in Bell
Globemedia’s borrowings under its credit facilities.
On a year-to-date basis in 2004, we
repaid $217 million of debt, net of issues. The issuances were
mainly at Bell Canada, which issued $450 million in
debentures, and Bell
Globemedia, which issued $300 million of senior notes and drew
$50 million under its credit facilities. BCE Inc. repaid
$351 million in retractable preferred shares and Bell Canada
repaid
$624 million in debentures and $114 million of bank debt.
Cash relating to discontinued operations
Cash provided by discontinued operations was $196 million in the
first nine months of 2004. This consisted mainly of net cash proceeds
of $315 million from the sale of Emergis and $285 million
from the sale of Emergis’ U.S. health operations and $96 million
of cash generated from Emergis’ operations. This was partly offset by
the
deconsolidation of Emergis’ cash on hand of $512 million at
December 31, 2003.
Credit Ratings
The table below lists our key credit ratings at November 1, 2005. On May 4, 2005, S&P(1) and DBRS(2) confirmed
their ratings for BCE Inc. and Bell Canada, but revised their
outlooks from stable to negative. On May 16, 2005, Moody’s(3) confirmed its ratings for BCE Inc. and Bell Canada, but revised its outlook from stable to negative.
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BCE INC.
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BELL CANADA
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S&P
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DBRS
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MOODY’S
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S&P
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DBRS
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MOODY’S
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Commercial paper
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A-1 (mid)
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R-1 (low) / stable
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P-2 / stable
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A-1 (mid)
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R-1 (mid) / negative
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P-2 / stable
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Extendable commercial notes
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A-1 (mid)
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R-1 (low) / stable
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–
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A-1 (mid)
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R-1 (mid) / negative
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–
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Long-term debt
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A- / negative
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A / negative
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Baa1 / negative
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A / negative
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A (high) / negative
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A3 / negative
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Preferred shares
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P-2 (high)
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Pfd-2 / negative
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–
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P-2 (high)
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Pfd-2 (high) / negative
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–
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(1) Standard & Poor’s, a division of The McGraw Hill Companies, Inc.
(2) Dominion Bond Rating Services Limited
(3) Moody’s Investors Service Inc.
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Related Party Transaction
BCI loss utilization transaction
On April 15, 2005, 3787915 Canada Inc., a
wholly-owned subsidiary of Bell Canada, acquired $17 billion
in preferred shares from 3787923 Canada Inc., a wholly-owned
subsidiary of
BCI. 3787923 Canada Inc. used the proceeds to advance
$17 billion to BCI through a subordinated interest-free loan. BCI
then advanced $17 billion to 3787915 Canada Inc. by way of a
subordinated interest-bearing demand loan, the funds being used to
repay a daylight loan granted to 3787915 Canada Inc. to make the
initial preferred share investment. The dividend rate on the preferred
shares was equal to 5.1%, which was essentially the same as the
interest rate on the loan.
3787915 Canada Inc. had the legal
right and intention to offset the demand loan payable to BCI and the
investment in preferred shares of 3787923 Canada Inc. As a result,
these items and the related interest expense and dividend income were
presented on a net basis. The tax savings of $99 million,
resulting from the interest expense, were presented as a reduction of
income tax expense.
This transaction was unwound on
August 18, 2005, and was part of a tax loss consolidation
strategy that followed the transaction steps laid out in an advance tax
ruling granted by the Canada Revenue Agency to Bell
Canada and BCI. The transaction also received the approval of the
Ontario Superior Court of Justice, which is supervising BCI’s voluntary
plan of arrangement pursuant to which BCI is monetizing its assets and
resolving outstanding claims against it, with the ultimate objective of
distributing the net proceeds to its shareholders and dissolving the
company.
BCI will be compensated for the use of
its losses by Bell Canada through a capital contribution of
$87 million that will be made by BCE Inc. for 88% of the tax
savings. BCE Inc.’s ownership interest in BCI remains at 62%. As a
result:
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BCE Inc.’s
carrying value of its investment in BCI was increased to reflect the
increase in BCE Inc.’s share of the expected proceeds upon BCI’s
eventual liquidation
-
a charge to other income was recorded to reflect the
non-controlling interest’s portion of the capital contribution to be made by BCE Inc.
Liquidity
Our sources of liquidity and cash requirements remain substantially
unchanged from those described in the BCE 2004 MD&A.
Commitment under the deferral account
The deferral account resulted from the CRTC’s second price cap decision
of May 2002, which requires us to fund initiatives such as service
improvements, reduced customer rates and/or customer rebates. We
estimate our commitment under the deferral account to be approximately
$148 million at September 30, 2005 and anticipate that
it will be reduced to approximately $130 million by
December 31, 2005, primarily due to the impact of the CDN
decision. We expect to clear most of this amount in 2006 by
implementing the initiatives that are approved by the CRTC for this
purpose.
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