BCE


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934

For the month of: October 2003 Commission File Number:1-8481


BCE Inc.
(Translation of Registrant's name into English)

1000, rue de La Gauchetière Ouest, Bureau 3700, Montréal, Québec H3B 4Y7, (514) 397-7000
(Address of principal executive offices)

Indicate by check mark whether the Registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F     Form 40-F X  
 
   
 

Indicate by check mark whether the Registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes     No X  
 
   
 

If "Yes" is marked, indicate below the file number assigned to the Registrant in connection with Rule 12g3-2(b): 82-______ .

Only the BCE Inc. Management's Discussion and Analysis for the quarter ended September 30, 2003 and the BCE Inc. unaudited interim consolidated financial statements for the quarter ended September 30, 2003, included on pages 6 to 30 and 31 to 41, respectively, of the BCE Inc. 2003 Third Quarter Shareholder Report filed with this Form 6-K, and the document entitled "Reconciliation of Canadian Generally Accepted Accounting Principles ("GAAP") to United States GAAP" filed with this Form 6-K as Appendix A, are incorporated by reference in the registration statements filed by BCE Inc. with the Securities and Exchange Commission on Form F-10 (Registration No. 333-97069), Form F-3 (Registration No. 333-12130), Form S-8 (Registration No. 333-12780), Form S-8 (Registration No. 333-12802) and Form S-8 (Registration No. 333-12804). Except for the foregoing, no other document or portion of document filed with this Form 6-K is incorporated by reference in BCE Inc.’s registration statements. Notwithstanding any reference to BCE’s Web site on the World Wide Web in the documents attached hereto, the information contained in BCE’s site or any other site on the World Wide Web referred to in BCE’s site is not a part of this Form 6-K and, therefore, is not filed with the Securities and Exchange Commission.

 



News Release
For immediate release

(All figures are in Cdn$, unless otherwise indicated)

BELL CANADA ENTERPRISES REPORTS ITS THIRD QUARTER 2003 RESULTS

Montréal (Québec), October 29, 2003 — For the third quarter of 2003, BCE Inc. (TSX, NYSE: BCE) reported earnings per share of $0.49 (total earnings applicable to common shares of $446 million), compared to $0.40 per common share (total earnings applicable to common shares of $349 million) last year. Earnings per share in the third quarter of 2002 included net losses of $0.04 per share.

Total revenue for the quarter was $4.88 billion compared to $4.86 billion last year. Total EBITDA(1) for the quarter was $1.94 billion compared to $1.93 billion last year. Revenue and EBITDA growth from continuing businesses (excluding the impact of the sale of Bell Canada’s directories business in November 2002) were 3.5% and 5.7% respectively.

“We continue to focus on simplifying and innovating for our customers while pursuing disciplined financial management,” said Michael Sabia, President and CEO of Bell Canada Enterprises. “Our consumer segment posted strong growth in many key areas. We added 104,000 new DSL subscribers, grew our Cellular and PCS subscriber base to 4.2 million and maintained post-paid churn at a low 1.3%. And, with ‘The Bundle from Bell’, we have made it simpler for our customers to receive our key services through one point of contact.”

“Market conditions continue to have an impact on our business segment, and we face challenges in wholesale and enterprise. Hence, our continued efforts on productivity and on carefully managing operating and capital costs. As a result, we have significantly improved free cash flow.”

“During the quarter, we made several strategic investments in innovation to better position us for the future,” continued Mr. Sabia. “We established an Innovation Centre with Nortel Networks to develop new multimedia Internet Protocol based applications, began a trial with Microsoft for IPTV and initiated the expansion of our DSL footprint using Lucent’s high density remotes.”




–2–

Operational Highlights

  3rd Quarter Growth
(Q3 03 vs. Q3 02)		 Total
Cellular and PCS
subscribers		 124,000 net
additions		 15% 4,244,000
High-speed Internet
(DSL) subscribers		 104,000 net
additions		 39% 1,391,000
Bell ExpressVu
subscribers		 17,000 net
additions		 11% 1,352,000
Data revenue $931 million 2.5% n.a.
Bell Globemedia
revenue		 $296 million 8.4% n.a.

–3–

 

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. The company now expects that its full year 2003 CAPEX intensity will not exceed 17%.

Aliant recently announced an agreement to sell its 53% interest in Stratos Global, pending U.S. regulatory approval. The sale is expected to be completed by December 31. Aliant and BCE anticipate reclassifying the business as discontinued operations in the fourth quarter. In 2003, Stratos Global was expected to contribute revenues of $530 to $550 million, and EBITDA of $110 million to $120 million. BCE’s revenue and EBITDA guidance do not reflect anticipated fourth quarter accounting changes relating to this transaction.

RESULTS BY BUSINESS GROUP (unaudited)

BCE operated under four segments as at September 30, 2003: Bell Canada, Bell Globemedia, BCE Emergis and BCE Ventures (which consists of BCE’s other investments).

  (Cdn$ millions, except per share amounts)  
             
 
 
  Third Quarter   Nine months  
For the period ended September 30 2003   2002   2003   2002  
 
 
 
 
 
                 
Revenue                
Bell Canada 4,306   4,349   12,849   13,034  
Bell Globemedia 296   273   988   911  
BCE Emergis 117   135   365   409  
BCE Ventures 300   258   917   782  
Corporate and other, including inter-                
segment eliminations  (136)   (159)   (400)   (464)  
Total revenue 4,883   4,856   14,719   14,672  
 
 
 
 
 
                 
EBITDA                
Bell Canada 1,846   1,876   5,364   5,470  
Bell Globemedia 36   17   150   108  
BCE Emergis 18   12   53   3  
BCE Ventures 86   66   258   216  
Corporate and other, including inter-                
segment eliminations  (43)   (44)   (113)   (126)  
Total EBITDA 1,943   1,927   5,712   5,671  
 
 
 
 
 
                 
Net earnings (loss)                
Bell Canada 442   328   1,290   1,004  
Bell Globemedia (1)   (11)   12   1  
BCE Emergis 11   15   23   (62)  
BCE Ventures 30   15   107   98  
Corporate and other, including inter-                
segment eliminations  (15)   22   (13)   7  
 
 
 
 
 
Earnings from continuing operations 467   369   1,419   1,048  
 
 
 
 
 
Discontinued operations (3)   (4)   (4)   (353)  
Dividends on preferred shares (18)   (16)   (50)   (43)  
 
 
 
 
 
Net earnings applicable to common                
   shares 446   349   1,365   652  
 
 
 
 
 
Net earnings per common share 0.49   0.40   1.49   0.78  
 
 
 
 
 




–4–

THIRD QUARTER REVIEW (Q3 2003 vs. Q3 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)  
   
 
    Third quarter   Nine months  
For the period ended September 30   2003   2002   2003   2002  
   
 
 
 
 
                   
Bell Canada Revenue                  
Local and access   1,530   1,519   4,542   4,565  
Long distance   631   651   1,885   1,944  
Wireless   661   570   1,852   1,622  
Data   931   908   2,819   2,746  
DTH Satellite T.V. Services   192   156   560   462  
Terminal sales & other   361   405   1,191   1,285  
Directory advertising   -   140   -   410  
   
 
 
 
 
Total Bell Canada revenue   4,306   4,349   12,849   13,034  
           
 
 

Local and Access/Long Distance

Wireless

Data





–5–

DTH (Direct to Home) Satellite T.V. Services

EBITDA and CAPEX

BELL GLOBEMEDIA
Bell Globemedia includes CTV and The Globe and Mail.

BCE EMERGIS

BCE VENTURES
BCE Ventures includes the activities of CGI, Telesat and other investments.



–6–

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 statutory revenue was $4.3 billion in the third quarter of 2003, up 20% due to the consolidation of Aliant and Bell ExpressVu effective January 1, 2003. Net earnings applicable to common shares were $550 million in the third quarter of 2003, compared to $471 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.

—  30 —


BCE 2003 Third Quarter Financial Information:

BCE’s 2003 Third Quarter Shareholder Report (which contains BCE’s 2003 third quarter MD&A and unaudited consolidated financial statements) and other relevant financial materials are available at www.bce.ca/en/investors, under “Investor Briefcase”. BCE’s 2003 Third Quarter Shareholder Report is also available on the Website maintained by the Canadian securities regulators at www.sedar.com. It is also available upon request from BCE’s Investor Relations Department (e-mail: investor.relations@bce.ca, tel.: 1-800-339-6353; fax: (514) 786-3970).

BCE’s 2003 Third Quarter Shareholder Report will be sent to BCE’s shareholders who have requested to receive it on or about November 3, 2003.

Call with Financial Analysts:

BCE will hold a teleconference / Webcast (audio only) for financial analysts to discuss its third quarter results on Wednesday, October 29, 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) 406-6419 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, October 29, 2003 and 12:00 PM on Wednesday, November 5, 2003. To access the replay facility, please dial (416) 695-5800 and enter access code 1484050#. The Webcast will also be archived on our Web site.





–7–

 

Call with the Media:

BCE will hold a teleconference / Webcast (audio only) for media to discuss its third quarter results on Wednesday, October 29, 2003 at 1:00 PM (Eastern). Michael Sabia will be present for this teleconference.

Interested participants are asked to dial 877 793-3795 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 and market conditions and the level of consumer confidence and spending; the impact of adverse changes in laws or regulations, or of adverse regulatory initiatives or proceedings; 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 level of demand, including in particular by the business and wholesale sector, and prices, for our products and services; the impact of Bell ExpressVu’s measures against signal theft; the risk of low returns on pension plan assets resulting in the erosion of our pension fund surpluses which could require us to commence making pension fund contributions and/or recognize pension expenses; BCE Inc.'s and its subsidiaries' ability to manage costs, generate productivity improvements and decrease capital intensity while maintaining quality of service; 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 anticipate, and respond to, changes in technology and industry standards and 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 certain BCE group companies; the ability of the BCE group companies' strategies to produce the expected benefits and growth prospects; the financial condition and credit risk of customers and uncertainties regarding collectibility of receivables; 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 2003 Third Quarter Shareholder Report 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 October 29, 2003 and, accordingly, are subject to change after such date. However, BCE Inc. and its subsidiaries assume no obligation to update any forward-looking statements, whether as a result of new information or otherwise.

 

For further information:  
   
Nick Kaminaris Sophie Argiriou
Communications Investor Relations
(514) 786-3908 (514) 786-8145
Web Site: www.bce.ca  




(1)  The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning prescribed by Canadian GAAP and may not 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 on a segmented basis:

      Bell
Canada
Segment
    
Bell
Globe-
media		    
  BCE
Emergis		      BCE
Ventures		     Corporate
and
other		     BCE
Consoli-
dated		    
   
 
 
 
 
 
 
  Q3 2003                        
                           
  EBITDA 1,846   36   18   86   (43)   1,943  
  Amortization expense (768)   (15)   (13)   (34)   5   (825)  
  Net benefit plans credit (expense) (46)   (1)   -   -   3   (44)  
  Restructuring and other charges (1)   -   -   -   -   (1)  
   
 
 
 
 
 
 
  Operating income (loss) 1,031   20   5   52   (35)   1,073  
   
 
 
 
 
 
 
  Q3 2002                        
                           
  EBITDA 1,876   17   12   66   (44)   1,927  
  Amortization expense (723)   (18)   (14)   (28)   14   (769)  
  Net benefit plans credit (expense) 10   (1)   -   -   (2)   7  
  Restructuring and other charges (79)   -   -   -   -   (79)  
   
 
 
 
 
 
 
  Operating income (loss) 1,084   (2)   (2)   38   (32)   1,086  
   
 
 
 
 
 
 
                           
    Bell   Bell           Corpo-   BCE  
    Canada   Globe-   BCE   BCE   rate and   Consoli-  
    Segment   media   Emergis   Ventures   other   dated  
   
 
 
 
 
 
 
  YTD 2003                        
                           
  EBITDA 5,364   150   53   258   (113)   5,712  
  Amortization expense (2,259)   (46)   (40)   (93)   41   (2,397)  
  Net benefit plans credit (expense) (135)   (3)   -   -   9   (129)  
  Restructuring and other charges (1)   -   -   -   -   (1)  
   
 
 
 
 
 
 
  Operating income (loss) 2,969   101   13   165   (63)   3,185  
   
 
 
 
 
 
 
  YTD 2002                        
                           
  EBITDA 5,470   108   3   216   (126)   5,671  
  Amortization expense (2,192)   (51)   (52)   (92)   40   (2,347)  
  Net benefit plans credit (expense) 29   (3)   -   -   (1)   25  
  Restructuring and other charges (373)   -   (119)   -   -   (492)  
   
 
 
 
 
 
 
  Operating income (loss) 2,934   54   (168)   124   (87)   2,857  
   
 
 
 
 
 
 



      October 28, 2003
CONTENTS      
      Bell Canada
Enterprises
2003
Third
Quarter
Shareholder
Report
The Quarter at a Glance 2  
     
MD&A 6  
     
   Financial Results    
   Analysis 7  
     
   Financial and    
   Capital Management 15  
     
   Recent Developments    
   in Legal Proceedings 20  
     
   Forward-Looking    
   Statements 21  
     
   Risk Assessment 22  
     
   Our Accounting    
   Policies 29  
     
Consolidated Financial    
Statements 31  
     
Notes to Consolidated    
Financial Statements 34  
     

11B





The Quarter at a Glance

Revenues

Customer Connections

EBITDA(1)

(1) EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning under
     Canadian GAAP. Please see Non-GAAP measure on page 6 for more details.

2





Net Earnings/EPS

Capital Expenditures

Free Cash Flow(3)

  – increased cash from operations of $420 million which includes the impact of strong  working capital management
  – reduced capital expenditures of $104 million
  – reduced total dividends of $78 million, mainly due to Bell Canada no longer paying dividends to SBC Communications Inc. following BCE’s repurchase of its 20% indirect  interest in Bell Canada
  – cash receipts of $180 million from proceeds on the unwinding of dividend rate swaps and settlement of insurance claims and tax refunds

(2) ROE (return on common shareholders’ equity) is calculated as annualized net earnings applicable to common shares as a percentage of average common shareholders’ equity.
   
(3) Free cash flow is calculated as cash flows from operations after capital expenditures and dividends, and before investments and divestitures.

3





Executing on our Priorities

Pursuing Simplicity

Innovating

4





Delivering for our Customers

Detailed Discussion of Results

5





Management’s Discussion and Analysis

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), we, us, our and BCE mean BCE Inc., its subsidiaries, joint ventures and investments in significantly influenced companies. Bell Canada, Aliant Inc. (Aliant), Bell ExpressVu Limited Partnership (Bell ExpressVu) and their subsidiaries and investments in significantly influenced companies are referred to as the Bell Canada Segment.

     This MD&A comments on BCE’s operations, performance and financial condition for the three months (Q3) and nine months (year-to-date or YTD) ended September 30, 2003 and 2002. Please refer to the unaudited consolidated financial statements starting on page 31 when reading the MD&A.

     The sale of our directories business in November 2002 affects the comparability of our 2002 and 2003 results. Therefore, in order to assist the reader in more accurately assessing our performance, in addition to the normal comparison of our results, our 2003 results are, where indicated in this MD&A, also compared to our 2002 results from our continuing businesses which exclude our directories business. This means that, where indicated in this MD&A, our Q3 and YTD 2003 results are also compared to our Q3 and YTD 2002 results which have been adjusted to exclude the results of our directories business.

     All amounts in this MD&A are in millions of Canadian dollars, except where otherwise noted.

ABOUT FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements about BCE’s objectives, strategies, financial condition, results of operations and our businesses. These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations are discussed on pages 21 to 28 under “Forward-Looking Statements” and “Risk Assessment”. BCE assumes no obligation to update or revise any forward-looking statements, whether as a result of new information or otherwise.

Unless otherwise mentioned in this MD&A or in BCE Inc.’s Q1 2003 or Q2 2003 MD&A, the outlooks provided in BCE Inc.’s 2002 annual MD&A dated February 26, 2003 remain unchanged.

Non-GAAP Measure

EBITDA

The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning prescribed by Canadian GAAP and may not 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 (expense) credit 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 (expense) credit and restructuring and other charges. We exclude amortization expense and net benefit plans (expense) credit 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 on a segmented basis.

 
  Bell   Bell           Corpo-   BCE  
  Canada   Globe-   BCE   BCE   rate and   Consoli-  
(in $ millions) Segment   media   Emergis   Ventures   other   dated  
 
Q3 2003                        
EBITDA 1,846   36   18   86   (43 ) 1,943  
Amortization expense (768 ) (15 ) (13 ) (34 ) 5   (825 )
Net benefit plans (expense)                        
   credit (46 ) (1 ) –   –   3   (44 )
Restructuring and                        
   other charges (1 ) –   –   –   –   (1 )
 
Operating income (loss) 1,031   20   5   52   (35 ) 1,073  
 
Q3 2002                        
EBITDA 1,876   17   12   66   (44 ) 1,927  
Amortization expense (723 ) (18 ) (14 ) (28 ) 14   (769 )
Net benefit plans (expense)                        
   credit 10   (1 ) –   –   (2 ) 7  
Restructuring and                        
   other charges (79 ) –   –   –   –   (79 )
 
Operating income (loss) 1,084   (2 ) (2 ) 38   (32 ) 1,086  
 
                         
 
  Bell   Bell           Corpo-   BCE  
  Canada   Globe-   BCE   BCE   rate and   Consoli-  
(in $ millions) Segment   media   Emergis   Ventures   other   dated  
 
YTD 2003                        
EBITDA 5,364   150   53   258   (113 ) 5,712  
Amortization expense (2,259 ) (46 ) (40 ) (93 ) 41   (2,397 )
Net benefit plans (expense)                        
   credit (135 ) (3 ) –   –   9   (129 )
Restructuring and                        
   other charges (1 ) –   –   –   –   (1 )
 
Operating income (loss) 2,969   101   13   165   (63 ) 3,185  
 
YTD 2002                        
EBITDA 5,470   108   3   216   (126 ) 5,671  
Amortization expense (2,192 ) (51 ) (52 ) (92 ) 40   (2,347 )
Net benefit plans (expense)                        
   credit 29   (3 ) –   –   (1 ) 25  
Restructuring and                        
   other charges (373 ) –   (119 ) –   –   (492 )
 
Operating income (loss) 2,934   54   (168 ) 124   (87 ) 2,857  
 

6





Financial Results Analysis

Operating Revenues

           
(in $ millions) Q3 2003   Q3 2002   % change   YTD 2003   YTD 2002   % change  
 
Bell Canada Segment 4,306   4,349   (1.0 %) 12,849   13,034   (1.4 %)
Bell Globemedia 296   273   8.4 % 988   911   8.5 %
BCE Emergis 117   135   (13.3 %) 365   409   (10.8 %)
BCE Ventures 300   258   16.3 % 917   782   17.3 %
Corporate and other (136 ) (159 ) 14.5 % (400 ) (464 ) 13.8 %
 
Total operating revenues 4,883   4,856   0.6 % 14,719   14,672   0.3 %
 

BCE Consolidated

REVENUE GROWTH FROM CONTINUING BUSINESSES (EXCLUDING DIRECTORIES) OF 3.5%

   –   cellular and PCS subscribers grew 14.7% to reach 4.2 million leading to wireless revenue growth of 16.0% in the quarter and 14.2% on a year-to-date basis
  – high-speed Internet subscribers grew 39% to reach 1.4 million. The majority of this growth came from residential customers leading to growth in consumer data revenues of 21% for the quarter and 22% on a year-to-date basis
  – DTH subscribers grew 10.7% to reach 1.35 million. DTH revenues grew 23% for the quarter and 21% on a year-to-date basis.

Bell Canada Segment

LOCAL AND ACCESS REVENUES INCREASED BY 0.7%

7





LONG DISTANCE REVENUES DECLINED BY 3.1%

WIRELESS REVENUES GREW 16% WITH STRONG POST-PAID ADDS

Revenue and Subscriber Growth

Average revenue per unit (ARPU)

Churn

Wireless data

8





STRONG CONSUMER DATA REVENUE GROWTH OFFSET BY CONTINUED SOFTNESS IN WHOLESALE MARKET

Revenue growth

Solid High-Speed Internet subscriber growth

DTH REVENUES GREW BY 23%

Revenue and subscriber growth

Average revenue per subscriber (ARPS)

Churn

 

9





Campaign against signal theft

  – an electronic counter measure program that will transmit electronic signals to disable set-top boxes that use illegal cards to steal programming and enhanced conditional access technology
  – the use of new sophisticated set-top box tracking systems and implementation of specific point-of-sale practices, such as obtaining customer photo identification and credit card information and on-line customer pre-registration, to ensure that set-top boxes are being used by legitimate subscribers.

TERMINAL SALES AND OTHER

Bell Globemedia

8.4% REVENUE GROWTH AT BELL GLOBEMEDIA

BCE Emergis

BCE EMERGIS REVENUES DECLINED BY 13.3%

BCE Ventures

10





EBITDA

             
(in $ millions) Q3 2003   Q3 2002   % change   YTD 2003   YTD 2002   % change  
 
Bell Canada Segment 1,846   1,876   (1.6 %) 5,364   5,470   (1.9 %)
Bell Globemedia 36   17   n.m.   150   108   38.9 %
BCE Emergis 18   12   50.0 % 53   3   n.m.  
BCE Ventures 86   66   30.3 % 258   216   19.4 %
Corporate and other (43 ) (44 ) 2.3 % (113 ) (126 ) 10.3 %
 
Total EBITDA 1,943   1,927   0.8 % 5,712   5,671   0.7 %
 

BCE Consolidated

EBITDA GROWTH FROM CONTINUING BUSINESSES
(EXCLUDING DIRECTORIES) OF 5.7%

Bell Canada Segment

  – acquire customers (eg. sales activities, commissions, equipment sold)
  – serve existing customers (eg. help desk support, equipment maintenance and repair, billing)
  – provide back-office support functions (eg. finance, human resources, communications).
  – negotiating lower prices from various external providers of equipment, software, supplies and services
  – optimizing operational processes based on current business needs and the latest IS/IT capabilities
  – better utilization of economies of scale.

WIRELESS EBITDA INCREASES 14.6%

11





BELL EXPRESSVU EBITDA CONTINUES TO IMPROVE

Strong EBITDA growth at Bell Globemedia

BCE Emergis EBITDA increases by 50%

12





Below EBITDA Income and Expenses

The table below shows a reconciliation of EBITDA to net earnings applicable to common shares for Q3 and YTD 2003 and 2002.

         
(in $ millions) Q3 2003   Q3 2002   YTD 2003   YTD 2002  
 
EBITDA 1,943   1,927   5,712   5,671  
Amortization expense (825 ) (769 ) (2,397 ) (2,347 )
Net benefit plans (expense) credit (44 ) 7   (129 ) 25  
Restructuring and other charges (1 ) (79 ) (1 ) (492 )
 
Operating income 1,073   1,086   3,185   2,857  
Other income (expense) 18   (3 ) 76   245  
Interest expense (272 ) (288 ) (847 ) (812 )
 
Pre-tax earnings from continuing operations 819   795   2,414   2,290  
Income taxes (292 ) (298 ) (814 ) (837 )
Non-controlling interest (60 ) (128 ) (181 ) (405 )
 
Earnings from continuing operations 467   369   1,419   1,048  
Discontinued operations (3 ) (4 ) (4 ) (353 )
 
Net earnings 464   365   1,415   695  
Dividends on preferred shares (18 ) (16 ) (50 ) (43 )
 
Net earnings applicable to common shares 446   349   1,365   652  
 

AMORTIZATION EXPENSE

Amortization expense was higher on a quarterly and year-to-date basis compared to the same periods last year.

Factors that increased amortization expense consisted primarily of:

Factors that decreased amortization expense consisted primarily of:

NET BENEFIT PLANS EXPENSE

The net benefit plans expense of $44 million in Q3 2003 and $129 million on a year-to-date basis, compared unfavourably to a net benefit plans credit of $7 million in Q3 2002 and $25 million on a year-to-date basis. Due to poor capital market conditions, our pension plans had a weak fund performance in 2002, leading to an actual rate of return on plan assets of negative 6%. This created an actuarial loss, which led to approximately two-thirds of the unfavourable variance. After a review of market trends and our outlook, we reduced our assumption of expected long-term return on the market-related value of plan assets from 8.3% in 2002 to 7.5% in 2003, which led to the balance of the unfavourable variance.

     At December 31, 2002, on a solvency basis, our pension plans had a surplus of approximately $800 million. For the first nine months of 2003, our pension plans generated a nine-month return of approximately 7.2%.

RESTRUCTURING AND OTHER CHARGES

During the third quarter of 2003, Aliant recorded a pre-tax restructuring charge of $16 million ($4 million after taxes and non-controlling interest) as a result of a comprehensive restructuring plan of its subsidiary Xwave Solutions Inc. Costs associated with the restructuring plan include severance and related benefits, technology lease cancellation penalties and real estate rationalization costs. As at September 30, 2003, $10 million of the restructuring provision remained unpaid and is expected to be paid by the end of 2003.This charge was substantially offset by a credit relating to the reversal of a previously recorded restructuring provision at Bell Canada that was no longer considered necessary.

     Restructuring and other charges were $492 million for the first nine months of 2002.

OPERATING INCOME

Operating income of $1,073 million in Q3 2003 was $13 million lower compared to the same period last year. The decrease was mainly due to an increase in amortization expense and an unfavourable variance in the net benefit plans expense partially offset by lower restructuring and other charges and a higher EBITDA.

     On a year-to-date basis, the increase in operating income of $328 million compared to the same period last year is explained by lower restructuring and other charges and a higher EBITDA, partially offset by the unfavourable variance in the net benefit plans expense and an increase in amortization expense.

OTHER INCOME

         
(in $ millions) Q3 2003   Q3 2002   YTD 2003   YTD 2002  
 
Interest income 17   26   48   36  
Foreign currency gains (losses) (6 ) (18 ) 30   37  
Net gains on investments –   12   –   192  
Other 7   (23 ) (2 ) (20 )
 
Other income (expense) 18   (3 ) 76   245  
 

     The decrease of $9 million in interest income in Q3 2003 compared to the same period last year is due to the significant amount of cash and cash equivalents used to repay debt in the first nine months of 2003 and higher cash levels in Q3 2002 from the funds raised for the repurchase of SBC’s 20% indirect interest in Bell Canada. The increase of $12 million on a year-to-date basis compared to the same period last year is due to higher average cash levels, resulting mainly from the retained cash on hand from the sale of the directories business in November 2002, as well as the net cash raised to date in 2003 from operating and financing activities.

13





     Foreign currency gains are recognized when the Canadian dollar strengthens compared to the U.S. dollar, and foreign currency losses are recognized when the Canadian dollar weakens against the U.S. dollar. In April 2003, we entered into forward contracts to hedge U.S. $200 million of long-term debt at Bell Canada that had not been previously hedged, thereby removing the foreign currency exposure risk on the principal portion of that debt. This explains the marginal foreign exchange impact in Q2 2003 and Q3 2003.

     On a year-to-date basis in 2002, the net gains on investments consisted mainly of:

INTEREST EXPENSE

The decrease in interest expense of $16 million in Q3 2003 compared to the same period last year was due to the completion of the purchase price allocation relating to the repurchase of SBC’s 20% indirect interest in Bell Canada, which resulted in an increase in long-term debt of $165 million. This increase in debt is being amortized as a reduction to interest expense over the remaining terms of the long-term debt.

     On a year-to-date basis, the increase in interest expense of $35 million is explained by higher average debt levels in 2003, reflecting the impact of the additional debt incurred in the second half of 2002 to fund the repurchase price of SBC’s 20% indirect interest in Bell Canada and the negative free cash flows in 2002, which was partially offset by the impact of the completion of the purchase price allocation as described above.

INCOME TAXES

Income taxes of $292 million in Q3 2003 and $814 million on a year-to-date basis represent a 2.0% and a 2.7% reduction, respectively, compared to the same periods last year.

     The decline was mainly due to the reduction in the statutory income tax rate from 37.4% in 2002 to 35.4% in 2003, which outweighed the impact on income taxes of the increase in pre-tax earnings.

NON-CONTROLLING INTEREST

The decrease in non-controlling interest in Q3 2003 compared to the same period last year is mainly due to the repurchase of SBC’s 20% indirect interest in Bell Canada in 2002.

     The decrease on a year-to-date basis compared to the same period last year is further explained by:

DISCONTINUED OPERATIONS

         
(in $ millions) Q3 2003   Q3 2002   YTD 2003   YTD 2002  
 
Teleglobe                
   Operating losses –   –   –   (76 )
   Loss on write-down –   –   –   (73 )
BCI                
   Loss on write-down –   –   –   (191 )
Aliant’s Emerging business segment                
   Operating losses (1 ) (4 ) (9 ) (13 )
   Net gain on disposal (2 ) –   5   –  
 
Total (3 ) (4 ) (4 ) (353 )
 

     The financial results of Teleglobe Inc. (Teleglobe) were reclassified as a discontinued operation effective April 24, 2002. As a result, we recorded a loss of $73 million in Q2 2002 on the write-down of our interest in Teleglobe to its net realizable value, which we determined to be nil.

     The financial results of Bell Canada International Inc. (BCI) were reclassified as a discontinued operation effective January 1, 2002. Effective June 30, 2002, we stopped consolidating BCI’s financial results and started accounting for the investment at cost. We recorded a loss of $191 million in Q2 2002 on the write-down of our investment to its net realizable value at that time.

     At September 30, 2003, virtually all of the assets of Aliant’s Emerging business segment had been sold. iMagicTV Inc. (iMagicTV) was sold in April 2003, Prexar LLC (Prexar) was sold in May 2003, and the significant subsidiaries of AMI Offshore Inc. (AMI Offshore) were sold in August 2003.

     Effective May 1, 2003, the results of these operations, which were previously presented in the Bell Canada Segment, have been presented as discontinued operations.

     Prexar is an Internet services provider. iMagicTV is a software development company, providing broadband TV software and solutions to service providers around the globe. AMI Offshore provides process and systems control technical services and contracts manufacturing solutions to offshore oil and gas and other industries.

14





Financial and Capital Management

This section tells you how we manage our cash and capital resources to carry out our strategy and deliver financial results. It provides an analysis of the financial condition, cash flows and liquidity factors of BCE.

Capital Structure

     
(in $ millions) Q3 2003   Q4 2002  
 
Cash and cash equivalents (1,617 ) (304 )
Debt due within one year 1,600   2,021  
Long-term debt 13,711   13,391  
Retractable preferred shares 351   355  
 
Total net debt 14,045   15,463  
Non-controlling interest 3,576   3,584  
Total shareholders’ equity 13,401   12,615  
 
Total capitalization 31,022   31,662  
 
Net debt to total capitalization 45.3 % 48.8 %
 

     Our net debt to capitalization ratio improved to 45.3% as at Q3 2003 from 48.8% as at Q4 2002 owing to improvements in net debt and total shareholders’ equity. Net debt improved by $1,418 million, driven primarily by:

partially offset by:

     Total shareholders equity increased by $786 million primarily as a result of $537 million of excess net earnings over the dividends declared on common and preferred shares in the first nine months of 2003 as well as an increase of $343 million in common and preferred shares.

     A portion of the $1.6 billion of cash on hand at September 30, 2003 may be used in Q4 2003 to support capital expenditure spending and operating expenses, as well as to repay approximately $614 million of Bell Canada and Aliant debt coming due in that quarter.

Summary of Cash Flows

The table below provides a summary of the flow of cash into and out of BCE for Q3 and YTD 2003 and 2002.

         
(in $ millions) Q3 2003   Q3 2002   YTD 2003   YTD 2002  
 
Cash from operating activities 1,904   1,484   4,504   3,342  
Capital expenditures (800 ) (904 ) (2,114 ) (2,696 )
Other investing activities 154   25   72   12  
Preferred dividends and dividends paid                
   by subsidiaries to non-controlling interest (52 ) (146 ) (176 ) (351 )
 
Free cash flow from operations,                
   before common dividends 1,206   459   2,286   307  
Common dividends (259 ) (243 ) (770 ) (728 )
 
Free cash flow from operations,                
   after common dividends 947   216   1,516   (421 )
Business acquisitions (7 ) (1,378 ) (77 ) (1,407 )
Business dispositions 55   –   55   432  
Change in investments accounted for under                
   the cost and equity methods 1   (7 ) 8   (63 )
Net issuance of equity instruments 5   2,303   167   2,516  
Net issuance (repayment) of debt instruments (217 ) 739   (396 ) 2,010  
Financing activities of subsidiaries with third parties (17 ) 44   35   201  
Cash provided by (used in) discontinued operations (1 ) 1   15   (933 )
Other 55   (38 ) (12 ) (34 )
 
Net increase in cash and cash equivalents 821   1,880   1,311   2,301  
 

CASH FROM OPERATING ACTIVITIES

Cash from operating activities of $1,904 million in Q3 2003 improved by 28% or $420 million compared to the same period last year, owing primarily to the positive impact of changes in working capital, as well as to cash tax savings in 2003 from the utilization of tax losses against our current earnings and from the tax loss consolidation savings strategies between BCE Inc., BCE Emergis, Bell Canada Holdings Inc. (BCH) and Bell Canada. $35 million of the change in working capital also relates to tax refunds received in Q3 2003 generated from the utilization of losses.

     The year-to-date increase in cash from operating activities of $1,162 million, or 35%, over the same period last year is further explained by tax refunds of $347 million received in the first nine months of 2003 and $288 million of taxes paid on capital gains in the first nine months of 2002.

CAPITAL EXPENDITURES

We continue to make investments to expand our networks, to meet customer demand and for replacement purposes.

     Rigorous capital spending management programs and the impact of having much of the significant capital expenditures relating to the build-out of our growth infrastructures behind us led to a reduction in our capital expenditures by 11.5% in Q3 2003 when compared to the same period last year (22% on a year-to-date basis). This reduction in capital spending lowered our capital intensity ratio (capital expenditures divided by operating revenues) to 16.4% in Q3 2003 from 18.6% in the same period last year, and to 14.4% on a year-to-date basis in 2003 from 18.4% in the same period last year.

15





     The Bell Canada Segment’s capital intensity ratio fell to 16.6% in Q3 2003 from 19.3% in the same period last year and to 14.9% on a year-to-date basis in 2003, from 18.8% in the same period last year. The Bell Canada Segment accounted for 89% of our capital expenditures in Q3 2003 (91% on a year-to-date basis).

OTHER INVESTING ACTIVITIES

Cash flows from other investing items of $154 million in Q3 2003 and $72 million on a year-to-date basis in 2003 included:

BUSINESS ACQUISITIONS

There were no significant business acquisitions made in Q3 2003. Business acquisitions of $77 million in the first nine months of 2003 consisted mainly of our proportionate share of the cash consideration for CGI’s acquisition of Cognicase.

     Business acquisitions of $1.4 billion made in Q3 2002 consisted primarily of the repurchase from SBC of a 3.5% indirect interest in Bell Canada. There were no other major business acquisitions made during the first nine months of 2002.

BUSINESS DISPOSITIONS

Business dispositions of $55 million in Q3 2003 and on a year-to-date basis related to Bell Canada’s sale of its 89.9% ownership interest in Certen ($89 million in cash proceeds, net of $34 million of Certen’s cash and cash equivalents).

     There were no business dispositions in Q3 2002. Business dispositions of $432 million during the first nine months of 2002 included the sale of a 37% interest in each of Télébec Limited Partnership and Northern Telephone Limited Partnership to the Bell Nordiq Income Fund by Bell Canada as well as the sale of the 1000 de La Gauchetière Street West building.

CHANGE IN INVESTMENTS ACCOUNTED FOR UNDER THE COST AND EQUITY METHODS

There were no significant changes to investments accounted for under the cost and equity methods during the first nine months of 2003.

     During the first nine months of 2002, Bell Globemedia purchased a 40% interest in the TQS network and other television stations for $72 million and sold its 12% interest in the History Channel for $18 million.

DIVIDENDS

We declared a common share dividend of $0.30 per share in Q3 2003, consistent with the same period in 2002. Total dividends paid on common shares increased to $259 million in Q3 2003 from $243 million in Q3 2002 ($770 million in the first nine months of 2003 compared to $728 million in the same period last year) due to the increase in the average number of common shares outstanding, from 864.1 million in Q3 2002 to 921.5 million in Q3 2003 (from 827.3 million to 919.3 million on a year-to-date basis).

     The increase in the average number of common shares outstanding was driven by BCE Inc.’s equity offerings in 2002 to fund part of the repurchase price of SBC’s 20% indirect interest in Bell Canada.

     We also realized a cash benefit of approximately $16 million in Q3 2003 ($55 million on a year-to-date basis) from issuing treasury shares to fund BCE Inc.’s dividend reinvestment plan, instead of purchasing shares on the open market.

     Dividends paid on preferred shares of $14 million in Q3 2003 increased slightly compared to the same period last year. This resulted from an increase in the number of preferred shares outstanding, partially offset by the savings we realized from the dividend rate swap agreements we had in place that, in effect, converted the fixed-rate dividends on some of our preferred shares to floating-rate dividends. Year-to-date dividends paid on preferred shares of $39 million were higher than the $30 million paid in the same period last year as a result of the increase in the number of preferred shares outstanding. Please see Equity instruments, for more information.

     As a result of BCE Inc.’s repurchase of SBC’s 20% indirect interest in Bell Canada in 2002, BCH no longer pays a dividend to SBC. As such, dividends paid by subsidiaries to third parties in Q3 2003 decreased by $96 million to $38 million compared to the same period last year (decrease of $184 million to $137 million on a year-to-date basis).

EQUITY INSTRUMENTS

In Q3 2002, we issued 85 million common shares to the public for $2 billion and 9 million common shares to SBC for $250 million as part of the financing for the repurchase of SBC’s 20% indirect interest in Bell Canada.

     In Q1 2002, we issued 20 million Series AA preferred shares for $510 million and redeemed 12 million Series W preferred shares for $306 million (including a $6 million premium on redemption).

     In Q1 2003, we issued 20 million Series AC preferred shares for $510 million and redeemed 14 million Series U preferred shares for $357 million (including a $7 million premium on redemption).

DEBT INSTRUMENTS

During the first nine months of 2003, we made $396 million of net debt repayments (mainly at Bell Canada) which were financed by free cash flow generated to date of $1.5 billion. The remaining free cash flow of $1.1 billion increased our cash on hand, which stands at $1.6 billion as at September 30, 2003.

16





     We use a combination of long-term and short-term debt to finance our operations. Our short-term debt consists primarily of bank facilities and notes payable under commercial paper programs. We usually pay fixed rates of interest on our long-term debt and floating rates on our short-term debt.

     The combined debt of BCE Inc. and Bell Canada make up 92% of our total debt portfolio. The average annual interest rate on our total debt generally ranges between 7.0% and 8.0%.

     The interest rates we pay are based on the quality of our credit ratings. The table below lists our credit ratings at October 28, 2003, all of which are investment grade. Investment grade ratings usually mean that we qualify for better than average interest rates when we borrow money.

     On May 13, 2003, Dominion Bond Rating Service (DBRS) removed the negative trend on BCE Inc.’s long-term debt and preferred share credit ratings. On May 15, 2003, Moody’s removed the negative trend on Bell Canada’s and BCE Inc.’s commercial paper and long-term debt credit ratings.

CREDIT RATINGS      
BCE Inc.      
  S&P DBRS Moody’s
Commercial paper A-1 (mid)/stable R-1 (low)/stable P-2/stable
Extendable commercial notes A-1 (mid)/stable R-1 (low)/stable –
Long-term debt A-/stable A/stable Baa-1/stable
Preferred shares P-2/stable Pfd-2/stable –
Bell Canada      
  S&P DBRS Moody’s
Commercial paper A-1 (mid)/stable R-1 (mid)/stable P-2/stable
Extendable commercial notes A-1 (mid)/stable R-1 (mid)/stable –
Long-term debt A/stable A (high)/stable A-3/stable
Preferred shares P-2 (high)/stable Pfd-2 (high)/stable –

Liquidity

Our ability to generate cash in the short-term and the long-term, when needed, and to maintain capacity to provide for planned growth, is a function of our cash requirements as well as our sources of liquidity, which are described below.

     Our plan is to generate sufficient cash from our operating activities to pay for capital expenditures and dividends. In other words, our plan is to be free cash flow positive both in the short-term and the long-term. Also, the contractual obligations maturing in 2003 and in the long-term (which include maturing long-term debt) are expected to be repaid from cash on hand and cash generated from our operations or financed through the issuance of new debt.

CASH REQUIREMENTS

For the remainder of 2003, cash will be primarily required for capital expenditures, dividend payments and the payment of contractual obligations.

Capital expenditures

During the first nine months of 2003, we spent $2.1 billion in capital expenditures, representing 14.4% of year-to-date revenues. We expect that for the full year of 2003, capital expenditures will not exceed 17% of total revenues.

Dividends

Based on the current dividend policy of the Board of Directors and assuming no significant change to the number of outstanding common shares, we expect to pay quarterly dividends of approximately $261 million. This amount represents $0.30 per common share and is based on approximately 922.3 million common shares outstanding at September 30, 2003. The amount also reflects our expected cash savings resulting from issuing treasury shares to fund BCE Inc.’s dividend reinvestment plan, instead of purchasing them on the open market.

17





Contractual obligations

The table below provides a summary of our contractual obligations at September 30, 2003 and for the full years ended thereafter.

                         
(in $ millions) 2003   2004   2005   2006   2007   Thereafter   Total  
 
Long-term debt (excluding capital leases) 633   1,188   1,301   1,212   1,926   8,418   14,678  
Notes payable and bank advances 81   –   –   –   –   –   81  
Capital leases 35   120   86   80   58   173   552  
Operating leases 171   384   322   282   254   1,677   3,090  
Purchase obligations 814   793   369   276   239   421   2,912  
Other long-term liabilities –   29   93   94   101   138   455  
 
Total 1,734   2,514   2,171   1,944   2,578   10,827   21,768  
 

     The total amounts for long-term debt and notes payable and bank advances include an amount of $673 million (excluding $279 million of letters of credit) drawn under our committed credit facilities. The total amount available under these committed credit facilities and under our commercial paper programs, including the amount currently drawn, is $2,778 million.

     The imputed interest to be paid in connection with the capital leases amounts to $157 million.

     Purchase obligations consist primarily of contractual obligations under service contracts as well as commitments for capital expenditures.

     The other long-term liabilities included in the table above relate to the following:

     At September 30, 2003, our other long-term liabilities also consisted of an accrued benefit liability, future income tax liabilities, BCE Inc. Series P retractable preferred shares, deferred revenue and gains on assets and various other long-term liabilities. The table above does not include these items due to the reasons outlined below:

OTHER CASH REQUIREMENTS

Our cash requirements may also be affected by the liquidity risks, some quantifiable, some not, associated with our contingencies, off-balance sheet arrangements and derivative instruments.

Bell West put and call options

The agreement between Bell Canada and Manitoba Telecom Services Inc. (MTS) to create Bell West includes put and call options relating to MTS’ 40% ownership interest in Bell West. If MTS exercises its put option in February 2004, Bell Canada will have to purchase MTS’ 40% interest in Bell West for a guaranteed price (currently valued at $613 million). Please refer to Note 14 to the consolidated financial statements for a more detailed description of the put and call options.

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, sales of assets, sales of services, securitization agreements and operating leases. Since 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, we cannot determine the impact of such indemnifications on our future liquidity, capital resources or credit risk profile. However, historically, we have not made any significant payments under such indemnifications. Please see Note 15 to the consolidated financial statements for more information on guarantees.

Securitization of accounts receivable

Bell Canada and Aliant have agreements in place under which they sold accounts receivable to securitization trusts for a total of $1,030 million. The primary purpose of these arrangements is to provide us with an alternative and less expensive form of financing. In this regard, these arrangements form an important part of our capital structure and liquidity. Without these arrangements, we would have had to finance approximately $1,030 million alternatively through the issuance of debt or equity, both of which would have been more expensive to us. The sold accounts receivable must in the aggregate meet minimum performance targets which are based on defined delinquency, default and receivable turnover ratio

18





calculations as well as minimum credit ratings criteria. If in default, the full purchase price for the accounts receivable sold will have to be returned to the buyers. Please see Note 15 to the consolidated financial statements for a description of these agreements.

Derivative instruments

We periodically use derivative instruments to manage our exposure to interest rate, foreign currency and BCE Inc. share price movements. We do not use derivative instruments for speculative purposes. Because we do not actively trade in derivative instruments, we are not exposed to any significant liquidity risks relating to such instruments. At September 30, 2003, the carrying value of the outstanding derivative instruments was a net liability of $105 million. Their fair value amounted to a net liability of $136 million.

Litigation

We become involved in various claims and litigation as a regular part of our business. While we cannot predict the final outcome of claims and litigation that were pending at September 30, 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 operation. You will find a more detailed description of the material claims and litigation pending at September 30, 2003 in the Recent Developments in Legal Proceedings section of this MD&A, updating the disclosure provided in BCE Inc.’s Annual Information Form for the year ended December 31, 2002, and in Note 14 to the consolidated financial statements.

SOURCES OF LIQUIDITY

Although we do not expect any cash shortfall in the foreseeable future, we believe that we have sufficient capacity in our existing and available financing facilities for contingency purposes.

     This sufficient capacity, along with our strengthening balance sheet, gives us the flexibility to support our planned future growth. In addition, from time to time, our liquidity sources can, if necessary, such as in connection with business acquisitions or for contingency purposes, be supplemented by the issuance of additional debt and/or equity as well as proceeds from the sale of non-core assets.

     The table below provides a summary of our lines of credit, bank facilities and commercial paper programs outstanding at September 30, 2003.

 
At September 30, 2003 (in $ millions) Committed   Non-Committed   Total  
 
Commercial paper credit lines 1,501   2,000   3,501  
Other credit facilities 1,277   487   1,764  
 
Total 2,778   2,487   5,265  
 
Drawn 952   53   1,005  
Undrawn 1,826   2,434   4,260  
 

     BCE Inc., Bell Canada and Aliant may issue notes under their commercial paper programs in an amount that cannot exceed the amount of supporting committed lines of credit. As at September 30, 2003, the aggregate amount of such supporting committed lines of credit was $1.5 billion.

     At September 30, 2003, BCE Inc., Bell Canada and Aliant had no amounts outstanding under their commercial paper programs.

     In addition, BCE Inc. and Bell Canada can, under their commercial paper programs, 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 September 30, 2003, Bell Canada and BCE Inc. had no Class E Notes outstanding.

     Included in the drawn portion of our total credit facilities are issued letters of credit of $279 million under our committed facilities and $28 million under our non-committed facilities.

19





Recent Developments in Legal Proceedings

This section provides a description of recent material developments in certain of the legal proceedings involving BCE described in BCE Inc.’s Annual Information Form for the year ended December 31, 2002 (BCE 2002 AIF) and a description of a new legal proceeding initiated since BCE Inc.’s most recent quarterly report.

Teleglobe-related lawsuits

Teleglobe lending syndicate lawsuit

As indicated in the BCE 2002 AIF, on November 28 and 29, 2002, the Ontario Superior Court of Justice heard the motions previously filed by BCE Inc. (i) to stay or dismiss the action on the basis that it does not have jurisdiction and that Québec is the convenient forum for the adjudication of the plaintiffs’ claims, and (ii) for a declaration that the plaintiffs’ legal counsel is in a position of conflict of interest acting as counsel to the plaintiffs and for an order removing the plaintiffs’ legal counsel as the solicitors of record for the plaintiffs in this lawsuit.

     On March 20, 2003, the Ontario Superior Court of Justice ordered the removal of the plaintiffs’ legal counsel as solicitors of record for the plaintiffs. Leave to appeal this decision was granted on June 3, 2003 but BCE Inc. was informed on October 9, 2003 that the appeal will not be pursued by the plaintiffs. New counsel has been appointed as solicitors of record for the plaintiffs.

     On April 30, 2003, the Ontario Superior Court of Justice dismissed BCE Inc.’s motion to stay or dismiss the action on the basis that it does not have jurisdiction and that Québec is the convenient forum for the adjudication of the plaintiffs’ claims. Leave to appeal this decision was denied on July 15, 2003 and therefore the action will proceed in Ontario.

     On September 15, 2003, BCE Inc. filed its statement of defence with respect to this action.

VarTec lawsuit

As indicated in the BCE 2002 AIF, on March 2, 2003, BCE Inc., BCE Ventures Inc. and the President of BCE Ventures Inc. filed a motion to (i) dismiss the action for improper venue and on the merits for failure to state a claim for which relief may be granted and/or failure to plead fraud claims with sufficient particularity, and (ii) strike the plaintiffs’ jury demand.

     In the hearing held on September 26, 2003, the United States District Court for the Northern District of Texas indicated that absent a request by the plaintiffs to transfer the action to the District of Columbia, it would enter an order dismissing the action for improper venue. On September 29, 2003, the plaintiffs filed a motion to transfer the action to the United States District Court for the District of Columbia, which was granted on October 9, 2003.

BCI-related lawsuits

BCI common shareholders lawsuit

As indicated in BCE Inc.’s 2003 Second Quarter Shareholder Report, on May 9, 2003, the Ontario Superior Court of Justice dismissed the action and the motion for certification as a class action. On June 27, 2003, the plaintiff filed an amended statement of claim, again seeking to have the action certified as a class action. On August 31, 2003, another BCI common shareholder filed a lawsuit asserting substantially the same allegations as those asserted in the first shareholder’s lawsuit. This second lawsuit seeks to proceed as a class action on behalf of the same proposed class as that proposed in the first shareholder’s lawsuit and seeks damages in the same amount as the first shareholder’s lawsuit. A hearing on BCE Inc.’s motions to dismiss both these actions is scheduled to take place on November 4, 2003.

6.75% debentureholders lawsuit

During the month of August 2003, BCE Inc. and the other defendants in this action filed their statements of defence with respect to this action.

6.50% debentureholders lawsuit

On August 31, 2003, a lawsuit was filed in the Ontario Superior Court of Justice by a former holder of $110 million of BCI’s 6.50% convertible unsecured subordinated debentures. The plaintiff seeks damages from BCI and its directors and BCE Inc. up to an amount of $110 million, together with interests and costs. The notice of action contains allegations substantially similar to those contained in the 6.75% debentureholders lawsuit described in the BCE 2002 AIF.

     On September 9, 2003, the parties to this action entered into an agreement with respect to the procedure to be followed in connection with this action. Pursuant to this agreement, the defendants will undertake limited examinations of the plaintiff to determine whether this action raises factual or legal issues or defences different from those in the 6.75% debentureholders lawsuit. If the defendants determine that no such different issues or defences exist, then the prosecution of this action will be stayed pending final adjudication or settlement of the 6.75% debentureholders lawsuit, and the resolution of the 6.75% debentureholders lawsuit shall form the basis for the final resolution of this action. This agreement is subject to the approval of the Ontario Superior Court of Justice in accordance with the BCI plan of arrangement.

     While the final outcome of any legal proceeding cannot be predicted with certainty, based upon information currently available, BCE Inc. and BCI are of the view that they have strong defences and intend to vigorously defend their position.

Bell Globemedia lawsuit (Robertson class action)

As indicated in the BCE 2002 AIF, the plaintiffs have appealed the decision of the Ontario Superior Court of Justice that rejected their motion for partial summary judgment (including the rejection of a requested injunction), and the defendants have cross-appealed on a number of issues. This appeal and cross-appeal are now scheduled to be heard on February 23, 2004.

Iridium lawsuit

On October 23, 2003, Iridium Canada Inc. and Bell Mobility Inc. entered into an agreement with the plaintiffs in this lawsuit for the settlement of this action.

20





Forward-Looking Statements

A statement we make is forward looking when it uses what we know today to make a statement about the future.

     Forward-looking statements may include words such as anticipate, believe, could, expect, goal, intend, may, objective, outlook, seek, strive, target and will.

     This MD&A contains forward-looking statements about BCE’s objectives, strategies, financial condition, results of operations and businesses.

     These statements are “forward-looking” because they are based on our current expectations about the markets we operate in and on various estimates and assumptions.

      It is important to know that:

     You will find a more detailed assessment of the risks that could cause our actual results to materially differ from our current expectations in the Risk Assessment section on the next page.

21





Risk Assessment

The following section describes general risks that could affect the BCE group of companies and specific risks that could affect BCE Inc. and each of our segments.

     A risk is the possibility that an event might happen in the future that could have a negative effect on the financial condition, results of operations or business of one or more BCE companies. Part of managing our business is to understand what these potential risks could be and working to minimize them where we can.

     Because no one can predict whether any risk will happen or its consequences, the actual effect of any risk on our business could be materially different from what we currently anticipate. In addition, this description of risks does not include all possible risks, and there may be other risks of which we are currently unaware.

BCE Group of Companies

OUR DEPENDENCE ON THE BELL CANADA SEGMENT

The Bell Canada Segment is our largest segment, which means our financial performance depends in large part on how well the Bell Canada Segment performs financially.

     For the three-month period ended September 30, 2003, the Bell Canada Segment accounted for 87% of our operating revenues, 95% of our EBITDA and 99% of our net earnings applicable to common shares on a consolidated basis. On a year-to-date basis, the Bell Canada Segment accounted for 87% of our operating revenues, 94% of our EBITDA and 95% of our net earnings applicable to common shares on a consolidated basis.

ECONOMIC AND MARKET CONDITIONS

Our business is affected by general economic conditions, consumer confidence and spending, and the demand for, and the prices of, our products and services. When there is a decline in economic growth, and retail and commercial activity, there tends to be a lower demand for our products and services.

     The slower pace of growth of, and uncertainty in, the global economy have reduced demand for certain of our products and services, which negatively affected our financial performance and may continue to negatively affect it in the future. In particular, weak economic conditions have led to:

     Weak economic conditions may also negatively affect the financial condition and credit risk of our customers, which could increase uncertainty about our ability to collect receivables.

IMPROVING PRODUCTIVITY AND REDUCING CAPITAL INTENSITY

We continue to implement several productivity initiatives while reducing our capital intensity.

     There could be a material and negative effect on our profitability if we do not continue to successfully implement productivity initiatives and reduce capital intensity while maintaining the quality of our service. There could also be a material and negative effect on our profitability if any volume declines in connection with the sale of our products and services due to market factors are not met with concurrent expense reductions.

INCREASING COMPETITION

We face intense competition from traditional competitors, as well as from new entrants to the markets we operate in. We compete not only with other telecommunications, media, satellite television and e-commerce companies but also with other businesses and industries, such as cable, software and Internet companies, and a variety of companies that offer network services, such as providers of business information systems and system integrators, as well as other companies that deal with, or have access to, customers through various communications networks. In addition, we face increasing cross-platform competition, including competition to our wireline business coming from wireless and cable companies, and expect this type of competition to intensify in the future, as new technologies will be developed. Finally, we anticipate increasing competition from service providers using Voice over Internet Protocol (VoIP) technology as this technology improves and gains market acceptance.

     Cable companies and independent Internet service providers have increased competition in the Broadband and Internet access services business. Competition has led to Internet access pricing in Canada that is amongst the lowest in the world.

     The Canadian wireless telecommunications industry is also highly competitive. We compete directly with other wireless service providers with aggressive product and service introductions, pricing and marketing. We expect competition to intensify through the development of new technologies, products and services, and through consolidation in the industry.

     Many of our competitors have substantial financial, marketing, personnel and technological resources. We already have several domestic and foreign competitors, but the number of foreign competitors with a presence in Canada and large resources could increase in the future. New competitors may also appear as new technologies, products and services are developed, and for other reasons.

     Certain of our competitors have recently emerged from restructuring proceedings with substantially lower levels of indebtedness and, accordingly, they have the financial flexibility to offer products and services at prices below prevailing market rates.

22





     Competition could affect our pricing strategies, and lower our revenues and net income. It could also affect our ability to retain existing customers and attract new ones. Competition puts us under constant pressure to improve customer service and be price-competitive. It forces us to keep reducing costs, managing expenses and increasing productivity. This means that we need to be able to anticipate and respond quickly to the constant changes in our businesses and markets.

ANTICIPATING TECHNOLOGICAL CHANGE

We operate in markets that are experiencing constant technological change, evolving industry standards, changing client needs, frequent new product and service introductions, and short product life cycles.

     Our success will depend in large part on how well we can anticipate and respond to changes in industry standards, and introduce new and upgrade existing technologies, products and services.

     We may face additional financial risks as we develop new products, services and technologies and update our networks to stay competitive. Newer technologies, for example, may quickly become obsolete or may need more capital than expected. Development could be delayed for reasons beyond our control. Substantial investments usually need to be made before new technologies prove to be commercially viable.

     There is no assurance that we will be successful in developing, implementing and marketing new technologies, products, services or enhancements within a reasonable time, or that they will have a market. New products or services that use new or evolving technologies could make our existing ones unmarketable or cause their prices to fall.

STRATEGIES AND PLANS

We plan to reach our business objectives by implementing various plans and strategies, the most significant of which are described in BCE Inc.’s 2002 annual MD&A dated February 26, 2003 as updated in BCE Inc.’s 2003 first and second quarter MD&As dated April 29, 2003 and July 29, 2003, respectively, and in this MD&A. If our plans and strategies are unsuccessful, this could have a material and negative effect on our growth prospects and results of operations.

FINANCING OUR OPERATIONS

We require substantial amounts of capital to finance capital expenditures to provide our services and to refinance our outstanding debt.

      We finance our on-going capital needs in three ways:

     Equity financings would dilute the holdings of existing equity investors. Significant additional debt financings could lower our credit ratings and increase our borrowing costs, giving us less flexibility to take advantage of business opportunities.

     Our ability to finance operations depends on our ability to access the capital markets and the syndicated commercial loan market. The cost of funding depends largely on market conditions and our business perspectives at the time capital is raised. In addition, participants in the capital and syndicated commercial loan markets have internal policies limiting their ability to invest in, or extend credit to, any single borrower or group of borrowers or to a particular industry.

      If we cannot raise the capital we need, we may have to:

     Any of these possibilities could have a material and negative effect on our growth prospects for the long term.

LITIGATION, REGULATORY MATTERS AND CHANGES IN LAWS

Pending or future litigation, regulatory initiatives or regulatory proceedings could have a material and negative effect on our businesses, operating results and financial condition. Changes in laws or regulations or in their interpretation, or the adoption of new, laws or regulations, including, without limitation, changes in, or the adoption of new, tax laws resulting in the increase of applicable tax rates or the introduction of new taxes, could also have a material and negative effect on our businesses, operating results and financial condition.

     On September 25, 2003, the Canadian Government tabled its response to the April 28, 2003 Report of the Standing Committee on Industry, Science and Technology and its recommendations on foreign investment restrictions on telecommunications carriers.

     The Government acknowledged the appropriateness of the Committee’s conclusion that removing foreign investment restrictions would benefit the telecommunications industry, as well as users of these services. The Government also accepted that in order to promote competition and regulate the industry in a smart, stable and efficient manner, it would be irresponsible to treat differently telecommunications common carriers and broadcasting distribution undertakings (BDUs).

     The Government also noted that the Standing Committee on Canadian Heritage expressed concerns that changes in ownership restrictions for either telecommunications common carriers or BDUs could have an adverse impact on the broadcasting system.

     The Government undertook to immediately launch an analysis on how best to reconcile the conflicting recommendations of the two Standing Committees. The Government stated that this review will be completed quickly and that by the Spring of 2004 the Government will be in a position to examine possible solutions.

     Until the Government specifies the possible solutions it will be examining, we are not in a position to assess the impact, if any, the above-mentioned developments may have on us.

      The BCE 2002 AIF contains a detailed description of:

     Please see Recent Developments in Legal Proceedings in this MD&A for a description of recent material developments in the principal legal proceedings involving us and those initiated since BCE Inc.’s most recent quarterly report.

23





PENSION FUND CONTRIBUTIONS

As of our most recent actuarial valuation, most of our pension plans had pension fund surpluses. As a result, we have not had to make regular contributions to the pension funds in the past years. It also means that we have reported pension credits, which have had a positive effect on our net earnings.

     The decline in the capital markets in 2001 and 2002, combined with historically low interest rates, however, have significantly reduced the pension fund surpluses and the pension credits. This has negatively affected our net earnings.

     On a year-to-date basis in 2003, we have had positive returns on pension plan assets. However, should returns on pension plan assets decline again in the future, the surpluses would be further eroded, potentially resulting in the requirement to commence making contributions to the pension funds. This could also result in a material and negative effect on our net earnings.

FUNDING SUBSIDIARIES

BCE Inc. is currently funding and may continue to fund the operating losses of certain of its subsidiaries in the future, but is not obligated to do so. If BCE Inc. decides to stop funding any of its subsidiaries and a subsidiary does not have other sources of funding, this would have a material and negative effect on the subsidiary’s results of operations and financial condition.

     If BCE Inc. stopped funding a subsidiary, stakeholders or creditors of the subsidiary might decide to take legal action against BCE Inc. While we believe that this type of claim would have no legal foundation, it could negatively affect the market price of BCE Inc.’s securities. BCE Inc. would have to devote considerable management time and resources in responding to any claim.

ATTRACTING AND RETAINING SKILLED PEOPLE

Our success depends in large part on our ability to attract and retain highly skilled people. The loss of key people could materially hurt our businesses and operating results.

PROTECTING OUR NETWORKS

Network failures could materially hurt our business, including our customer relationships and operating results. Our operations depend on how well we protect our networks, our equipment, our applications and the information stored in our data centres against damage from fire, natural disaster, power loss, hacking, computer viruses, disabling devices, acts of war or terrorism, and other events. Any of these events could cause our operations to be shut down indefinitely.

RENEGOTIATING LABOUR AGREEMENTS

Many of our employees are represented by unions and are covered by collective bargaining agreements.

     Several of our collective bargaining agreements expire in 2003 or have already expired. These agreements, which cover approximately 12,400 employees, are the following:

     Renegotiating collective agreements could result in higher labour costs or work disruptions. Difficulties in renegotiations or other labour unrest could hurt our businesses, operating results and financial condition.

BCE Inc.

HOLDING COMPANY STRUCTURE

BCE Inc. is a holding company. That means it does not carry on any significant operations and has no major sources of income or assets of its own, other than the interests it has in its subsidiaries, joint ventures and significantly influenced companies. BCE Inc.’s cash flow and its ability to service its debt and to pay dividends on its shares all depend on dividends or other distributions it receives from its subsidiaries, joint ventures and significantly influenced companies and, in particular, from Bell Canada.

     BCE Inc.’s subsidiaries, joint ventures and significantly influenced companies are separate legal entities. They do not have to pay dividends or make any other distributions to BCE Inc. If any of these subsidiaries, joint ventures or significantly influenced companies are liquidated or reorganized, the rights of their creditors will rank ahead of any rights BCE Inc. has to receive assets.

STOCK MARKET VOLATILITY

In the past, the common shares of BCE Inc. have generally experienced price volatility when certain announcements concerning BCE have been made. Differences between BCE’s actual or anticipated financial results and the published expectations of financial analysts may also contribute to this volatility. All of these factors, as well as general economic and political conditions, could have a material and negative effect on the market price of BCE Inc.’s common shares.

24





Bell Canada Segment

CHANGING WIRELINE REGULATION

The Bell Canada Segment’s business is affected by changes in policies resulting from decisions made by various regulatory agencies, including the CRTC. Many of these decisions balance requests from competitors for access to facilities, such as the telecommunications networks, switching and transmission facilities, and other network infrastructure of incumbent telephone companies, with the rights of the incumbent telephone companies to compete reasonably freely.

CRTC Price Cap decision

In May 2002, the CRTC introduced new Price Cap rules that reduce some rates that incumbent telephone companies charge competitors for services provided to them.

     The new rules create certain risks for the Bell Canada Segment. For example, the CRTC has established a deferral account but has not yet determined how the account will be used. There is a risk that the account could be used in a way that could have a negative financial effect on the Bell Canada Segment.

CRTC decision on incumbent affiliates

On December 12, 2002, the CRTC released its decision on incumbent affiliates, which makes several important changes to the regulatory regime for the Bell Canada Segment.

     The decision provided that contracts offered by Bell Canada or its carrier affiliates that bundle tariffed and non-tariffed products and services must receive CRTC approval. This means that:

     On September 23, 2003, the CRTC issued a further decision that requires Bell Canada and its carrier affiliates to include in their tariffs, filed with the CRTC, a detailed description of the services provided under the bundled arrangement with their customers. While the name of the customers will remain confidential, the tariffs will disclose, on the public record, the pricing and service arrangements between the Bell Canada Segment and those customers. On October 23, 2003, Bell Canada submitted an application to the Federal Court of Appeal asking for leave to appeal and a stay of certain aspects of this decision on the basis that it raises important issues about public disclosure of customer-specific commercial information that could compromise the competitiveness of these customers.

     These decisions could have a negative effect on the selection, by certain of our large customers, of Bell Canada and other entities of the Bell Canada Segment as their preferred service supplier in the future. Moreover, while these decisions increase the regulatory burden for the Bell Canada Segment at both the wholesale and retail levels in highly competitive markets, it is not currently possible to determine the financial effect of these decisions or to separate them from the normal risk of loss of revenues resulting from competition.

CRTC PUBLIC NOTICE ON CHANGES TO PRICE FLOOR

On October 23, 2003, the CRTC issued a public notice seeking comments on its preliminary view that revised rules may be needed for the pricing of new retail services, service bundles and volume or term contracts by the incumbent local exchange carriers. While the CRTC has proposed some interim measures to be applied during the public notice process, it is too early to determine the financial impact of the CRTC’s proposals on the Bell Canada Segment in the pricing of new retail services and ability to provide service bundles.

LICENSES AND CHANGING WIRELESS REGULATION

Companies must have a spectrum license to operate cellular, PCS and other radio-telecommunications systems in Canada. The Minister of Industry issues spectrum licenses at his or her discretion under the Radiocommunication Act. Bell Mobility’s cellular and PCS licenses will expire on March 31, 2006. The PCS licenses that were awarded in an auction in 2001 will expire on November 29, 2011. Although it is expected that licenses will be renewed when they expire, there is no assurance that this will happen. In addition, Industry Canada can revoke a company’s license at any time if the company does not comply with its terms.

     In December 2002, Industry Canada initiated a cellular and PCS licensing and fees consultation. Industry Canada has proposed a new cellular and PCS fee structure that, while implemented over several years, could significantly increase the Bell Canada Segment’s license fees if it is implemented as proposed.

     In October 2001, the Minister of Industry announced his intention to initiate a national review of Industry Canada’s procedures surrounding the approval and placement of wireless and radio towers throughout Canada. The review will include the role of municipal authorities in the approval process. There is a risk that if municipal involvement increases in the process for approval of new towers, it could significantly slow the expansion of wireless networks in Canada. This could have a material and negative effect on the operations of all of Canada’s wireless carriers, including the Bell Canada Segment.

INCREASED ACCIDENTS FROM USING CELL PHONES

Media reports have suggested that using handheld cell phones while driving may result in more accidents. It is possible that this could lead to new regulations or legislation banning the use of handheld cell phones while driving, as it did in Newfoundland and Labrador and several U.S. states. As a result, cell phone use in vehicles could decline, which would negatively affect the Bell Canada Segment and other wireless service providers.

HEALTH CONCERNS ABOUT RADIO FREQUENCY EMISSIONS

Media reports have suggested that some radio frequency emissions from cell phones may be linked to medical conditions, such as cancer. In addition, some interest groups have requested investigations into claims that digital transmissions from handsets used with digital wireless technologies pose health concerns and cause interference with hearing aids and other medical devices.

     The findings of these kinds of studies could lead to government regulation, which could have a material and negative effect on the Bell Canada Segment’s business. Actual or perceived health risks of wireless communications devices could result in fewer new network subscribers, lower network usage per subscriber, higher churn rates, product liability lawsuits or less outside financing being available to the wireless communications industry. Any of these would have a negative effect on the Bell Canada Segment and other wireless service providers.

25





BELL EXPRESSVU

Bell ExpressVu continues to face competition from unregulated U.S. DTH services that are illegally sold in Canada. In response, it has initiated or is participating in several legal actions that are challenging the sale of U.S. DTH equipment in Canada. While Bell ExpressVu has been successful in increasing its share of the satellite television market despite this competition, there is no assurance that it will continue to do so.

     Bell ExpressVu currently uses two satellites for its DTH services, Nimiq 1 and Nimiq 2, which are operated by Telesat. Please see Risk Assessment – BCE Ventures – Telesat for a description of certain risks affecting satellites and, in particular, Nimiq 2.

     Satellites are subject to significant risks. Any loss, manufacturing defects, damage or destruction of the satellites used by Bell ExpressVu could have a material and negative effect on Bell ExpressVu’s results of operations and financial condition.

     Bell ExpressVu is subject to programming and carriage requirements under its CRTC license. Changes to the regulations that govern broadcasting or to its license could negatively affect Bell ExpressVu’s competitive position or its costs of providing services. Bell ExpressVu’s existing DTH Distribution Undertaking license was scheduled for renewal in August 2003 but was given a further six month administrative renewal to February 2004 pending CRTC approval of Bell ExpressVu’s application for license renewal. CRTC hearings on Bell ExpressVu’s license renewal application were held in October 2003. Although we expect that this license will be renewed when it expires, there is no assurance that this will happen or that the terms of such renewal will remain identical.

     Finally, Bell ExpressVu faces a loss of revenue resulting from the theft of its services. Bell ExpressVu is actively seeking to reduce these losses by taking numerous actions including legal action, investigations, implementing electronic countermeasures targeted at illegal devices, leading information campaigns and developing new technology. Implementing these measures, however, could increase Bell ExpressVu’s capital and operating expenses, reduce subscriber growth and potentially increase churn.

Bell Globemedia

DEPENDENCE ON ADVERTISING

Bell Globemedia’s revenue from its television and print businesses depends in large part on advertising revenues. Bell Globemedia’s advertising revenues are affected by competitive pressures. In addition, the amount companies spend on advertising is directly related to economic growth. An economic downturn therefore tends to make it more difficult for Bell Globemedia to maintain or increase revenues.

INCREASING FRAGMENTATION IN TELEVISION MARKETS

Television advertising revenue largely depends on the number of viewers and the attractiveness of programming in a given market. The viewing market has become increasingly fragmented over the past decade because of the introduction of additional television services, the extended reach of existing signals and the launch of new digital broadcasting services in the fall of 2001.

     We expect fragmentation to continue as new web-based and other services increase the choices available to consumers. As a result, there is no assurance that Bell Globemedia will be able to maintain or increase its advertising revenues or its ability to reach viewers with attractive programming.

REVENUES FROM DISTRIBUTING TELEVISION SERVICES

A significant portion of revenues generated by CTV’s specialty television operations comes from contractual arrangements with distributors, primarily cable and DTH operators. Many of these contracts have expired. There is no assurance that the contracts will be renewed on equally favourable terms.

INCREASED COMPETITION FOR FEWER PRINT CUSTOMERS

Print advertising revenue largely depends on circulation and readership. The existence of a competing national newspaper and a commuter paper in Toronto has increased competition, while the total circulation and readership of Canadian newspapers has continued to decline. The combination of these factors has resulted in higher costs, more competition in advertising rates and, consequently, lower profit margins at The Globe and Mail.

BROADCAST LICENSES

Each of CTV’s conventional and specialty services operates under licenses issued by the CRTC for a fixed term of up to seven years. These licenses are subject to the requirements of the Broadcasting Act, the policies and decisions of the CRTC and the conditions of each licensing or renewal decision, all of which may change.

     There is no assurance that any of CTV’s licenses will be renewed. Any renewals, changes or amendments may have a material and negative effect on Bell Globemedia.

26





BCE Emergis

FLUCTUATIONS IN CURRENCY EXCHANGE RATES

BCE Emergis is affected by fluctuations in the currency exchange rates between the Canadian and U.S. dollars. The stronger Canadian dollar has had and could continue to have a material and negative effect on BCE Emergis’ revenues and net earnings.

ADOPTION OF eBUSINESS

The success of BCE Emergis depends on widespread use of the Internet as well as other electronic networks as a way to conduct business. Because eBusiness and its related business activities, such as online transactions, are relatively new and evolving, it is difficult to predict the size of this market and its sustainable rate of growth. Businesses and customers have not adopted eBusiness and its inherent applications as quickly as originally expected.

     BCE Emergis must increase the number of transactions it processes to build recurring revenue. This increase will depend on the rate at which its solutions are adopted by its customers and distributors’ customers. It will also depend on BCE Emergis’ ability to build an effective sales force as well as stimulate its distributors’ sales and influence their marketing plans for its solutions.

CHANGES IN THE U.S. HEALTH CARE LANDSCAPE

The consolidation of health care service providers as well as changes in the U.S. health care landscape may have a material and negative effect on BCE Emergis’ business.

OPERATING RESULTS

BCE Emergis has announced plans to focus on key growth areas, drive core recurring revenue growth, streamline its service offerings and operating costs and add new services. BCE Emergis will also pursue a review of its various product lines and businesses to ensure they continue to meet its goals. If it fails to successfully carry out these plans, there could be a material and adverse effect on BCE Emergis’ results of operations.

     BCE Emergis has incurred losses in the past. Its revenue depends substantially on the amount of services which its customers purchase throughout the year. In addition, it has a number of major customers representing a significant portion of its revenue. If BCE Emergis loses a contract with a major client and cannot replace it or there is a significant decrease in the number of transactions BCE Emergis processes, it could have a material and adverse effect on it. Most of BCE Emergis’ contracts are for a term of three to five years, except those with its e-health (U.S.) operations which are generally renewable on an annual basis as is customary in that industry.

     The operating results of BCE Emergis have fluctuated in the past, mainly because of variability in non-recurring revenue, the effect of acquisitions and exited activities. BCE Emergis expects fluctuations to continue in the future. Significant fluctuations in BCE Emergis’ operating results may harm its business operations by making it difficult to implement its business plan and achieve its results.

SUCCESS OF U.S.-BASED OPERATIONS

To be successful in the United States involves significant management and financial resources. If BCE Emergis is unsuccessful, this could have a material and adverse effect on its business and operating results.

CONTROL BY BCE INC.

BCE Inc., which owns approximately 65% of the outstanding common shares of BCE Emergis, can, subject to applicable law, exercise significant control and influence over the affairs of BCE Emergis, including virtually all matters submitted to a shareholder vote.

     BCE Inc. has no obligation to remain the majority shareholder or to maintain its current level of ownership in BCE Emergis. The announcement of a decision by BCE Inc. to change the treatment of its investment in BCE Emergis, to sell all or a portion of its common shares of BCE Emergis, or any other decision to the same effect could materially and adversely affect BCE Emergis, its prospects and the market price of its common shares.

ACQUISITIONS

BCE Emergis’ growth strategy includes making strategic internally funded acquisitions. There is no assurance that it will find suitable companies to acquire or that it will have enough resources to complete any acquisition. There could be difficulties with integrating the operations of recently acquired companies with its existing operations. In addition, the current state of capital markets has created a more challenging environment in which to realize acquisitions.

STRATEGIC RELATIONSHIPS

BCE Emergis relies on strategic relationships to increase its customer base, including its relationships with Bell Canada, Visa and Freddie Mac. If these relationships fail, there could be a material and adverse effect on its business and operating results.

DEPENDENCE ON CONTRACTING MEDICAL SERVICE PROVIDERS

The growth of BCE Emergis’ eHealth Solutions Group, North America business unit depends on its ability to:

     In addition, the results of BCE Emergis could be materially and adversely affected if:

EXPOSURE TO PROFESSIONAL LIABILITY

BCE Emergis uses medical treatment guidelines in its utilization review and case management services. That means it could be subject to claims relating to:

     These claims could have a material and adverse effect on the business and operating results of BCE Emergis.

27





DEFECTS IN SOFTWARE OR FAILURES IN THE PROCESSING OF TRANSACTIONS

Defects in BCE Emergis’ owned or licensed software products, delays in delivery, as well as failures or mistakes in its processing of electronic transactions, could materially harm its business, including its customer relationships and operating results.

SECURITY AND PRIVACY BREACHES

If BCE Emergis is unable to protect the physical and electronic security and privacy of applications, databases and transactions, its business, including customer relationships, could be materially and adversely affected.

PROTECTION OF INTELLECTUAL PROPERTY

BCE Emergis depends on its ability to develop and maintain the proprietary aspects of its technology. It may not be able to enforce its rights or prevent other parties from developing similar technology, duplicating its intellectual property or designing around its intellectual property and this could materially harm its business.

INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS

Third parties may claim that BCE Emergis infringes on their intellectual property. Any such claims, with or without merit, could materially harm its business and operating results. There has been a substantial amount of litigation in the software industry and the Internet industry regarding intellectual property rights.

INTEGRITY OF PUBLIC KEY CRYPTOGRAPHY TECHNOLOGY

BCE Emergis’ security solutions depend on key public cryptography technology. Any major advance in ways to attack cryptographic systems could make some or all of its security solutions obsolete or unmarketable. This could reduce revenues from its security solutions and could materially harm its business and operating results.

BCE Ventures

TELESAT

On February 20, 2003, Telesat’s Nimiq 2 satellite experienced a malfunction affecting the available power on the satellite. An investigation by the Nimiq 2 satellite manufacturer has determined that the malfunction cannot be corrected. Nimiq 2 has been configured such that 26 of the 32 transponders on the satellite are being operated at this time. Operating under this configuration, Telesat expects the number of operational transponders to decrease over time to approximately 20 by the end of the satellite’s life which will occur in approximately 12 years. Nimiq 2 is insured and Telesat has successfully and satisfactorily settled an insurance claim for the loss during the third quarter of 2003.

     In August 2001, the manufacturer of the Anik F1 satellite advised Telesat of a gradual decline in available power on the satellite. It indicated that power levels on the Anik F1 satellite will continue to degrade at the rates observed to date. Telesat believes that this will result in some core services on the satellite being affected in mid-2005.

     Telesat has a satellite under construction, Anik F1R, which is expected to replace Anik F1 in a timeframe that will ensure continuity of service for its customers. Telesat has insurance in place to cover the power loss on Anik F1, and in December 2002 it filed a claim with its insurers. Although Telesat believes that the claim will be approved, there is no assurance that it will be. If the claim is approved, there is no assurance of how much Telesat will receive in the settlement or when it will receive it.

     Telesat also has another satellite under construction, Anik F2. There has been a delay in the delivery of Anik F2 by the satellite manufacturer. Telesat has made arrangements for the lease of an in-orbit satellite to cover the delay. Additional delay in the delivery of Anik F2 could potentially have an adverse effect on Telesat’s ability to provide service, result in additional costs and could cause the refund of customer prepayments for service on the satellite.

     There is a risk that the satellites under construction, Anik F2 and Anik F1R, or other satellites built in the future, may not be launched successfully. Telesat already has part of the insurance coverage for Anik F2, but there is no assurance that it will be able to get launch coverage for the full value of the Anik F2 satellite, or of any other satellite proposed to be launched, at a favourable rate.

     Once Telesat’s satellites are in orbit, there is a risk that a failure could prevent them from completing their commercial mission. Telesat has put a number of measures in place to protect itself against this risk. These include engineering satellites with on-board redundancies by including spare equipment on the satellite and buying in-orbit insurance. There is no assurance that Telesat will be able to renew its in-orbit insurance coverage in sufficient amount at favourable terms.

28





Our Accounting Policies

We have prepared our consolidated financial statements according to Canadian GAAP.

     This section discusses key estimates and assumptions that management has made under these principles and how they affect the amounts reported in the financial statements and notes.

     It also describes changes to accounting standards that affect how we account for and report certain items in our financial statements.

     Please see Note 1 to the consolidated financial statements for the year ended December 31, 2002 and Note 1 to the consolidated financial statements for the third quarter of 2003 for more information about the accounting principles we use to prepare our financial statements.

Key Estimates and Assumptions

Under Canadian GAAP, we are required to make estimates and assumptions when we account for and report assets, liabilities, revenues and expenses and disclose contingent assets and liabilities in our financial statements. We are also required to constantly evaluate the estimates and assumptions we use.

     We base our estimates and assumptions on past experience and other factors that we believe are reasonable under the circumstances. Because this involves varying degrees of judgment and uncertainty, the amounts currently reported in the financial statements could, in the future, prove to be inaccurate.

     We consider the estimates and assumptions described in this section to be an important part of understanding our financial statements because they rely heavily on management’s judgment and are based on factors that are inherently uncertain.

     Our senior management has discussed the development and selection of these key estimates and assumptions with the Audit Committee of the Board of Directors. The Audit Committee has reviewed the disclosures described in this section.

EMPLOYEE BENEFIT PLANS

We maintain defined benefit plans that provide pension, other retirement and post-employment benefits for most of our employees. The amounts reported in the financial statements relating to pension, other retirement and post-employment benefits are determined using actuarial calculations that are based on several assumptions.

     We perform a valuation at least every three years to determine the actuarial present value of the accrued pension and other retirement benefits. The valuation uses management’s assumptions for the discount rate, expected long-term rate of return on plan assets, rate of compensation increase, healthcare cost trend and expected average remaining years of service of employees.

     While we believe that these assumptions are appropriate, differences in actual results or changes in assumptions could affect employee benefit obligations and future credit or expense.

     We account for differences between actual and assumed results by recognizing differences in benefit obligations and plan performance over the working lives of the employees who benefit from the plans.

     The two most significant assumptions used to calculate the net employee benefit plans credit or expense are:

Discount rate

The discount rate is the interest rate used to determine the present value of the future cash flows that we expect will be needed to settle employee benefit obligations. It is usually based on the yield on long term high-quality corporate fixed income investments.

     We determine the appropriate discount rate at the end of every year. Our discount rate was 6.5% at December 31, 2002, unchanged from 2001. Changes in the discount rate do not have a significant effect on our earnings. They do, however, have a significant effect on the projected benefit obligation. A lower discount rate results in a higher obligation and a lower pension surplus, which could at some level require us to make contributions to the plan.

Expected long-term rate of return

In 2002, we assumed an expected long-term rate of return on plan assets of 8.3%. The actual rate of return has been substantially more than 8.3% on average over the long term. In the past two years, however, it has been substantially less than 8.3%, resulting in a significant accumulated actuarial loss. We expect this accumulated actuarial loss to negatively impact pre-tax earnings by about $120 million in 2003.

     We have lowered our assumption to a rate of return of 7.5% for 2003, because we expect lower long-term rates of return in the financial markets. We expect this change to reduce pre-tax earnings by about $80 million in 2003.

ALLOWANCES FOR DOUBTFUL ACCOUNTS

We maintain allowances for losses that we expect will result from customers who do not make their required payments.

     We estimate the allowances based on the likelihood of recovering our accounts receivable. This is based on past experience, taking into account current and expected collection trends.

     If economic conditions or specific industry trends become worse than we have anticipated, we will increase our allowances for doubtful accounts by recording an additional expense.

USEFUL LIFE OF LONG-LIVED ASSETS

The estimated useful life of long-lived assets is used to determine amortization expense.

     We estimate an asset’s useful life when we acquire the asset. We base our estimate on past experience with similar assets, taking into account expected technological or other changes.

     If technological changes happen more quickly or in a different way than we have anticipated, we might have to shorten the asset’s estimated useful life. This could result in:

29





IMPAIRMENT

We assess the impairment of long-lived assets when events or changes in circumstances indicate that we may not be able to recover their carrying value. We usually measure impairment using a projected undiscounted cash flow method. If the asset’s carrying value is more than its recoverable value, we record the difference as an impairment charge.

     We assess the impairment of goodwill and intangible assets with indefinite lives each year and when events or changes in circumstances indicate that they might be impaired. We usually measure impairment using a projected discounted cash flow method. If the asset’s carrying value is more than its fair value, we record the difference as an impairment charge.

     We believe that our estimates of future cash flows and fair value are reasonable. The assumptions we have used are consistent with our internal planning and reflect our best estimates, but they have inherent uncertainties that management may not be able to control. As a result, the amounts reported for these items could be different if we used different assumptions or if conditions change in the future.

     We cannot predict whether an event that triggers an impairment will occur, when it will occur or how it will affect the asset values we have reported.

CONTINGENCIES

We become involved in various litigation and regulatory matters as a regular part of our business. Pending litigation, regulatory initiatives or regulatory proceedings represent potential financial loss to our business.

     We will accrue a potential loss if we believe the loss is probable and it can be reasonably estimated. We base our decision on then available information.

     We estimate the amount of the loss by consulting with the outside legal counsel who is handling our defence. This involves analyzing potential outcomes and assuming various litigation and settlement strategies.

     If the final resolution of a legal or regulatory matter results in a judgment against us or the payment of a large settlement by us, it could have a significant and adverse effect on our results of operations, cash flows and financial position in the period that the judgment or settlement occurs.

RESTRUCTURING AND OTHER CHARGES

We are required to develop formal plans for exiting businesses and activities as part of the restructuring initiatives we have been carrying out for the past several years.

     These plans require significant estimates of the salvage value of assets that are made redundant or obsolete. We are also required to report estimated expenses for severance and other employee costs, lease cancellation and other exit costs.

     Because exiting a business or activity is a complex process that can take several months to complete, it involves periodically reassessing estimates that were made when the original decision to exit the business or activity was made. In addition, we constantly evaluate whether the estimates of the remaining liabilities under our restructuring program are adequate.

     As a result, we may have to change previously reported estimates when the payments are made or the activities are completed. There may also be additional charges for new restructuring initiatives.

ALTERNATIVE ACCEPTABLE ACCOUNTING POLICIES

Generally accepted accounting principles permit, in certain circumstances, alternative acceptable accounting policies. Two areas where we have made a choice are (1) the accounting for customer acquisition costs in our wireless and satellite television businesses and (2) the accounting for stock-based compensation cost. Please see Changes to accounting standards, for more information.

Changes to Accounting Standards

Please see Note 1 to the consolidated financial statements for the third quarter of 2003, for a description of the changes to the accounting standards and how they affect our financial statements.

30





Consolidated Statements of Operations

     
For the period ended September 30 Three months   Nine months  
(in $ millions, except share amounts) (unaudited) 2003   2002(1)   2003   2002(1)  
 
Operating revenues 4,883   4,856   14,719   14,672  
 
Operating expenses 2,940   2,929   9,007   9,001  
Amortization expense 825   769   2,397   2,347  
Net benefit plans expense (credit) 44   (7 ) 129   (25 )
Restructuring and other charges (Note 4) 1   79   1   492  
 
Total operating expenses 3,810   3,770   11,534   11,815  
 
Operating income 1,073   1,086   3,185   2,857  
Other (income) expense (Note 5) (18 ) 3   (76 ) (245 )
Interest expense (Note 6) 272   288   847   812  
 
Earnings from continuing operations before income taxes and non-controlling interest 819   795   2,414   2,290  
Income taxes 292   298   814   837  
Non-controlling interest 60   128   181   405  
 
Earnings from continuing operations 467   369   1,419   1,048  
Discontinued operations (Note 7) (3 ) (4 ) (4 ) (353 )
 
Net earnings 464   365   1,415   695  
Dividends on preferred shares (18 ) (16 ) (50 ) (43 )
 
Net earnings applicable to common shares 446   349   1,365   652  
 
Net earnings per common share – basic (Note 8)                
   Continuing operations 0.49   0.41   1.49   1.21  
   Discontinued operations –   (0.01 ) –   (0.43 )
   Net earnings 0.49   0.40   1.49   0.78  
Net earnings per common share – diluted (Note 8)                
   Continuing operations 0.49   0.41   1.49   1.21  
   Discontinued operations –   (0.01 ) –   (0.44 )
   Net earnings 0.49   0.40   1.49   0.77  
Dividends per common share 0.30   0.30   0.90   0.90  
Average number of common shares outstanding – basic (millions) 921.5   864.1   919.3   827.3  
 
                 
                 
Consolidated Statements of Deficit                
         
For the period ended September 30 Three months   Nine months  
(in $ millions) (unaudited) 2003   2002 (1) 2003   2002 (1)
 
Balance at beginning of period, as previously reported (6,079 ) (7,649 ) (6,149 ) (7,468 )
Adjustment for change in accounting policies (Note 1) –   (227 ) (286 ) (218 )
 
Balance at beginning of period, as restated (6,079 ) (7,876 ) (6,435 ) (7,686 )
   Consolidation of variable interest entity (Note 1) (25 ) –   (25 ) –  
   Net earnings 464   365   1,415   695  
    Dividends                
      – Preferred shares (18 ) (16 ) (50 ) (43 )
      – Common shares (277 ) (272 ) (828 ) (757 )
 
  (295 ) (288 ) (878 ) (800 )
   Costs relating to the issuance of common shares –   (62 ) –   (62 )
   Premium on redemption of preferred shares (Note 11) –   –   (7 ) (6 )
   Other (2 ) 10   (7 ) 8  
 
Balance at end of period (5,937 ) (7,851 ) (5,937 ) (7,851 )
 
(1) Refer to Note 1, Significant accounting policies, for changes in accounting policies.
 
Please read the notes starting on page 34. They are an important part of these consolidated financial statements.

31





Consolidated Balance Sheets

   
  September 30   December 31
(in $ millions) (unaudited) 2003   2002 (1)  
 
ASSETS        
Current assets        
   Cash and cash equivalents 1,617   304  
   Accounts receivable (net of allowance for doubtful accounts of        
      $220 million and $207 million for 2003 and 2002, respectively) 2,417   2,328  
   Other current assets 828   774  
   Current assets of discontinued operations 3   26  
 
Total current assets 4,865   3,432  
Capital assets 21,183   20,633  
Other long-term assets 3,641   3,941  
Indefinite-life intangible assets (Note 9) 2,904   900  
Goodwill (Note 10) 8,402   10,118  
Non-current assets of discontinued operations 51   82  
 
Total assets 41,046   39,106
 
LIABILITIES        
Current liabilities        
   Accounts payable and accrued liabilities 3,799   3,820  
   Debt due within one year 1,600   2,021  
   Current liabilities of discontinued operations 2   19  
 
Total current liabilities 5,401   5,860  
Long-term debt 13,711   13,391  
Other long-term liabilities 4,954   3,652  
Non-current liabilities of discontinued operations 3   4  
 
Total liabilities 24,069   22,907  
 
Non-controlling interest 3,576   3,584  
 
Commitments and contingencies (Note 14)        
SHAREHOLDERS’ EQUITY        
Preferred shares (Note 11) 1,670   1,510  
 
Common shareholders’ equity        
   Common shares (Note 11) 16,703   16,520  
   Contributed surplus 1,035   1,010  
   Deficit (5,937 ) (6,435 )
   Currency translation adjustment (70 ) 10  
 
Total common shareholders’ equity 11,731   11,105  
 
Total shareholders’ equity 13,401   12,615  
 
Total liabilities and shareholders’ equity 41,046   39,106  
 
(1) Refer to Note 1, Significant accounting policies, for changes in accounting policies.
 
Please read the notes starting on page 34. They are an important part of these consolidated financial statements.

32





Consolidated Statements of Cash Flows

     
For the period ended September 30 Three months   Nine months  
(in $ millions) (unaudited) 2003   2002(1)   2003   2002(1)  
 
Cash flows from operating activities                
Earnings from continuing operations 467   369   1,419   1,048  
Adjustments to reconcile earnings from continuing operations to                
   cash flows from operating activities:                
      Amortization expense 825   769   2,397   2,347  
      Net benefit plans expense (credit) 44   (7 ) 129   (25 )
      Restructuring and other charges (non-cash portion) (5 ) 67   (5 ) 472  
      Net gains on investments –   (11 ) –   (186 )
      Future income taxes 156   106   275   (16 )
      Non-controlling interest 60   128   181   405  
      Other items (71 ) (89 ) (227 ) (202 )
      Changes in non-cash working capital 428   152   335   (501 )
 
  1,904   1,484   4,504   3,342  
 
Cash flows from investing activities                
Capital expenditures (800 ) (904 ) (2,114 ) (2,696 )
Business acquisitions (7 ) (1,378 ) (77 ) (1,407 )
Business dispositions 55   –   55   432  
Decrease (increase) in investments accounted for under the cost and equity methods 1   (7 ) 8   (63 )
Other items 154   25   72   12  
 
  (597 ) (2,264 ) (2,056 ) (3,722 )
 
Cash flows from financing activities                
Increase (decrease) in notes payable and bank advances (73 ) (58 ) (242 ) 420  
Issue of long-term debt 17   1,104   1,881   2,399  
Repayment of long-term debt (161 ) (307 ) (2,035 ) (809 )
Issue of common shares 5   2,381   14   2,390  
Costs relating to the issuance of common shares –   (78 ) –   (78 )
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 22   44   109   201  
Redemption of equity securities by subsidiaries (39 ) –   (74 ) –  
Cash dividends paid on common and preferred shares (273 ) (255 ) (809 ) (758 )
Cash dividends paid by subsidiaries to non-controlling interest (38 ) (134 ) (137 ) (321 )
Other items 56   (40 ) (6 ) (36 )
 
  (484 ) 2,657   (1,146 ) 3,612  
 
Effect of exchange rate changes on cash and cash equivalents (1 ) 2   (6 ) 2  
 
Cash provided by continuing operations 822   1,879   1,296   3,234  
Cash provided by (used in) discontinued operations (1 ) 1   15   (933 )
 
Net increase in cash and cash equivalents 821   1,880   1,311   2,301  
Cash and cash equivalents at beginning of period 796   990   306   569  
 
Cash and cash equivalents at end of period 1,617   2,870   1,617   2,870  
   Consists of:                
      Cash and cash equivalents of continuing operations 1,617   2,866   1,617   2,866  
      Cash and cash equivalents of discontinued operations –   4   –   4  
 
   Total 1,617   2,870   1,617   2,870  
 
(1) Refer to Note 1, Significant accounting policies, for changes in accounting policies.
 
Please read the notes starting on page 34. They are an important part of these consolidated financial statements.

33





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.

BASIS OF PRESENTATION

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:

RECENT CHANGES TO ACCOUNTING POLICIES

Stock-based compensation and other stock-based payments

Effective January 1, 2002, we adopted the 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:

     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.

     Prior to January 1, 2003, we accounted for employee stock options by measuring the compensation cost of the options as 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 changed our accounting to the fair value based method and started to account for employee stock options by measuring the compensation cost for options granted on or after January 1, 2002 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 $15 million and $21 million for the three months and nine months ended September 30, 2002, respectively. The effect as at December 31, 2002 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 12, 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 as follows:

     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 and nine months ended September 30, 2002:

     The effect as at December 31, 2002 was to:

     As a result of applying the accounting policy changes relating to stock-based compensation and subscriber acquisition costs, the total deficit as at January 1, 2003 increased by $286 million.

Disclosure of guarantees

Effective January 1, 2003, we adopted Accounting Guideline 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 15, Off balance sheet arrangements, for more information.

     The adoption of this guideline did not have an impact on our consolidated financial statements.

Disposal of long-lived assets and discontinued operations

Effective May 1, 2003, we adopted the new recommendations in section 3475 of the CICA Handbook, Disposal of long-lived assets and discontinued operations. This section 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 the lower of its carrying value amount or 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.

     The adoption of this standard did not have an impact on our consolidated financial statements.

34





1. SIGNIFICANT ACCOUNTING POLICIES (continued)

Consolidation of variable interest entities

Effective July 1, 2003, we early adopted Accounting Guideline 15, Consolidation of variable interest entities, on a prospective basis as permitted by the guideline. The effective date of the guideline is January 1, 2004. 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.

     We performed a review, and concluded that the entity with which Bell Canada entered into a 10-year shared services agreement effective June 22, 2001 met the criteria for consolidation set out in this guideline. This entity, which is a corporation owned by a third party, provides Bell Canada with systems and administrative services. Prior to consolidation, we reported operating expenses relating to the fees charged to Bell Canada for the services provided by this entity.

The effect on our consolidated balance sheet as at July 1, 2003 was to:

     The net effect on our consolidated statement of operations for the three months ended September 30, 2003 was to:

     The net effect on our consolidated statement of cash flows for the three months ended September 30, 2003 was to:

FUTURE CHANGES TO ACCOUNTING POLICIES

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 determination of when to recognize an impairment loss for a long-lived asset to be held and used is made when its carrying value exceeds the total undiscounted cash flows expected from its use and eventual disposition. The amount of the impairment loss is determined as the excess of the carrying value of the amount over its fair value.

     This section comes into effect on January 1, 2004. We do not expect that adopting this standard in 2004 will affect our consolidated financial statements.

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 any changes resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted 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 on January 1, 2004. We are currently evaluating the impact of this standard on our consolidated financial statements.

Hedging relationships

The CICA recently issued Accounting Guideline 13, Hedging relationships. The guideline establishes the following criteria for the application of hedge accounting in a hedging transaction:

     For hedging relationships that qualify for hedge accounting, we will continue applying the existing accounting treatment on January 1, 2004, as described in Note 1 to the consolidated financial statements for the year ended December 31, 2002.

     For hedging relationships that no longer qualify for hedge accounting, we will stop applying the existing accounting treatment on January 1, 2004 and start recognizing the fair value of the derivative on the balance sheet from that time, with any changes in the fair value of that derivative being recognized immediately in net earnings.

     The guideline comes into effect on January 1, 2004. We are currently evaluating the impact of this guideline on our consolidated financial statements.

     Please see Note 13, Derivative instruments, for a list of our outstanding hedging relationships at September 30, 2003.

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.

35





Notes to Consolidated Financial Statements – BCE Inc.

2. SEGMENTED INFORMATION (continued)

     Effective January 1, 2003, the results of Bell Canada Holdings Inc. (BCH), Bell Canada’s holding company, are now classified under Corporate and other, whereas previously they were classified under the Bell Canada Segment.

     
For the period ended September 30   Three months   Nine months  
(in $ millions)   2003   2002(1)   2003   2002(1)  
 
Operating revenues                  
Bell Canada Segment External 4,264   4,294   12,734   12,895  
  Inter-segment 42   55   115   139  
 
    4,306   4,349   12,849   13,034  
Bell Globemedia External 287   263   961   880  
  Inter-segment 9   10   27   31  
 
    296   273   988   911  
BCE Emergis External 98   102   296   299  
  Inter-segment 19   33   69   110  
 
    117   135   365   409  
BCE Ventures External 231   197   723   594  
  Inter-segment 69   61   194   188  
 
    300   258   917   782  
Corporate and other External 3   –   5   4  
  Inter-segment 4   7   13   18  
 
    7   7   18   22  
 
Less: Inter-segment eliminations   (143 ) (166 ) (418 ) (486 )
 
Total operating revenues   4,883   4,856   14,719   14,672  
 
Net earnings applicable to common shares                  
Bell Canada Segment   442   328   1,290   1,004  
Bell Globemedia   (1 ) (11 ) 12   1  
BCE Emergis   11   15   23   (62 )
BCE Ventures   30   15   107   98  
Corporate and other, including                  
   inter-segment eliminations   (15 ) 22   (13 ) 7  
 
Total earnings from continuing operations   467   369   1,419   1,048  
Discontinued operations   (3 ) (4 ) (4 ) (353 )
Dividends on preferred shares   (18 ) (16 ) (50 ) (43 )
 
Total net earnings applicable to common shares   446   349   1,365   652  
 
(1) Refer to Note 1, Significant accounting policies, for changes in accounting policies.  

3. BUSINESS ACQUISITIONS AND DISPOSITIONS

Repurchase of SBC’s 20% interest in BCH

On June 28, 2002, BCE Inc., BCH and entities controlled by SBC Communications Inc. (SBC) entered into agreements that ultimately led to BCE Inc.’s repurchase of SBC’s 20% interest in BCH for $6.32 billion and at the time, preliminarily allocated $5,430 million of the purchase price to goodwill. During the third quarter of 2003, we completed the purchase price allocation relating to this repurchase, which resulted in the reallocation of $1,758 million from goodwill to other net assets of BCH, based on their fair values on the date of repurchase.

The effect on our consolidated balance sheet was to:

     The goodwill is not deductible for tax purposes.

CGI Group Inc.’s (CGI) acquisition of Cognicase Inc. (Cognicase)

During the first quarter of 2003, CGI acquired 100% of the outstanding common shares of Cognicase. 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. Cognicase provides solutions including the implementation of e-business solutions, application services provider (ASP) services, re-engineering of existing applications for e-business, technology configuration management, as well as project management and business process improvement consulting services. The acquisition has been accounted for using the purchase method of accounting. The consolidated statements of operations include the results of Cognicase from the date of acquisition. The table below shows the preliminary purchase price allocation which is based on estimates. The final purchase price allocation is expected to be completed within 12 months from the acquisition date.

     
      BCE’s  
(in $ millions) CGI   proportionate share  
 
Non-cash working capital items (103 ) (31 )
Capital assets 39   12  
Contract costs and other long-term assets 149   45  
Future income taxes (20 ) (6 )
Goodwill (1) 300   89  
Long-term debt (41 ) (12 )
 
  324   97  
Cash position at acquisition 23   7  
 
Net assets acquired 347   104  
 
Consideration        
   Cash 180      
   Acquisition costs 7      
   Balance of purchase price 18      
   Issuance of 19,850,245 CGI Class A subordinate shares (2) 142      
 
  347      
 
(1) The goodwill is not deductible for tax purposes.
(2) The value of the CGI shares issued as consideration was determined using the weighted average closing share price on the Toronto Stock Exchange for the period of ten days before the terms of the business combination were agreed upon and announced.

Sale of Certen Inc. (Certen)

On July 2, 2003, Bell Canada sold its 89.9% ownership interest in Certen to a subsidiary of Amdocs Limited (Amdocs). Concurrently with the sale, Bell Canada extended by three years its arrangement with Certen and Amdocs relating to billing operations outsourcing, customer care and billing solutions development. The remaining term of the arrangement is 7 years.

     The consideration Bell Canada received for the sale was $89 million in cash and the right to use and modify the intellectual property relating to the billing system platform in perpetuity. As a result, Bell Canada recorded an intangible asset of $494 million (classified under capital assets) representing the value of the right to use and modify the intellectual property relating to the billing system platform in perpetuity, which will be amortized against earnings over the remaining life of the contract.

36





3. BUSINESS ACQUISITIONS AND DISPOSITIONS (continued)

     At the time of the sale, the net carrying value of Certen’s net assets was $159 million. Certen had total assets amounting to $450 million (including $34 million in cash and cash equivalents) and total liabilities of $291 million. At the time of the sale, Bell Canada also recorded a liability of $392 million representing the future payments that will be made to Certen over the remaining life of the contract relating to the development of the billing system, which was substantially completed at the time of the sale. The future income tax liability relating to the intangible asset and long-term liability amounted to $32 million.

     The transaction did not result in any gain or loss for Bell Canada. Prior to the sale, the results of operations of Certen were presented in the Bell Canada Segment.

4. RESTRUCTURING AND OTHER CHARGES

During the third quarter of 2003, Aliant recorded a pre-tax restructuring charge of $16 million ($4 million after taxes and non-controlling interest) as a result of a comprehensive restructuring plan of its subsidiary Xwave Solutions Inc. Costs associated with the restructuring plan include severance and related benefits, technology lease cancellation penalties and real estate rationalization costs. As at September 30, 2003, $10 million of the restructuring provision remained unpaid and is expected to be paid by the end of 2003.This charge was substantially offset by a credit relating to the reversal of previously recorded restructuring provisions at Bell Canada that were no longer considered necessary.

5. OTHER (INCOME) EXPENSE

         
For the period ended September 30    Three months      Nine months  
(in $ millions) 2003   2002   2003   2002  
 
Net gains on investments –   (12 ) –   (192 )
Foreign currency (gains) losses 6   18   (30 ) (37 )
Other (24 ) (3 ) (46 ) (16 )
 
Other (income) expense (18 ) 3   (76 ) (245 )
 

6. INTEREST EXPENSE

         
For the period ended September 30    Three months      Nine months  
(in $ millions) 2003   2002   2003   2002  
 
Interest expense on long-term debt 256   269   810   763  
Interest expense on other debt 16   19   37   49  
 
Total interest expense 272   288   847   812  
 

7. DISCONTINUED OPERATIONS

         
For the period ended September 30    Three months      Nine months  
(in $ millions) 2003   2002   2003   2002  
 
Teleglobe Inc. (Teleglobe) –   –   –   (149 )
Bell Canada International Inc. (BCI) –   –   –   (191 )
Aliant’s Emerging business segment (3 ) (4 ) (4 ) (13 )
 
Net loss from discontinued operations (3 ) (4 ) (4 ) (353 )
 

     The financial results of Teleglobe and BCI were reclassified as discontinued operations effective April 24, 2002 and January 1, 2002, respectively.

     At September 30, 2003, virtually all of the assets of Aliant’s Emerging business segment had been sold. iMagicTV Inc. (iMagicTV) was sold in April 2003, Prexar LLC (Prexar) was sold in May 2003, and the significant subsidiaries of AMI Offshore Inc. (AMI Offshore) were sold in August 2003.

     Effective May 1, 2003, the results of these operations, which were previously presented in the Bell Canada Segment, have been presented as discontinued operations.

     Prexar is an Internet services provider. iMagicTV is a software development company, providing broadband TV software and solutions to service providers around the globe. AMI Offshore provides process and systems control technical services and contracts manufacturing solutions to offshore oil and gas and other industries.

     The table below provides a summarized statement of operations for the discontinued operations.

     
For the period ended September 30    Three months      Nine months  
(in $ millions) 2003   2002   2003   2002  
 
Revenue 6   17   29   735  
 
Operating loss from discontinued operations, before tax (5 ) (5 ) (19 ) (149 )
Gain (loss) on discontinued operations, before tax (1 ) –   10   (282 )
Income tax recovery (expense) on operating loss (gain) (3 ) (2 ) 1   43  
Income tax recovery (expense) on loss (gain) 2   –   (1 ) 18  
Non-controlling interest 4   3   5   17  
 
Net loss from discontinued operations (3 ) (4 ) (4 ) (353 )
 

8. 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:

         
     Three months      Nine months  
For the period ended September 30 2003   2002(1)   2003   2002  
 
Earnings from continuing operations                
   (numerator) (in $ millions)                
Earnings from continuing operations 467   369   1,419   1,048  
Dividends on preferred shares (18 ) (16 ) (50 ) (43 )
 
Earnings from continuing operations – basic 449   353   1,369   1,005  
Assumed exercise of put options by CGI shareholders (2) –   3   –   9  
 
 
 
 
Earnings from continuing operations – diluted 449   356   1,369   1,014  
 
Weighted average number of common shares                
   outstanding (denominator) (in millions)                
Weighted average number of common shares                
   outstanding – basic 921.5   864.1   919.3   827.3  
Assumed exercise of stock options (3) 1.7   1.9   1.6   2.1  
Assumed exercise of put options by CGI shareholders (2) –   13.0   –   13.0  
 
Weighted average number of common shares                
   outstanding – diluted 923.2   879.0   920.9   842.4  
 
(1) Refer to Note 1, Significant accounting policies, for changes in accounting policies.
(2) Refer to Note 14, Commitments and Contingencies, for developments relating to the termination of these put options.
(3) The calculation of the assumed exercise of stock options excludes all options with an exercise price that is greater than the average market value of a BCE Inc. common share for each of the  periods presented in the table above as their effect would have been anti-dilutive and includes the impact of the average unrecognized future compensation cost of the options which are dilutive. The number of options that were excluded amounts to 22,514,837 and 23,152,156 for the three months and nine months ended September 30, 2003, and 23,488,748 and 22,302,987 for the three months and nine months ended September 30, 2002.

9. INDEFINITE-LIFE INTANGIBLE ASSETS

 
(in $ millions) 2003  
 
Intangible assets, January 1 900  
Goodwill reallocated to indefinite-life intangible assets (Note 3) 1,986  
Capitalized interest on spectrum licences    
   ($12 million for the nine months ended September 30, 2002) 18  
 
Intangible assets, September 30 2,904  
 
Consisting of:    
   Brand name 1,986  
   Spectrum licences 772  
   Television licences 128  
   Cable licences 18  
 
Total 2,904  
 

37





Notes to Consolidated Financial Statements – BCE Inc.

10. GOODWILL

 
(in $ millions) 2003  
 
Goodwill, January 1 10,118  
Goodwill acquired during the period 85  
Goodwill reallocated to other net assets (Note 3) (1,758 )
Foreign exchange on goodwill of self-sustaining foreign operations (43 )
 
Goodwill, September 30 8,402  
 

11. 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 September 30, 2003.

 
      Stated  
  Number   capital  
  of shares   (in $ millions)  
 
Outstanding, January 1, 2003 915,867,928   16,520  
Shares issued (under employee stock option,        
   employee savings and dividend reinvestment plans) 6,400,898   183  
 
 
Outstanding, September 30, 2003 922,268,826   16,703  
 

12. 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  
        average  
  Number     exercise  
  of shares     price  
 
Outstanding, January 1, 2003 20,470,700     $33  
Granted 5,928,051     $28  
Exercised (336,658 )   $16  
Expired/forfeited (1,075,533 )   $33  
 
Outstanding, September 30, 2003 24,986,560   $32  
 
Exercisable, September 30, 2003 9,597,312   $34  
 

Teleglobe stock options

When 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 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

 
        Weighted  
  Number     average  
  of BCE Inc.     exercise  
  shares     price  
 
Outstanding, January 1, 2003 4,266,723     $37  
Exercised (113,579 )   $20  
Expired/forfeited (2,375,178 )   $36  
 
Outstanding, September 30, 2003 1,777,966   $28  
 
Exercisable, September 30, 2003 1,777,966   $28  
 

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.

 
      Three months         Nine months  
For the period ended September 30 2003   2002   2003   2002  
 
Compensation cost (in $ millions) 8   15   22   21  
Dividend yield 3.7 % 3.6 % 3.6 % 3.3 %
Expected volatility 30 % 30 % 30 % 30 %
Risk-free interest rate 3.6 % 3.9 % 4.0 % 4.6 %
Expected life (years) 4.5   4.2   4.5   4.5  
Number of stock options granted 410,000   1,119,845   5,928,051   7,946,979  
Weighted average fair value option granted ($) 7   5   6   7  
 

13. DERIVATIVE INSTRUMENTS

We periodically use derivative instruments to manage our exposure to interest rate risk, foreign currency risk and BCE Inc. share price movements. We do not use derivative instruments for speculative purposes. Because we do not actively trade in derivative instruments, we are not exposed to any significant liquidity risks relating to such instruments.

     The following derivative instruments were outstanding at September 30, 2003:

     During the third quarter of 2003, we elected to unwind the existing dividend rate swaps used to hedge dividend payments on $510 million of BCE Inc. Series AA preferred shares and $510 million of BCE Inc. Series AC preferred shares. These dividend rate swaps were to mature in 2007 and in effect converted the fixed-rate dividends on these preferred shares to floating-rate dividends. As a result of the unwind, we received total cash proceeds of $83 million, which is being deferred and amortized against the dividends on these preferred shares over the remaining original terms of the swaps.

      In April 2003, we entered into forward contracts to hedge U.S.$200 million of long-term debt at Bell Canada that had not been previously hedged, thereby removing the foreign currency exposure risk on the principal portion of that debt.

     At September 30, 2003, the carrying value of the outstanding derivative instruments was a net liability of $105 million. Their fair value amounted to a net liability of $136 million.

     Please see Note 1 to the consolidated financial statements for the year ended December 31, 2002 for a description of the significant accounting policies relating to derivative instruments.

38





14. COMMITMENTS AND CONTINGENCIES

Contractual obligations

The table below provides a summary of our contractual obligations at September 30, 2003 and for the full years ended thereafter.

 
(in $ millions) 2003   2004   2005   2006   2007   Thereafter   Total  
 
Long-term debt (excluding capital leases) 633   1,188   1,301   1,212   1,926   8,418   14,678  
Notes payable and bank advances 81   –   –   –   –   –   81  
Capital leases 35   120   86   80   58   173   552  
Operating leases 171   384   322   282   254   1,677   3,090  
Purchase obligations 814   793   369   276   239   421   2,912  
Other long-term liabilities –   29   93   94   101   138   455  
 
Total 1,734   2,514   2,171   1,944   2,578   10,827   21,768  
 

The total amounts for long-term debt and notes payable and bank advances include an amount of $673 million (excluding $279 million of letters of credit) drawn under our committed credit facilities. The total amount available under these committed credit facilities and under our commercial paper programs, including the amount currently drawn, is $2,778 million.

     The imputed interest to be paid in connection with the capital leases amounts to $157 million.

     Purchase obligations consist primarily of contractual obligations under service contracts as well as commitments for capital expenditures.

     The other long-term liabilities included in the table above relate to the following:

     At September 30, 2003, our other long-term liabilities also consisted of an accrued benefit liability, future income tax liabilities, BCE Inc. Series P retractable preferred shares, deferred revenue and gains on assets and various other long-term liabilities. The table above does not include these items due to the reasons outlined below:

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 was 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 as of September 30, 2003, to be in the order of $137 million per year going forward.

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 in Bell West.

     Under the terms of the put option, MTS can require Bell Canada to buy MTS’ interest in Bell West by giving it notice:

     The closing must occur within 180 days after receipt of the notice.

     If MTS does not exercise its put option, Bell Canada can exercise its call option. Under the terms of the call option, Bell Canada can buy MTS’ interest in Bell West by giving it notice:

     The closing must occur within 90 days after receipt of the notice.

AGREEMENT WITH CGI

On July 24, 2003, BCE and CGI signed a new agreement with respect to BCE’s ownership in CGI, and the existing shareholders’ agreement entered into on July 1, 1998 was terminated. Consequently, the put rights of CGI’s three majority individual shareholders and BCE’s call rights with regard to the CGI shares held by these majority shareholders were cancelled. BCE converted all of its 7,027,606 CGI Class B multiple voting shares into CGI Class A single voting shares on a one-for-one basis. Therefore, on July 24, 2003, BCE owned a total of 120,028,400 CGI Class A shares, which represented 29.87% of the outstanding CGI equity (outstanding Class A shares and Class B shares). BCE has undertaken that, on January 5, 2004, its interest in CGI’s outstanding equity will be below 30%. As a result, the automatic conversion of all CGI Class B shares into Class A shares (which was to occur on January 5, 2004 under the terms of CGI’s articles of incorporation on the condition that on such date, BCE’s direct and indirect equity ownership in CGI were to be 30% or more) will not occur. Under the new agreement, BCE has been provided customary shareholder’s agreement rights. These include pre-emptive rights with respect to CGI’s equity shares,

39





Notes to Consolidated Financial Statements – BCE Inc.

14. COMMITMENTS AND CONTINGENCIES (continued)

right of representation on CGI’s Board of Directors, and certain veto rights. In addition, under the new agreement, there are no restrictions on any future sale by BCE of its shares in CGI. BCE Inc. continues to proportionately consolidate CGI’s results.

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 we cannot predict the final outcome of claims and litigation that were pending at September 30, 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.

15. OFF BALANCE SHEET ARRANGEMENTS

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, sales of assets, sales 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. However, certain agreements do contain a specified maximum potential exposure representing a cumulative amount of approximately $4 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. However, historically, we have not made any significant payments under such indemnifications. As at September 30, 2003, an aggregate amount of $19 million has been accrued in the consolidated balance sheet with respect to these indemnification undertakings, relating mainly to environmental liabilities.

Securitization 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 September 30, 2003, which equalled the amount of overcollateralization in the receivables transferred.

     Aliant sold accounts receivable to a securitization trust for a total of $130 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 $29 million at September 30, 2003.

     Bell Canada and Aliant continue to service their respective 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 their 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.

16. SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS

 
For the period ended September 30    Three months      Nine months  
(in $ millions) 2003   2002   2003   2002  
 
Interest paid on long-term debt 133   115   738   654  
Income taxes paid (received) 244   194   (12 ) 992  
 

40





Notes to Consolidated Financial Statements – BCE Inc.

17. SUBSEQUENT EVENTS

Sale of Stratos Global Corporation (Stratos)

On October 6, 2003, Aliant announced that it had completed the sale of 26,141,024 Subscription Receipts, each of which entitles the holder to acquire one common share of Stratos upon receipt of the U.S. Federal Communications Commission’s (FCC) approval. This approval is anticipated on or before December 31, 2003. Upon completion of this transaction, Aliant will have sold its entire 53.2% ownership in Stratos.

     The Subscription Receipts were sold to a syndicate of underwriters at a price of $13.00 each. The purchase price is payable on an instalment basis, with the first instalment having been paid on October 6, 2003, and the remainder being payable shortly following approval from the FCC. Instalment Receipts evidencing ownership of the Subscription Receipts commenced trading on the Toronto Stock Exchange on October 6, 2003.

     The Subscription Receipts will be automatically exchanged for common shares of Stratos upon receipt of FCC approval. If approval is not granted on or before February 1, 2004, the first instalment will be returned to the purchasers of the Subscription Receipts, along with interest earned thereon, and Aliant will retain its investment in Stratos.

     For the three months and nine months ended September 30, 2003, Stratos contributed to BCE total operating revenues of $137 million and $432 million and net earnings of $3 million and $9 million, respectively.

41





BCE Inc.     This document has been filed by   For further information concerning
1000, rue de La Gauchetière Ouest   BCE Inc. with Canadian securities   the Dividend Reinvestment and
Bureau 3700   commissions and the U.S. Securities   Stock Purchase Plan (DRP), direct
Montréal (Québec)   and Exchange Commission. It can   deposit of dividend payments, the
H3B 4Y7   also be found on BCE Inc.’s Web   elimination of multiple mailings or
www.bce.ca   site at www.bce.ca or is available   the receipt of quarterly reports,
    upon request from:   please contact:
Communications          
e-mail: bcecomms@bce.ca   Investor Relations   Computershare Trust
tel: 1 888 932-6666   e-mail: investor.relations@bce.ca   Company of Canada
fax: (514) 870-4385   tel: 1 800 339-6353   100 University Avenue, 9th Floor,
      fax: (514) 786-3970   Toronto, Ontario M5J 2Y1
            tel: (514) 982-7555
            or 1 800 561-0934
            fax: (416) 263-9394
            or 1 888 453-0330
            e-mail: bce@computershare.com
               
           
           
           




 

   Third Quarter 2003
Supplementary Financial Information

 

 

 

For further information, please contact:

BCE Investor Relations

Sophie Argiriou
(514) 786-8145
sophie.argiriou@bell.ca

George Walker
(514) 870-2488
george.walker@bell.ca

BCE Inc. Supplementary Financial Information - Third Quarter 2003 Page 1





     BCE Consolidated
Consolidated Operational Data

                         
YTD
     YTD            
    Q3     Q3              
September
     September            
($ millions, except per share amounts)  
2003
     2002     $ change   % change    
2003
     2002     $ change   % change  
   
   
 
Operating revenues   4,883     4,856     27   0.6 %   14,719     14,672     47   0.3 %
Operating expenses   (2,940 )   (2,929 )   (11 ) (0.4 %)   (9,007 )   (9,001 )   (6 ) (0.1 %)
   
 
   
 
 
 
EBITDA (1)   1,943     1,927     16   0.8 %   5,712     5,671     41   0.7 %
Amortization expense   (825 )   (769 )   (56 ) (7.3 %)   (2,397 )   (2,347 )   (50 ) (2.1 %)
Net benefit plans (expense) credit   (44 )   7     (51 ) n.m.     (129 )   25     (154 ) n.m.  
Restructuring and other charges   (1 )   (79 )   78   98.7 %   (1 )   (492 )   491   99.8 %
   
 
   
 
 
 
Operating income   1,073     1,086     (13 ) (1.2 %)   3,185     2,857     328   11.5 %
Other income   18     (3 )   21   n.m.     76     245     (169 ) (69.0 %)
Interest expense   (272 )   (288 )   16   5.6 %   (847 )   (812 )   (35 ) (4.3 %)
   
 
   
 
 
 
Earnings from continuing operations before                                            
   income taxes and non-controlling interest   819     795     24   3.0 %   2,414     2,290     124   5.4 %
Income taxes   (292 )   (298 )   6   2.0 %   (814 )   (837 )   23   2.7 %
Non-controlling interest   (60 )   (128 )   68   53.1 %   (181 )   (405 )   224   55.3 %
   
 
   
 
 
 
Earnings from continuing operations   467     369     98   26.6 %   1,419     1,048     371   35.4 %
Discontinued operations   (3 )   (4 )   1   25.0 %   (4 )   (353 )   349   98.9 %
   
   
   
 
   
   
   
 
 
Net earnings   464     365     99   27.1 %   1,415     695     720   n.m.  
Dividends on preferred shares   (18 )   (16 )   (2 ) (12.5 %)   (50 )   (43 )   (7 ) (16.3 %)
   
 
   
 
 
 
Net earnings applicable to common shares   446     349     97   27.8 %   1,365     652     713   n.m.  
   
   
 
Net earnings per common share - basic                                            
   Continuing operations $ 0.49   $ 0.41   $ 0.08   19.5 % $ 1.49   $ 1.21   $ 0.28   23.1 %
   Discontinued operations $ -   $ (0.01 ) $ 0.01   100.0 % $ -   $ (0.43 ) $ 0.43   100.0 %
   Net earnings $ 0.49   $ 0.40   $ 0.09   22.5 % $ 1.49   $ 0.78   $ 0.71   91.0 %
Net earnings per common share - diluted                                            
   Continuing operations $ 0.49   $ 0.41   $ 0.08   19.5 % $ 1.49   $ 1.21   $ 0.28   23.1 %
   Discontinued operations $ -   $ (0.01 ) $ 0.01   100.0 % $ -   $ (0.44 ) $ 0.44   100.0 %
   Net earnings $ 0.49   $ 0.40   $ 0.09   22.5 % $ 1.49   $ 0.77   $ 0.72   93.5 %
Dividends per common share $ 0.30   $ 0.30   $ -   0.0 % $ 0.90   $ 0.90   $ -   -  
Average number of common shares outstanding
    (millions)		   921.5     864.1               919.3     827.3            
   
   
 
                                             
   
   
 
The following non-recurring items are included in net earnings:                                            
   Discontinued operations   (3 )   (4 )             (4 )   (353 )          
   Restructuring and other charges   -     (37 )             -     (253 )          
   Net gains on sale of investments and dilution gains   -     12               -     138            
 
           
           
Total   (3 )   (29 )             (4 )   (468 )          
Impact on net earnings per share $ -   $ (0.03 )           $ -   $ (0.57 )          
   
   
 
                                             
                                             

Net earnings per share before non-recurring items (a)

 $ 0.49   $ 0.44   $ 0.05   11.4 % $ 1.49   $ 1.35     0.14   10.4 %

Return on equity (ROE) before non-recurring items - Annualized (a)

   15.6 %   18.4 %   n.m.   (2.8 pts)   16.0 %   12.9 %   n.m.   3.1 pts
n.m. : not meaningful                                            

BCE Inc. Supplementary Financial Information - Third Quarter 2003 Page 2





     BCE Consolidated
Consolidated Operational Data - Historical Trend

    YTD                       Total                          
($ millions, except per share amounts)  
2003
    
Q3 03
     Q2 03     Q1 03     2002     Q4 02     Q3 02     Q2 02     Q1 02  
   
 
Operating revenues   14,719     4,883     4,946     4,890     19,891     5,219     4,856     4,974     4,842  
Operating expenses   (9,007 )   (2,940 )   (2,999 )   (3,068 )   (12,375 )   (3,374 )   (2,929 )   (3,038 )   (3,034 )
   
   
   
 
EBITDA (1)   5,712     1,943     1,947     1,822     7,516     1,845     1,927     1,936     1,808  
Amortization expense   (2,397 )   (825 )   (797 )   (775 )   (3,133 )   (786 )   (769 )   (808 )   (770 )
Net benefit plans (expense) credit   (129 )   (44 )   (43 )   (42 )   33     8     7     12     6  
Restructuring and other charges   (1 )   (1 )   -     -     (887 )   (395 )   (79 )   (413 )   -  
   
   
   
 
Operating income   3,185     1,073     1,107     1,005     3,529     672     1,086     727     1,044  
Other income (expense)   76     18     8     50     2,491     2,246     (3 )   246     2  
Impairment charge   -     -     -     -     (765 )   (765 )   -     -     -  
Interest expense   (847 )   (272 )   (291 )   (284 )   (1,160 )   (348 )   (288 )   (263 )   (261 )
   
   
   
 
Earnings from continuing operations before                                                      
   income taxes and non-controlling interest   2,414     819     824     771     4,095     1,805     795     710     785  
Income taxes   (814 )   (292 )   (277 )   (245 )   (1,569 )   (732 )   (298 )   (246 )   (293 )
Non-controlling interest   (181 )   (60 )   (70 )   (51 )   (676 )   (271 )   (128 )   (141 )   (136 )
   
   
   
 
Earnings from continuing operations   1,419     467     477     475     1,850     802     369     323     356  
Discontinued operations   (4 )   (3 )   1     (2 )   557     910     (4 )   (303 )   (46 )
   
   
   
 
Net earnings   1,415     464     478     473     2,407     1,712     365     20     310  
Dividends on preferred shares   (50 )   (18 )   (17 )   (15 )   (59 )   (16 )   (16 )   (14 )   (13 )
   
   
   
   
   
   
   
   
   
 
Net earnings applicable to common shares   1,365     446     461     458     2,348     1,696     349     6     297  
   
 
Net earnings per common share - basic                                                      
   Continuing operations $ 1.49   $ 0.49   $ 0.50   $ 0.50   $ 2.09   $ 0.88   $ 0.41   $ 0.38   $ 0.42  
   Discontinued operations $ -   $ -   $ -   $ -   $ 0.57   $ 1.00   $ (0.01 ) $ (0.37 ) $ (0.05 )
   Net earnings $ 1.49   $ 0.49   $ 0.50   $ 0.50   $ 2.66   $ 1.88   $ 0.40   $ 0.01   $ 0.37  
Net earnings per common share - diluted                                                      
   Continuing operations $ 1.49   $ 0.49   $ 0.50   $ 0.50   $ 2.08   $ 0.87   $ 0.41   $ 0.38   $ 0.42  
   Discontinued operations $ -   $ -   $ -   $ -   $ 0.54   $ 0.98   $ (0.01 ) $ (0.37 ) $ (0.06 )
   Net earnings $ 1.49   $ 0.49   $ 0.50   $ 0.50   $ 2.62   $ 1.85   $ 0.40   $ 0.01   $ 0.36  
Dividends per common share $ 0.90   $ 0.30   $ 0.30   $ 0.30   $ 1.20   $ 0.30   $ 0.30   $ 0.30   $ 0.30  
Average number of common shares outstanding
    (millions)		   919.3     921.5     919.3     917.1     847.9     909.1     864.1     808.7     808.6  
   
 
                                                       
   
 
The following non-recurring items are included                                                      
   in net earnings:                                                      
   Discontinued operations   (4 )   (3 )   1     (2 )   557     910     (4 )   (303 )   (46 )
   Restructuring and other charges   -     -     -     -     (504 )   (251 )   (37 )   (216 )   -  
   Net gains on sale of investments and dilution gains   -     -     -     -     1,368     1,230     12     126     -  
   Impairment charge   -     -     -     -     (527 )   (527 )   -     -     -  
   Other   -     -     -     -     (22 )   (22 )   -     -     -  
   
   
   
 
Total   (4 )   (3 )   1     (2 )   872     1,340     (29 )   (393 )   (46 )
Impact on net earnings per share $ -   $ -   $ -   $ -   $ 0.89   $ 1.47   $ (0.03 ) $ (0.49 ) $ (0.06 )
   
 
                                                       
                                                       

Net earnings per share before non-recurring items(1)

 $ 1.49   $ 0.49   $ 0.50   $ 0.50   $ 1.74   $ 0.39   $ 0.44   $ 0.49   $ 0.42  

Return on equity (ROE) before non-recurring items - Annualized(1)

   16.0 %   15.6 %   16.0 %   16.4 %   13.2 %   14.0 %   18.4 %   14.4 %   8.8 %
                                                       

 

 

BCE Inc. Supplementary Financial Information - Third Quarter 2003 Page 3





BCE Consolidated
Segmented Data

                  YTD   YTD          
 
Q3
   Q3          
September
   September          
($ millions, except where otherwise indicated)
2003
   2002   $ change   % change  
2003
   2002   $ change   % change  
 
Revenues                                
Bell Canada Segment 4,306   4,349   (43 ) (1.0 %) 12,849   13,034   (185 ) (1.4 %)
Bell Globemedia 296   273   23   8.4 % 988   911   77   8.5 %
 
   Advertising 201   180   21   11.7 % 695   629   66   10.5 %
   Subscriber 73   72   1   1.4 % 222   215   7   3.3 %
   Production and Sundry 22   21   1   4.8 % 71   67   4   6.0 %
 
BCE Emergis 117   135   (18 ) (13.3 %) 365   409   (44 ) (10.8 %)
 
   eFinance Solutions 63   65   (2 ) (3.1 %) 189   196   (7 ) (3.6 %)
   eHealth Solutions 54   70   (16 ) (22.9 %) 176   213   (37 ) (17.4 %)
 
BCE Ventures 300   258   42   16.3 % 917   782   135   17.3 %
 
   CGI 210   177   33   18.6 % 653   524   129   24.6 %
   Telesat 84   77   7   9.1 % 246   232   14   6.0 %
   Other 6   4   2   50.0 % 18   26   (8 ) (30.8 %)
 
Corporate and other (including inter-segment eliminations) (136 ) (159 ) 23   14.5 % (400 ) (464 ) 64   13.8 %
 
 
Total revenues 4,883   4,856   27   0.6 % 14,719   14,672   47   0.3 %
 
 
                                 
EBITDA                                
Bell Canada Segment 1,846   1,876   (30 ) (1.6 %) 5,364   5,470   (106 ) (1.9 %)
 
   Bell Canada (including Aliant) 1,855   1,915   (60 ) (3.1 %) 5,388   5,584   (196 ) (3.5 %)
   Bell ExpressVu (9 ) (39 ) 30   76.9 % (24 ) (114 ) 90   78.9 %
 
Bell Globemedia 36   17   19   n.m   150   108   42   38.9 %
BCE Emergis 18   12   6   50.0 % 53   3   50   n.m  
BCE Ventures 86   66   20   30.3 % 258   216   42   19.4 %
 
   CGI 33   21   12   57.1 % 100   74   26   35.1 %
   Telesat 51   44   7   15.9 % 151   137   14   10.2 %
   Other 2   1   1   100.0 % 7   5   2   40.0 %
 
Corporate and other (including inter-segment eliminations) (43 ) (44 ) 1   2.3 % (113 ) (126 ) 13   10.3 %
 
 
Total EBITDA 1,943   1,927   16   0.8 % 5,712   5,671   41   0.7 %
 
 
                                 
EBITDA margin (%) 39.8 % 39.7 %         38.8 % 38.7 %        
EBITDA : Interest expense 7.14   6.69           6.74   6.98          
 
                                 
Net earnings applicable to common shares                                
Bell Canada Segment 442   328   114   34.8 % 1,290   1,004   286   28.5 %
 
   Bell Canada (including Aliant) 474   360   114   31.7 % 1,380   1,118   262   23.4 %
   Bell ExpressVu (32 ) (32 ) -   0.0 % (90 ) (114 ) 24   21.1 %
 
Bell Globemedia (1 ) (11 ) 10   90.9 % 12   1   11   n.m  
BCE Emergis 11   15   (4 ) (26.7 %) 23   (62 ) 85   n.m  
BCE Ventures 30   15   15   100.0 % 107   98   9   9.2 %
 
   CGI 12   7   5   71.4 % 43   29   14   48.3 %
   Telesat 15   8   7   87.5 % 57   37   20   54.1 %
   Other 3   -   3   n.m.   7   32   (25 ) (78.1 %)
 
Corporate and other (including inter-segment eliminations) (33 ) 6   (39 ) n.m.   (63 ) (36 ) (27 ) (75.0 %)
Discontinued operations (3 ) (4 ) 1   25.0 % (4 ) (353 ) 349   98.9 %
 
 
Total net earnings applicable to common shares 446   349   97   27.8 % 1,365   652   713   n.m  
 
 
                               
Proportionate EBITDA, net debt and preferreds                            
As at September 30, 2003                              
      Proportionate EBITDA        
     
       
 
BCE
                  
12- Mth
  
Proportionate net
    
 
Ownership (%)
  
Q3 03
  
Q2 03
Q1 03
Q4 02
Trailing
  
debt and preferreds
    
 
 
   
Bell Canada Segment                              
   Bell Canada (excl. Aliant & ExpressVu) 100 % 1,593   1,536   1,507   1,536   6,172   10,770   (a)
   Aliant 53.6 % 140   141   119   129   529   658    
   ExpressVu 100 % (9 ) (9 ) (6 ) (62 ) (86 ) (13 ) (b)
     
 
   
Total Bell Canada Segment     1,724   1,668   1,620   1,603   6,615   11,415    
Bell Globemedia 68.5 % 18   45   21   44   128   445    
BCE Emergis 63.9 % 12   13   10   13   48   (58 )  
BCE Ventures                              
   CGI 29.9 % 33   35   32   25   125   64    
   Telesat 100 % 51   50   50   47   198   449    
   Other 100 % 2   3   2   (1 ) 6   (1 )  
     
 
   
Total BCE Ventures     86   88   84   71   329   512    
Corporate 100 % (43 ) (30 ) (40 ) (36 ) (149 )      
   Perpetual Preferred Shares                         1,670    
   Retractable Preferred Shares                         351    
   Debt due within one year                         -    
   Long term debt                         2,314    
   less:                              
   Cash and cash equivalents                         (345 )  
   Nortel common shares at market                         (78 )  
                         
   
Total Corporate                         3,912    
     
 
   
Total     1,797   1,784   1,695   1,695   6,971   16,226    
   
(a) Net of $498 million of intersegment debt.
(b) Net of $429 million of intersegment debt.

n.m. : not meaningful

BCE Inc. Supplementary Financial Information - Third Quarter 2003 Page 4





     BCE Consolidated
Segmented Data - Historical Trend

 
YTD
               Total                  
($ millions, except where otherwise indicated)
2003
  
Q3 03
Q2 03   Q1 03   2002   Q4 02   Q3 02   Q2 02   Q1 02  
 
 
Revenues                                    
Bell Canada Segment 12,849   4,306   4,296   4,247   17,613   4,579   4,349   4,402   4,283  
Bell Globemedia 988   296   357   335   1,290   379   273   326   312  
 
   Advertising 695   201   259   235   913   284   180   230   219  
   Subscriber 222   73   75   74   287   72   72   70   73  
   Production and Sundry 71   22   23   26   90   23   21   26   20  
 
BCE Emergis 365   117   124   124   540   131   135   142   132  
 
   eFinance Solutions 189   63   64   62   264   68   65   66   65  
   eHealth Solutions 176   54   60   62   276   63   70   76   67  
 
BCE Ventures 917   300   309   308   1,064   282   258   261   263  
 
   CGI 653   210   219   224   709   185   177   176   171  
   Telesat 246   84   83   79   327   95   77   78   77  
   Other 18   6   7   5   28   2   4   7   15  
 
Corporate and other (including inter-segment eliminations) (400 ) (136 ) (140 ) (124 ) (616 ) (152 ) (159 ) (157 ) (148 )
 
 
 
 
Total revenues 14,719   4,883   4,946   4,890   19,891   5,219   4,856   4,974   4,842  
 
 
 
 
                                     
EBITDA                                    
Bell Canada Segment 5,364   1,846   1,792   1,726   7,188   1,718   1,876   1,839   1,755  
 
   Bell Canada (including Aliant) 5,388   1,855   1,801   1,732   7,364   1,780   1,915   1,864   1,805  
   Bell ExpressVu (24 ) (9 ) (9 ) (6 ) (176 ) (62 ) (39 ) (25 ) (50 )
 
Bell Globemedia 150   36   77   37   180   72   17   58   33  
BCE Emergis 53   18   20   15   23   20   12   11   (20 )
BCE Ventures 258   86   88   84   287   71   66   73   77  
 
 
 
 
 
 
 
 
 
   CGI 100   33   35   32   99   25   21   28   25  
   Telesat 151   51   50   50   184   47   44   46   47  
   Other 7   2   3   2   4   (1 ) 1   (1 ) 5  
 
Corporate and other (including inter-segment eliminations) (113 ) (43 ) (30 ) (40 ) (162 ) (36 ) (44 ) (45 ) (37 )
 
 
 
 
Total EBITDA 5,712   1,943   1,947   1,822   7,516   1,845   1,927   1,936   1,808  
 
 
 
 
                                     
 
EBITDA margin (%) 38.8 % 39.8 % 39.4 % 37.3 % 37.8 % 35.4 % 39.7 % 38.9 % 37.3 %
EBITDA : Interest expense 6.74   7.14   6.69   6.42   6.48   5.30   6.69   7.36   6.93  
 
                                     
Net earnings applicable to common shares                                    
Bell Canada Segment 1,290   442   419   429   2,368   1,364   328   361   315  
 
   Bell Canada (including Aliant) 1,380   474   450   456   2,555   1,437   360   396   362  
   Bell ExpressVu (90 ) (32 ) (31 ) (27 ) (187 ) (73 ) (32 ) (35 ) (47 )
 
Bell Globemedia 12   (1 ) 15   (2 ) (492 ) (493 ) (11 ) 11   1  
BCE Emergis 23   11   6   6   (55 ) 7   15   (62 ) (15 )
BCE Ventures 107   30   38   39   129   31   15   59   24  
 
   CGI 43   12   13   18   43   14   7   11   11  
   Telesat 57   15   22   20   56   19   8   16   13  
   Other 7   3   3   1   30   (2 ) -   32   -  
 
Corporate and other (including inter-segment eliminations) (63 ) (33 ) (18 ) (12 ) (159 ) (123 ) 6   (60 ) 18  
Discontinued operations (4 ) (3 ) 1   (2 ) 557   910   (4 ) (303 ) (46 )
 
 
 
 
Total net earnings applicable to common shares 1,365   446   461   458   2,348   1,696   349   6   297  
 
 
 
 

 

 

 

BCE Inc. Supplementary Financial Information - Third Quarter 2003 Page 5





     BCE Consolidated
Consolidated Balance Sheet Data

 
September 30
   June 30   March 31   December 31  
($ millions, except where otherwise indicated)
2003
   2003   2003   2002  
 
                 
ASSETS                
Current assets                
   Cash and cash equivalents 1,617   795   1,987   304  
   Accounts receivable 2,417   2,407   2,215   2,328  
   Other current assets 828   1,048   1,007   774  
   Current assets of discontinued operations 3   22   22   26  
 
 
 
 
 
Total current assets 4,865   4,272   5,231   3,432  
Capital assets 21,183   20,431   20,507   20,633  
Other long-term assets 3,641   4,217   3,919   3,941  
Indefinite-life intangible assets 2,904   912   906   900  
Goodwill 8,402   10,144   10,189   10,118  
Non-current assets of discontinued operations 51   53   67   82  
 
 
 
 
 
Total assets 41,046   40,029   40,819   39,106  
 
LIABILITIES                
Current liabilities                
   Accounts payable and accrued liabilities 3,799   3,574   3,522   3,820  
   Debt due within one year 1,600   1,597   1,607   2,021  
   Current liabilities of discontinued operation 2   20   17   19  
 
 
 
 
 
Total current liabilities 5,401   5,191   5,146   5,860  
Long-term debt 13,711   13,582   15,041   13,391  
Other long-term liabilities 4,954   4,425   3,993   3,652  
Non-current liabilities of discontinued operations 3   2   4   4  
 
 
 
 
 
Total liabilities 24,069   23,200   24,184   22,907  
 
 
 
 
 
Non-controlling interest 3,576   3,630   3,641   3,584  
 
 
 
 
 
SHAREHOLDERS' EQUITY                
Preferred shares 1,670   1,670   1,670   1,510  
 
 
 
 
 
Common shareholders' equity                
   Common shares 16,703   16,643   16,581   16,520  
   Contributed surplus 1,035   1,026   1,019   1,010  
   Deficit (5,937 ) (6,079 ) (6,258 ) (6,435 )
   Currency translation adjustmen (70 ) (61 ) (18 ) 10  
 
 
 
 
 
Total common shareholders' equity 11,731   11,529   11,324   11,105  
 
 
 
 
 
Total shareholders' equity 13,401   13,199   12,994   12,615  
 
 
 
 
 
Total liabilities and shareholders' equity 41,046   40,029   40,819   39,106  
 
                 
Number of common shares outstanding 922.3   920.3   918.1   915.9  
 
                 
                 
Capital Structure                
                 
Net debt : Total Capitalization 45.3 % 46.7 % 47.4 % 48.8 %
Net debt : Trailing 12 month EBITDA 1.86   1.95   1.99   2.06  
 

 

 

BCE Inc. Supplementary Financial Information - Third Quarter 2003 Page 6





     BCE Consolidated
Consolidated Cash Flow Data

                      YTD              
    Q3     Q3           September              
($ millions, except where otherwise indicated)   2003     2002     $ change     2003     2002     $ change  
 
 
                                     
Cash flows from operating activities                                    
   Earnings from continuing operations   467     369     98     1,419     1,048     371  
   Adjustments to reconcile earnings from continuing                                    
      operations to cash flows from operating activities:                                    
         Amortization expense   825     769     56     2,397     2,347     50  
         Net benefit plans expense (credit)   44     (7 )   51     129     (25 )   154  
         Restructuring and other charges (non-cash portion)   (5 )   67     (72 )   (5 )   472     (477 )
         Impairment charge   -     -     -     -     -     -  
         Net gains on investments   -     (11 )   11     -     (186 )   186  
         Future income taxes   156     106     50     275     (16 )   291  
         Non-controlling interest   60     128     (68 )   181     405     (224 )
         Other items   (71 )   (89 )   18     (227 )   (202 )   (25 )
         Change in non-cash working capital   428     152     276     335     (501 )   836  
   
   
   
   
 
    1,904     1,484     420     4,504     3,342     1,162  
   
   
   
 
                                     
   Capital expenditures   (800 )   (904 )   104     (2,114 )   (2,696 )   582  
   Other items   154     25     129     72     12     60  
   Preferred dividends and cash dividends paid by subsidiaries   -                                
         to non-controlling interest   (52 )   (146 )   94     (176 )   (351 )   175  
   
   
   
 
                                     
Free Cash Flow from operations, before common dividends   1,206     459     747     2,286     307     1,979  
   Cash common dividends   (259 )   (243 )   (16 )   (770 )   (728 )   (42 )
   
   
   
   
 
Free Cash Flow from operations, after common dividends   947     216     731     1,516     (421 )   1,937  
   Business acquisitions   (7 )   (1,378 )   1,371     (77 )   (1,407 )   1,330  
   Business dispositions   55     -     55     55     432     (377 )
   Decrease (increase) in investments accounted for under                                    
         the cost and equity methods   1     (7 )   8     8     (63 )   71  
   
   
   
   
 
Free Cash Flow after investments and divestitures   996     (1,169 )   2,165     1,502     (1,459 )   2,961  
   
   
   
   
 
                                     
Other financing activities                                    
   Increase (decrease) in notes payable and bank advances   (73 )   (58 )   (15 )   (242 )   420     (662 )
   Issue of long-term debt   17     1,104     (1,087 )   1,881     2,399     (518 )
   Repayment of long-term debt   (161 )   (307 )   146     (2,035 )   (809 )   (1,226 )
   Issue of common shares   5     2,381     (2,376 )   14     2,390     (2,376 )
   Issue of preferred shares   -     -     -     510     510     -  
   Redemption of preferred shares   -     -     -     (357 )   (306 )   (51 )
   Costs relating to the issuance of common and preferred shares   -     (78 )   78     -     (78 )   78  
   Issue of equity securities and convertible debentures by                                    
         subsidiaries to non-controlling interest   22     44     (22 )   109     201     (92 )
   Redemption of preferred shares by subsidiaries from                                    
         non-controlling interest   (39 )   -     (39 )   (74 )   -     (74 )
   Other items   56     (40 )   96     (6 )   (36 )   30  
   
   
   
   
 
    (173 )   3,046     (3,219 )   (200 )   4,691     (4,891 )
   
   
   
 
Effect of exchange rate changes on cash and cash equivalents   (1 )   2     (3 )   (6 )   2     (8 )
   
   
   
 
Cash provided by (used in) continuing operations   822     1,879     (1,057 )   1,296     3,234     (1,938 )
Cash provided by (used in) discontinued operations   (1 )   1     (2 )   15     (933 )   948  
   
   
   
   
 
Net increase (decrease) in cash and cash equivalents   821     1,880     (1,059 )   1,311     2,301     (990 )
Cash and cash equivalents at beginning of period   796     990     (194 )   306     569     (263 )
   
   
   
   
 
Cash and cash equivalents at end of period   1,617     2,870     (1,253 )   1,617     2,870     (1,253 )
   
   
   
   
 
   Consists of:                                    
         Cash and cash equivalents of continuing operations   1,617     2,866     (1,249 )   1,617     2,866     (1,249 )
         Cash and cash equivalents of discontinued operations   -     4     (4 )   -     4     (4 )
   
   
   
   
 
   Total   1,617     2,870     (1,253 )   1,617     2,870     (1,253 )
 
                                     
Other information                                    
                                     
Capital expenditures as a percentage of revenues   16.4 %   18.6 %   2.2 pts   14.4 %   18.4 %   4.0 pts
Cash flow per share (1)-(2) $1.20     $0.67     $0.53   $2.60     $0.78     $1.82  
Annualized cash flow yield (2)-(3)   17.9 %   7.2 %   10.7 pts   11.3 %   1.6 %   9.7 pts
Common dividend payout   58.1 %   69.6 %   (11.5 pts)   56.4 %   n.m     n.m.  

BCE Inc. Supplementary Financial Information - Third Quarter 2003 Page 7





    BCE Consolidated
Consolidated Cash Flow Data - Historical Trend

  YTD                       Total                          
($ millions, except where otherwise indicated)   2003     Q3 03     Q2 03     Q1 03     2002     Q4 02     Q3 02     Q2 02     Q1 02  
 
                                                       
Cash flows from operating activities                                                      
   Earnings from continuing operations   1,419     467     477     475     1,850     802     369     323     356  
   Adjustments to reconcile earnings from continuing                                                      
      operations to cash flows from operating activities                                                      
         Amortization expense   2,397     825     797     775     3,133     786     769     808     770  
         Net benefit plans expense (credit)   129     44     43     42     (33 )   (8 )   (7 )   (12 )   (6 )
         Restructuring and other charges (non-cash portion)   (5 )   (5 )   -     -     805     333     67     405     -  
         Impairment charge   -     -     -     -     765     765     -     -     -  
         Net gains on investments   -     -     -     -     (2,446 )   (2,260 )   (11 )   (175 )   -  
         Future income taxes   275     156     121     (2 )   572     588     106     (117 )   (5 )
         Non-controlling interest   181     60     70     51     676     271     128     141     136  
         Other items   (227 )   (71 )   (154 )   (2 )   (194 )   8     (89 )   (79 )   (34 )
         Change in non-cash working capital   335     428     59     (152 )   (598 )   (97 )   152     (83 )   (570 )
   
   
   
 
    4,504     1,904     1,413     1,187     4,530     1,188     1,484     1,211     647  
 
                                                       
   Capital expenditures   (2,114 )   (800 )   (713 )   (601 )   (3,770 )   (1,074 )   (904 )   (932 )   (860 )
   Other items   72     154     (45 )   (37 )   11     (1 )   25     14     (27 )
   Preferred dividends and cash dividends paid by subsidiaries   -                                                  
         to non-controlling interest   (176 )   (52 )   (69 )   (55 )   (511 )   (160 )   (146 )   (127 )   (78 )
 
                                                       
Free Cash Flow from operations, before common dividends   2,286     1,206     586     494     260     (47 )   459     166     (318 )
   Cash common dividends   (770 )   (259 )   (254 )   (257 )   (999 )   (271 )   (243 )   (242 )   (243 )
   
   
   
 
Free Cash Flow from operations, after common dividends   1,516     947     332     237     (739 )   (318 )   216     (76 )   (561 )
   Business acquisitions   (77 )   (7 )   (7 )   (63 )   (6,485 )   (5,078 )   (1,378 )   (14 )   (15 )
   Business dispositions   55     55     -     -     3,190     2,758     -     306     126  
   Decrease (increase) in investments accounted for under                                                      
          the cost and equity methods   8     1     -     7     (79 )   (16 )   (7 )   1     (57 )
   
   
   
 
Free Cash Flow after investments and divestitures   1,502     996     325     181     (4,113 )   (2,654 )   (1,169 )   217     (507 )
   
   
   
 
                                                       
Other financing activities                                                      
   Increase (decrease) in notes payable and bank advance   (242 )   (73 )   (56 )   (113 )   (213 )   (633 )   (58 )   600     (122 )
   Issue of long-term debt   1,881     17     72     1,792     4,908     2,509     1,104     43     1,252  
   Repayment of long-term debt   (2,035 )   (161 )   (1,493 )   (381 )   (2,893 )   (2,084 )   (307 )   (402 )   (100 )
   Issue of common shares   14     5     4     5     2,693     303     2,381     7     2  
   Issue of preferred shares   510     -     -     510     510     -     -     -     510  
   Redemption of preferred shares   (357 )   -     -     (357 )   (306 )   -     -     -     (306 )
   Costs relating to the issuance of common and preferred shares   -     -     -     -     (78 )   -     (78 )   -     -  
   Issue of equity securities and convertible debentures by                                                      
         subsidiaries to non-controlling interest   109     22     14     73     206     5     44     150     7  
   Redemption of preferred shares by subsidiaries from                                                      
         non-controlling interest   (74 )   (39 )   (16 )   (19 )   -     -     -     -     -  
   Other items   (6 )   56     (57 )   (5 )   (46 )   (10 )   (40 )   10     (6 )
   
   
   
 
    (200 )   (173 )   (1,532 )   1,505     4,781     90     3,046     408     1,237  
 
Effect of exchange rate changes on cash and cash equivalents   (6 )   (1 )   (2 )   (3 )   3     1     2     -     -  
 
Cash provided by (used in) continuing operations   1,296     822     (1,209 )   1,683     671     (2,563 )   1,879     625     730  
Cash (provided by) used in discontinued operations   15     (1 )   17     (1 )   (934 )   (1 )   1     (527 )   (407 )
   
   
   
 
Net increase (decrease) in cash and cash equivalents   1,311     821     (1,192 )   1,682     (263 )   (2,564 )   1,880     98     323  
Cash and cash equivalents at beginning of period   306     796     1,988     306     569     2,870     990     892     569  
   
   
   
 
Cash and cash equivalents at end of period   1,617     1,617     796     1,988     306     306     2,870     990     892  
   
   
   
 
   Consists of:                                                      
         Cash and cash equivalents of continuing operations   1,617     1,617     795     1,987     304     304     2,866     987     823  
         Cash and cash equivalents of discontinued operations   -     -     1     1     2     2     4     3     69  
   
   
   
 
   Total   1,617     1,617     796     1,988     306     306     2,870     990     892  
 
Other information                                                      
                                                       
Capital expenditures as a percentage of revenues   14.4 %   16.4 %   14.4 %   12.3 %   19.0 %   20.6 %   18.6 %   18.7 %   17.8 %
Cash flow per share (1)-(2) $ 2.60   $ 1.20   $ 0.76   $ 0.64   $ 0.90   $ 0.13   $ 0.67   $ 0.34   $ (0.26 )
Annualized cash flow yield (2)-(3)   11.3 %   17.9 %   8.2 %   8.0 %   1.0 %   (0.7 %)   7.2 %   3.1 %   (5.6 %)
Common dividend payout   56.4 %   58.1 %   55.1 %   56.1 %   42.5 %   16.0 %   69.6 %   n.m.     81.8 %
                                                       

BCE Inc. Supplementary Financial Information - Third Quarter 2003 Page 8





Bell Canada Segment
Operational Data

                  YTD   YTD          
  Q3   Q3           September   September          
($ millions, except where otherwise indicated) 2003   2002   $ change   % change   2003   2002   $ change   % change  
 
 
 
                                 
Revenues                                
Local and access 1,530   1,519   11   0.7 % 4,542   4,565   (23 ) (0.5 %)
Long distance 631   651   (20 ) (3.1 %) 1,885   1,944   (59 ) (3.0 %)
Wireless 661   570   91   16.0 % 1,852   1,622   230   14.2 %
Data 931   908   23   2.5 % 2,819   2,746   73   2.7 %
Bell ExpressVu 192   156   36   23.1 % 560   462   98   21.2 %
Terminal sales and other 361   405   (44 ) (10.9 %) 1,191   1,285   (94 ) (7.3 %)
Directory advertising -   140   (140 ) n.m.   -   410   (410 ) n.m.  
 
 
 
 
  4,306   4,349   (43 ) (1.0 %) 12,849   13,034   (185 ) (1.4 %)
                                 
Cash operating expenses (2,460 ) (2,473 ) 13   0.5 % (7,485 ) (7,564 ) 79   1.0 %
 
 
 
 
EBITDA 1,846   1,876   (30 ) (1.6 %) 5,364   5,470   (106 ) (1.9 %)
 
   Bell Canada (including Aliant) 1,855   1,915   (60 ) (3.1 %) 5,388   5,584   (196 ) (3.5 %)
   Bell ExpressVu (9 ) (39 ) 30   76.9 % (24 ) (114 ) 90   78.9 %
 
 
EBITDA margin (%) 42.9 % 43.1 % -   (0.2) pts   41.7 % 42.0 % -   (0.3) pts  
 
 
 
 
 
 
 
 
Amortization expense (768 ) (723 ) (45 ) (6.2 %) (2,259 ) (2,192 ) (67 ) (3.1 %)
Net benefit plans (expense) credit (46 ) 10   (56 ) n.m   (135 ) 29   (164 ) n.m  
Restructuring and other charges (1 ) (79 ) 78   98.7 % (1 ) (373 ) 372   99.7 %
 
 
 
 
Operating income 1,031   1,084   (53 ) (4.9 %) 2,969   2,934   35   1.2 %
Interest expense (244 ) (290 ) 46   15.9 % (731 ) (844 ) 113   13.4 %
Other income (expense) 3   (32 ) 35   n.m   60   206   (146 ) (70.9 %)
 
 
 
 
Earnings before income taxes and                                
   non-controlling interest 790   762   28   3.7 % 2,298   2,296   2   0.1 %
Income taxes (295 ) (300 ) 5   1.7 % (824 ) (843 ) 19   2.3 %
Non-controlling interest (36 ) (40 ) 4   10.0 % (110 ) (127 ) 17   13.4 %
 
 
 
 
Earnings from continuing operations 459   422   37   8.8 % 1,364   1,326   38   2.9 %
Discontinued operations (3 ) (4 ) 1   25.0 % (4 ) (13 ) 9   69.2 %
 
 
 
 
Net earnings 456   418   38   9.1 % 1,360   1,313   47   3.6 %
Dividends on preferred shares (17 ) (16 ) (1 ) (6.3 %) (49 ) (48 ) (1 ) (2.1 %)
Interest on equity settled notes -   (14 ) 14   n.m.   (25 ) (44 ) 19   43.2 %
 
 
 
 
Net earnings applicable to common shares 439   388   51   13.1 % 1,286   1,221   65   5.3 %
 
 
 
                                 
 
 
 
The following non-recurring items are included in net earnings:                                
   Discontinued operations (3 ) (4 )         (4 ) (13 )        
   Restructuring and other charges -   (45 )         -   (236 )        
   Net gains on sale of investments and dilution gains -   -           -   208          
   Other -   -           -   (18 )        
 
 
 
 
Total (3 ) (49 )         (4 ) (59 )        
 
 
 
 
                                 
Other information                                
Capital expenditures 714   839   125   14.9 % 1,918   2,446   528   21.6 %
Capital expenditures as a percentage of revenues (%) 16.6 % 19.3 %     2.7 pts 14.9 % 18.8 %     3.9 pts
         		  

n.m. : not meaningful

Net debt and preferreds                        
              Bell       Bell  
  Bell       Bell   Canada   Intercompany   Canada  
At September 30, 2003 Canada   Aliant   ExpressVu   Consolidated   eliminations   Segment  
 
                         
Bank indebtedness / (cash and cash equivalents) (853 ) (227 ) (13 ) (1,093 ) -   (1,093 )
Long term debt 8,941   1,182   400   10,523   (400 ) 10,123  
Debt due within one year 1,435   100   29   1,564   (29 ) 1,535  
Long-term note receivable from BCH (498 ) -   -   (498 ) 498   -  
PPA fair value increment (4)                     147  
 
 
 
Net debt 9,025   1,055   416   10,496   69   10,712  
Preferred shares - Bell Canada (5) 1,100   -   -   1,100   -   1,100  
Preferred shares - Aliant (5) -   172       172   -   172  
 
 
 
Net debt and preferreds 10,125   1,227   416   11,768   69   11,984  
 

BCE Inc. Supplementary Financial Information - Third Quarter 2003 Page 9





     Bell Canada Segment
Operational Data - Historical Trend

  YTD               Total                  
($ millions, except where otherwise indicated) 2003   Q3 03   Q2 03   Q1 03   2002   Q4 02   Q3 02   Q2 02   Q1 02  
 
                                     
Revenues                                    
Local and access 4,542   1,530   1,512   1,500   6,129   1,564   1,519   1,527   1,519  
Long distance 1,885   631   608   646   2,579   635   651   645   648  
Wireless 1,852   661   621   570   2,203   581   570   548   504  
Data 2,819   931   955   933   3,770   1,024   908   933   905  
Bell ExpressVu 560   192   191   177   638   176   156   155   151  
Terminal sales and other 1,191   361   409   421   1,793   508   405   456   424  
Directory advertising -   -   -   -   501   91   140   138   132  
 
 
 
 
  12,849   4,306   4,296   4,247   17,613   4,579   4,349   4,402   4,283  
Cash operating expenses (7,485 ) (2,460 ) (2,504 ) (2,521 ) (10,425 ) (2,861 ) (2,473 ) (2,563 ) (2,528 )
 
 
 
 
EBITDA 5,364   1,846   1,792   1,726   7,188   1,718   1,876   1,839   1,755  
 
   Bell Canada (including Aliant) 5,388   1,855   1,801   1,732   7,364   1,780   1,915   1,864   1,805  
   Bell ExpressVu (24 ) (9 ) (9 ) (6 ) (176 ) (62 ) (39 ) (25 ) (50 )
 
 
EBITDA margin (%) 41.7 % 42.9 % 41.7 % 40.6 % 40.8 % 37.5 % 43.1 % 41.8 % 41.0 %
 
Amortization expense (2,259 ) (768 ) (757 ) (734 ) (2,937 ) (745 ) (723 ) (756 ) (713 )
Net benefit plans (expense) credit (135 ) (46 ) (45 ) (44 ) 38   9   10   11   8  
Restructuring and other charges (1 ) (1 ) -   -   (675 ) (302 ) (79 ) (294 ) -  
 
 
 
 
Operating income 2,969   1,031   990   948   3,614   680   1,084   800   1,050  
Interest expense (731 ) (244 ) (238 ) (249 ) (1,144 ) (300 ) (290 ) (276 ) (278 )
Other income (expense) 60   3   13   44   2,491   2,285   (32 ) 246   (8 )
Impairment charge -   -   -   -   (50 ) (50 ) -   -   -  
 
 
 
 
Earnings before income taxes and                                    
   non-controlling interest 2,298   790   765   743   4,911   2,615   762   770   764  
Income taxes (824 ) (295 ) (277 ) (252 ) (1,608 ) (765 ) (300 ) (249 ) (294 )
Non-controlling interest (110 ) (36 ) (43 ) (31 ) (155 ) (28 ) (40 ) (52 ) (35 )
 
 
 
 
Earnings from continuing operations 1,364   459   445   460   3,148   1,822   422   469   435  
Discontinued operations (4 ) (3 ) 1   (2 ) (20 ) (7 ) (4 ) (8 ) (1 )
 
 
 
 
Net earnings 1,360   456   446   458   3,128   1,815   418   461   434  
Dividends on preferred shares (49 ) (17 ) (16 ) (16 ) (63 ) (15 ) (16 ) (16 ) (16 )
Interest on equity settled notes (25 ) -   (10 ) (15 ) (59 ) (15 ) (14 ) (16 ) (14 )
 
 
 
 
Net earnings applicable to common shares 1,286   439   420   427   3,006   1,785   388   429   404  
 
                                     
 
The following non-recurring items are included in net earnings:                                    
   Discontinued operations (4 ) (3 ) 1   (2 ) (20 ) (7 ) (4 ) (8 ) (1 )
   Restructuring and other charges -   -   -   -   (426 ) (190 ) (45 ) (191 ) -  
   Net gains on sale of investments and dilution gains -   -   -   -   1,863   1,655   -   208   -  
   Impairment charge -   -   -   -   (26 ) (26 ) -   -   -  
   Other -   -   -   -   (18 ) -   -   (18 ) -  
 
 
 
 
Total (4 ) (3 ) 1   (2 ) 1,373   1,432   (49 ) (9 ) (1 )
 
                                     
                                     
Other information                                    
Capital expenditures 1,918   714   664   540   3,427   981   839   832   775  
Capital expenditures as a percentage of revenues (%) 14.9 % 16.6 % 15.5 % 12.7 % 19.5 % 21.4 % 19.3 % 18.9 % 18.1 %
 

 

BCE Inc. Supplementary Financial Information - Third Quarter 2003 Page 10





Bell Canada Segment
Statistical Data*

              YTD   YTD      
  Q3   Q3       September   September      
  2003   2002   % change   2003   2002   % change  
 
 
 
 
Wireline                        
Local                        
Network access services (k)                        
   Residential             8,539   8,580   (0.5 %)
   Business             4,549   4,607   (1.3 %)
             
 
 
 
Total network access services             13,088   13,187   (0.8 %)
Estimated share of wireline NAS (%) - Ontario and Québec(6)                        
   Residential 97.3 % 98.0 % (0.7 )pts            
   Business 90.3 % 91.5 % (1.2 )pts            
 
 
 
             
Total estimated local market share 94.8 % 95.7 % (0.9 )pts            
SmartTouch feature revenues ($M) 234   230   1.7 % 698   692   0.9 %
                         
Long Distance (LD)                        
Conversation minutes (M) 4,664   4,660   0.1 % 14,447   14,034   2.9 %
Average revenue per minute ($) 0.128   0.130   (1.5 %) 0.124   0.128   (3.1 %)
Estimated share of traditionnal wireline LD revenues (%) - Ontario and Québec(7) 63.7 % 63.5 % 0.2 pts            
 
Data                        
                         
Data revenues ($M)(8)                        
   Legacy 417   451   (7.5 %) 1,257   1,378   (8.8 %)
   Non-Legacy 514   457   12.5 % 1,562   1,368   14.2 %
 
 
 
 
 
  931   908   2.5 % 2,819   2,746   2.7 %
                         
Equivalent access lines(9) (k) - Bell Canada only                        
Digital equivalent access lines             3,771   3,645   3.5 %
Broadband equivalent access lines             15,393   11,265   36.6 %
                         
Internet subscribers(10 ) (k)                        
DSL High Speed Internet subscribers (k)             1,391   1,002   38.8 %
Dial-up Internet subscribers (k)             892   985   (9.4 %)
             
 
 
 
              2,283   1,987   14.9 %
 
Wireless                        
                         
Cellular & PCS Net activations (k)                        
   Pre-paid 23   (1 ) n.m   68   (9 ) n.m  
   Post-paid 101   63   60.3 % 257   256   0.4 %
 
 
 
 
 
  124   62   100.0 % 325   247   31.6 %
Cellular & PCS subscribers (k)                        
   Pre-paid             1,047   957   9.4 %
   Post-paid             3,197   2,744   16.5 %
             
 
 
 
              4,244   3,701   14.7 %
                         
Average revenue per unit ($/month) 50   47   6.4 % 47   46   2.2 %
   Pre-paid 13   12   8.3 % 12   12   0.0 %
   Post-paid 62   60   3.3 % 59   58   1.7 %
                         
Churn (%) (average per month) 1.4 % 1.7 % 0.3 pts 1.4 % 1.6 % 0.2 pts
   Pre-paid 1.7 % 2.0 % 0.3 pts 1.8 % 1.9 % 0.1 pts
   Post-paid 1.3 % 1.6 % 0.3 pts 1.3 % 1.5 % 0.2 pts
                         
Usage per subscriber (min/month) 230   206   11.7 % 223   200   11.5 %
                         
Cost of acquisition(11) ($/sub) 425   441   3.6 % 418   440   5.0 %
Wireless EBITDA 251   219   14.6 % 689   603   14.3 %
Wireless EBITDA margin 38.0 % 38.4 % (0.4 )pts 37.2 % 37.2 % 0.0 pts
                         
Browser hits (M) 170   87   95.4 % 463   293   58.0 %
                         
Paging subscribers (k)             549   660   (16.8 %)
Paging average revenue per unit ($/month) 10   10   0.0 % 10   10   0.0 %
 
Bell ExpressVu (Direct-to-Home Satellite Service)                        
                         
Total subscribers (k)             1,352   1,221   10.7 %
Net subscriber activations (k) 17   45   (62.2 %) 48   152   (68.4 %)
Average revenue per subscriber ($/month) 47   43   9.3 % 46   44   4.5 %
Cost of acquisition ($/sub) 613   630   2.7 % 644   701   8.1 %
Churn (%) (average per month) 1.4 % 1.2 % (0.2 )pts 1.2 % 1.0 % (0.2 )pts
 

* Operating statistics are reported on a consolidated basis, except where otherwise noted.

BCE Inc. Supplementary Financial Information - Third Quarter 2003 Page 11





     Bell Canada Segment
Statistical Data - Historical Trend*

  YTD               Total                  
  2003   Q3 03   Q2 03   Q1 03   2002   Q4 02   Q3 02   Q2 02   Q1 02  
 
Wireline                                    
Local                                    
Network access services (k)                                    
      Residential     8,539   8,504   8,566       8,573   8,580   8,532   8,613  
      Business     4,549   4,564   4,577       4,581   4,607   4,630   4,633  
     
     
 
Total network access services     13,088   13,068   13,143       13,154   13,187   13,162   13,246  
                                     
Estimated share of wireline NAS (%) - Ontario and Québec(6)                                    
      Residential     97.3 % 97.6 % 97.9 %     97.9 % 98.0 % 98.3 % 98.7 %
      Business     90.3 % 90.6 % 91.0 %     91.3 % 91.5 % 91.6 % 91.8 %
     
     
 
Total estimated local market share     94.8 % 95.1 % 95.4 %     95.5 % 95.7 % 95.9 % 96.2 %
                                     
SmartTouch feature revenues ($M) 698   234   233   231   923   231   230   230   232  
                                     
Long Distance (LD)                                    
Conversation minutes (M) 14,447   4,664   4,911   4,872   19,034   5,000   4,660   4,725   4,649  
Average revenue per minute ($) 0.124   0.128   0.120   0.124   0.126   0.120   0.130   0.126   0.128  
Estimated share of traditionnal wireline LD revenues (%) - Ontari                                    
   and Québec(7)     63.7 % 63.1 % 63.1 %     63.0 % 63.5 % 62.8 % 63.0 %
 
Data                                    
                                     
Data revenues ($M)(8)                                    
      Legacy 1,257   417   413   427   1,864   486   451   453   474  
      Non-Legacy 1,562   514   542   506   1,906   538   457   480   431  
 
 
 
 
  2,819   931   955   933   3,770   1,024   908   933   905  
                                     
Equivalent access lines(9) (k) - Bell Canada only                                    
Digital equivalent access lines     3,771   3,708   3,704       3,683   3,645   3,833   3,815  
Broadband equivalent access lines     15,393   14,658   13,808       12,568   11,265   10,176   9,431  
                                     
Internet subscribers(10) (k)                                    
DSL High Speed Internet subscribers (k)     1,391   1,287   1,206       1,110   1,002   909   866  
Dial-up Internet subscribers (k)     892   911   940       957   985   1,031   1,036  
     
     
 
      2,283   2,198   2,146       2,067   1,987   1,940   1,902  
 
Wireless                                    
                                     
Cellular & PCS Net activations (k)                                    
      Pre-paid 68   23   27   18   13   22   (1 ) (26 ) 18  
      Post-paid 257   101   104   52   452   196   63   117   76  
 
 
 
 
  325   124   131   70   465   218   62   91   94  
Cellular & PCS subscribers (k)                                    
      Pre-paid     1,047   1,024   997       979   957   958   984  
      Post-paid     3,197   3,096   2,992       2,940   2,744   2,681   2,564  
     
     
 
      4,244   4,120   3,989       3,919   3,701   3,639   3,548  
                                     
Average revenue per unit ($/month) 47   50   48   45   46   47   47   46   43  
      Pre-paid 12   13   12   11   12   10   12   13   11  
      Post-paid 59   62   60   56   59   60   60   59   56  
                                     
Churn (%) (average per month) 1.4 % 1.4 % 1.4 % 1.4 % 1.6 % 1.7 % 1.7 % 1.5 % 1.5 %
      Pre-paid 1.8 % 1.7 % 1.9 % 1.9 % 2.0 % 2.6 % 2.0 % 1.8 % 1.7 %
      Post-paid 1.3 % 1.3 % 1.3 % 1.3 % 1.5 % 1.4 % 1.6 % 1.4 % 1.5 %
                                     
Usage per subscriber (min/month) 223   230   236   201   203   212   206   205   181  
                                     
Cost of acquisition(11) ($/sub) 418   425   435   387   429   409   441   471   407  
Wireless EBITDA 689   251   219   219   754   151   219   206   178  
Wireless EBITDA margins 37.2 % 38.0 % 35.3 % 38.4 % 34.2 % 26.0 % 38.4 % 37.6 % 35.3 %
                                     
Browser hits (M) 463   170   170   123   392   99   87   94   112  
                                     
Paging subscribers (k)     549   581   606       639   660   680   694  
Paging average revenue per unit ($/month) 10   10   10   10   10   10   10   10   10  
 
Bell ExpressVu (Direct-to-Home Satellite Service)                                    
Total subscribers (k)     1,352   1,335   1,317       1,304   1,221   1,176   1,145  
Net subscriber activations (k) 48   17   18   13   235   83   45   31   76  
Average revenue per subscriber ($/month) 46   47   47   44   44   43   43   44   45  
Cost of acquisition ($/sub) 644   613   655   675   690   667   630   769   718  
Churn (%) (average per month) 1.2 % 1.4 % 1.1 % 1.0 % 1.0 % 0.9 % 1.2 % 1.0 % 0.8 %
 

* Operating statistics are reported on a consolidated basis, except where otherwise noted

BCE Inc. Supplementary Financial Information - Third Quarter 2003 Page 12





Accompanying Notes

(1) Non-GAAP Measures
Certain measures used in this Supplementary Financial Information do not have any standardized meaning under Canadian generally accepted accounting principles (GAAP). Below you will find a discussion of these non-GAAP measures, as well as a reconciliation to the most comparable GAAP measure.
 

EBITDA
The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning prescribed by Canadian GAAP and may not 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 on a segmented basis.

 
 
    Bell
Canada
Segment		   Bell
Globe-
media		  
BCE
Emergis		  
BCE
Ventures		   Corporate and
other		   BCE
Consoli-
dated		  
 
 
  Q3 2003                        
                           
  EBITDA 1,846   36   18   86   (43)   1,943  
  Amortization expense (768)   (15)   (13)   (34)   5   (825)  
  Net benefit plans credit (expense) (46)   (1)   -   -   3   (44)  
  Restructuring and other charges (1)   -   -   -   -   (1)  
 
 
  Operating income (loss) 1,031   20   5   52   (35)   1,073  
 
 
                           
  Q3 2002                        
                           
  EBITDA 1,876   17   12   66   (44)   1,927  
  Amortization expense (723)   (18)   (14)   (28)   14   (769)  
  Net benefit plans credit (expense) 10   (1)   -   -   (2)   7  
  Restructuring and other charges (79)   -   -   -   -   (79)  
 
 
  Operating income (loss) 1,084   (2)   (2)   38   (32)   1,086  
 
 
                           
 
 
    Bell
Canada
Segment		   Bell
Globe-
media		  
BCE
Emergis		  
BCE
Ventures		   Corporate and
other		   BCE
Consoli-
dated		  
 
 
  YTD 2003                        
                           
  EBITDA 5,364   150   53   258   (113)   5,712  
  Amortization expense (2,259)   (46)   (40)   (93)   41   (2,397)  
  Net benefit plans credit (expense) (135)   (3)   -   -   9   (129)  
  Restructuring and other charges (1)   -   -   -   -   (1)  
 
 
  Operating income (loss) 2,969   101   13   165   (63)   3,185  
 
 
                           
  YTD 2002                        
                           
  EBITDA 5,470   108   3   216   (126)   5,671  
  Amortization expense (2,192)   (51)   (52)   (92)   40   (2,347)  
  Net benefit plans credit (expense) 29   (3)   -   -   (1)   25  
  Restructuring and other charges (373)   -   (119)   -   -   (492)  
 
 
  Operating income (loss) 2,934   54   (168)   124   (87)   2,857  
 
 

BCE Inc. Supplementary Financial Information - Third Quarter 2003 Page 13




Accompanying Notes (continued)

 

NET EARNINGS BEFORE NON-RECURRING ITEMS
The term net earnings before non-recurring items does not have any standardized meaning prescribed by Canadian GAAP and may not be comparable to similar measures presented by other issuers. We define it as net earnings applicable to common shares adjusted for non-operational or 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 allow us to compare our profitability on a consistent basis. The most comparable Canadian GAAP earnings measure is net earnings applicable to common shares. The following is a reconciliation on a consolidated basis of net earnings before non-recurring items to net earnings applicable to common shares.
 
 
    Q3 2003   Q3 2002   YTD 2003   YTD 2002  
 
 
                   
  Net earnings before non-recurring items 449   378   1,369   1,120  
  Non-recurring items:                
     Discontinued operations (3)   (4)   (4)   (353)  
     Restructuring charges -   (37)   -   (253)  
     Net gains on sale of investments and dilution gains -   12   -   138  
 
 
  Net earnings applicable to common shares as reported 446   349   1,365   652  
 
 
 

ROE
Return on common shareholders’ equity (ROE) is calculated as annualized net earnings before non-recurring items as a percentage of average common shareholders’ equity.
(2) Cash flow per share is calculated as follows:
  Cash flow from operations less capital expenditures
Average number of common shares outstanding during the period
(3) Annualized cash flow yield is calculated as follows:
  Free cash flow before common dividends, investments and divestitures
Number of common shares outstanding at end of period multiplied by share price at end of period
(4) Reflects an increase in the Bell Canada Segment debt as a result of the completion of the purchase price allocation (PPA) relating to the repurchase of SBC's 20% interest in Bell Canada, which resulted in an increase in long-term debt of $165 million. This increase in long-term debt will be applied against interest expense ($18 million in Q3 2003) over the remaining terms of the related long-term debt.
(5)
  		 At the BCE Consolidated level, 3rd Party Preferred Shares reflected in the financial statements of subsidiaries are included in non-controlling interest within the liabilities section of the balance sheet.
(6) Bell Canada’s local market shares reflect losses to facilities-based competition only.
(7)
  		 Represents Bell Canada’s share of the long distance market in Ontario and Québec reflecting 1+, toll-free and calling card traffic. This measure does not include Bell Canada’s share of long distance traffic originating through the use of dial-around services, prepaid cards and cellular and PCS services.
(8)
  		 Legacy data revenues include digital transmission services such as MEGALINK TM, network access and Integrated Services Digital Network (ISDN) and Data, as well as, competitive network services and the sale of inter-networking equipment.
  Non-legacy data revenues include national and regional IP data, Internet and e-commerce.
(9)
  		 Digital equivalent access lines are derived by converting low capacity data lines (DS-3 and lower) to the equivalent number of voice grade access lines. Broadband equivalent access lines are derived by converting high capacity data lines (higher than DS-3) to the equivalent number of voice grade access lines.

Conversion factors
DS-0 1
Basic ISDN 2
Primary ISDN 23
DS-1, DEA 24
DS-3 672
OC-3 2,016
OC-12 8,064
OC-48 32,256
OC-192 129,024
10 Base T 155
100 Base T 1,554
Gigabit E 15,554

(10)
 DSL High Speed Internet subscribers include consumer, business and wholesale. Dial-up Internet subscribers include consumer and business.
(11)
 Includes allocation of selling costs from Bell Canada and excludes costs of migrating from analog to digital. Cost of Acquisition (COA)  per subscriber is reflected on a consolidated basis.

BCE Inc. Supplementary Financial Information - Third Quarter 2003 Page 14





Appendix A – Reconciliation of Canadian Generally Accepted Accounting Principles (GAAP) to United States GAAP

We have prepared the interim consolidated financial statements according to Canadian GAAP. The tables that follow are a reconciliation of significant differences relating to the statement of operations and total shareholders’ equity reported according to Canadian GAAP and United States GAAP.

STATEMENTS OF OPERATIONS

      2003           2002 (1)      
 
 
 
For the nine months ended September 30 Canadian       U.S.   Canadian       U.S.  
($ millions, except share amounts) (unaudited) GAAP   Adjustments   GAAP   GAAP   Adjustments   GAAP  
 
Operating revenues 14,719   (169 ) 14,550   14,672   -   14,672  
 
 
Operating expenses (a) (b) (c) (l) 9,007   (36 ) 8,971   9,001   131   9,132  
Amortization expense (c) 2,397   7   2,404   2,347   -   2,347  
Net benefit plans expense (credit) (d) 129   167   296   (25 ) 30   5  
Restructuring and other charges 1   -   1   492   -   492  
 
 
 
 
 
 
 
Total operating expenses 11,534   138   11,672   11,815   161   11,976  
 
 
Operating income 3,185   (307 ) 2,878   2,857   (161 ) 2,696  
Other (income) expense (c) (e) (f) (m) (76 ) 15   (61 ) (245 ) (25 ) (270 )
Interest expense (g) 847   (5 ) 842   812   -   812  
 
 
Earnings from continuing operations before                        
   income taxes and non-controlling interest 2,414   (317 ) 2,097   2,290   (136 ) 2,154  
Income taxes (c) (h) 814   (197 ) 617   837   (135 ) 702  
Non-controlling interest (i) 181   (5 ) 176   405   (7 ) 398  
 
 
Earnings from continuing operations 1,419   (115 ) 1,304   1,048   6   1,054  
Discontinued operations (j) (4 ) -   (4 ) (353 ) 198   (155 )
Net earnings before cumulative effect of
 
   change in accounting policy 1,415   (115 ) 1,300   695   204   899  
Cumulative effect of change                        
   in accounting policy (n) -   (25 ) (25 ) -   (7,268 ) (7,268 )
 
 
Net earnings (loss) 1,415   (140 ) 1,275   695   (7,064 ) (6,369 )
Dividends on preferred shares (m) (50 ) (2 ) (52 ) (43 ) -   (43 )
 
 
Net earnings (loss) applicable to common shares 1,365   (142 ) 1,223   652   (7,064 ) (6,412 )
 
Other comprehensive earnings (loss) items                        
   Change in currency translation adjustment         (80 )         39  
   Change in unrealized gain or loss on investments (k)         18           (11 )
         
         
 
Comprehensive earnings (loss)         1,161           (6,384 )
 
Net earnings (loss) per common share - basic                        
   Continuing operations         1.35           1.22  
   Discontinued operations                        
      and change in accounting policy         (0.03 )         (9.18 )
   Net earnings (loss)         1.32           (7.96 )
Net earnings (loss) per common share - diluted                        
   Continuing operations         1.35           1.20  
   Discontinued operations                        
      and change in accounting policy         (0.03 )         (9.17 )
   Net earnings (loss)         1.32           (7.97 )
Dividends per common share         0.90           0.90  
Average number of common shares                        
   outstanding (millions)         919.3           827.3  
 

(1) Certain comparative figures have been reclassified to conform to the current year presentation (see Note a).





Appendix A – Reconciliation of Canadian Generally Accepted Accounting Principles (GAAP) to United States GAAP

      2003           2002 (1)      
 
 
 
For the three months ended September 30 Canadian       U.S.   Canadian       U.S.  
($ millions, except share amounts) (unaudited) GAAP   Adjustments   GAAP   GAAP   Adjustments   GAAP  
 
Operating revenues 4,883   (169 ) 4,714   4,856   -   4,856  
 
 
Operating expenses (a) (b) (c) (l) 2,940   (98 ) 2,842   2,929   41   2,970  
Amortization expense (c) 825   (6 ) 819   769   -   769  
Net benefit plans expense (credit) (d) 44   56   100   (7 ) 8   1  
Restructuring and other charges 1   -   1   79   -   79  
 
 
Total operating expenses 3,810   (48 ) 3,762   3,770   49   3,819  
 
 
Operating income 1,073   (121 ) 952   1,086   (49 ) 1,037  
Other (income) expense (c) (e) (f) (m) (18 ) 24   6   3   (27 ) (24 )
Interest expense (g) 272   (2 ) 270   288   -   288  
 
 
Earnings from continuing operations before                        
   income taxes and non-controlling interest 819   (143 ) 676   795   (22 ) 773  
Income taxes (c) (h) 292   (82 ) 210   298   (34 ) 264  
Non-controlling interest (i) 60   (2 ) 58   128   (5 ) 123  
 
 
Earnings from continuing operations 467   (59 ) 408   369   17   386  
Discontinued operations (j) (3 ) -   (3 ) (4 ) -   (4 )
 
 
Net earnings 464   (59 ) 405   365   17   382  
Cumulative effect of change -   -   -   -   -   -  
   in accounting policy (n) -   (25 ) (25 ) -   -   -  
 
 
Net earnings 464   (84 ) 380   365   17   382  
Dividends on preferred shares (m) (18 ) (2 ) (20 ) (16 ) -   (16 )
 
 
Net earnings applicable to common shares 446   (86 ) 360   349   17   366  
 
Other comprehensive earnings (loss) items                        
   Change in currency translation adjustment         (9 )         7  
   Change in unrealized gain or loss on investments (k)         15           (11 )
         
         
 
Comprehensive earnings (loss)         366           362  
 
Net earnings per common share - basic                        
   Continuing operations         0.42           0.43  
   Discontinued operations                        
      and change in accounting policy         (0.03 )         -  
   Net earnings         0.39           0.43  
Net earnings per common share - diluted                        
   Continuing operations         0.42           0.42  
   Discontinued operations                        
      and change in accounting policy         (0.03 )         -  
   Net earnings         0.39           0.42  
Dividends per common share         0.30           0.30  
Average number of common shares                        
   outstanding (millions)         921.5           864.1  
 

(1) Certain comparative figures have been reclassified to conform to the current year presentation (see Note a).

2





Appendix A – Reconciliation of Canadian Generally Accepted Accounting Principles (GAAP) to United States GAAP

STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE EARNINGS (LOSS)  
 
         
  September 30   December 31  
   ($ millions) (unaudited) 2003   2002  
 
   Currency translation adjustment (70 ) 10  
   Unrealized gain (loss) on investments (k) 17   (1 )
   Additional minimum pension liability (d) (81 ) (81 )
 
 
   Accumulated Other Comprehensive loss (134 ) (72 )
 
         
RECONCILIATION OF TOTAL SHAREHOLDERS’ EQUITY        
($ millions) (unaudited) September 30   December 31  
  2003   2002 (1)  
 
Canadian GAAP 13,401   12,615  
Adjustments        
   Pre-operating expenses (a) (b) (71 ) (78 )
   Employee future benefits (d) (150 ) 17  
   Gain on disposal of investments and on reduction        
      of ownership in subsidiary companies (e) 163   163  
   Other 17   56  
   Tax effect of the above adjustments (h) (22 ) (99 )
   Non-controlling interest effect of the above adjustments (i) 85   80  
   Unrealized gain (loss) on investments (k) 17   (1 )
 
United States GAAP 13,440   12,753
 

(1) Certain comparative figures have been reclassified to conform to the current year presentation (see Note a).

(a) Subscriber acquisition costs

As disclosed in Note 1 of our interim financial statements, we elected to change our accounting method as permitted by Canadian GAAP, and began expensing all subscriber acquisition costs as they are incurred.

As a result of this change in Canadian GAAP, the United States GAAP differences historically reported have been eliminated.

(b) Pre-operating expenses

Under Canadian GAAP, pre-operating expenses can be deferred and amortized if they meet certain criteria. Under United States GAAP, these costs are expensed as incurred.

(c) Investment tax credits

Under Canadian GAAP, investment tax credits are recorded as a reduction of the related expenditure. Under United States GAAP, they are recorded as a reduction of the income tax provision. Where the related expenditure was capital in nature, there is a corresponding impact on amortization expense.

3





Appendix A – Reconciliation of Canadian Generally Accepted Accounting Principles (GAAP) to United States GAAP

(d) Future benefits for employees

The accounting for future benefits for employees under Canadian GAAP and United States GAAP is essentially the same, except for the recognition of certain unrealized gains and losses.

Additionally, Canadian GAAP requires recognition of a pension valuation allowance for any excess of the accrued benefit asset over the expected future benefit. Changes in the pension valuation allowance are recognized in the consolidated statement of operations. United States GAAP does not specifically address pension valuation allowances. Recently the United States regulators have interpreted this to be a difference between Canadian and United States GAAP.

Under United States GAAP, an additional minimum liability is recorded for the excess of the unfunded accumulated benefit obligation over the recorded pension benefits liability. An offsetting intangible asset is recorded equal to the unrecognized prior service costs, with any difference recorded as a reduction in accumulated other comprehensive income.

(e) Gains or losses on investments

Under Canadian GAAP and United States GAAP, gains or losses on investments are calculated in a similar manner. Differences in Canadian GAAP and United States GAAP, however, will cause the underlying carrying value of the investment to be different. This will cause the resulting gain or loss to be different.

(f) Equity income

Under Canadian GAAP, we account for our joint venture investment in CGI using the proportionate consolidation method. Effective July 2003, as a result of the new agreement with CGI as described in Note 14 of our interim financial statements, CGI is now presented as an equity investment under US GAAP.

(g) Interest expense

Under Canadian GAAP, convertible debentures are split in two components, debt and equity. Over time, the debt component is increased to reach its original face value at maturity by recognizing an accretion expense as part of interest expense. Under United States GAAP, convertible debentures that do not have certain specified characteristics are recorded as long-term debt and no accretion expense is recognized.

(h) Income taxes

In addition to item (c), the income tax adjustment also reflects the impact on income taxes of the United States GAAP adjustments that we describe above. The accounting for income taxes under Canadian GAAP and United States GAAP is essentially the same, except that:

(i) Non-controlling interest

The non-controlling interest adjustment represents the impact on non-controlling interest of the United States GAAP adjustments that we describe above.

(j) Discontinued operations

Differences between Canadian GAAP and United States GAAP will cause the historical carrying values of the net assets of discontinued operations to be different.

(k) Change in unrealized gain (loss) on investments

Our portfolio investments, recorded at cost under Canadian GAAP, would be classified as “available-for-sale” under United States GAAP and carried at fair value with any unrealized gains or losses included in other comprehensive earnings, net of tax.

4





Appendix A – Reconciliation of Canadian Generally Accepted Accounting Principles (GAAP) to United States GAAP

(l) Accounting for stock-based compensation

In December 2002, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, which applies to fiscal years ending after December 15, 2002. It amends the transitional provisions of SFAS 123 for companies that choose to recognize stock-based compensation under the fair value-based method of SFAS 123, instead of choosing to continue following the intrinsic value method of APB 25.

In accordance with this standard, we adopted the fair value-based method of accounting on a prospective basis, effective January 1, 2002 and accordingly recorded operating expenses of $15 million and $21 million for the three months and nine months ended September 30, 2002, consistent with Canadian GAAP.

Under SFAS No. 123, however, we are required to make pro forma disclosures of net earnings and basic and diluted earnings per share, assuming that the fair value-based method of accounting had been applied from the date of adoption of SFAS 123. In the table below, the fair value of each option grant is estimated on the date of the grant using the Black-Scholes pricing model.

For the period ended September 30 (unaudited) Three months   Nine months  
 
 
 
  2003   2002 (1)   2003   2002 (1)  
 
Net earnings (loss), as reported 380   382   1,275   (6,369 )
Compensation cost included in net earnings 8   15   22   21  
Total compensation cost (13 ) (25 ) (38 ) (52 )
 
 
Pro forma net earnings (loss) 375   372   1,259   (6,400 )
Pro forma net earnings (loss) per common share - basic 0.39   0.41   1.32   (8.00 )
Pro forma net earnings (loss) per common share - diluted 0.39   0.41   1.32   (8.00 )
                 
Assumptions used in Black-Scholes                
   option pricing model for BCE options granted:                
   Dividend yield 3.7 % 3.6 % 3.6 % 3.3 %
   Expected volatility 30 % 30 % 30 % 30 %
   Risk-free interest rate 3.6 % 3.9 % 4.0 % 4.6 %
   Expected life (years) 4.5   4.2   4.5   4.5  
   Weighted average fair value of options granted ($) 7   5   6   7  
 

(1) Certain comparative figures have been reclassified to conform to the current year presentation (see Note a).

5





Appendix A – Reconciliation of Canadian Generally Accepted Accounting Principles (GAAP) to United States GAAP

(m) Accounting for derivative instruments and hedging activities (SFAS 133)

In accordance with SFAS 133, Accounting for Derivatives Instruments and Hedging Activities, all derivatives must be recorded on the balance sheet at fair value under United States GAAP. Additionally, certain economic hedging strategies such as the use of dividend rate swaps to hedge preferred share dividends and the SCP hedging strategy no longer qualified for hedge accounting under United States GAAP.

The change in the fair value of derivative contracts no longer qualifying for hedge accounting under United States GAAP is reported in net earnings. This resulted in a pre-tax loss of $28 million and $21 million respectively for the three months and nine months ended September 30, 2003 and a pre-tax gain of $33 million and $18 million, respectively, for the three months and nine months ended September 30, 2002.

During the third quarter of 2003, we elected to unwind the existing dividend rate swaps used to hedge $510 million of BCE Inc. Series AA preferred shares and $510 million of BCE Inc. Series AC preferred shares. These dividend rate swaps were to mature in 2007 and in effect converted the fixed-rate dividends on these preferred shares to floating-rate dividends. As a result of the early settlement, we received total cash proceeds of $83 million, which under Canadian GAAP is being deferred and amortized against the dividends on these preferred shares over the remaining original terms of the swaps. Under United States GAAP, these dividend rate swaps did not qualify for hedge accounting and were recorded on the balance sheet at fair value. Accordingly, the amortization of the deferred gain under Canadian GAAP is reversed for United States GAAP purposes.

(n) Impact of adopting new accounting standards

Goodwill and other intangible assets

As of June 30, 2002, in accordance with Financial Accounting Standard Board (FASB) Standard No. 142. Goodwill and Other Intangible Assets, we had allocated our existing goodwill and indefinite-life intangible assets to our reporting units and completed the assessment of the quantitative impact of the transitional impairment test measured as at January 1, 2002 on our financial statements.

In performing the transitional impairment test, we:

We determined a transitional impairment loss of $7,268 million net of tax in the second quarter of 2002. We recorded it as a cumulative effect of a change in accounting policy as of January 1, 2002, as required by the transitional provisions of Standard No. 142. Under Canadian GAAP, the transitional impairment loss is recorded as an adjustment to opening retained earnings. The impairment loss related to impaired goodwill of reporting units in Teleglobe ($6,604 million), Bell Globemedia ($545 million) and BCE Emergis ($119 million).

Consolidation of variable interest entities

Effective July 1, 2003, we adopted FIN No. 46, Consolidation of Variable Interest Entities, on a prospective basis. This interpretation clarifies how to apply Accounting Research Bulletin No. 51, Consolidated Financial Statements to 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. We determined a transitional loss of $25 million net of tax in the third quarter of 2003. We recorded it as a cumulative effect of a change in accounting policy as of July 1, 2003, as required by the transitional provisions of FIN No. 46. Under Canadian GAAP, the transitional loss is recorded as an adjustment to retained earnings. Please refer to Note 1 of our interim financial statements for a summary of the impact on our consolidated financial statements.

6





Appendix A – Reconciliation of Canadian Generally Accepted Accounting Principles (GAAP) to United States GAAP

(o) Recent changes to accounting standards

Costs Associated with Exit or Disposal Activities

The FASB recently issued new Standard No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Effective January 1, 2003, the standard requires costs relating to exits or disposal activities started after December 31, 2002 to be recorded at their fair values when a liability has been incurred. Under the previous guidance of Emerging Issues Task Force Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred in a Restructuring), certain exit costs were recorded when management committed to an exit plan. We do not expect that Standard No. 146 will have a significant effect on our financial position or results of operations.

Accounting for asset retirement obligations

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which applies to financial statements for fiscal years beginning after June 15, 2002. It covers how to recognize and remeasure obligations associated with the retirement of tangible long-lived assets. We applied SFAS 143 effective January 1, 2003 and determined that there was no significant impact on our results of operations and financial position.

Guarantees

In November 2002, the FASB issued Interpretation (FIN) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which requires companies that act as guarantors to disclose more information in their financial statements about their obligations under certain guarantees. It defines a guarantee and also requires guarantors to recognize a liability for the fair value of their obligation when they enter into these guarantees.

The disclosure requirements of FIN No. 45 apply to financial statements issued after December 15, 2002. We have applied them to the presentation of our consolidated financial statements. The recognition requirements of FIN No. 45 apply to guarantees made or changed after December 31, 2002. The application of the standard did not have an effect on our results of operations and financial position.

Financial Instruments

Effective July 1, 2003, we adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This interpretation clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments meeting specified criteria be classified as liabilities in statements of financial position. Previously, many of those financial instruments were classified as equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The application of the standard did not have an effect on our consolidated financial statements.

7





SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BCE Inc.
 
 
 
   (signed) Michael T. Boychuk
   Michael T. Boychuk
   Senior Vice-President and Treasurer
 
 
Date: October 29, 2003