UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 40-F
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REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR |
|
X |
ANNUAL REPORT PURSUANT TO SECTION 13(A) OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended: December 31, 2015 |
Commission File Number: 1-8481 |
BCE INC.
(Exact name of Registrant as specified in its charter)
Canada
(Province or other jurisdiction of incorporation or organization)
4813
(Primary Standard Industrial Classification Code Number (if applicable))
98-0134477
(I.R.S. Employer Identification Number (if applicable))
1, carrefour Alexander-Graham-Bell, Building A, 8th
Floor,
Verdun, Québec, Canada H3E 3B3, (514) 870-8777
(Address and telephone number of Registrants principal executive offices)
CT Corporation System, 111 Eighth Avenue, 13th Floor, New York, N.Y. 10011, (212) 894-8940
(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)
Copies of all correspondence should be sent to:
Michel Lalande Senior Vice-President - General Counsel & Corporate Secretary BCE Inc. 1, carrefour Alexander-Graham-Bell Building A, 7th Floor Verdun, Québec H3E 3B3 Canada Tel: (514) 786-8424 |
Mile T. Kurta Torys LLP 1114 Avenue of the Americas New York, New York 10036 Tel: (212) 880-6363 |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on which registered |
Securities registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
For annual reports, indicate by check mark the information filed with this form:
X |
Annual Information Form |
X |
Audited Annual Financial Statements |
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report:
Common Shares |
865,614,188 |
First Preferred Shares | |
Series R |
8,000,000 |
Series S |
3,606,225 |
Series T |
4,393,775 |
Series Y |
8,772,468 |
Series Z |
1,227,532 |
Series AA |
10,144,302 |
Series AB |
9,855,698 |
Series AC |
5,069,935 |
Series AD |
14,930,065 |
Series AE |
9,292,133 |
Series AF |
6,707,867 |
Series AG |
10,841,056 |
Series AH |
3,158,944 |
Series AI |
10,754,990 |
Series AJ |
3,245,010 |
Series AK |
25,000,000 |
Series AM |
11,500,000 |
Series AO |
4,600,000 |
Series AQ |
9,200,000 |
Total First Preferred Shares | 160,300,000 |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.
YES: |
X |
NO: |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
YES: |
NO: |
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PRIOR FILINGS MODIFIED AND SUPERSEDED
The annual report on Form 40-F of BCE Inc. (BCE) for the year ended December 31, 2015, at the time of filing with the U.S. Securities and Exchange Commission (the SEC or Commission), modifies and supersedes all prior documents filed pursuant to Sections 13, 14 and 15(d) of the Exchange Act for purposes of any offers or sales of any securities after the date of such filing pursuant to any registration statement or prospectus filed pursuant to the Securities Act of 1933 which incorporates by reference such annual report on Form 40-F.
ANNUAL AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND
MANAGEMENTS DISCUSSION AND ANALYSIS
A. Annual Audited Consolidated Financial Statements
For the BCE annual audited consolidated financial statements for the year ended December 31, 2015 (the BCE 2015 Financial Statements), see pages 114 to 157 of the BCE 2015 Annual Report (the BCE 2015 Annual Report), which BCE 2015 Financial Statements are contained in Exhibit 99.2 and are incorporated herein by reference.
B. Managements Discussion and Analysis
For the BCE managements discussion and analysis of financial condition and results of operations for the year ended December 31, 2015 (the BCE 2015 MD&A), see pages 28 to 111 of the BCE 2015 Annual Report, which BCE 2015 MD&A is contained in Exhibit 99.2 and is incorporated herein by reference.
DISCLOSURE CONTROLS AND PROCEDURES
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under Canadian or U.S. securities laws is recorded, processed, summarized and reported within the time periods specified under those laws, and include controls and procedures that are designed to ensure that the information is accumulated and communicated to management, including BCEs President and Chief Executive Officer (CEO) and Executive Vice-President and Chief Financial Officer (CFO), to allow timely decisions regarding required disclosure.
As at December 31, 2015, management evaluated, under the supervision of and with the participation of the CEO and the CFO, the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934, as amended, and under National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings.
Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as at December 31, 2015.
INTERNAL CONTROL OVER FINANCIAL REPORTING
A. Managements report on internal control over financial reporting
The report of BCEs management entitled Managements report on internal control over financial reporting appearing at page 112 of the BCE 2015 Annual Report, which report is contained in Exhibit 99.3, is incorporated herein by reference.
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B. Auditors report on internal control over financial reporting
The report of BCEs external auditors concerning BCEs internal control over financial reporting appearing at page 113 of the BCE 2015 Annual Report, which report is contained in Exhibit 99.3, is incorporated herein by reference.
C. Changes in internal control over financial reporting
There have been no changes during the year ended December 31, 2015 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
STATEMENT REGARDING CONTROLS AND PROCEDURES
There can be no assurance that our disclosure controls and procedures will detect or uncover all failures to disclose all material information otherwise required to be set forth in our disclosure. Furthermore, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance with respect to the reliability of financial reporting and financial statement preparation. Accordingly, BCE does not expect that BCEs internal control over financial reporting will prevent or detect all errors and all fraud. BCE will continue to periodically review its disclosure controls and procedures and internal control over financial reporting and may make modifications from time to time as considered necessary or desirable.
AUDIT COMMITTEE FINANCIAL EXPERT
In respect of the current members of BCEs Audit Committee (Audit Committee), the board of directors of BCE determined that at least one of the members, being the current Chair of the Audit Committee, Mr. P.R. Weiss, is qualified as an "audit committee financial expert, and that all members of the Audit Committee are independent under the listing standards of the New York Stock Exchange.
CODE OF ETHICS
All employees, directors and officers must follow Bell Canadas Code of Business Conduct (the Code of Conduct), which provides guidelines for ethical behaviour. The Code of Conduct includes additional guidelines for executive officers and management, including the CEO, CFO, Controller and Treasurer. The Code of Conduct is available in the governance section of BCEs website at BCE.ca and will be provided in print at no charge to any person who sends a written request by mail to BCE Inc. addressed to the Corporate Secretary, at 1, carrefour Alexander-Graham-Bell, Building A, 7th Floor, Verdun, Québec, Canada H3E 3B3.
In 2015, amendments were adopted to the Code of Conduct in order to:
update the section entitled Social Media to reflect updates to BCEs social media policy;
update the section entitled Health and Safety to reflect updates to BCEs health and safety policy; and add a section entitled Journalistic Independence.
In addition to these changes, certain other technical, administrative and non-substantive amendments were made to clarify the Code of Conduct and update various references.
A copy of the Code of Conduct, as amended, has been posted on BCEs website at BCE.ca and is included as Exhibit 99.4 to this annual report on Form 40-F.
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PRINCIPAL ACCOUNTANT FEES AND SERVICES
External auditors fees
The table below shows the fees that BCEs external auditors, Deloitte LLP, billed to BCE and its subsidiaries for various services in each of the past two fiscal years.
2015 (in $ millions) |
2014 (in $ millions) |
|
Audit fees(1) | 9.5 | 9.4 |
Audit-related fees(2) | 1.6 | 1.7 |
Tax fees(3) | 0.6 | 0.6 |
All other fees(4) | 0.0 | 0.6 |
Total(5) | 11.7 | 12.3 |
(1) | These fees include professional services provided by the external auditors for statutory audits of the annual financial statements, the audit of the effectiveness of internal control over financial reporting, the review of interim financial reports, the review of financial accounting and reporting matters, the review of securities offering documents, other regulatory audits and filings and translation services. |
(2) | These fees relate to non-statutory audits and due diligence procedures. |
(3) | These fees include professional services for tax compliance, tax advice and assistance with tax audits and appeals. |
(4) | These fees include any other fees for permitted services not included in any of the above-stated categories. In 2014, the fees are for services related to compliance with the Payment Card Industry Data Security Standard. |
(5) | The amounts of $11.7 million for 2015 and $12.3 million for 2014 reflect fees billed in those fiscal years without taking into account the year to which those services relate. Total fees for services provided for each fiscal year amounted to $9.5 million in 2015 and $10.2 million in 2014. |
Auditor Independence Policy
BCEs Auditor Independence Policy is a comprehensive policy governing all aspects of BCEs relationship with the external auditors, including:
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In particular, the policy specifies that:
The Auditor Independence Policy is available in the governance section of BCEs website at BCE.ca.
In 2015 and 2014, BCEs Audit Committee did not approve any audit-related, tax or other services pursuant to paragraph (c)(7) (i) (C) of Rule 2-01 of Regulation S-X.
OFF-BALANCE SHEET ARRANGEMENTS
Please see the sections entitled Contractual obligations and Indemnifications and guarantees (off-balance sheet) at page 87 of the BCE 2015 MD&A contained in Exhibit 99.2 (which sections are incorporated by reference in this annual report on Form 40-F) for a discussion of certain off-balance sheet arrangements.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Please see the section entitled Contractual obligations at page 87 of the BCE 2015 MD&A contained in Exhibit 99.2 (which section is incorporated by reference in this annual report on Form 40-F) for a tabular disclosure and discussion of contractual obligations.
IDENTIFICATION OF THE AUDIT COMMITTEE
BCE has a separately designated standing Audit Committee established in accordance with section 3(a)(58)(A) of the Exchange Act. BCEs Audit Committee is comprised of seven independent members: Mr. P.R. Weiss (Chair), Ms. S. Brochu, Mr. D.F. Denison, Mr. R.P. Dexter, Mr. I. Greenberg, Ms. K. Lee and Mr. R.C. Simmonds.
MINE SAFETY DISCLOSURE
Not applicable.
UNDERTAKING
BCE undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information
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relating to the securities in relation to which the obligation to file this annual report on Form 40-F arises or transactions in said securities.
WEBSITE INFORMATION
Notwithstanding any reference to BCEs website or other websites on the World Wide Web in this annual report on Form 40-F or in the documents attached as Exhibits hereto, the information contained in BCEs website or any other site on the World Wide Web referred to in this annual report on Form 40-F or in the documents attached as Exhibits hereto, or referred to in BCEs website, is not a part of this annual report on Form 40-F and, therefore, is not filed with the Commission.
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
BCE has made in the documents filed as part of this annual report on Form 40-F, and from time to time may otherwise make, forward-looking statements and related assumptions concerning its operations and financial performance. Except as may be required by Canadian securities laws, BCE does not undertake any obligation to update or revise any of these forward-looking statements or related assumptions whether as a result of new information, future events or otherwise. Actual results or events could differ materially from those set forth in, or implied by, the forward-looking statements and the related assumptions due to a variety of risk factors. Reference is made to the various risk factors discussed throughout the BCE 2015 MD&A, contained in Exhibit 99.2, including, in particular, to the risk factors discussed or referred to in the sections of the BCE 2015 MD&A entitled Caution regarding forward-looking statements and 9, Business risks. Reference is also hereby made to the various assumptions discussed throughout the BCE 2015 MD&A, including, in particular, to the assumptions discussed in section 3.2, Business outlook and assumptions and the subsections entitled Business outlook and assumptions set out in section 5, Business segment analysis of the BCE 2015 MD&A.
SUMMARY OF SIGNIFICANT DIFFERENCES FROM NYSE CORPORATE GOVERNANCE RULES
A summary of significant differences between corporate governance practices followed by BCE and corporate governance practices required to be followed by U.S. domestic companies under the New York Stock Exchange's Listing Standards (disclosure required by section 303A.11 of the NYSE Listed Company Manual) is available in the governance section of BCE's website at BCE.ca.
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.
BCE Inc.
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By: |
(signed) Glen LeBlanc |
Glen LeBlanc Executive Vice-President and Chief Financial Officer
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Date: | March 9, 2016 |
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LIST OF EXHIBITS |
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Annual Information Form of BCE Inc. for the year ended December 31, 2015 |
Exhibit 99.1 |
Annual audited consolidated financial statements of BCE Inc. for the year ended December 31, 2015 and the related management's discussion and analysis of financial condition and results of operations |
Exhibit 99.2 |
Reports of BCE Inc.'s management and of BCE Inc.'s external auditors concerning internal control over financial reporting |
Exhibit 99.3 |
Code of Business Conduct |
Exhibit 99.4 |
Consent of Independent Registered Public Accounting Firm |
Exhibit 99.5 |
Bell Canada Unaudited Selected Summary Financial Information |
Exhibit 99.6 |
Exhibit to 2015 Annual Financial Statements Earnings Coverage |
Exhibit 99.7 |
Certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Exhibit 99.31 |
Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Exhibit 99.32 |
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Exhibit 99.1
In this Annual Information Form, we, us, our and BCE mean, as the context may require, either BCE Inc. or, collectively, BCE Inc., Bell Canada, their subsidiaries, joint arrangements and associates. Bell means, as the context may require, either Bell Canada or, collectively, Bell Canada, its subsidiaries, joint arrangements and associates. Bell Aliant means, as the context may require, until December 31, 2014, either Bell Aliant Inc. or, collectively, Bell Aliant Inc., its subsidiaries and associates, or after December 31, 2014 and up to, and including, June 30, 2015, either Bell Aliant Regional Communications Inc. or, collectively, Bell Aliant Regional Communications Inc., its subsidiaries and associates, or after June 30, 2015 the Bell Aliant brand. Each section of BCEs 2013, 2014 and 2015 managements discussion and analysis of financial condition and results of operations (BCE 2013 MD&A, BCE 2014 MD&A and BCE 2015 MD&A, respectively) and each section of BCEs 2015 consolidated financial statements that is referred to in this Annual Information Form is incorporated by reference herein. The BCE 2013 MD&A, BCE 2014 MD&A, BCE 2015 MD&A and BCE 2015 consolidated financial statements have been filed with the Canadian provincial securities regulatory authorities (available at sedar.com) and with the United States Securities and Exchange Commission (available at sec.gov). They are also available on BCEs website at BCE.ca. All dollar figures are in Canadian dollars, unless stated otherwise. The information in this Annual Information Form is as of March 3, 2016, unless stated otherwise, and except for information in documents incorporated by reference that have a different date.
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Trade-marks: The following are trade-marks referred to and used as such in this Annual Information Form that BCE Inc., its subsidiaries, joint arrangements, associates or other entities in which we hold an equity interest own or use under licence. BCE is a trade-mark of BCE Inc.; Aliant, Bell, Bell Canada, Bell Centre, Bell Media, Bell Mobility, Bell TV, Fibe, FibreOP, Lets Talk, and TV Everywhere are trade-marks of Bell Canada; Astral, Astral Media, Astral Out-of-Home, BNN, Canal D, Canal Vie, CFCF, CFCN, CinéPop, CTV, CTV GO, CTV Two, Super Écran, The Movie Network, TMN, TMN Encore, TMN GO, VRAK, and Ztélé are trade-marks of Bell Media Inc.; CraveTV is a trade-mark of 7680155 Canada Inc. (a subsidiary of Bell Media Inc.); Discovery and Discovery GO are trademarks of Discovery Communications, LLC; Expertech is a trade-mark of Expertech Network Installation Inc.; ExpressVu is a trade-mark of Bell ExpressVu Limited Partnership; Glentel, Tbooth wireless, Wirelesswave, and Wireless etc. are trade-marks of Glentel Inc.; HBO Canada is a trade-mark of Home Box Office Inc.; iHeartRadio is a trade-mark of iHM Identity Inc.; MLSE is a trade-mark of Maple Leaf Sports & Entertainment Ltd.; Montreal Canadiens is a trademark of Club de Hockey Canadien, Inc.; Nordia is a trade-mark of Nordia Inc.; NorthernTel is a trade-mark of Nortel Networks Limited; Northwestel is a trade-mark of Northwestel Inc.; Q9 is a trade-mark of Q9 Networks Inc.; Showtime is a trade-mark of Showtime Networks Inc.; Télébec is a trade-mark of Télébec, Limited Partnership; The Source is a trade-mark of The Source (Bell) Electronics Inc.; Toronto Argonauts is a trade-mark of Argonauts Holdings Limited Partnership; TSN, TSN GO, RDS and RDS GO are trade-marks of The Sports Network Inc.; Virgin Mobile and Virgin Mobile Canada are trade-marks of Virgin Enterprises Limited. We believe that our trade-marks are very important to our success and take appropriate measures to protect, renew and defend them. Any other trade-marks used in this Annual Information Form are the property of their respective owners.
© BCE Inc., 2016. All rights reserved.
Table of contents
PARTS OF MD&A AND FINANCIAL STATEMENTS | |||||
ANNUAL | INCORPORATED BY REFERENCE (REFERENCES ARE TO | ||||
INFORMATION | PAGES OF THE BCE 2015 ANNUAL REPORT, EXCEPT | ||||
FORM | WHERE OTHERWISE INDICATED) | ||||
1 |
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Caution regarding forward-looking statements |
2 |
46-47; 63; 71-72; 77; 98-103 |
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2 |
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Corporate structure |
4 |
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2.1 | Incorporation and registered office | 4 | |||
2.2 | Subsidiaries | 4 | |||
3 |
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Description of our business |
5 |
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3.1 | General summary | 5 | 31-34; 46-47; 51; 59; 63; 67; 71; 77; 92 | ||
3.2 | Strategic imperatives | 6 | 41-45 | ||
3.3 | Competitive strengths | 6 | |||
3.4 | Marketing and distribution channels | 8 | |||
3.5 | Networks | 10 | |||
3.6 | Employees | 12 | |||
3.7 | Corporate responsibility | 13 | |||
3.8 | Competitive environment | 15 | 47-48; 61-64; 69-72; 75-76; 78 | ||
3.9 | Regulatory environment | 15 | 93-97 | ||
3.10 | Intangible properties | 16 | |||
4 |
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General development of our business three-year history |
17 |
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4.1 | Transactions | 17 | |||
4.2 | Corporate initiatives | 18 | 44-45; 38-40(1); 38-40(2) | ||
4.3 | Regulatory environment | 19 | 93-97; 90-94(1); 87-91(2) | ||
5 |
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Our capital structure |
20 |
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5.1 | BCE securities | 20 | 151-152 | ||
5.2 | Bell Canada debt securities | 21 | 141-142 | ||
5.3 | Ratings | 22 | |||
5.4 | Trading of our securities | 24 | |||
6 |
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Dividends and dividend policy |
26 |
36-38 |
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7 |
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Our directors and executive officers |
27 |
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7.1 | Directors | 27 | |||
7.2 | Executive officers | 28 | |||
7.3 | Directors and executive officers share ownership | 28 | |||
8 |
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Legal proceedings |
29 |
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9 |
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Interest of management and others in material transactions |
33 |
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10 |
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Interest of experts |
33 |
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11 |
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Transfer agent and registrar |
33 |
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12 |
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For more information |
33 |
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13 |
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Schedule 1 Audit Committee information |
34 |
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14 |
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Schedule 2 Audit Committee charter |
36 |
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(1) | References to parts of the BCE 2014 MD&A contained in BCEs annual report for the year ended December 31, 2014 (BCE 2014 Annual Report). |
(2) | References to parts of the BCE 2013 MD&A contained in BCEs annual report for the year ended December 31, 2013 (BCE 2013 Annual Report). |
BCE Inc. 2015 ANNUAL INFORMATION FORM 1 |
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1 |
CAUTION REGARDING FORWARD-LOOKING STATEMENTS |
1 Caution regarding forward-looking statements
Certain statements made in this Annual Information Form are forward-looking statements. These statements include, without limitation, statements relating to our network deployment plans, BCEs 2016 annualized common share dividend and common share dividend policy, our business outlook, objectives, plans and strategic priorities, and other statements that are not historical facts. A statement we make is forward-looking when it uses what we know and expect today to make a statement about the future. Forward-looking statements are typically identified by the words assumption, goal, guidance, objective, outlook, project, strategy, target and other similar expressions or future or conditional verbs such as aim, anticipate, believe, could, expect, intend, may, plan, seek, should, strive and will. All such forward-looking statements are made pursuant to the safe harbour provisions of applicable Canadian securities laws and of the United States (U.S.) Private Securities Litigation Reform Act of 1995.
Unless otherwise indicated by us, forward-looking statements in this Annual Information Form describe our expectations as at March 3, 2016 and, accordingly, are subject to change after such date. Except as may be required by Canadian securities laws, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements, by their very nature, are subject to inherent risks and uncertainties and are based on several assumptions, both general and specific, which give rise to the possibility that actual results or events could differ materially from our expectations expressed in, or implied by, such forward-looking statements and that our business outlook, objectives, plans and strategic priorities may not be achieved. As a result, we cannot guarantee that any forward-looking statement will materialize and we caution you against relying on any of these forward-looking statements. Forward-looking statements are presented in this Annual Information Form for the purpose of assisting investors and others in understanding our objectives, strategic priorities and business outlook as well as our anticipated operating environment. Readers are cautioned, however, that such information may not be appropriate for other purposes.
Forward-looking statements made in this Annual Information Form are based on a number of assumptions that we believed were reasonable on March 3, 2016. Refer in particular to the sections of the BCE 2015 MD&A entitled Business outlook and assumptions on pages 46, 47, 63, 71, 72 and 77 of BCEs annual report for the year ended December 31, 2015 (BCE 2015 Annual Report) for a discussion of certain key economic, market and operational assumptions we have made in preparing forward-looking statements. If our assumptions turn out to be inaccurate, our actual results could be materially different from what we expect.
Important risk factors that could cause actual results or events to differ materially from those expressed in, or implied by, the previously mentioned forward-looking statements and other forward-looking statements contained in this Annual Information Form include, but are not limited to:
2 BCE Inc. 2015 ANNUAL INFORMATION FORM | ||
1 |
CAUTION REGARDING FORWARD-LOOKING STATEMENTS |
These and other risk factors that could cause actual results or events to differ materially from our expectations expressed in, or implied by, our forward-looking statements are discussed in this Annual Information Form and the BCE 2015 MD&A and, in particular, in section 9, Business risks of the BCE 2015 MD&A, on pages 98 to 103 of the BCE 2015 Annual Report.
We caution readers that the risks previously described are not the only ones that could affect us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse effect on our financial position, financial performance, cash flows, business or reputation.
Except as otherwise indicated by us, forward-looking statements do not reflect the potential impact of any special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after March 3, 2016. The financial impact of these transactions and special items can be complex and depends on the facts particular to each of them. We therefore cannot describe the expected impact in a meaningful way or in the same way we present known risks affecting our business.
BCE Inc. 2015 ANNUAL INFORMATION FORM 3 |
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2 |
CORPORATE STRUCTURE |
2 Corporate structure
2.1 Incorporation and registered office
BCE Inc. was incorporated in 1970 and was continued under the Canada Business Corporations Act in 1979. It is governed by a certificate and articles of amalgamation dated August 1, 2004, as amended by (a) a certificate and articles of arrangement dated July 10, 2006 to implement a plan of arrangement providing for the distribution by BCE Inc. to its shareholders of units in the Bell Aliant Regional Communications Income Fund and for a consolidation of the number of outstanding BCE Inc. common shares, (b) a certificate and articles of amendment dated January 25, 2007 to implement a plan of arrangement providing for the exchange of Bell Canada preferred shares for BCE Inc. preferred shares, (c) a certificate and articles of amendment dated June 29, 2011 to create two additional series of BCE Inc. Cumulative Redeemable First Preferred Shares (first preferred shares), and (d) certificates and articles of amendment dated September 22, 2014 and November 11, 2014 to create six additional series of BCE Inc. first preferred shares. BCE Inc.s head and registered offices are located at 1, Carrefour Alexander-Graham-Bell, Building A, 8th Floor, Verdun, Québec H3E 3B3.
2.2 Subsidiaries
The table below shows BCE Inc.s main subsidiaries at December 31, 2015, where they are incorporated, and the percentage of voting securities that BCE Inc. beneficially owns or directly or indirectly exercises control or direction over. BCE Inc. has other subsidiaries, but they have not been included in the table because each represents 10% or less of our total consolidated assets and 10% or less of our total consolidated operating revenues. These other subsidiaries together represented 20% or less of our total consolidated assets and 20% or less of our total consolidated operating revenues at December 31, 2015.
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PERCENTAGE OF VOTING SECURITIES THAT BCE INC. | |||
SUBSIDIARY |
WHERE IT IS INCORPORATED | BENEFICIALLY HELD AT DECEMBER 31, 2015 |
(1) |
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Bell Canada |
Canada | 100% | ||
Bell Mobility Inc. |
Canada | 100% | ||
Bell Media Inc. |
Canada | 100% |
(1) | BCE Inc. beneficially owns all the voting securities of: (i) Bell Media Inc. (Bell Media) through Bell Canada; and (ii) Bell Mobility Inc. (Bell Mobility) through Bell Canada, which in beneficially turn owns all the voting securities of Bell Mobility through its wholly-owned subsidiary, Bell Mobility Holdings Inc. |
4 BCE Inc. 2015 ANNUAL INFORMATION FORM | ||
3 |
DESCRIPTION OF OUR BUSINESS |
3 Description of our business
3.1 General summary
BCE is Canadas largest communications company, providing residential, business and wholesale customers with a wide range of solutions for all their communications needs.
Beginning January 1, 2015, our results are reported in three segments: Bell Wireless, Bell Wireline and Bell Media. Due to the privatization of Bell Aliant in 2014 as outlined in section 4.1, Transactions in this Annual Information Form, the results of our former Bell Aliant segment are included within our Bell Wireless and Bell Wireline segments, with prior periods reclassified for comparative purposes.
Bell Wireless provides wireless voice and data communications products and services to our residential, small and medium-sized business and large enterprise customers across Canada.
Bell Wireline provides data, including Internet access and Internet protocol television (IPTV), local telephone, long distance, as well as other communications services and products to our residential, small and medium-sized business and large enterprise customers, primarily in Ontario, Québec and the Atlantic provinces, while Satellite TV service and connectivity to business customers are available nationally across Canada. In addition, this segment includes our wholesale business, which buys and sells local telephone, long distance, data and other services from or to resellers and other carriers.
Bell Media provides conventional, specialty and pay TV, digital media and radio broadcasting services to customers across Canada and out of home (OOH) advertising services.
Additional information regarding our business operations and the products and services we provide can be found in section 1.2, About BCE of the BCE 2015 MD&A, on pages 31 to 34 of the BCE 2015 Annual Report.
In addition to our operating segments, we also hold investments in a number of other assets, including:
A discussion of the key acquisitions, investments and dispositions completed by BCE in the last three completed financial years can be found in section 4.1, Transactions in this Annual Information Form.
For the year ended December 31, 2015, we generated consolidated operating revenues of $21,514 million and consolidated net earnings of $2,730 million. Bell Wireless operating revenues totalled $6,876 million ($6,836 million net of inter-segment revenues), Bell Wirelines operating revenues totalled $12,258 million ($12,043 million net of inter-segment revenues) and Bell Medias operating revenues totalled $2,974 million ($2,635 million net of inter-segment revenues). A table showing the operating revenues that each segment contributed to total operating revenues for the years ended December 31, 2015 and 2014 can be found in section 4.3, Operating revenues of the BCE 2015 MD&A, on page 51 of the BCE 2015 Annual Report. A table showing the operating revenues of our Bell Wireless and Bell Wireline segments by category of products and services can be found in section 5.1, Bell Wireless and section 5.2, Bell Wireline, respectively, of the BCE 2015 MD&A on pages 59 and 67, respectively, of the BCE 2015 Annual Report.
Some of our segments revenues vary slightly by season. For more information, refer to section 7.2, Quarterly financial information Seasonality considerations of the BCE 2015 MD&A, on page 92 of the BCE 2015 Annual Report.
Finally, additional information regarding the business outlook of our Bell Wireless, Bell Wireline and Bell Media segments can be found in the sections entitled Business outlook and assumptions of the BCE 2015 MD&A, on pages 46, 47, 63, 71 and 77 of the BCE 2015 Annual Report.
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3.2 Strategic imperatives
Our goal is to be recognized by customers as Canadas leading communications company. Our primary business objectives are to maximize subscribers, revenues, operating profit, free cash flow and return on invested capital by further enhancing our position as the foremost provider in Canada of comprehensive communications services to residential and business customers. We seek to take advantage of opportunities to leverage our networks, infrastructure, sales channels, and brand and marketing resources across our various lines of business to create value for both our customers and other stakeholders. Our strategy is centred on our disciplined focus and execution of six strategic imperatives.
The six strategic imperatives that underlie BCEs business plan are:
1. Invest in broadband networks and services
2. Accelerate wireless
3. Leverage wireline momentum
4. Expand media leadership
5. Improve customer service
6. Achieve a competitive cost structure
Additional information regarding our strategic imperatives can be found in section 2, Strategic imperatives of the BCE 2015 MD&A, on pages 41 to 45 of the BCE 2015 Annual Report.
3.3 Competitive strengths
CANADAS LARGEST COMMUNICATIONS COMPANY
We are Canadas largest communications company, offering a broad scope of telecommunications products and services to more than 21 million subscribers as indicated below:
Our large customer base and our ability to sell through a variety of distribution channels, as discussed in more detail in section 3.4, Marketing and distribution channels in this Annual Information Form, are key competitive advantages.
TECHNOLOGICALLY ADVANCED WIRELESS NETWORKS AND SERVICES
Our Bell Wireless segment provides wireless services over technologically advanced wireless networks that are available to virtually all of the Canadian population. We offer a broad range of wireless voice and data communications products and services to residential and business customers through our Bell and Virgin Mobile brands.
Wireless is a key growth segment for us and we have established strategic priorities seeking to further enhance our offerings. We are focused on maintaining our market share momentum of incumbent wireless postpaid customer activations through growing our presence in higher average revenue per user geographies and customer segments, improving sales execution and customer retention, and increasing data service offerings. We also believe our priorities for improved customer experience at all touch points, enhanced network quality and performance, and a broad handset offering should continue to improve our ability to attract and retain wireless customers. With the launch of a national high-speed packet access plus (HSPA+) network in November 2009, the launch, beginning in 2011, of fourth-generation (4G) long-term evolution (LTE) wireless service in most urban centres across Canada (our 4G LTE wireless network reached approximately 96% of the Canadian population as at December 31, 2015), and the launch of our Dual-band and Tri-band LTE Advanced (LTE-A) network service beginning in 2015, we are able to offer one of the broadest ranges of choice in wireless smartphones in Canada, along with extensive North American and international coverage.
Our approximately 1,400 Bell-branded stores and The Source (Bell) Electronics Inc. (The Source) locations across Canada provide a significant number of retail outlets where customers can buy Bell products and services, including in Canadas highest-traffic mall locations. In addition, our products and services offered under the Virgin Mobile brand enhance our competitive market position by allowing us to compete more effectively with the Canadian industrys other flanker brands as well as the newer wireless entrants.
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On May 20, 2015, BCE completed the previously announced acquisition of all of the issued and outstanding shares of Glentel, a Canadian-based dual-carrier, multi-brand mobile product distributor, which operated approximately 360 locations in Canada at December 31, 2015. Subsequently, also on May 20, 2015, BCE divested 50% of its ownership interest in Glentel to Rogers Communications Inc. (Rogers). The acquisition transaction is part of our strategy to accelerate wireless and improve customer service in a competitive wireless marketplace, giving BCE continued access to Glentels wireless retail operations.
NEXT-GENERATION TV AND HIGH-SPEED INTERNET SERVICES
Our strategic imperative to invest in broadband networks and services is focused on the deployment of high-speed fibre access through our fibre-to-the-node (FTTN) and fibre-to-the-premise (FTTP) initiatives. Our FTTP initiative encompasses both the deployment of fibre-to-the-home (FTTH) and fibre-to-the-building (FTTB). At December 31, 2015, our expanding FTTN and FTTP broadband fibre network covered approximately 8 million premises (homes and business locations) in Ontario, Québec and the Atlantic provinces. As discussed in more detail below, our broadband fibre network enables the delivery of Bells next-generation IPTV services, Fibe TV and FibreOP TV. It also enables the delivery of Bells next-generation fibre-optic high-speed Internet services, marketed as Fibe Internet and FibreOP Internet, offering speeds of up to 50 megabits per second (Mbps) with FTTN or 940 Mbps with FTTP, through our Gigabit Fibe and Gigabit FibreOP services. Refer to section 3.5, Networks Wireline High-speed fibre deployment in this Annual Information Form for more details concerning the deployment of our fibre-optic high-speed Internet services.
Bells next-generation IPTV services target areas in Ontario, Québec and the Atlantic provinces where cable providers had long been dominant, providing us with the opportunity to gain significant market share through offering a comprehensive multi-product bundle of communications services to customers. Delivered over our advanced high-speed fibre-optic network, our IPTV services expand TV choice and competition in several markets and offer a superior viewing experience to that of cable.
Bells Fibe TV and FibreOP TV services offer a wide range of flexible programming options and innovative features built on a next-generation IPTV platform. In 2013, we launched the new Fibe and FibreOP TV wireless receiver, which enables customers to enjoy the Fibe and FibreOP experience on up to five additional TVs anywhere in the house without the hassle of running cable through the house. In 2015, we introduced several unique features such as the Restart and Look Back features, enabling customers to rewind and watch TV shows already in progress from the beginning and up to 30 hours after they started, and the Trending feature (available on Fibe TV), which lists the five most-watched shows among Fibe TV customers in both English and French at any given time and allows the customer to switch to watch live or Restart from the beginning. We also introduced the Bell Fibe TV app, which brings the rich Fibe TV viewing experience to tablets and smartphones with access to more than 300 live and on-demand channels at home or up to 170 on the go, allows customers to seamlessly transfer a channel being viewed from a mobile device to TV, or resume what is being watched on TV on a mobile device, and allows customers to control their TV with their mobile devices. The FibreOP Remote app was also introduced, allowing customers to control their TV with their mobile devices. Both Fibe TV and FibreOP TV allow access to Netflix directly from customer TV receivers, providing a seamless experience. In January 2016, we launched the Fibe TV 4K resolution (4K) Whole Home personal video recorder (PVR) for customers in Toronto, Montréal, Ottawa and Québec City. The new Fibe TV 4K Whole Home PVR is the smallest available on the market and has the largest recording capacity. In late February 2016, the availability of the 4K Whole Home PVR for purchase was expanded to all Bell Fibe TV customers and Bell Aliant FibreOP customers in Atlantic Canada.
At December 31, 2015, our IPTV service was available to approximately 6.2 million households in BCEs incumbent wireline regions. Bells Fibe TV and FibreOP TV have quickly become preferred TV options, as we grew our IPTV subscriber base by 26.7% in 2015 to 1,182,791 customers at December 31, 2015.
INCUMBENT WIRELINE SERVICE PROVIDER WITH MARKET LEADERSHIP POSITION
Our market leadership position and our broad suite of product offerings act as a foundation for the other products and services we offer, providing us with a significant number of established customer connections to drive uptake of new products and services, either through bundled offerings or on a standalone basis, and allowing us to improve customer retention. Bells Fibe TV and FibreOP TV are driving strong multi-product bundle sales as we continue to expand our service footprint in communities across Ontario, Québec and the Atlantic provinces. Due to an expanding broadband fibre footprint, BCE grew its high-speed Internet customer base by 3.5% in 2015 to approximately 3.4 million and its TV customer base by 3.6% to approximately 2.7 million, with a relatively stable rate of residential NAS erosion of 7.4% compared to 7.5% in the previous year.
The Bell Business Markets unit maintains a leadership position, having established relationships with a majority of Canadas 1,000 largest corporations. The Bell Business Markets unit continues to deliver network-centric business service solutions to large business and public sector clients, including data hosting and cloud computing services, which are key to business communications in the new information age and increase the value of connectivity services.
OUR SIGNIFICANT MEDIA ASSETS
Bell Medias range of video content enhances the execution of our strategic imperatives by leveraging our significant broadband network investments, accelerating Bells video growth across all four screens (TV, Internet, smartphones and tablets) and achieving a competitive cost structure. Ownership of Bell Media enables us to maximize strategic and operating synergies, including the efficiency of our content and advertising spend.
Bell Medias assets in TV, radio, digital media and OOH advertising are a key competitive advantage, as indicated below:
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In addition to our industry-leading position, our competitive strengths include our broad reach across Canada, our ability to acquire top programming for conventional, specialty and pay TV, our constant drive to provide the most engaging and interactive experience for viewers, and our ability to serve the needs of advertisers across multiple platforms.
3.4 Marketing and distribution channels
BELL WIRELESS AND WIRELINE
The guiding principle driving our marketing strategy is to offer our clients the ultimate in reliable, simple and accessible telecommunications services. In doing so, our objective is to increase customer acquisition, retention and loyalty through multiple service offerings.
Through the bundling of services, which combines wireline local voice and long distance, high-speed Internet and TV, as well as wireless services, our goal is to use a multi-product offering to achieve competitive differentiation by offering a premium, integrated set of services that provides customers more freedom, flexibility and choice. We also make use of limited-time promotional offers featuring discounted rate plans, special rates on wireless handsets and TV receivers, as well as other incentives, to stimulate customer acquisition and winbacks or to respond to competitive pressures in our markets.
We focus our marketing efforts on a coordinated program of TV, print, radio, Internet, outdoor signage, direct mail and point-of-sale media promotions. We engage in mass-market advertising in order to maintain our brand and support direct and indirect distribution channels. Coordinated marketing efforts throughout our service area ensure that our marketing message is presented consistently across all our markets. Promoting the Bell brands is complemented by our other brand marketing efforts, reinforcing the awareness of all our services and capitalizing on the size and breadth of our customer base across all product lines.
The Bell brands play a key role in product positioning. Our branding is straightforward and directly supports our strategy of delivering a better customer experience at every level.
Specifically for wireless, acquiring and retaining high-value postpaid subscribers is a key marketing objective that we seek to achieve through our networks and suite of leading-edge devices and services to drive higher usage and increased adoption of data services. We offer discounts on the price of wireless handsets in exchange for a contractual commitment from a subscriber, a practice also used by other Canadian wireless operators. Research has shown that a key driver of customer acquisition is handset
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selection and style. This factor is increasingly important as handset life cycles shorten. Our current wireless device portfolio includes many leading-edge devices, some launched as exclusive to Bell in the Canadian market. As the Canadian wireless market further matures and competition intensifies, including as a result of Industry Canadas (now Innovation, Science and Economic Development Canada (ISED)) recent spectrum auctions, customer retention is becoming increasingly important. Accordingly, we employ customer retention initiatives aimed at increasing our customers level of satisfaction and loyalty.
We deliver our products and services to residential customers through:
We also offer customers the convenience of One Bill for Home Phone, Internet, TV and wireless services.
For small business customers, our residential and small business unit offers a wide range of services, including Business Fibe Internet, Bell Total Connect, Business Phone and TV along with many other communications solutions, all designed for companies that typically have fewer than 20 employees. Small business solutions are sold through dedicated call centre representatives, our bell.ca website, as well as our retail network and door-to-door sales representatives. Prior to an organizational realignment in respect of our small business customers in the fourth quarter of 2015, these customers were serviced by our Bell Business Markets unit.
Communications solutions, other than wireless, for mid-sized and large business customers are delivered by the Bell Business Markets unit. Our products and services are sold through dedicated sales representatives, call centres, certified resellers and competitive bids. By combining products and services, including professional services, into fully managed, end-to-end information and technology solutions, we have been successful in procuring both mid-sized and large enterprise customers with complex communications requirements. We continue to differentiate ourselves in the marketplace by enhancing our customer service levels and offering solutions designed to provide superior service, performance, availability and security. We deliver expertise in key solution areas, including Internet, private networks and broadcasts, voice and unified communications, data centres, customer contact and security solutions. The Bell Business Markets unit is focused on increasing both the number of customers and the breadth of business solutions sold to these customers.
Our wireless products and services are delivered to business customers, including small business customers, by Bell Mobility through the same channels as those previously described for services to residential customers. In addition, Bells business customers are served by our nationwide sales team responsible for the sale of wireless products and services to business customers, as well as the execution of sales contracts.
Our wholesale business communications products and services are delivered by the Bell Wholesale unit. They are sold through our dedicated sales representatives, web portals and call centres.
BELL MEDIA
Bell Medias TV and OOH customer base is comprised primarily of large advertising agencies, which place advertisements with Bell Media on behalf of their customers. Bell Media also has contracts with a variety of broadcasting distribution undertakings (BDUs), under which monthly subscription fees for specialty and pay TV services are earned. Bell Medias radio broadcast customer base is comprised of both advertising agencies and businesses in local markets.
Bell Medias conventional TV networks are delivered to Canadians through over-the-air broadcast transmission and through distribution by BDUs. Bell Medias specialty and pay TV channels are delivered through distribution arrangements with BDUs, and its radio programming is distributed through over-the-air transmission. In addition to these primary distribution channels, Bell Media distributes certain of its TV and radio programming through a variety of non-traditional means, such as mobile, Internet streaming and in-flight programming. CraveTV is available through IPTV set-top boxes, as well as online and on smartphones and tablets to authenticated TV subscribers. Since January 2016, CraveTV is also available directly to consumers as a standalone product to Canadians with an Internet subscription. Finally, Bell Medias OOH business delivers its services through an inventory of OOH faces and street furniture equipment in the key markets of British Columbia, Alberta, Ontario, Québec and Nova Scotia.
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3.5 Networks
The telecommunications industry is evolving rapidly as the industry continues to move from multiple service-specific networks to Internet protocol (IP)-based integrated communications networks that can carry voice, data and video traffic. We continue to work with key vendor partners to expand our national multi-services IP-enabled networks.
Our communications networks provide wireless and wireline voice, data and video services to customers across Canada. Our infrastructure includes:
WIRELESS
To provide wireless connectivity, we have deployed and operate a number of nationwide wireless broadband networks compatible with global standards that deliver high-quality and reliable voice and high-speed data services. With our high-speed data network, we are able to offer Canadian consumers a broad range of choice in wireless smartphones, including devices from Apple, Samsung, HTC, ZTE, Motorola, Blackberry, Novatel, Sony, Sonim, LG and Alcatel, as well as touch screen tablets and other devices designed for data services such as machine to machine (M2M) communications, e-mail, messaging, Internet access and social networking.
HSPA+ NETWORK
Our wireless HSPA+ network offered high-speed mobile access to 98% of the Canadian population at December 31, 2015, and covered thousands of cities and towns in both urban and rural locations. The HSPA+ network supports global roaming, as well as a wide range of smartphones, data cards, universal serial bus (USB) sticks, tablets and other leading-edge mobile devices. Our HSPA+ network also supports international roaming to more than 230 destinations. The vast majority of the site connectivity for the new HSPA+ network was built with high-speed fibre and an all-IP architecture for enhanced reliability. In November 2010, Bell became the first wireless company in North America to deploy leading-edge dual cell (DC) technology, which doubles the speed of HSPA+ mobile data service from up to 21 Mbps in most areas (typical speeds of 3.5 to 8 Mbps) to as high as 42 Mbps in areas with DC capability when using DC-capable modem devices or smartphones (typical speeds of 7 to 14 Mbps).
4G LTE NETWORK
Bell launched a 4G LTE network in September 2011. With Bells LTE wireless network coverage, customers have data access speeds similar to broadband connections and significantly faster than our HSPA+ network, making it easier for users to download applications, stream high-definition videos and music, play online games or video conference and chat with virtually no delays or buffering. Our LTE wireless network reached 96% of the Canadian population coast to coast at December 31, 2015. We focused on an urban rollout first, given that the timing of broader rural and remote coverage deployments was contingent on the outcome of Industry Canadas 700 megahertz (MHz) spectrum auction.
In April 2014, we acquired 31 licences for $566 million for 480 million MHz per population (MHz-pop) of nationwide 700 MHz spectrum following the wireless spectrum auction. These licences enabled rapid expansion of advanced 4G LTE broadband mobile services to rural communities, small towns and Canadas northern territories, while also enhancing coverage in urban and suburban areas. In April 2015, we acquired 13 licences for 169 million MHz-pop of advanced wireless services (AWS)-3 spectrum in key urban and rural markets for $500 million as part of Industry Canadas AWS-3 spectrum auction. This spectrum is strategically valuable in providing us with future incremental broadband capacity to meet growing consumer and business demand for mobile data services. In May 2015, we further acquired an additional 243 million MHz-pop of 2500 MHz wireless spectrum for $29 million as part of Industry Canadas most recent spectrum auction, supporting continued 4G LTE service expansion across Canada. These latest spectrum licence acquisitions bring our total holdings across various spectrum bands to more than 4,500 million MHz-pop nationally. LTE currently accounts for 67% of our total wireless data traffic.
In August 2014, Bell increased its 4G LTE network speeds by up to 45%. Download speeds have increased from up to 75 Mbps (typical speeds of 12 to 25 Mbps) to up to 110 Mbps (typical speeds of 14 to 36 Mbps), with speeds as high as 150 Mbps (typical speeds of 18 to 40 Mbps) available in some locations.
The HSPA+/LTE networks work together in that all Bell LTE devices support both networks. In fact, voice calls initiated when an LTE device is attached to an LTE network are transferred to the HSPA+ network for processing. In rural regions outside of the current LTE footprint, data calls/sessions are handed off to the HSPA+ network, ensuring continuity of service for our customers.
LTE-A NETWORK SERVICE
In August 2015, Bell announced North Americas first implementation of Tri-band LTE-A network service. By assigning three radio channels or carriers to one user, we are capable of delivering mobile data speeds of up to 335 Mbps (expected average download speeds of 25 Mbps to 100 Mbps). We have launched Tri-band LTE-A in parts of southern Ontario (including Toronto, Oakville and Hamilton), and select cities in Atlantic Canada (including Halifax, Fredericton and Moncton). Dual-band LTE-A technology was introduced by Bell in February 2015, delivering speeds of up to 260 Mbps (expected average download speeds of 18 to 74 Mbps). Dual-band LTE-A service today covers approximately 48% of the Canadian population in parts of British Columbia, Alberta, Ontario, Atlantic Canada, Yukon and the Northwest Territories. This is complemented by access to Bells 4G LTE network, which covered approximately 96% of the Canadian population as at December 31, 2015. As the handset ecosystem matures, Bells newly acquired AWS-3 and 2500 MHz spectrum licences will enable upgrades of carrier aggregation that will support four and five simultaneous carriers.
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3G/CDMA NETWORK
In addition to our LTE and HSPA+ networks, we operate a national 3G code division multiple access (CDMA) network that covered 99% of Ontario and Québecs populations and approximately 97% of Atlantic Canadas population at December 31, 2015.
The CDMA network shares sites, towers and antennae with the HSPA+ and LTE networks. As most of our development and network enhancement focus has been on the HSPA+/LTE networks, traffic is migrating off our CDMA network. CDMA terminals operate independently from the HSPA+/LTE networks. We began decommissioning our CDMA network in 2014 in a way that did not impact existing customers, by turning off coverage that overlapped with our network partners. Once the CDMA network is retired, the related spectrum will be repurposed to deliver additional LTE capacity. CDMA accounts for less than 0.02% of our total wireless data traffic and less than 1% of voice traffic. We are currently working with our existing CDMA customers to migrate their service to HSPA+ or LTE.
WI-FI LOCATIONS
Bell Mobility also operates approximately 4,000 public Wi-Fi hotspots, including at participating McDonalds, Tim Hortons and Chapters/Indigo retail outlets across Canada, in addition to thousands of Wi-Fi networks managed through our Bell Business Markets unit at enterprise customer locations.
WIRELINE
VOICE AND DATA NETWORK
Our national voice and data network consists of an optical fibre network with the latest technologies to provide redundancy and fault protection. It reaches all major Canadian metropolitan centres, as well as New York, Chicago, Boston, Buffalo, Minneapolis, Ashburn and Seattle in the U.S.
Our network in major Canadian cities provides state-of-the-art high-speed access at gigabit speeds based on IP technology. We operate a national IP multi-protocol label switching network with international gateways to the rest of the world. This network delivers next-generation, business-grade IP virtual private network (IPVPN) services that connect our customers offices and data centres throughout Canada and around the world. The IPVPN service is the foundation platform required for the delivery of business service solutions that add value and efficiencies to customers businesses. These technology solutions include voice over IP/IP telephony, IP videoconferencing, IP call centre applications and other future IP-based applications. In addition, we maintain extensive copper and voice-switching networks that provide traditional local and interexchange voice and data services to all business and residential customers in Ontario, Québec and the Atlantic provinces.
To improve reliability and increase network capacity to support rapidly growing volumes of wireless and Internet usage carried on our networks, we began in 2012 the upgrade of our fibre-based national backbone network with the deployment of 100 gigabit technologies. As of December 31, 2015, key traffic routes spanning more than 18,200 kilometres across Canada and into the U.S. had been upgraded. To satisfy continued traffic growth, Bell has begun the next phase of the national backbone network upgrade with the deployment of 200 gigabit technologies. Bell was one of the first Canadian carriers to deploy 200 gigabit long-haul Dense Wavelength Division Multiplexing (DWDM) technologies.
HIGH-SPEED FIBRE DEPLOYMENT
Our strategic imperative to invest in broadband networks and services is focused on the deployment of high-speed fibre access through our FTTN and FTTP (which encompasses both FTTH and FTTB) initiatives.
First, we have been upgrading our access infrastructure by deploying fibre closer to our customers using FTTN along with pair bonding technology. Second, we have been, and plan to continue, deploying high-speed fibre access using the FTTP technology in Ontario, Québec and Atlantic Canada.
One of the first FTTP deployments in Canada, Bells Québec City region initiative is the largest city-wide FTTP rollout in the country to-date. In our view, FTTP, in which optical fibre cables are used to connect each and every location, is an ideal network architecture to support future bandwidth-demanding IP services and applications. Since the Québec City region is served largely by aerial infrastructure (i.e., above-ground wiring on utility poles) these extensive fibre deployments could be accomplished much faster and more economically than in centres with underground infrastructure. Bell further continued to deploy FTTP to all new urban and suburban housing developments in Ontario and Québec and to implement pair bonding, which effectively increases the FTTN network download speeds and extends the Fibe TV footprint. This is in addition to Bells ongoing deployment of FTTP to multi-dwelling units and business locations.
Similarly, Bell Aliant deployed FTTP technology in various locations in Atlantic Canada and several communities in northern Ontario and Québec. The largely aerial nature of Bell Aliants network infrastructure and the relatively low population densities in Atlantic Canada and rural Ontario and Québec made the cost of FTTN and FTTP more similar in those markets.
Our residential fibre-optic Internet services, marketed as Fibe Internet and FibreOP Internet, are enabled by our FTTN and FTTP networks. We also offer DSL-based Internet service in areas where Fibe Internet is not available, with download speeds of up to 5 Mbps.
In June 2015, Bell announced a $1.14 billion investment to roll out fibre to more than 1 million homes and businesses across the City of Toronto to enable its Gigabit Fibe Internet service. Bell Gigabit Fibe offers speeds of up to 940 Mbps at launch, rising to a full 1 gigabit per second (Gbps) or faster over time as equipment evolves to support these speeds. The new Bell Gigabit Fibe Internet service was launched in August 2015 to more than 1.3 million homes and businesses across Ontario and Québec. As at December 31, 2015, the Gigabit Fibe service (marketed in Atlantic Canada as Gigabit FibreOP) had been launched to more than 2.2 million homes across Ontario, Québec and Atlantic Canada.
Additionally, since Bell Aliants launch of its IPTV service in the Atlantic provinces in 2005 and Bells launch of its IPTV service in Ontario and Québec in 2010, we have continued to deploy our next-generation IPTV services in areas in Ontario, Québec and the Atlantic provinces where cable providers had long been dominant.
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As of December 31, 2015, Fibe TV and FibreOP TV were available to approximately 6.2 million homes in major cities and municipalities across Québec, Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.
In 2016, we plan to expand our FTTP footprint to 8.2 million premises passed, accelerate FTTP deployment in Toronto and other major cities, and expand availability of Gigabit Fibe and Gigabit FibreOP Internet services.
DTH SATELLITE TV SERVICE
We provide DTH satellite TV service nationwide under the Bell TV brand using satellites operated by Telesat Canada (Telesat). Pursuant to a set of commercial arrangements between Bell ExpressVu Limited Partnership (Bell ExpressVu) and Telesat, Bell ExpressVu currently has two satellites under contract with Telesat. Telesat operates or directs the operation of these satellites, which are used by Bell ExpressVu to provide its DTH satellite TV service.
3.6 Employees
The table below shows the number of BCE employees as at December 31, 2015 and 2014.
NUMBER OF EMPLOYEES AT DECEMBER 31 |
2015 | 2014 | ||
Bell Wireless |
6,565 | 6,728 | ||
Bell Wireline |
36,835 | 43,164 | ||
Bell Media |
6,568 | 7,342 | ||
Total (1) |
49,968 | 57,234 |
(1) | The total number of BCE employees at the end of 2015 was 49,968, down from 57,234 at December 31, 2014, due primarily to the sale of a call centre subsidiary, workforce restructuring initiatives at our Bell Media and Bell Wireline segments to confront changing consumer preferences, new TV unbundling rules, a soft business market as a result of the economy and declines in home phone subscribers, as well as other workforce reductions attributable to normal attrition, retirements and productivity improvements, including synergies realized from the privatization of Bell Aliant. |
Approximately 45% of BCE employees are represented by unions and are covered by collective agreements.
The following collective agreements covering 100 or more employees were ratified in 2015 or early 2016:
The following collective agreements covering 100 or more employees will expire in 2016:
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The following describes the status of collective agreements covering 100 or more employees that have already expired:
3.7 Corporate responsibility
GENERAL
We are committed to the highest standards of corporate responsibility and we seek to integrate environmental, social and economic considerations into our business decisions. We engage with stakeholders to identify opportunities to create benefits for both society and us while minimizing, where we can, any negative impact our activities may generate. In line with this commitment, we adopted in 2006 a resolution to support the United Nations Global Compact, a set of universal principles addressing human rights, labour, environment and anti-corruption. These principles serve as the foundation of our corporate responsibility approach.
Since 1992, an officer-level committee mandated by the BCE board of directors oversees issues related to environmental matters. Over the decades, the responsibilities of this committee have expanded and, since 2012, BCEs corporate responsibility strategy, including security, environmental and health and safety (SEHS) risks and opportunities, is overseen by the Security, Environmental and Health and Safety Oversight Committee. This cross-functional committee is chaired by the Executive Vice-President, Corporate Services and seeks to ensure that relevant risks are adequately recognized and mitigation activities are well integrated and aligned across the organization and supported with sufficient resources.
BCE has implemented a range of social and environmental policies that are supported by various programs and initiatives. These policies address issues of importance to our many stakeholders, including preventing conflicts of interest; protecting company assets; safeguarding privacy and confidentiality; treating clients, business partners, team members and competitors with respect and honesty; fostering a diverse and safe workplace; and protecting the environment.
The policies include, among others:
For 2015, BCE was listed on the Top 50 Socially Responsible Corporations by Macleans/LActualité/Sustainalytics, on the Best 50 Corporate Citizens in Canada by Corporate Knights, and on the top 100 of the 2015 Newsweek Green Rankings Global 500. BCE is part of socially responsible investment indices such as the FTSE4Good Index, the Jantzi Social Index, the United Nations Global Compact 100 (GC 100) and the Euronext Vigeo World 120 index. The latter index includes the 120 most advanced companies in the European, North American and Asia Pacific regions, and distinguishes companies achieving the best environmental, social and governance performances. BCE was also identified as a Prime Responsible Social and Environmental investment by oekom research, was selected for inclusion in the Ethibel EXCELLENCE Investment Register and is a component of the STOXX Global ESG Leaders indices, an innovative series of environmental, social, and governance (ESG) equity indices.
We recognize that risks and opportunities exist related to climate change. Our membership in the Global e-Sustainability Initiative (gesi.org), an international organization that promotes sustainable development in the information and communications technology (ICT) industry, helps us gain a deeper understanding of these risks and opportunities. Part of our involvement includes promoting ICT as a way to mitigate and adapt to climate change for example, by enabling travel substitution, virtualization, dematerialization and cloud computing. Monitoring and reducing energy consumption and greenhouse gas emissions are also key priorities at BCE because of their impacts on the environment, society and the economy. We also recognize that being a responsible service provider means having best practices in business continuity and being prepared to face extreme weather events that could be exacerbated by climate change. We report on our carbon footprint and carbon reduction initiatives through the CDP. The CDP represents 822 institutional investors holding a total of U.S.$95 trillion in assets. The CDP gathers data from organizations globally to help reveal the risk in the investment portfolios of these institutional investors. BCE was listed on the CDPs Canada 200 Climate Disclosure Leadership Index for 2015.
In addition, we consider the exploitation and trade of minerals that fuel armed conflicts and lead to human rights abuses as unacceptable. We monitor and integrate industry best practices into our procurement programs on a continuing basis, as controls for conflict-free sourcing are being established globally.
Details on the performance of our programs and initiatives can be found under the heading Responsibility on BCEs website at BCE.ca.
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ENVIRONMENT
Bell Canadas environmental policy affirms:
The policy is reviewed annually and contains principles that support our goals, ranging from exercising due diligence to meet or exceed the environmental legislation that applies to us, to preventing pollution and promoting cost-effective initiatives that minimize resources and waste. For example, Bell Canadas in-house stewardship program ensures our customers have access to a responsible way to dispose of electronic waste. This is complemented by supporting provincial industry-led stewardship programs across the country.
We have instructed subsidiaries subject to this policy to support these principles, and have established a management-level committee to oversee the implementation of the policy.
Bell Canada monitors its operations to seek to ensure that it complies with environmental requirements and standards, and takes action seeking to prevent and correct problems, when needed. It has an environmental management and review system in place that:
In 2009, Bell Canada obtained the ISO 14001 certification for its environmental management system (registration number: EMS 545955). Bell Canada was the first telecommunications company in Canada to obtain this certification, which covers Bell Canadas landline, wireless, TV and Internet services, broadband services, data hosting and cloud computing, in addition to related administrative functions. Bell Canada has continuously maintained the certification since 2009, and was recertified in 2015 for another three-year cycle. Since 2010, 44 buildings leased or owned by Bell Canada across the country have been certified BOMA BEST. In addition, our Montréal campus is certified LEED NC, our Mississauga campus expansion is certified LEED NC Silver, our data centre in the Gatineau area is certified LEED NC Gold, and in Toronto the Bell Trinity Square building as well as our 720 King Street West location are certified LEED EB Gold.
In 2015, BCE was once again named one of the worlds greenest companies by U.S. magazine Newsweek. BCE placed 53rd and was the only Canadian telecommunications company in the Global 500 listed on the 2015 Green Rankings, which assess the environmental performance of 500 of the worlds largest publicly traded companies. BCEs strong showing reflects the effectiveness of our ISO 14001 certified environmental management system, energy saving measures and waste reduction initiatives, including the Bell Blue Box mobile recycling program.
One of Bell Canadas key tools is the Corporate Environmental Action Plan, which outlines the environmental activities of our various business units. The plan identifies funding requirements, accountabilities and deliverables, and monitors our progress in meeting its objectives.
For the year ended December 31, 2015, we spent $25.6 million on environmental activities, 49% of which was expensed and 51% of which was for capital expenditures. For 2016, we have budgeted $34.5 million (44% for expenses and 56% for capital expenditures) to seek to ensure that our environmental policy is applied properly and our environmental risks are minimized. Bell Canadas environmental management system now includes the operations of our former Bell Aliant segment.
COMMUNITY
We are committed to advancing the cause of mental health across Canada through the Bell Lets Talk mental health initiative. Mental illness affects millions of Canadians, yet this major health issue remains significantly underfunded, misunderstood and stigmatized. With one in five Canadians expected to suffer from mental illness during his or her lifetime, everyone has a family member, friend or colleague who has struggled with mental illness. The impact on the Canadian economy is staggering, with an estimated $6 billion each year in lost productivity costs due to absenteeism and presenteeism. In any given week, at least 500,000 employed Canadians are unable to work due to mental health problems.
On September 21, 2010, Bell Canada announced its five-year, $50 million initiative supporting an extensive range of programs to enhance mental health in every aspect of Canadian life. The Bell Lets Talk mental health initiative has four action pillars: anti-stigma, enhanced care and access, new research and workplace leadership. This initiative is the largest-ever corporate effort to promote mental health in Canada. On September 22, 2015, Bell Canada announced the extension of Bell Lets Talk for a further five years and an increase in its total funding commitment for Canadian mental health to at least $100 million. Since its launch, Bell Lets Talk has funded more than 600 mental health partners across Canada, from large health care institutions and universities to small community organizations in every region.
Bell Lets Talk initiatives have included Claras Big Ride for Bell Lets Talk, Clara Hughes epic 11,000-kilometre bicycle journey to take the anti-stigma message to communities around Canada; the introduction of annual community funds supporting grassroots mental health initiatives across Canada and for military families; the worlds first university chair in anti-stigma studies at Queens University; funding and implementation of the worlds first voluntary standard on workplace mental health; Canadas first biobank of biological, social and psychological data at the Institut universitaire en santé mentale de Montréal; the Bell Gateway Building at the Centre for Addiction and Mental Health (CAMH), the first mental health facility named for a corporation; and the first university-certified workplace mental health training program. More than 8,000 Bell managers across Canada have received training in mental health support and over 638 workplace events have taken place since 2010 in support of ending the stigma and building resiliency.
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DESCRIPTION OF OUR BUSINESS |
During 2015, Bell Canada made new commitments within the program to several initiatives, including a $1 million gift to Vancouver General Hospital and UBC Hospital Foundation to support a new health centre, expected to be the largest purpose-built mental health facility in British Columbia and one of the largest in Canada; a $500,000 donation to CHU Sainte-Justine to support Québecs first integrated mother-child centre for eating disorders; and a $150,000 donation to the Nunatsiavut Governments Aullak sangilivallianginnatuk (Going Off, Growing Strong) program to enhance mental health services for youth in Nain.
Supported in part by gifts from Bell Lets Talk, several new or expanded mental health facilities opened in 2015. Bell Lets Talk also joined the City of Montréal in 2015 to support expanded mental health services through community fund grants contributing $125,000 to nine community groups matched by $125,000 to Maison du Père from the city.
Bells Lets Talk partners also include the True Patriot Love Foundation, Université Laval, Sunnybrook Health Sciences Centre, the Jewish General Hospital, Royal Ottawa Hospital, lInstitut universitaire en santé mentale de Montréal, Hôpital Charles-LeMoyne, the CAMH, the University of British Columbia, the Douglas Mental Health University Institute, Queens University, CHU de Québec, Concordia University, Brain Canada, Kids Help Phone, Université de Montréal and McGill University.
In 2015, the Bell Lets Talk Community Fund gave $1 million in grants to 55 community-based organizations, charities and hospitals across the country. The 2016 Fund will provide grants to organizations in Canada focused on improving access to programs and services that support and help improve the mental health and well-being of people living with mental health issues.
In November 2015, Bell Canada was honoured by being named one of Canadas Top Employers for 2016 by the editors of Canadas Top 100 Employers, a publication of Mediacorp Canada. In selecting Bell Canada as one of Canadas top employers, Mediacorp Canada acknowledged Bell Canadas leadership in workplace mental health through investment in mental health training and professional development, and commitment to sharing experiences and best practices with other employers.
Recognition for Bell Lets Talk in 2015 included several new awards: the Workplace Benefits Awards for Mental Health from Benefits Canada; Corporate Social Responsibility Award from the Global Carrier Awards; and the top prize for the Cause + Action awards. In Québec, Bell was recognized as the Outstanding Corporation of the Year by the Québec Association of Fundraising Professionals for its contributions to mental health. Bell was also recognized by The Healthy Enterprises Group for its advanced return to work program, mental health training for staff and leaders, expanded mental health benefits, and lead role in the development and implementation of the National Standard for Psychological Health and Safety in the Workplace.
Because the challenge of stigma remains the primary reason that an estimated two-thirds of people with mental health problems do not receive the help they need, Bell continues to invite Canadians to talk about the issue. The sixth annual Bell Lets Talk Day on January 27, 2016, led by national spokesperson Clara Hughes, promoted discussion and understanding of mental illness while generating new funds for Canadian mental health. With 125,915,295 text messages, mobile calls and long distance calls by our customers, and tweets and Facebook shares made that day, Bells 5-cent donation per text, call, tweet and share means that it has committed a further $6,295,764.75 to support mental health programs across the country.
Adding this amount to the original Bell Lets Talk commitment of $50 million in 2010, along with the results of the first five Bell Lets Talk Days, Bell has now committed $79,919,178.55 to Canadian mental health.
To learn more, please visit bell.ca/letstalk.
Between mental health and its other initiatives, Bell contributed more than $14.6 million in community investment in 2015. Our employees and pensioners also donated more than $2.2 million in charitable gifts and logged more than 361,000 hours in volunteer time.
3.8 Competitive environment
A discussion of our competitive environment can be found in section 3.3, Principal business risks and the various sections entitled Competitive landscape and industry trends and Principal business risks of the BCE 2015 MD&A, on pages 47 and 48, 61 to 64, 69 to 72, 75 and 76, and 78 of the BCE 2015 Annual Report.
See also section 3.3, Competitive strengths in this Annual Information Form for more information concerning our competitive position.
3.9 Regulatory environment
A discussion of the legislation that governs our businesses as well as government consultations and recent regulatory initiatives and proceedings affecting us can be found in section 8, Regulatory environment of the BCE 2015 MD&A, on pages 93 to 97 of the BCE 2015 Annual Report.
More information with respect to the Canadian ownership restrictions on BCEs common shares can be found in section 5.1, BCE securities in this Annual Information Form.
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3.10 Intangible properties
We use various works protected by intellectual property rights (IP Assets), which we own or for which we have been granted rights to use. These IP Assets include, without limitation, brand names, trade-marks such as names, designs and logos, copyrights in TV and radio programs, broadcast signals, software and applications, domain names, patents or patent applications for inventions owned or produced by us and our employees, as well as various copyright materials, trade-marks, patents and other intellectual property owned or licensed by us. We derive value through the use of these IP Assets in various business activities and they are important to our operations and our success. To protect these IP Assets, we rely on a combination of legal protection afforded under copyright, trade-mark, patent and other intellectual property laws, as well as contractual provisions under licensing arrangements.
In particular, the Bell brand plays a key role in product positioning. Our branding is straightforward and directly supports our strategy of delivering a better customer experience at every level. Our trade-mark rights are perpetual provided that their registrations are renewed on a timely basis when applicable and that the trade-marks are used in commerce by us or our licensees. Other types of intangible proprietary information are also important to our operations, such as customer lists.
We believe that we take reasonable and appropriate measures to protect, renew and defend our IP Assets, including prosecuting infringers, and we take great care not to infringe on the intellectual property rights of others. However, we cannot provide any assurance that the laws protecting intellectual property in various jurisdictions are, or will continue to be, adequate to protect our IP Assets or that we will be successful in preventing or defending claims by others asserting rights in or to our IP Assets.
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GENERAL DEVELOPMENT OF OUR BUSINESS THREE-YEAR HISTORY |
4 General development of our business three-year history
In line with our strategic imperatives described in section 3.2, Strategic imperatives in this Annual Information Form, during the last three completed financial years we have entered, or proposed to enter, into transactions and implemented various corporate initiatives that have influenced, or may influence, the general development of our business. Our regulatory environment has also influenced the general development of our business during this three-year period. These principal transactions and corporate initiatives and the effects of our regulatory environment are discussed below.
4.1 Transactions
NATIONAL EXPANSION OF HBO AND TMN
On November 19, 2015, BCE announced a transaction with Corus whereby Bell Media would pay Corus a total consideration of $211 million for Corus to waive its HBO content rights in Canada and wind down operations of its Movie Central and Encore Avenue pay TV services in Western and Northern Canada, thereby allowing Bell Media to become the sole operator of HBO Canada nationally across all platforms and to expand TMN into a national pay TV service. In December 2015, Bell Media paid a deposit of $21 million to Corus and in January 2016 completed the final payment of $190 million. TMN was successfully launched nationally on March 1, 2016 and Movie Central and Encore Avenues operations ceased on the same day. The transaction is part of our strategy to create, negotiate and deliver premium TV programming to Canadian consumers across more platforms on a national basis.
ACQUISITION OF GLENTEL
On November 28, 2014, BCE announced the signing of a definitive agreement to acquire all of the issued and outstanding shares of Glentel, a Canadian-based dual-carrier, multi-brand mobile products distributor, which operated 360 locations in Canada at December 31, 2015, offering wireless products and services from Bell Mobility and Rogers. Outside Canada, Glentel owns, operates and franchises retail locations in the U.S., as well as in Australia and the Philippines. On December 24, 2014, BCE further announced that it would divest 50% of its ownership interest in Glentel to Rogers following the closing of BCEs acquisition of Glentel.
On May 20, 2015, BCE completed the acquisition of all of the issued and outstanding common shares of Glentel for a total consideration of $592 million, of which $296 million ($284 million, net of cash on hand) was paid in cash and the balance through the issuance of 5,548,908 BCE common shares. Immediately following closing of the acquisition, BCE repaid Glentels outstanding debt in the amount of approximately $112 million and contributed $53 million in exchange for additional Glentel common shares. Subsequently, also on May 20, 2015, BCE divested 50% of its ownership interest in Glentel to Rogers for a total cash consideration of approximately $473 million ($407 million, net of divested cash and transaction costs).
The transaction is part of our strategy to accelerate wireless and improve customer service in a competitive wireless marketplace, given BCEs continued access to Glentels wireless retail operations. However, there can be no assurance that such expected strategic benefits will be fully realized.
OTHER KEY COMPLETED TRANSACTIONS
In addition to the above transactions, in line with our strategic imperatives, we have concluded certain other transactions from 2013 to 2015 that have influenced the general development of our business. More information with respect to these transactions is provided in the table below.
TRANSACTION | KEY CHARACTERISTICS | |
Privatization of Bell Aliant and Note Exchange (2014) |
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GENERAL DEVELOPMENT OF OUR BUSINESS THREE-YEAR HISTORY |
TRANSACTION | KEY CHARACTERISTICS | |
Divestiture of certain TV assets and radio stations (2014) |
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Acquisition of Astral (2013) |
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4.2 Corporate initiatives
UPGRADE AND EXPANSION OF OUR BROADBAND NETWORKS
One of our key objectives in the last three financial years has been investing in our broadband networks and services to enhance our competitive position and promote future growth opportunities. During this period, we upgraded our access infrastructure by deploying fibre-optic technology closer to our customers, which led to the expansion of our Bell Fibe and FibreOP Internet and TV services, and we launched our new Gigabit Fibe Internet service in August 2015. During this period, we also made substantial investments in our wireless networks, which led to the expansion of our 4G LTE wireless network and the introduction of our Dual-band and Tri-band LTE-A network service in 2015. Refer to section 3.5, Networks in this Annual Information Form for a detailed description of developments relating to our wireline and wireless networks during the three-year period ended December 31, 2015.
EXPANDING MEDIA LEADERSHIP
In furtherance of our strategic imperative to expand media leadership, we seek to continue to deliver leading sports, news, entertainment and business content across multiple broadband platforms, namely TV, Internet, smartphones and tablets. Our objective is to grow audiences, introduce new services and create new revenue streams for our media assets, and to create more of our own content. In the last three financial years, we have continued to make progress in expanding media leadership including, as previously discussed, by acquiring Astral, which provided us with further media assets, and by expanding our TMN pay TV service and our operation of HBO Canada. Refer to section 2.4, Expand media leadership of the BCE 2015 MD&A contained in the BCE 2015 Annual Report for a discussion of media initiatives that we implemented in the financial year ended December 31, 2015. Refer to section 2.3, Expand media leadership of the BCE 2014 MD&A and the BCE 2013 MD&A contained in the BCE 2014 Annual Report and the BCE 2013 Annual Report, respectively, for a discussion of media initiatives that we implemented in the financial years ended December 31, 2014 and 2013.
ENHANCING CUSTOMER SERVICE
Our strategic priorities require that we constantly focus on delivering an improved customer experience while at the same time seeking to increase efficiency and reduce costs. During the last three financial years, we continued to make progress in enhancing the customer experience through ongoing investments in new service systems and improved processes. Refer to section 2.5, Improve customer service of the BCE 2015 MD&A contained in the BCE 2015 Annual Report for a discussion of customer service improvement initiatives that we implemented in the financial year ended December 31, 2015. Refer to section 2.6, Improve customer service of the BCE 2014 MD&A and the BCE 2013 MD&A contained in the BCE 2014 Annual Report and the BCE 2013 Annual Report, respectively, for a discussion of customer service improvement initiatives that we implemented in the financial years ended December 31, 2014 and 2013.
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GENERAL DEVELOPMENT OF OUR BUSINESS THREE-YEAR HISTORY |
4.3 Regulatory environment
During the last three financial years, the general development of our business has been affected by decisions made by the Government of Canada and its relevant departments and agencies, including the CRTC, ISED, Canadian Heritage and the Competition Bureau. Although most of our retail services are not price-regulated, government agencies and departments such as those described above continue to play a significant role in regulatory matters such as mandatory access to networks, net neutrality, spectrum auctions, approval of acquisitions, broadcast licensing and foreign ownership requirements. Refer to section 8, Regulatory environment of the BCE 2015 MD&A, the BCE 2014 MD&A and the BCE 2013 MD&A contained in the BCE 2015 Annual Report, the BCE 2014 Annual Report and the BCE 2013 Annual Report, respectively, for a discussion of the regulatory initiatives and proceedings that influenced the general development of our business in the financial years ended December 31, 2015, 2014 and 2013.
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OUR CAPITAL STRUCTURE |
5 Our capital structure
This section describes BCEs and Bell Canadas securities, the trading of certain of such securities on the Toronto Stock Exchange (TSX) and the ratings that certain rating agencies have attributed to BCEs preferred shares and Bell Canadas debt securities that are issued and outstanding.
5.1 BCE securities
BCEs articles of amalgamation, as amended, provide for an unlimited number of common shares, an unlimited number of first preferred shares issuable in series, an unlimited number of second preferred shares also issuable in series and an unlimited number of Class B shares. As at March 3, 2016, BCE had no Class B shares or second preferred shares outstanding.
Each common share entitles its holder to one vote at any meeting of shareholders. Additional information about the terms and conditions of the BCE preferred shares, common shares and Class B shares can be found in Note 25, Share capital of the BCE 2015 consolidated financial statements on pages 151 and 152 of the BCE 2015 Annual Report.
Since 1993, the Telecommunications Act and associated regulations (Telecom Regulations) have governed Canadian ownership and control of Canadian telecommunications carriers. Bell Canada and other affiliates of BCE that are Canadian carriers are subject to this Act. In 2012, amendments to the Telecommunications Act largely eliminated the foreign ownership restrictions for any carrier that, with its affiliates, has annual revenues from the provision of telecommunications services in Canada that represent less than 10% of the total annual revenues from the provision of these services in Canada, as determined by the CRTC. However, given that Bell Canada and its affiliates exceed this 10% threshold, they remain subject to the pre-existing Canadian ownership and control restrictions, which are detailed below.
Under the Telecommunications Act, in order for a corporation to operate as a Canadian common carrier, the following conditions have to be met:
In addition, where a parent company (Carrier holding company) owns at least 66 ²/3% of the voting shares of the carrier company, the Carrier holding company must have at least 66 ²/3% of its voting shares owned by Canadians and must not be controlled by non-Canadians. BCE is a Carrier holding company. The Telecom Regulations give certain powers to the CRTC and to Canadian carriers and Carrier holding companies to monitor and control the level of non-Canadian ownership of voting shares to ensure compliance with the Telecommunications Act. Accordingly, BCE, which controls Bell Canada and other Canadian carriers, must satisfy the following conditions:
The powers under the Telecom Regulations include the right to:
However, in our case, there is an additional control restriction under the Bell Canada Act. Prior approval by the CRTC is necessary for any sale or other disposal of Bell Canadas voting shares unless BCE retains at least 80% of all Bell Canada voting shares.
Similarly, the Canadian ownership rules under the Broadcasting Act for broadcasting licensees, such as Bell ExpressVu, Bell Media and Bell Canada, generally mirror the rules for Canadianowned and controlled common carriers under the Telecommunications Act by restricting allowable foreign investments in voting shares at the licensee operating company level to a maximum of 20% and at the holding company level to a maximum of 33 ¹/3%. An additional requirement under these Canadian broadcasting ownership rules is that the chief executive officer of a company that is a licensed broadcasting undertaking must be a Canadian citizen or permanent resident of Canada. The CRTC is precluded under a direction issued under the Broadcasting Act from issuing, amending or renewing a broadcasting licence of an applicant that does not satisfy these Canadian ownership and control criteria.
Cultural concerns over increased foreign control of broadcasting activities lie behind an additional restriction that prevents the holding company of a broadcasting licensee that exceeds the former 20% limit (or its directors) from exercising control or influence over any programming decisions of a subsidiary licensee. In line with CRTC practice, programming committees have been established within the relevant subsidiary licensees, thereby allowing foreign investment in voting shares of BCE to reach the maximum of 33 ¹/3%.
We monitor the level of non-Canadian ownership of BCEs common shares by obtaining data on: (i) registered shareholders from our transfer agent and registrar, CST Trust Company, and (ii) beneficial shareholders from the Canadian Depository for Securities (CDS) and the Depository Trust Company (DTC) in the U.S. We also provide periodic reports to the CRTC.
As of March 3, 2016, BCE had no debt securities outstanding.
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5.2 Bell Canada debt securities
As at December 31, 2015, Bell Canada has issued long-term debt securities as summarized in the table below.
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WEIGHTED | AT | ||||
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AVERAGE | DECEMBER 31, 2015 | ||||
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INTEREST RATE | MATURITY | (IN $ MILLIONS) | |||
Debentures |
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1997 trust indenture |
4.34% | 2016 2045 | 13,400 | |||
1976 trust indenture |
9.54% | 2021 2054 | 1,100 | |||
Subordinated debentures |
8.21% | 2026 2031 | 275 | |||
Total |
4.80% | 14,775 |
On November 2, 2015, Bell Canada redeemed, prior to maturity, all of its outstanding $1 billion principal amount of 3.60% Debentures, Series M-21, due December 2, 2015, at a price equal to $1,002.280 per $1,000 of principal amount of debentures plus $15.090 of accrued and unpaid interest. In addition, on January 11, 2016, Bell Canada redeemed, prior to maturity, all of its outstanding $200 million principal amount of 4.64% Debentures, Series M-19, due February 22, 2016, at a price equal to $1,004.370 per $1,000 of principal amount of debentures plus $18.052 of accrued and unpaid interest. On the same day, Bell Canada also redeemed, prior to maturity, all of its outstanding $500 million principal amount of 3.65% Debentures, Series M-23, due May 19, 2016, at a price equal to $1,010.170 per $1,000 of principal amount of debentures plus $5.300 of accrued and unpaid interest.
The Bell Canada debentures are unsecured and have been guaranteed by BCE. Additional information about the terms and conditions of the Bell Canada debentures can be found in Note 20, Long-term debt of the BCE 2015 consolidated financial statements on pages 141 and 142 of the BCE 2015 Annual Report.
To provide Bell Canada with financial flexibility and efficient access to the Canadian and U.S. capital markets, on November 14, 2014, Bell Canada filed with the Canadian provincial securities regulatory authorities and with the U.S. Securities and Exchange Commission a new shelf prospectus (Shelf Prospectus) under which Bell Canada may issue, over a 25-month period, up to $4 billion of unsecured debt securities. On February 10, 2015, Bell Canada filed a new prospectus supplement (Prospectus Supplement) for the issue of up to $4 billion of unsecured medium-term debentures (MTN Debentures) under the Shelf Prospectus. The Shelf Prospectus and Prospectus Supplement effectively replaced the previous 2013 shelf prospectus and prospectus supplement. On March 30, 2015, Bell Canada issued, under the Shelf Prospectus and Prospectus Supplement, $500 million of 4.35% MTN Debentures, Series M-39, due December 18, 2045 at a price of $99.519 per $100 principal amount. On October 1, 2015, Bell Canada issued, under the Shelf Prospectus and Prospectus Supplement, $1 billion of 3.00% MTN Debentures, Series M-40, due October 3, 2022 at a price of $99.599 per $100 principal amount. On February 29, 2016, Bell Canada issued, under the Shelf Prospectus and Prospectus Supplement, $750 million of 3.55% MTN Debentures, Series M-41, due March 2, 2026 at a price of $99.624 per $100 principal amount.
Certain of Bell Canadas trust indentures impose covenants that place limitations on the issuance of additional debt with a maturity date exceeding one year based on certain tests related to interest and asset coverage. In addition, Bell Canada is required, under certain conditions, to make an offer to repurchase all or, at the option of the holder thereof, any part of certain series of its debentures upon the occurrence of both a Change of Control of BCE or Bell Canada and a Rating Event relating to the relevant series of debentures. Change of Control and Rating Event are defined in the terms and conditions of the relevant series of debentures. Bell Canada is in compliance with all conditions and restrictions of its debt securities.
Bell Canada may issue short-term notes under its Canadian and U.S. commercial paper programs up to the maximum aggregate principal amount of $2 billion in Canadian or U.S. currency provided that such aggregate principal amount at any time may not exceed the amount available under its supporting committed lines of credit. The total amount of its supporting committed lines of credit available at March 3, 2016 was CAN $3 billion. In addition to its Canadian commercial paper program, under which Bell Canada may issue in Canada up to $2 billion (in Canadian or U.S. currency) of short-term notes, in April 2014, Bell Canada put in place a U.S. commercial paper program providing it with additional financial flexibility through the issuance in the U.S. of up to U.S. $2 billion of short-term notes. The sale of commercial paper pursuant to Bell Canadas separate Canadian or U.S. program decreases the Canadian or U.S. $2 billion maximum principal amount of notes authorized to be outstanding at any time under both programs, with one Canadian dollar being treated as equal to one U.S. dollar for purposes of this limitation. At March 3, 2016, Bell Canada had notes outstanding under its Canadian program in the principal amount of CAN $785 million. As at the same date, Bell Canada had notes outstanding under its U.S. program in the principal amount of U.S. $986.1 million (CAN $1,364 million when taking into account hedges with forward currency contracts against foreign currency fluctuations).
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5.3 Ratings
Ratings generally address the ability of a company to repay principal and pay interest or dividends on issued and outstanding securities.
Our ability to raise financing depends on our ability to access the public equity and debt capital markets as well as the bank credit market. Our ability to access such markets and the cost and amount of funding available depend partly on the quality of our credit ratings at the time capital is raised. Investment-grade ratings usually mean that when we borrow money, we qualify for lower interest rates than companies that have ratings lower than investment-grade. A ratings downgrade could result in adverse consequences for our funding capacity or our ability to access the capital markets.
As of March 3, 2016, BCEs preferred shares are rated by DBRS Limited (DBRS) and Standard & Poors Ratings Services (S&P), and Bell Canadas debt securities are rated by DBRS, Moodys Investors Service, Inc. (Moodys) and S&P.
This section describes the credit ratings, as of March 3, 2016, for certain of the issued and outstanding securities of BCE and Bell Canada. These ratings provide investors with an independent measure of credit quality of an issue of securities. However, they are not recommendations to buy, sell or hold any of the securities referred to below, and they may be revised or withdrawn at any time by the assigning rating agency. Each credit rating should be evaluated independently of any other credit rating.
In the last two years, we have paid rating agencies to assign ratings to BCEs and Prefcos preferred shares as well as Bell Canadas and Bell Aliants short-term and long-term debt securities. The fees paid to DBRS and S&P include access to their websites. In addition, we paid DBRS and Moodys to assign ratings in connection with Bell Canadas accounts receivable program.
RATINGS FOR BCE AND BELL CANADA SECURITIES
RATINGS FOR BELL CANADA SHORT-TERM DEBT SECURITIES
SHORT-TERM DEBT SECURITIES | RATING AGENCY | RATING | RANK | |
Bell Canada commercial paper | DBRS | R-1 (low) | 3 out of 10 | |
Moodys | P-2 | 2 out of 4 | ||
S&P | A-1 (Low) (Canadian scale) | 3 out of 8 | ||
A-2 (Global scale) | 3 out of 7 |
RATINGS FOR BELL CANADA LONG-TERM DEBT SECURITIES
LONG-TERM DEBT SECURITIES | RATING AGENCY | RATING | RANK | |
Bell Canada unsubordinated long-term debt | DBRS | A (low) | 7 out of 26 | |
Moodys | Baa1 | 8 out of 21 | ||
S&P | BBB+ | 8 out of 22 | ||
Bell Canada subordinated long-term debt | DBRS | BBB | 9 out of 26 | |
Moodys | Baa2 | 9 out of 21 | ||
S&P | BBB | 9 out of 22 |
RATINGS FOR BCE PREFERRED SHARES
PREFERRED SHARES | RATING AGENCY | RATING | RANK | |
BCE preferred shares | DBRS | Pfd-3 (high) | 7 out of 16 | |
S&P | P-2 (Low) (Canadian scale) | 6 out of 18 | ||
BBB-(Global scale) | 8 out of 20 |
As of March 3, 2016, BCE and Bell Canadas credit ratings have stable outlooks from DBRS, Moodys and S&P.
GENERAL EXPLANATION
SHORT-TERM DEBT SECURITIES
The table below shows the range of credit ratings that each rating agency assigns to short-term debt instruments.
HIGHEST QUALITY | LOWEST QUALITY | |||
OF SECURITIES | OF SECURITIES | |||
RATED | RATED | |||
DBRS | R-1 (high) | D | ||
Moodys | P-1 | NP | ||
S&P (Canadian scale) | A-1 (High) | D | ||
S&P (Global scale) | A-1 + | D |
The DBRS short-term debt rating scale provides an opinion on the risk that a borrower will not meet its short-term financial obligations in a timely manner. Ratings are based on quantitative and qualitative considerations relevant to the borrowing entity.
Moodys short-term debt ratings are Moodys opinions of the ability of issuers to meet short-term financial obligations. Short-term ratings are assigned to obligations with an original maturity of 13 months or less and reflect the likelihood of a default on contractually promised payments.
An S&P Canadian scale commercial paper rating and short-term debt rating indicates S&Ps assessment of whether the company can meet the financial commitments of a specific commercial paper program or other short-term financial instrument, compared to the debt servicing and repayment capacity of other companies in the relevant financial market.
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LONG-TERM DEBT SECURITIES
The table below shows the range of credit ratings that each rating agency assigns to long-term debt instruments.
HIGHEST QUALITY | LOWEST QUALITY | |||
OF SECURITIES | OF SECURITIES | |||
RATED | RATED | |||
DBRS | AAA | D | ||
Moodys | Aaa | C | ||
S&P | AAA | D |
The DBRS long-term debt rating scale provides an opinion on the risk of default: that is, the risk that an issuer will fail to satisfy its financial obligations in accordance with the terms under which an obligation has been issued. Ratings are based on quantitative and qualitative considerations relevant to the borrowing entity.
Moodys long-term debt ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both the likelihood of a default on contractually promised payments and the expected financial loss suffered in the event of default.
S&Ps long-term debt credit rating scale provides an assessment of the creditworthiness of a company in meeting a specific financial obligation, a specific class of financial obligations or a specific financial program. It takes into consideration the likelihood of payment: that is, the capacity and willingness of the company to meet its financial commitment on an obligation according to the terms of the obligation, among other factors.
PREFERRED SHARES
The table below describes the range of credit ratings that each rating agency assigns to preferred shares.
|
HIGHEST QUALITY | LOWEST QUALITY | ||
|
OF SECURITIES | OF SECURITIES | ||
|
RATED | RATED | ||
DBRS |
Pfd-1 (high) | D | ||
S&P (Canadian scale) |
P-1 (High) | D | ||
S&P (Global scale) |
AA | D |
The DBRS preferred share rating scale indicates its assessment of the risk that a borrower may not be able to meet its full obligation to pay dividends and principal in a timely manner. Every DBRS rating is based on quantitative and qualitative considerations relevant to the borrowing entity.
S&Ps preferred share rating is an assessment of the creditworthiness of a company in meeting a specific preferred share obligation issued in the relevant market, compared to preferred shares issued by other issuers in the relevant market.
EXPLANATION OF RATING CATEGORIES RECEIVED FOR OUR SECURITIES
RATING AGENCY |
DESCRIPTION OF SECURITIES |
RATING CATEGORY |
EXPLANATION OF RATING CATEGORY RECEIVED |
|||
DBRS | Short-term debt | R-1 (low) | good credit quality | |||
capacity for the payment of short-term financial obligations as they fall due is substantial | ||||||
overall strength is not as favourable as higher rating categories | ||||||
may be vulnerable to future events, but qualifying negative factors are considered manageable | ||||||
Long-term debt | A | good credit quality | ||||
capacity for the payment of financial obligations is substantial, but of lesser credit quality than AA | ||||||
may be vulnerable to future events, but qualifying negative factors are considered manageable | ||||||
Long-term | BBB | adequate credit quality | ||||
subordinated debt | capacity for the payment of financial obligations is acceptable | |||||
may be vulnerable to future events | ||||||
Preferred shares | Pfd-3 | adequate credit quality | ||||
protection of dividends and principal is still acceptable, but the company is more susceptible to adverse changes in financial and economic conditions, and there may be other adverse conditions present which detract from debt protection. Generally, companies with Pfd-3 ratings have senior bonds rated in the higher end of the BBB category | ||||||
Moodys | Short-term debt | P-2 | a strong ability to repay short-term debt obligations | |||
Long-term debt | Baa | subject to moderate credit risk | ||||
considered medium-grade and may have certain speculative characteristics | ||||||
S&P | Short-term debt | A-1 (Low) (Canadian scale) | satisfactory capacity of the company to fulfill its financial commitment on the obligation | |||
A-2 (Global scale) | somewhat more susceptible to changing circumstances and economic conditions than obligations rated higher | |||||
Long-term debt | BBB | adequate protection parameters | ||||
adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the company to meet its financial commitments | ||||||
Preferred shares | P-2 (Canadian scale) | adequate protection parameters | ||||
BBB (Global scale) | adverse economic conditions or changing circumstances are more likely to weaken the companys ability to meet its financial commitments |
BCE Inc. 2015 ANNUAL INFORMATION FORM 23 |
||
5 |
OUR CAPITAL STRUCTURE |
5.4 Trading of our securities
The common and first preferred shares of BCE are listed on the TSX under the respective symbols set out in the tables below. BCEs common shares are also listed on the New York Stock Exchange (NYSE) under the symbol BCE.
The tables below and on the next page show the range in share price per month and volume traded on the TSX in 2015 for BCEs common shares and each series of BCEs first preferred shares.
FIRST PREFERRED SHARES | ||||||||||||||||||
COMMON SHARES | SERIES R | SERIES S | SERIES T | SERIES Y | SERIES Z | SERIES AA | SERIES AB | SERIES AC | ||||||||||
(BCE) | (BCE.PR.R) | (BCE.PR.S) | (BCE.PR.T) | (BCE.PR.Y) | (BCE.PR.Z) | (BCE.PR.A) | (BCE.PR.B) | (BCE.PR.C) | ||||||||||
January 2015 | ||||||||||||||||||
High | $59.280 | $21.420 | $21.200 | $21.340 | $21.530 | $22.580 | $21.000 | $21.250 | $21.000 | |||||||||
Low | $52.810 | $18.500 | $18.890 | $18.780 | $18.350 | $19.700 | $18.810 | $18.510 | $19.270 | |||||||||
Volume | 31,253,584 | 290,941 | 53,837 | 43,628 | 105,275 | 29,391 | 252,717 | 188,338 | 217,660 | |||||||||
February 2015 | ||||||||||||||||||
High | $60.200 | $19.230 | $19.450 | $19.400 | $19.500 | $20.970 | $19.700 | $19.400 | $19.540 | |||||||||
Low | $54.265 | $18.500 | $18.650 | $18.440 | $18.100 | $18.990 | $18.230 | $18.560 | $18.760 | |||||||||
Volume | 44,476,068 | 80,390 | 53,391 | 27,527 | 116,613 | 31,059 | 144,937 | 71,415 | 71,020 | |||||||||
March 2015 | ||||||||||||||||||
High | $55.570 | $18.780 | $19.280 | $19.030 | $19.000 | $19.600 | $19.000 | $18.940 | $19.310 | |||||||||
Low | $52.610 | $18.350 | $18.720 | $18.010 | $18.430 | $18.020 | $18.250 | $18.120 | $18.190 | |||||||||
Volume | 37,389,705 | 74,914 | 48,113 | 48,371 | 119,198 | 18,461 | 138,353 | 105,987 | 103,480 | |||||||||
April 2015 | ||||||||||||||||||
High | $55.890 | $18.260 | $18.900 | $18.120 | $18.500 | $17.850 | $18.250 | $18.440 | $18.270 | |||||||||
Low | $53.190 | $16.000 | $16.710 | $16.020 | $16.450 | $15.540 | $16.390 | $16.500 | $16.390 | |||||||||
Volume | 25,673,004 | 306,211 | 72,137 | 96,270 | 187,247 | 40,727 | 119,544 | 156,217 | 122,493 | |||||||||
May 2015 | ||||||||||||||||||
High | $54.770 | $18.000 | $18.170 | $18.150 | $18.200 | $17.850 | $17.880 | $18.600 | $17.780 | |||||||||
Low | $52.620 | $16.600 | $17.510 | $17.200 | $17.420 | $16.660 | $17.190 | $17.500 | $17.030 | |||||||||
Volume | 27,836,863 | 113,775 | 101,298 | 78,700 | 131,933 | 63,072 | 133,245 | 127,358 | 90,582 | |||||||||
June 2015 | ||||||||||||||||||
High | $55.480 | $17.250 | $17.860 | $17.520 | $17.600 | $18.880 | $17.490 | $17.850 | $17.540 | |||||||||
Low | $52.500 | $16.360 | $17.140 | $16.500 | $17.010 | $16.800 | $16.880 | $17.100 | $16.700 | |||||||||
Volume | 36,186,411 | 102,919 | 56,700 | 23,460 | 86,306 | 40,057 | 58,847 | 111,496 | 88,783 | |||||||||
July 2015 | ||||||||||||||||||
High | $55.440 | $16.720 | $17.600 | $17.260 | $17.430 | $17.330 | $17.470 | $17.640 | $17.550 | |||||||||
Low | $51.700 | $15.230 | $16.050 | $15.760 | $15.850 | $15.600 | $15.760 | $15.990 | $16.400 | |||||||||
Volume | 27,542,604 | 87,850 | 41,043 | 88,872 | 143,295 | 59,901 | 90,417 | 110,672 | 128,877 | |||||||||
August 2015 | ||||||||||||||||||
High | $54.810 | $15.530 | $16.190 | $16.090 | $16.100 | $15.920 | $16.030 | $16.250 | $16.650 | |||||||||
Low | $51.555 | $13.660 | $14.160 | $14.040 | $13.900 | $13.450 | $14.100 | $13.860 | $14.090 | |||||||||
Volume | 28,089,178 | 161,237 | 42,469 | 34,860 | 86,789 | 56,184 | 302,662 | 123,798 | 68,405 | |||||||||
September 2015 | ||||||||||||||||||
High | $55.160 | $14.790 | $14.890 | $15.020 | $15.000 | $14.900 | $15.400 | $15.040 | $15.520 | |||||||||
Low | $51.620 | $13.510 | $13.480 | $13.540 | $13.530 | $13.670 | $13.670 | $13.630 | $14.050 | |||||||||
Volume | 33,410,383 | 131,195 | 59,330 | 65,917 | 139,214 | 53,209 | 112,744 | 134,634 | 105,721 | |||||||||
October 2015 | ||||||||||||||||||
High | $59.300 | $15.240 | $14.730 | $14.500 | $14.740 | $14.930 | $15.530 | $14.840 | $15.470 | |||||||||
Low | $54.040 | $12.750 | $13.100 | $12.600 | $12.830 | $13.030 | $13.180 | $13.300 | $13.400 | |||||||||
Volume | 37,270,562 | 238,506 | 148,163 | 367,499 | 235,246 | 67,873 | 169,267 | 280,710 | 195,134 | |||||||||
November 2015 | ||||||||||||||||||
High | $58.800 | $17.400 | $15.990 | $15.980 | $15.900 | $16.100 | $16.470 | $15.990 | $16.370 | |||||||||
Low | $56.090 | $14.100 | $14.320 | $14.300 | $14.300 | $14.070 | $14.680 | $14.360 | $14.790 | |||||||||
Volume | 29,831,709 | 369,205 | 176,694 | 276,676 | 422,780 | 87,247 | 121,162 | 384,689 | 145,999 | |||||||||
December 2015 | ||||||||||||||||||
High | $57.940 | $17.200 | $14.540 | $14.600 | $14.490 | $14.280 | $14.990 | $14.710 | $15.470 | |||||||||
Low | $52.920 | $15.200 | $12.500 | $12.670 | $12.660 | $12.460 | $12.500 | $12.770 | $13.040 | |||||||||
Volume | 33,945,028 | 303,871 | 253,593 | 207,844 | 382,387 | 75,498 | 171,651 | 272,194 | 308,900 |
24 BCE Inc. 2015 ANNUAL INFORMATION FORM | ||
5 |
OUR CAPITAL STRUCTURE |
FIRST PREFERRED SHARES |
||||||||||||||||||||||
SERIES AD | SERIES AE | SERIES AF | SERIES AG | SERIES AH | SERIES AI | SERIES AJ | SERIES AK | SERIES AM | SERIES AO | SERIES AQ | ||||||||||||
(BCE.PR.D) | (BCE.PR.E) | (BCE.PR.F) | (BCE.PR.G) | (BCE.PR.H) | (BCE.PR.I) | (BCE.PR.J) | (BCE.PR.K) | (BCE.PR.M) | (BCE.PR.O) | (BCE.PR.Q) | ||||||||||||
January 2015 | ||||||||||||||||||||||
High | $21.410 | $20.980 | $20.570 | $21.600 | $20.950 | $21.230 | $21.270 | $21.370 | $22.600 | $26.290 | $25.920 | |||||||||||
Low | $18.900 | $18.650 | $18.180 | $19.010 | $18.700 | $18.990 | $19.110 | $18.850 | $19.000 | $24.760 | $24.020 | |||||||||||
Volume | 290,268 | 54,301 | 1,126,138 | 96,801 | 28,092 | 114,857 | 37,673 | 424,108 | 135,436 | 92,946 | 137,312 | |||||||||||
February 2015 | ||||||||||||||||||||||
High | $19.560 | $19.470 | $19.060 | $19.780 | $19.600 | $19.320 | $19.440 | $18.990 | $19.990 | $26.030 | $25.370 | |||||||||||
Low | $18.500 | $18.210 | $18.260 | $18.860 | $18.020 | $18.470 | $18.640 | $17.800 | $18.330 | $25.080 | $23.780 | |||||||||||
Volume | 185,430 | 176,553 | 197,807 | 74,381 | 51,924 | 142,162 | 27,958 | 413,860 | 172,979 | 56,381 | 110,245 | |||||||||||
March 2015 | ||||||||||||||||||||||
High | $19.220 | $18.780 | $18.520 | $19.790 | $18.950 | $18.800 | $19.050 | $19.000 | $19.440 | $25.900 | $25.000 | |||||||||||
Low | $18.300 | $18.260 | $17.390 | $18.320 | $18.320 | $17.900 | $18.660 | $17.800 | $17.990 | $24.840 | $23.910 | |||||||||||
Volume | 171,102 | 175,587 | 201,751 | 84,080 | 21,814 | 174,300 | 18,402 | 620,603 | 191,889 | 40,874 | 233,899 | |||||||||||
April 2015 | ||||||||||||||||||||||
High | $18.410 | $18.300 | $17.500 | $18.400 | $18.630 | $17.900 | $18.740 | $18.790 | $19.500 | $25.300 | $24.390 | |||||||||||
Low | $16.450 | $16.480 | $16.010 | $16.000 | $16.500 | $16.010 | $16.650 | $16.090 | $17.170 | $23.250 | $23.110 | |||||||||||
Volume | 239,114 | 219,336 | 426,126 | 354,437 | 51,352 | 179,840 | 44,335 | 904,705 | 364,865 | 127,458 | 274,761 | |||||||||||
May 2015 | ||||||||||||||||||||||
High | $18.350 | $18.170 | $18.650 | $18.140 | $18.670 | $17.920 | $18.250 | $19.270 | $19.880 | $25.700 | $24.680 | |||||||||||
Low | $17.450 | $17.300 | $17.300 | $17.110 | $17.300 | $17.060 | $17.580 | $17.650 | $18.750 | $24.850 | $23.850 | |||||||||||
Volume | 185,809 | 209,259 | 89,206 | 88,293 | 34,938 | 177,415 | 71,900 | 484,915 | 302,033 | 89,621 | 105,066 | |||||||||||
June 2015 | ||||||||||||||||||||||
High | $18.180 | $17.650 | $17.950 | $17.440 | $18.040 | $17.330 | $17.850 | $18.260 | $19.080 | $25.100 | $24.550 | |||||||||||
Low | $17.080 | $16.860 | $16.080 | $16.770 | $17.150 | $16.620 | $17.000 | $16.700 | $16.970 | $23.990 | $23.120 | |||||||||||
Volume | 249,134 | 99,627 | 102,307 | 118,084 | 36,361 | 933,626 | 338,953 | 489,336 | 104,753 | 59,556 | 66,695 | |||||||||||
July 2015 | ||||||||||||||||||||||
High | $18.000 | $17.440 | $16.480 | $17.260 | $17.650 | $17.300 | $17.480 | $17.300 | $17.450 | $24.790 | $23.410 | |||||||||||
Low | $16.100 | $16.050 | $15.400 | $15.910 | $16.060 | $15.760 | $15.810 | $13.980 | $16.030 | $22.700 | $22.010 | |||||||||||
Volume | 147,696 | 189,903 | 134,060 | 123,967 | 30,929 | 141,551 | 47,947 | 670,776 | 155,506 | 143,563 | 148,022 | |||||||||||
August 2015 | ||||||||||||||||||||||
High | $16.300 | $16.290 | $15.870 | $16.150 | $16.190 | $16.150 | $16.070 | $15.590 | $16.540 | $24.650 | $23.240 | |||||||||||
Low | $14.150 | $14.360 | $13.530 | $13.630 | $14.500 | $12.520 | $13.650 | $13.540 | $14.130 | $21.450 | $20.600 | |||||||||||
Volume | 150,016 | 321,076 | 85,142 | 113,688 | 26,920 | 214,453 | 53,654 | 548,464 | 162,841 | 75,502 | 85,125 | |||||||||||
September 2015 | ||||||||||||||||||||||
High | $15.500 | $15.170 | $15.440 | $15.150 | $15.180 | $14.970 | $14.840 | $15.580 | $15.570 | $23.050 | $21.600 | |||||||||||
Low | $13.540 | $13.750 | $13.600 | $13.610 | $13.640 | $13.440 | $13.390 | $13.450 | $14.200 | $20.060 | $18.400 | |||||||||||
Volume | 277,982 | 352,740 | 76,799 | 172,841 | 101,208 | 163,135 | 45,877 | 670,464 | 263,074 | 75,429 | 78,551 | |||||||||||
October 2015 | ||||||||||||||||||||||
High | $14.980 | $14.740 | $14.960 | $14.740 | $14.890 | $15.110 | $14.630 | $15.670 | $17.610 | $23.160 | $21.980 | |||||||||||
Low | $13.120 | $13.270 | $13.200 | $12.880 | $13.000 | $12.990 | $13.200 | $13.450 | $14.500 | $19.550 | $18.260 | |||||||||||
Volume | 484,653 | 396,454 | 272,703 | 236,663 | 174,874 | 324,375 | 48,400 | 975,527 | 380,183 | 139,807 | 235,824 | |||||||||||
November 2015 | ||||||||||||||||||||||
High | $16.000 | $15.900 | $16.030 | $16.170 | $15.890 | $16.080 | $15.750 | $16.370 | $17.250 | $23.340 | $22.660 | |||||||||||
Low | $14.090 | $14.240 | $14.600 | $14.390 | $14.310 | $14.270 | $14.350 | $14.450 | $15.250 | $22.150 | $20.490 | |||||||||||
Volume | 332,967 | 284,787 | 231,763 | 204,703 | 78,799 | 423,721 | 72,612 | 1,011,862 | 300,847 | 161,763 | 194,898 | |||||||||||
December 2015 | ||||||||||||||||||||||
High | $14.820 | $14.700 | $14.870 | $14.820 | $14.580 | $14.700 | $14.510 | $15.180 | $15.960 | $22.620 | $21.550 | |||||||||||
Low | $12.460 | $12.790 | $12.910 | $12.610 | $12.680 | $12.610 | $12.650 | $13.000 | $13.040 | $20.250 | $18.900 | |||||||||||
Volume | 628,530 | 529,976 | 254,424 | 370,204 | 221,367 | 490,665 | 92,233 | 1,213,256 | 286,380 | 132,875 | 349,632 |
BCE Inc. 2015 ANNUAL INFORMATION FORM 25 |
||
6 |
DIVIDENDS AND DIVIDEND POLICY |
6 Dividends and dividend policy
The board of directors of BCE reviews from time to time the adequacy of BCEs common share dividend policy. BCEs common share dividend policy is currently set to a target dividend payout ratio of 65% to 75% of free cash flow (1). Our objective is to seek to ensure dividend sustainability while maintaining our dividend payout ratio within the target range and balancing our strategic business priorities, including continuing to invest in strategic wireline and wireless network infrastructure and maintaining investment-grade credit ratings. For additional information, refer to section 1.4, Capital markets strategy of the BCE 2015 MD&A on pages 36 to 38 of the BCE 2015 Annual Report.
BCEs dividend policy and the declaration of dividends are subject to the discretion of BCEs board of directors and, consequently, there can be no guarantee that BCEs dividend policy will be maintained or that dividends will be declared.
The table below describes the increases in BCEs common share dividend starting with the quarterly dividend payable on April 15, 2013.
DATE OF ANNOUNCEMENT | AMOUNT OF INCREASE | EFFECTIVE DATE | ||
February 7, 2013 | 2.6% (from $2.27 per share to $2.33 per share) | Quarterly dividend payable on April 15, 2013 | ||
February 6, 2014 | 6.0% (from $2.33 per share to $2.47 per share) | Quarterly dividend payable on April 15, 2014 | ||
February 5, 2015 | 5.3% (from $2.47 per share to $2.60 per share) | Quarterly dividend payable on April 15, 2015 | ||
February 4, 2016 | 5.0% (from $2.60 per share to $2.73 per share) | Quarterly dividend payable on April 15, 2016 |
Dividends on BCEs first preferred shares are, if declared, payable quarterly, except for dividends on Series S, Series Y, Series AB, Series AD, Series AE, Series AH and Series AJ first preferred shares, which, if declared, are payable monthly.
The table below shows the amount of cash dividends declared per BCE common share and per Series R, Series S, Series T, Series Y, Series Z, Series AA, Series AB, Series AC, Series AD, Series AE, Series AF, Series AG, Series AH, Series AI, Series AJ, Series AK, Series AM, Series AO and Series AQ first preferred share for 2015, 2014 and 2013.
2015 | 2014 | 2013 | ||||
Common shares |
$2.60 | $2.47 | $2.33 | |||
First preferred shares | ||||||
Series R |
$1.10 | $1.1225 | $1.1225 | |||
Series S |
$0.69216 | $0.75 | $0.75 | |||
Series T |
$0.84825 | $0.84825 | $0.84825 | |||
Series Y |
$0.69216 | $0.75 | $0.75 | |||
Series Z |
$0.788 | $0.788 | $0.788 | |||
Series AA |
$0.8625 | $0.8625 | $0.8625 | |||
Series AB |
$0.69216 | $0.75 | $0.75 | |||
Series AC |
$0.88752 | $0.88752 | $0.88752 | |||
Series AD |
$0.69216 | $0.75 | $0.75 | |||
Series AE |
$0.69216 | $0.75 | $0.75 | |||
Series AF |
$0.7775 | $1.13525 | $1.13525 | |||
Series AG |
$1.125 | $1.125 | $1.125 | |||
Series AH |
$0.69216 | $0.75 | $0.75 | |||
Series AI |
$1.0375 | $1.0375 | $1.0375 | |||
Series AJ |
$0.69216 | $0.75 | $0.75 | |||
Series AK |
$1.03752 | $1.03752 | $1.03752 | |||
Series AM |
$1.2125 | $0.303125 | (2) | | ||
Series AO |
$1.1375 | $0.284375 |
(2) |
| ||
Series AQ |
$1.0625 | $0.265625 | (2) | |
(1) | As of November 1, 2014, BCEs free cash flow includes 100% of Bell Aliants free cash flow rather than cash dividends received from Bell Aliant. We define free cash flow as cash flows from operating activities, excluding acquisition and other costs paid (which include significant litigation costs) and voluntary pension funding, less capital expenditures, preferred share dividends and dividends paid by subsidiaries to non-controlling interest. Prior to November 1, 2014, we defined free cash flow as cash flows from operating activities, excluding acquisition and other costs paid (which include significant litigation costs) and voluntary pension funding, plus dividends received from Bell Aliant, less capital expenditures, preferred share dividends, dividends paid by subsidiaries to non-controlling interest and Bell Aliant free cash flow. |
(2) | Between September 24, 2014 and November 1, 2014, BCE issued first preferred shares, Series AM, Series AO and Series AQ, in exchange for the issued and outstanding preferred shares of Prefco. |
26 BCE Inc. 2015 ANNUAL INFORMATION FORM | ||
7 |
OUR DIRECTORS AND EXECUTIVE OFFICERS |
7 Our directors and executive officers
7.1 Directors
The table below lists BCEs directors, where they lived, the date they were elected or appointed and their principal occupation on March 3, 2016.
Under BCEs by-laws, each director holds office until the earlier of the next annual shareholder meeting or his or her resignation.
DIRECTORS | ||||
NAME AND PROVINCE/STATE AND COUNTRY OF RESIDENCE |
DATE ELECTED OR APPOINTED TO THE BCE BOARD |
PRINCIPAL OCCUPATION ON MARCH 3, 2016 | ||
Barry K. Allen, Florida, United States |
May 2009 | Operating Partner, Providence Equity Partners LLC (a private equity firm focused on media, entertainment, communications and information investments), since September 2007 | ||
Ronald A. Brenneman, Alberta, Canada |
November 2003 | Corporate director, since March 2010 | ||
Sophie Brochu, Québec, Canada |
May 2010 | President and Chief Executive Officer, Gaz Métro (a diversified energy company), since February 2007 | ||
Robert E. Brown, Québec, Canada |
May 2009 | Corporate director, since October 2009 | ||
George A. Cope, Ontario, Canada |
July 2008 | President and Chief Executive Officer, BCE and Bell Canada, since July 2008 | ||
David F. Denison, FCPA, FCA, Ontario, Canada |
October 2012 | Corporate director, since June 2012, and Chartered Professional Accountant | ||
Robert P. Dexter, Nova Scotia, Canada |
November 2014 | Chair and Chief Executive Officer of Maritime Travel Inc. (an integrated travel company), since July 1979 | ||
Ian Greenberg, Québec, Canada |
July 2013 | Corporate director, since July 2013 | ||
Katherine Lee, Ontario, Canada |
August 2015 | Corporate director, since February 2015, and Chartered Professional Accountant | ||
Gordon M. Nixon, Ontario, Canada |
November 2014 | Corporate director, since September 2014 | ||
Thomas C. ONeill, FCPA, FCA, Ontario, Canada |
January 2003 | Chair of the board of directors, BCE and Bell Canada, since February 2009, and Chartered Professional Accountant | ||
Robert C. Simmonds, Ontario, Canada |
May 2011 | Chair, Lenbrook Corporation (a national distributor of electronics components and radio products), since April 2002 | ||
Paul R. Weiss, FCPA, FCA, Ontario, Canada |
May 2009 | Corporate director, since April 2008, and Chartered Professional Accountant |
PAST OCCUPATION
All of BCEs directors have held the positions listed above or other executive positions with the same or associated firms or organizations during the past five years or longer, except for the directors listed below.
DIRECTORS | PAST OCCUPATION | |
David F. Denison | President and Chief Executive Officer of Canada Pension Plan Investment Board (an investment management organization) from January 2005 to June 2012 | |
Ian Greenberg | President and Chief Executive Officer of Astral (a media company) from 1995 until July 2013 | |
Katherine Lee | President and Chief Executive Officer of GE Capital Canada (a global provider of financial and fleet management solutions to mid-market companies operating in a broad range of economic sectors) from November 2010 to February 2015 | |
Gordon M. Nixon | President and Chief Executive Officer of Royal Bank of Canada (a chartered bank) from August 2001 until August 2014 |
BCE Inc. 2015 ANNUAL INFORMATION FORM 27 |
||
7 |
OUR DIRECTORS AND EXECUTIVE OFFICERS |
COMMITTEES OF THE BOARD
The table below lists the committees of BCEs board of directors and their members on March 3, 2016.
COMMITTEES | MEMBERS | |
Audit |
Paul R. Weiss (Chair) Sophie Brochu, David F. Denison, Robert P. Dexter, Ian Greenberg, Katherine Lee, Robert C. Simmonds |
|
Corporate Governance |
Robert E. Brown (Chair) Barry K. Allen, Sophie Brochu, Gordon M. Nixon, Robert C. Simmonds |
|
Management Resources and Compensation |
Ronald A. Brenneman (Chair) Barry K. Allen, Robert E. Brown, Ian Greenberg, Gordon M. Nixon |
|
Pension Fund |
David F. Denison (Chair) Ronald A. Brenneman, Robert P. Dexter, Katherine Lee, Paul R. Weiss |
7.2 Executive officers
The table below lists BCEs and Bell Canadas executive officers, where they lived and the office they held at BCE and/or Bell Canada on March 3, 2016.
NAME | PROVINCE AND COUNTRY OF RESIDENCE | OFFICE HELD AT BCE/BELL CANADA | ||
Mirko Bibic | Ontario, Canada | Executive Vice-President, Chief Legal & Regulatory Officer and Corporate Development (BCE and Bell Canada) | ||
Charles W. Brown(1) | Ontario, Canada | President The Source (Bell Canada) | ||
Michael Cole | Ontario, Canada | Executive Vice-President and Chief Information Officer (Bell Canada) | ||
George A. Cope | Ontario, Canada | President and Chief Executive Officer (BCE and Bell Canada) | ||
Stephen Howe | Ontario, Canada | Executive Vice-President and Chief Technology Officer (Bell Canada) | ||
Rizwan Jamal | Ontario, Canada | President, Bell Residential Services (Bell Canada) | ||
Blaik Kirby | Ontario, Canada | President, Bell Mobility (Bell Canada) | ||
Glen LeBlanc | Nova Scotia, Canada | Executive Vice-President and Chief Financial Officer (BCE and Bell Canada) | ||
Bernard le Duc | Ontario, Canada | Executive Vice-President Corporate Services (BCE and Bell Canada) | ||
Thomas Little | Ontario, Canada | President Bell Business Markets (Bell Canada) | ||
Wade Oosterman | Ontario, Canada | Group President (BCE and Bell Canada) | ||
Mary Ann Turcke | Ontario, Canada | President, Bell Media (Bell Canada) | ||
Martine Turcotte | Québec, Canada | Vice Chair Québec (BCE and Bell Canada) | ||
John Watson | Ontario, Canada | Executive Vice-President Customer Experience (Bell Canada) |
(1) | Charles W. Brown was a director and the Chief Executive Officer of Wave Wireless Corporation on, or during the year preceding, October 31, 2006, the date when Wave Wireless Corporation filed a voluntary petition for relief pursuant to Chapter 11 of Title 11 of the U.S. Code in the U.S. Bankruptcy Court. |
PAST OCCUPATION
All of our executive officers have held their present positions or other executive positions with BCE or Bell Canada during the past five years or longer, except for:
NAME | PAST OCCUPATION | |
Glen LeBlanc | Executive Vice-President and Chief Financial Officer of Bell Aliant Inc. from April 2010 until December 2014 |
7.3 Directors and executive officers share ownership
As at December 31, 2015, BCEs directors and executive officers as a group beneficially owned, or exercised control or direction over, directly or indirectly, 687,009 common shares (or 0.1%) of BCE.
28 BCE Inc. 2015 ANNUAL INFORMATION FORM | ||
8 |
LEGAL PROCEEDINGS |
8 Legal proceedings
We become involved in various legal proceedings as a part of our business. This section describes important legal proceedings. While we cannot predict the final outcome or timing of the legal proceedings described below or of any other legal proceedings pending at March 3, 2016, based on the information currently available and managements assessment of the merits of such legal proceedings, management believes that the resolution of these legal proceedings will not have a material and negative effect on our financial statements. We believe that we have strong defences and we intend to vigorously defend our positions.
PATENT INFRINGEMENT LAWSUIT CONCERNING 4G LTE WIRELESS COMMUNICATIONS SYSTEMS
On February 18, 2016, a claim was filed in the Federal Court against Bell Canada and BCE Inc. by Wi-LAN Inc. The claim alleges that the defendants, by making, using and selling 4G LTE wireless communications systems, including wireless products and services, infringe three patents owned by Wi-LAN Inc. This claim seeks declaratory and injunctive relief as well as unspecified damages or an accounting of profits. The defendants intend to exercise all available indemnity recourses from third parties that provide the intellectual property upon which the defendants wireless communications systems are based.
PURPORTED CLASS ACTION CONCERNING SERVICE FEE MODIFICATIONS
On November 27, 2015, a motion for authorization to institute a class action was filed in the Québec Superior Court against Bell Canada, Bell ExpressVu and Bell Mobility on behalf of all consumers whose monthly fees for wireline telephone services, Internet services, FibeTV services, Satellite TV services or wireless postpaid services were unilaterally modified at any time since November 2012. The plaintiff alleges that the notices provided by the defendants of the price increases or reductions of the bundle discount were not compliant under the Québec Consumer Protection Act. The action seeks the reimbursement, since November 2012, of the monthly price increases and/or reductions of the bundle discount, and payment of punitive damages in the amount of $100 per class member. The action has not yet been authorized as a class action.
PURPORTED CLASS ACTION CONCERNING RELEVANT ADVERTISEMENTS INITIATIVE
On April 14 and 16, 2015, respectively, a motion for authorization to institute a class action was filed against Bell Canada and Bell Mobility in the Québec Superior Court and a statement of claim was filed against Bell Canada and Bell Mobility pursuant to the Class Proceedings Act (Ontario) in the Ontario Superior Court (collectively, the Actions). Together, the Actions seek to certify a national class consisting of Bell Mobility customers who subscribed to mobile data services between November 16, 2013 and April 13, 2015. The plaintiffs seek damages for breach of contract, breach of the Telecommunications Act, breach of the Québec Consumer Protection Act, intrusion upon seclusion and waiver of tort resulting from Bell Canadas and Bell Mobilitys alleged unauthorized use and disclosure of personal information pursuant to their Relevant Advertisements Initiative. Unspecified punitive damages are also sought in the Québec action. The Actions have not yet been certified as class actions.
PURPORTED CLASS ACTION CONCERNING CELLULAR USAGE AND HEALTH RISK
In July 2013, BCE Inc., Bell Canada, Bell Mobility and Bell Aliant Inc. (subsequently replaced by Bell Aliant LP and now Bell Mobility as successor to the Bell Aliant LP wireless business) were served with a statement of claim previously filed pursuant to the Class Proceedings Act (British Columbia) in the Supreme Court of British Columbia. The action was brought against more than 25 defendants, including wireless carriers and device manufacturers, and seeks certification of a national class encompassing all persons in Canada, including their estates and spouses, who have used cellular phones next to their heads for a total of at least 1,600 hours. The purported class action also seeks certification of a subclass of such persons who have been diagnosed with a brain tumour (as well as their estates and spouses). The statement of claim alleges that the defendants that are wireless carriers are liable to the purported class on the basis of, among other things, negligence in the design and testing of cellular phones, failure to warn about the health risks associated with cellular phones, negligent misrepresentation, deceit, breach of warranty and breach of competition, consumer protection and trade practices legislation. The plaintiffs seek unspecified damages, including reimbursement of defendants revenue earned from selling cellular phones to class members, and punitive damages. The lawsuit has not yet been certified as a class action. On September 3, 2014, the Supreme Court of British Columbia ordered the removal of BCE Inc. and Bell Canada as defendants.
IP INFRINGEMENT LAWSUITS CONCERNING IPTV SYSTEMS
On April 23, 2013, a claim was filed in the Federal Court against Bell Canada and Bell Aliant LP (now Bell Canada) by MediaTube Corp. and NorthVu Inc. The claim alleges that the defendants, through their development and use of IPTV systems, infringed on a patent owned by NorthVu Inc. and licensed to MediaTube Corp. In addition to declaratory and injunctive relief, the plaintiffs seek damages in the form of unpaid royalties in relation to the defendants revenues from their IPTV services (the plaintiffs estimate that the monetary value of these royalties by the time of trial will exceed $350 million) or an accounting of the defendants profits, as well as punitive damages. On May 12, 2014, Bell Canada and Bell Aliant LP (now Bell Canada) filed their statement of defence and counterclaim seeking a declaration that the patent of NorthVu Inc. is invalid. Trial has been scheduled to begin in September 2016. Bell Canada intends to exercise all available indemnity recourses from third parties that provide the intellectual property upon which its IPTV services are based.
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LEGAL PROCEEDINGS |
On April 2, 2014, a claim was filed in the Federal Court against Bell Canada, Bell Aliant LP (now Bell Canada) and Telus Communications Company by Two-Way Media Ltd. The claim alleges that the defendants, by making, constructing, using and selling their IPTV systems, infringed on patents owned by Two-Way Media Ltd. In addition to declaratory and injunctive relief, the plaintiffs seek unspecified damages or an accounting of the defendants profits, as well as punitive damages. In October 2014, the defendants filed their statement of defence and filed a counterclaim seeking a declaration that the patent of Two-Way Media is invalid. Trial has been scheduled to begin in April 2017. Bell Canada intends to exercise all available indemnity recourses from third parties that provide the intellectual property upon which its IPTV services are based.
CLASS ACTIONS CONCERNING INCREASE TO LATE PAYMENT CHARGES
On October 28, 2010, a motion to obtain the authorization to institute a class action was filed in the Québec Superior Court against Bell Canada and Bell Mobility on behalf of all physical persons and companies of 50 employees or less in Canada who were billed late payment charges since June 2010. The plaintiffs allege that the increase by Bell Canada and Bell Mobility of the late payment charge imposed on customers who fail to pay their invoices by the due date from 2% to 3% per month is invalid. The action seeks an order requiring Bell Canada and Bell Mobility to repay all late payment charges in excess of 2% per month to the members of the class. In addition to the reimbursement of such amounts, the action also seeks payment of general and punitive damages by Bell Canada and Bell Mobility.
On December 16, 2011, the court authorized the action but limited the class members to residents of the province of Québec with respect to home phone, wireless and Internet services. In August 2014, Bell Canada and Bell Mobility filed a motion to challenge the jurisdiction of the Québec Superior Court on late payment charges for telecommunications services, which was heard in April 2015 and was taken under reserve.
On January 10, 2012, another motion to obtain the authorization to institute a class action was filed in the Québec Superior Court against Bell ExpressVu with respect to TV services. The plaintiff sought authorization to file a class action based on a cause of action alleged to be identical to the one described in the motion filed on October 28, 2010. On December 10, 2013, the motion was amended to, among other matters, add Bell Canada as defendant. On December 19, 2014, this action was authorized to proceed as a class action.
PURPORTED CLASS ACTION CONCERNING DIVIDENDS
On June 30, 2007, BCE Inc. announced that it had entered into a definitive agreement (the Definitive Agreement) providing for the proposed acquisition of all of the outstanding common and preferred equity of BCE Inc. (the BCE Privatization) by a corporation (the Purchaser) owned by an investor group led by Teachers Private Capital, the private investment arm of Ontario Teachers Pension Plan Board (Teachers), and affiliates of Providence Equity Partners Inc., Madison Dearborn Partners LLC (Madison Dearborn) and Merrill Lynch Global Private Equity (Merrill). On July 4, 2008, the Definitive Agreement was amended to, among other matters, extend the outside date of the transaction and provide that BCE Inc. would not pay dividends on its common shares until completion of the BCE Privatization. On December 11, 2008, BCE Inc. announced that the proposed BCE Privatization would not proceed.
On October 24, 2008, a statement of claim was filed under The Class Actions Act (Saskatchewan) in the Saskatchewan Court of Queens Bench against BCE Inc., the Purchaser, its guarantors (Teachers and affiliates of Providence Equity Partners Inc. and Madison Dearborn collectively, the Guarantors) and Merrill on behalf of persons or entities who held common shares of BCE Inc. between August 8, 2007 and July 4, 2008. The plaintiffs allege, among other things, that by suspending the payment of dividends to common shareholders and amending the Definitive Agreement without shareholder approval, BCE Inc. violated its by-laws and articles, its dividend policy, the Definitive Agreement, the Canada Business Corporations Act and the March 7, 2008 order of the Québec Superior Court approving the plan of arrangement of BCE Inc. giving effect to the proposed BCE Privatization. The plaintiffs also allege that BCE Inc. acted in an oppressive manner. The action seeks, among other things and in addition to unquantified damages, the payment of dividends for the second and third quarters of 2008. The statement of claim alleges that class members have suffered damages of at least $588 million.
On October 15, 2009, BCE Inc. brought a motion to strike the statement of claim. On December 23, 2009, the plaintiffs filed an application seeking, among other things, leave to amend the statement of claim and commence a claim under the secondary market disclosure provisions of The Securities Act (Saskatchewan) and certification of the action as a class action. The lawsuit has not yet been certified as a class action.
CLASS ACTIONS CONCERNING ROUNDING-UP OF MINUTES
On July 25, 2008, a class action was filed against BCE Inc. in the Ontario Superior Court of Justice on behalf of all its residential long distance customers in Canada who, since July 2002, have had their call times rounded up to the next full minute for billing purposes (the First Rounding-Up Action). On August 18, 2008, a similar class action (the Second Rounding-Up Action) was filed against Bell Mobility in the same court on behalf of all Canadian Bell Mobility customers who, since July 2002, have had their wireless airtime rounded up to the next full minute.
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LEGAL PROCEEDINGS |
Both actions allege that BCE Inc. and Bell Mobility misrepresented and did not disclose that they round up to the next full minute when calculating long distance call time or wireless airtime. The class actions seek reimbursement of all amounts received by BCE Inc. and Bell Mobility as a result of the rounded-up portion of per minute charges for residential long distance calls and wireless airtime. Each action originally claimed general damages of $20 million, costs of $1 million for administering the distribution of damages and $5 million in punitive damages.
On January 15, 2014, the Second Rounding-Up Action was amended to include an allegation of breach of contract and increase claimed general damages to $500 million and claimed punitive damages to $20 million, without setting out the basis for the increases. The Second Rounding-Up Action was certified by the Ontario Superior Court on November 25, 2014, for the period between August 18, 2006 and October 1, 2009. On December 17, 2015, Bell Mobilitys motion for leave to appeal the decision in the Ontario Divisional Court was denied and, as such, the claim will proceed on the merits on a national class basis.
The First Rounding-Up Action has not yet been certified as a class action.
PURPORTED CLASS ACTION CONCERNING 911 FEES
On June 26, 2008, a statement of claim was filed under The Class Actions Act (Saskatchewan) in the Saskatchewan Court of Queens Bench against communications service providers, including Bell Mobility and Bell Aliant LP (now Bell Mobility as a successor to the Bell Aliant LP wireless business), on behalf of certain alleged customers. The action also named BCE Inc. and Bell Canada as defendants. The statement of claim alleges, among other things, breach of contract and duty to inform, deceit, misrepresentation and collusion in connection with certain 911 fees invoiced by communications service providers to their customers. The plaintiffs seek unspecified damages and punitive damages and an accounting and constructive trust of the 911 fees collected. The action seeks certification of a national class encompassing all customers of communications service providers wherever resident in Canada. On July 22, 2013, the plaintiffs delivered an amended statement of claim which removed BCE Inc. and Bell Canada as defendants, and added claims for unjust enrichment and breaches of provincial consumer protection legislation and the Competition Act. The lawsuit has not yet been certified as a class action.
SIGNAL PIRACY LITIGATION
On August 31, 2005, a motion to institute legal proceedings was filed in the Québec Superior Court against Bell ExpressVu by Vidéotron ltée, Vidéotron (Régional) ltée and CF Cable TV Inc. (a subsidiary of Vidéotron ltée). The claim was for an initial amount of $374 million in damages, plus interest and costs. In the statement of claim, the plaintiffs alleged that Bell ExpressVu had failed to adequately protect its system against signal piracy, thereby depriving the plaintiffs of subscribers who, but for their alleged ability to pirate Bell ExpressVus signal, would have subscribed to the plaintiffs services. On July 23, 2012, the Superior Court issued a judgment pursuant to which it did not find Bell ExpressVu at fault in its overall efforts to fight signal piracy but concluded that the complete smart card swap it undertook should have been completed earlier. In this regard, the court granted the plaintiffs damages of $339,000, plus interest and costs. The plaintiffs appealed to the Québec Court of Appeal the quantum of damages awarded by the trial judge and sought revised damages in the amount of $164.5 million, plus costs, interest and an additional indemnity. Bell ExpressVu also filed an appeal of the lower court decision on its finding of liability.
On March 6, 2015, the Québec Court of Appeal reversed the judgment of the lower court regarding the quantum of damages, granting plaintiffs damages of $82 million, plus interest and costs. On October 15, 2015, the Supreme Court of Canada dismissed Bell ExpressVus application for leave to appeal the Québec Court of Appeals judgment. Accordingly, the aggregate amount of $141.6 million, including interests and costs, was paid by Bell ExpressVu on October 19, 2015 in full satisfaction of the judgment as rendered by the Québec Court of Appeal.
CLASS ACTION CONCERNING WIRELESS SYSTEM ACCESS FEES
On August 9, 2004, a statement of claim was filed under The Class Actions Act (Saskatchewan) in the Saskatchewan Court of Queens Bench against wireless service providers, including Bell Mobility and Bell Aliant LP (now Bell Mobility as successor to the Bell Aliant LP wireless business), on behalf of certain alleged customers (the Initial Action). This statement of claim alleges, among other things, breach of contract and duty to inform, deceit, misrepresentation, unjust enrichment and collusion in connection with certain system access fees and system licensing charges invoiced by wireless communications service providers to their customers. The plaintiffs are seeking unspecified general and punitive damages. On September 17, 2007, the court granted certification, on the ground of unjust enrichment only, of a national class encompassing all customers of the defendant wireless service providers wherever resident in Canada. This decision was maintained by the Saskatchewan Court of Appeal and leave to the Supreme Court of Canada was denied. Accordingly, the Initial Action is now proceeding as a national class action on the merits against the defendants on the basis of an opt-out class in Saskatchewan and an opt-in class elsewhere in Canada.
On July 27, 2009, a new statement of claim was filed under The Class Actions Act (Saskatchewan) in the Saskatchewan Court of Queens Bench against wireless service providers, including Bell Mobility, Bell Aliant LP and Bell Aliant Regional Communications Inc. (now Bell Mobility as successor to the Bell Aliant LP and Bell Aliant Regional Communications Inc. wireless business), on behalf of certain alleged customers (the Second Action). The statement of claim for the Second Action is based on alleged facts similar to those in the Initial Action. On December 22, 2009, the court stayed the Second Action upon an application by the defendants to dismiss it as an abuse of process. On March 9, 2010, the plaintiffs filed a motion for leave to appeal that decision to the Saskatchewan Court of Appeal. This application was adjourned pending the outcome of the Initial Action.
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8 |
LEGAL PROCEEDINGS |
On December 16, 2011, a new proceeding was filed in the Supreme Court of British Columbia against several telecommunications service providers, including BCE Inc. and Bell Mobility. The claim is similar to the Initial Action. The relief sought includes an injunction restraining the alleged misrepresentation, an order for restoration or disgorgement of the system access fees revenue and punitive damages. On August 27, 2013, the plaintiff discontinued the proceeding against BCE Inc. only. On June 6, 2014, the certification motion was dismissed and, on June 25, 2014, the plaintiff filed a notice of appeal from this dismissal order, which appeal was denied by the Court of Appeal of British Columbia on June 9, 2015. On September 3, 2015, the plaintiff applied for leave to appeal to the Supreme Court of Canada of the decision of the Court of Appeal of British Columbia, which leave application was denied on February 11, 2016.
OTHER
We are subject to other legal proceedings considered normal in the ordinary course of our current and past operations, including class actions, employment-related disputes, contract disputes and customer disputes. In some legal proceedings, the claimant seeks damages as well as other relief which, if granted, could require substantial expenditures on our part or could result in changes to our business practices.
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FOR MORE INFORMATION |
11 |
TRANSFER AGENT AND REGISTRAR |
T10 |
INTEREST OF EXPERTS |
9 |
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS |
9 Interest of management and others in material transactions
To the best of our knowledge, there were no directors or executive officers or any associate or affiliate of a director or executive officer with a material interest in any transaction within the three most recently completed financial years or during the current financial year that has materially affected us or is reasonably expected to materially affect us.
10 Interest of experts
Deloitte LLP prepared the Report of independent registered public accounting firm in respect of our audited consolidated financial statements and the Report of independent registered public accounting firm in respect of our internal control over financial reporting. Deloitte LLP is independent of BCE within the meaning of the Code of Ethics of the Ordre des comptables professionnels agréés du Québec and the rules and standards of the Public Company Accounting Oversight Board (PCAOB) (U.S.) and the securities laws and regulations administered by the U.S. Securities and Exchange Commission.
11 Transfer agent and registrar
The transfer agent and registrar for the common shares and preferred shares of BCE in Canada is CST Trust Company, at its principal offices in Montréal, Québec; Toronto, Ontario; Calgary, Alberta; and Vancouver, British Columbia; and in the U.S. is American Stock Transfer & Trust Company, LLC at its principal office in Brooklyn, New York.
The register for Bell Canadas debentures and Bell Canadas subordinated debentures is kept at the principal office of CIBC Mellon Trust Company (CIBC Mellon), through BNY Trust Company of Canada (BNY) acting as attorney, in Montréal, and facilities for registration, exchange and transfer of the debentures are maintained at the principal offices of CIBC Mellon, through BNY acting as attorney, in Montréal and Toronto.
12 For more information
This Annual Information Form, as well as BCEs annual and quarterly reports and news releases, are available on BCEs website at BCE.ca.
Additional information, including information about directors and officers remuneration and securities authorized for issuance under equity compensation plans, is contained in BCEs management proxy circular for its most recent annual meeting of security holders that involved the election of directors.
Additional information relating to BCE is available on SEDAR at sedar.com and on EDGAR at sec.gov. Additional financial information is provided in BCEs audited consolidated financial statements and related managements discussion and analysis for BCEs most recently completed financial year contained in the BCE 2015 Annual Report. You may ask for a copy of the annual and quarterly managements discussion and analysis of BCE by contacting the Investor Relations group of BCE at 1, Carrefour Alexander-Graham-Bell, Building A, 8th Floor, Verdun, Québec H3E 3B3 or by sending an e-mail to investor.relations@bce.ca.
Shareholder inquiries | 1-800-561-0934 |
Investor relations | 1-800-339-6353 |
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SCHEDULE 1 AUDIT COMMITTEE INFORMATION |
13 Schedule 1 Audit Committee information
The purpose of BCEs Audit Committee (Audit Committee) is to assist the board of directors in its oversight of:
MEMBERS FINANCIAL LITERACY, EXPERTISE AND SIMULTANEOUS SERVICE
Under the Sarbanes-Oxley Act of 2002 and related U.S. Securities and Exchange Commission rules, BCE is required to disclose whether its Audit Committee members include at least one audit committee financial expert as defined by these rules. In addition, National Instrument 52-110 Audit Committees and the NYSE governance rules followed by BCE require that all audit committee members be financially literate and independent.
The board of directors has determined that all the members of the Audit Committee are financially literate and independent, and that at least one of the members of the Audit Committee, being the current Chair of the Audit Committee, Mr. P.R. Weiss, is qualified as an audit committee financial expert. The table below outlines the relevant education and experience of all the Audit Committee members.
RELEVANT EDUCATION AND EXPERIENCE | ||
P.R. Weiss, FCPA, FCA (Chair) |
Mr. Weiss has been a director of BCE since May 2009 and became Chair of the Audit Committee on May 7, 2009. Mr. Weiss is a director and audit committee Chair at Torstar Corporation and a member of the board of trustees and audit committee Chair of Choice Properties REIT. He was a director and audit committee member of The Empire Life Insurance Company until May 2014 and was a director and audit committee member of ING Bank of Canada until November 2012. He is a director and past Chair of Soulpepper Theatre Company and past Chair of Toronto Rehab Foundation. For over 40 years, until his retirement in 2008, he was with KPMG LLP (an accounting firm). He served as Managing Partner of the Canadian Audit Practice, a member of KPMG Canadas management committee and a member of the International Global Audit Steering Group. Mr. Weiss holds a Bachelor of Commerce degree from Carleton University. He is a Chartered Professional Accountant and a Fellow of CPA Ontario. |
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S. Brochu
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Ms. Brochu has been a director of BCE since May 2010. She is a director and member of the audit committee of Bank of Montréal. Ms. Brochu has been active in the energy industry for nearly 30 years. A graduate in Economics from Université Laval, she began her career in 1987 at SOQUIP (Société québécoise dinitiatives pétrolières). In 1997, she joined Gaz Métro, as Vice President, Business Development. After holding various positions in the company, she became President and Chief Executive Officer in 2007. Involved with Centraide of Greater Montréal, Ms. Brochu is the Chair of Forces Avenir, which promotes students involvement in their communities. She is cofounder of ruelle de lavenir, a project aimed at encouraging students in the Centre-Sud and Hochelaga neighbourhoods of Montréal to remain in school. She also sits on the board of directors of La Fondation Lucie et André Chagnon. Ms. Brochu is a Member of the Order of Canada. |
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D.F. Denison, FCPA, FCA
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Mr. Denison has been a director of BCE since October 2012. Mr. Denison is a corporate director with extensive experience in the financial services industry. He served as President and Chief Executive Officer of the Canada Pension Plan Investment Board from 2005 to 2012. Prior to that, Mr. Denison was President of Fidelity Investments Canada Limited (a financial services provider). He has also held a number of senior positions in the investment banking, asset management and consulting sectors in Canada, the U.S. and Europe. Mr. Denison serves as Vice-Chair of Sinai Health Systems (a provider of healthcare services). He is also a member of the Investment Board and International Advisory Committee of the Government of Singapore Investment Corporation, the China Investment Corporation International Advisory Council, the World Bank Treasury Expert Advisory Committee and the University of Toronto Investment Advisory Committee. He is a director of Allison Transmission Holdings Inc. and of Royal Bank of Canada, and is Chair of Hydro One Limited. Mr. Denison earned bachelors degrees in Mathematics and Education from the University of Toronto and is a Fellow of CPA Ontario. |
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R.P. Dexter
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Mr. Dexter has been a director of BCE since November 2014. He holds both a bachelors degree in Commerce and a bachelors degree in Law from Dalhousie University and was appointed Queens Counsel in 1995. He is Chair and Chief Executive Officer of Maritime Travel Inc. and is also counsel to the law firm Stewart McKelvey. He is Chair of Sobeys Inc. and Empire Company Limited and is also a director of Wajax Corporation and High Liner Foods Incorporated. He is a past audit committee member of each of these companies, in addition to the audit committee of Bell Aliant Inc. Mr. Dexter has over 18 years of experience in the communications sector, having served as a director of Maritime Tel & Tel Limited from 1997 to 1999 prior to joining the Aliant Inc. board and later the Bell Aliant boards until October 2014. |
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I. Greenberg
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Mr. Greenberg has been a director of BCE since July 2013. From 1995 until July 2013, Mr. Greenberg was President and Chief Executive Officer of Astral. He is a member of the Broadcasting Hall of Fame and the recipient of the prestigious Ted Rogers and Velma Rogers Graham Award for his unique contributions to the Canadian broadcasting system. With his brothers, he also received the Eleanor Roosevelt Humanities Award for their active support of numerous industry and charitable organizations. Mr. Greenberg was a member of the Canadian Council of Chief Executives and a governor of Montréals Jewish General Hospital. He is also a director of Cineplex Inc. |
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SCHEDULE 1 AUDIT COMMITTEE INFORMATION |
K. Lee (since August 2015)
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Ms. Lee has been a director of BCE since August 2015. Ms. Lee is a seasoned executive in financial services and served as President and Chief Executive Officer of GE Capital Canada from 2010 to February 2015. Prior to this role, Ms. Lee served as Chief Executive Officer of GE Capital Real Estate in Canada from 2002 to 2010, building it to a full debt and equity operating company. Ms. Lee joined GE in 1994, where she held a number of positions, including Director, Mergers & Acquisitions for GE Capitals Pension Fund Advisory Services based in San Francisco, and Managing Director of GE Capital Real Estate Korea based in Seoul and Tokyo. Ms. Lee earned a Bachelor of Commerce degree from the University of Toronto. She is a Chartered Professional Accountant and Chartered Accountant. She is active in the community, championing womens networks and Asian-Pacific forums. Ms. Lee is also a director of Colliers International Group. |
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R.C. Simmonds
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Mr. Simmonds has been a director of BCE since May 2011. Mr. Simmonds is a seasoned Canadian telecommunications executive who has served in public company roles from 1994 to 2006. From 1985 until 2000, he served as Chair of Clearnet Communications Inc., a Canadian wireless competitor that launched two all-new digital mobile networks. He became Chair of Lenbrook Corporation in 2002, having been a founder and director of the company since 1977. Internationally regarded as a leading wireless communications engineer and mobile spectrum authority, Mr. Simmonds has played a key role in the development of Canadas mobile spectrum policies for more than 30 years. He is Chair of the Mobile and Personal Communications Committee of the Radio Advisory Board of Canada, a body that provides unbiased and technically expert advice to the federal Department of Industry, and is a past Chair of the Canadian Wireless Telecommunications Association. A laureate and member of Canadas Telecommunications Hall of Fame and recipient of the Engineering Medal for Entrepreneurship from Professional Engineers Ontario, Mr. Simmonds earned his bachelors degree in Engineering Science (Electrical) at the University of Toronto. In October 2013, Mr. Simmonds became a Fellow of the Wireless World Research Forum (an organization dedicated to long-term research in the wireless industry) in recognition of his contribution to the industry. |
The NYSE governance rules followed by BCE require that if an audit committee member serves simultaneously on the audit committee of more than three public companies, the board of directors must determine and disclose that this simultaneous service does not impair the ability of the member to effectively serve on the Audit Committee. None of the current members of BCEs Audit Committee serves on the audit committee of more than three public companies.
PRE-APPROVAL POLICIES AND PROCEDURES
BCEs Auditor Independence Policy is a comprehensive policy governing all aspects of our relationship with the external auditors, including:
In particular, the policy specifies that:
The Auditor Independence Policy is available in the governance section of BCEs website at BCE.ca.
EXTERNAL AUDITORS FEES
The table below shows the fees that BCEs external auditors, Deloitte LLP, billed to BCE and its subsidiaries for various services in each of the past two fiscal years.
2015 | 2014 | |||
(IN $ MILLIONS) | (IN $ MILLIONS) | |||
Audit fees(1) | 9.5 | 9.4 | ||
Audit-related fees(2) | 1.6 | 1.7 | ||
Tax fees(3) | 0.6 | 0.6 | ||
All other fees(4) | 0.0 | 0.6 | ||
Total(5) | 11.7 | 12.3 |
(1) | These fees include professional services provided by the external auditors for statutory audits of the annual financial statements, the audit of the effectiveness of internal control over financial reporting, the review of interim financial reports, the review of financial accounting and reporting matters, the review of securities offering documents, other regulatory audits and filings and translation services. |
(2) | These fees relate to non-statutory audits and due diligence procedures. |
(3) | These fees include professional services for tax compliance, tax advice and assistance with tax audits and appeals. |
(4) | These fees include any other fees for permitted services not included in any of the above-stated categories. In 2014, the fees are for services related to compliance with the Payment Card Industry Data Security Standard. |
(5) | The amounts of $11.7 million for 2015 and $12.3 million for 2014 reflect fees billed in those fiscal years without taking into account the year to which those services relate. Total fees for services provided for each fiscal year amounted to $9.5 million in 2015 and $10.2 million in 2014. |
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SCHEDULE 2 AUDIT COMMITTEE CHARTER |
14 Schedule 2 Audit Committee charter
I. | PURPOSE | |||
The purpose of the Audit Committee is to assist the Board of Directors in its oversight of: | ||||
A. | the integrity of the Corporations financial statements and related information; | |||
B. | the Corporations compliance with applicable legal and regulatory requirements; | |||
C. | the independence, qualifications and appointment of the shareholders auditor; | |||
D. | the performance of the Corporations shareholders auditor and internal audit; | |||
E. | management responsibility for assessing and reporting on the effectiveness of internal controls; and | |||
F. | the Corporations enterprise risk management processes. | |||
II. | DUTIES AND RESPONSIBILITIES | |||
The Audit Committee shall perform the functions customarily performed by audit committees and any other functions assigned by the Board of Directors. In particular, the Audit Committee shall have the following duties and responsibilities: | ||||
A. | Financial reporting and control | |||
1. | On a periodic basis, review and discuss with management and the shareholders auditor the following: | |||
a. | major issues regarding accounting principles and financial statement presentation, including any significant changes in the Corporations selection or application of accounting principles, and issues as to the adequacy of the Corporations internal controls and any special audit steps adopted in light of material control deficiencies; | |||
b. | analyses prepared by management and/or the shareholders auditor setting forth significant financial reporting issues and judgements made in connection with the preparation of the financial statements, including the impact of selecting one of several generally accepted accounting principles (GAAP) on the financial statements when such a selection has been made in the current reporting period; | |||
c. | the effect of regulatory and accounting developments, as well as off-balance sheet arrangements, on the financial statements of the Corporation; | |||
d. | the type and presentation of information to be included in earnings press releases (including any use of pro-forma or non-GAAP information). | |||
2. | Meet to review and discuss with management and the shareholders auditor, report and, where appropriate, provide recommendations to the Board of Directors on the following prior to its public disclosure: | |||
a. | the Corporations annual and interim consolidated financial statements and the related Managements Discussion and Analysis, Annual Information Forms, earnings press releases and earnings guidance provided to analysts and rating agencies and the integrity of the financial reporting of the Corporation; | |||
| In addition to the role of the Audit Committee to make recommendations to the Board of Directors, where the members of the Audit Committee consider that it is appropriate and in the best interest of the Corporation, the Corporations interim consolidated financial statements and the related Managements Discussion and Analysis, the interim earnings press releases and the earnings guidance, may also be approved on behalf of the Board of Directors by the Audit Committee, provided that such approval is subsequently reported to the Board of Directors at its next meeting; | |||
b. | any audit issues raised by the shareholders auditor and managements response thereto, including any restrictions on the scope of the activities of the shareholders auditor or access to requested information and any significant disagreements with management. | |||
3. | Review and discuss reports from the shareholders auditor on: | |||
a. | all critical accounting policies and practices used by the Corporation; | |||
b. | all material selections of accounting policies when there is a choice of policies available under GAAP that have been discussed with management, including the ramifications of the use of such alternative treatment and the alternative preferred by the shareholders auditor; and | |||
c. | other material written communications between the shareholders auditor and management, and discuss such communication with the shareholders auditor. | |||
B. | Oversight of the shareholders auditor | |||
1. | Be directly responsible for the appointment, compensation, retention and oversight of the work of the shareholders auditor and any other auditor preparing or issuing an audit report or performing other audit services or attest services for the Corporation or any consolidated subsidiary of the Corporation, where required, and review, report and, where appropriate, provide recommendations to the Board of Directors on the appointment, terms and review of engagement, removal, independence and proposed fees of the shareholders auditor. |
36 BCE Inc. 2015 ANNUAL INFORMATION FORM | ||
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SCHEDULE 2 AUDIT COMMITTEE CHARTER |
2. | Approve in advance all audit, review or attest engagement fees and terms for all audit, review or attest services to be provided by the shareholders auditor to the Corporation and any consolidated subsidiary and any other auditor preparing or issuing an audit report or performing other audit services or attest services for the Corporation or any consolidated subsidiary of the Corporation, where required. | ||
3. | Pre-approve all engagements for permitted non-audit services provided by the shareholders auditor to the Corporation and any consolidated subsidiary and to this effect may establish policies and procedures for the engagement of the shareholders auditor to provide to the Corporation and any consolidated subsidiary permitted non-audit services, which shall include approval in advance by the Audit Committee of all audit/review and permitted non-audit services to be provided by the shareholders auditor to the Corporation and any consolidated subsidiary. | ||
4. | Delegate, if deemed appropriate, authority to one or more members of the Audit Committee to grant pre-approvals of audit, review and permitted non-audit services, provided that any such approvals shall be presented to the Audit Committee at its next scheduled meeting. | ||
5. | Establish policies for the hiring of partners, employees and former partners and employees of the shareholders auditor. | ||
6. | At least annually, consider, assess, and report to the Board of Directors on: | ||
a. | the independence, objectivity and professional skepticism of the shareholders auditor, including that the shareholders auditors performance of permitted non-audit services does not impair the shareholders auditors independence; | ||
b. | obtaining from the shareholders auditor a written statement (i) delineating all relationships between the shareholders auditor and the Corporation; (ii) assuring that lead audit partner rotation is carried out, as required by law; and (iii) delineating any other relationships that may adversely affect the independence of the shareholders auditor; and | ||
c. | the quality of the engagement team including the evaluation of the lead audit partner, taking into account the opinions of management and internal audit; and | ||
d. | the quality of the communications and interactions with the external auditor. | ||
7. | At least annually, obtain and review a report by the shareholders auditor describing: | ||
a. | the shareholders auditors internal quality-control procedures; | ||
b. | any material issues raised by the most recent internal quality-control review, or peer review of the shareholders auditor firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the shareholders auditor firm, and any steps taken to deal with any such issues. | ||
8. | At least every 5 years, unless the annual assessment indicates otherwise, conduct a comprehensive review of the shareholders auditor and report to the Board of Directors on: | ||
a. | the independence, objectivity and professional skepticism of the shareholders auditor; | ||
b. | the quality of the engagement team; and | ||
c. | the quality of communications and interactions with the shareholders auditor. | ||
9. | Resolve any disagreement between management and the shareholders auditor regarding financial reporting. | ||
10. | Review the annual audit plan with the shareholders auditor. | ||
11. | Meet periodically with the shareholders auditor in the absence of management and internal audit. | ||
C. | Oversight of internal audit | ||
1. | Review and discuss with the head of internal audit, report and, where appropriate, provide recommendations to the Board of Directors on the following: | ||
a. | the appointment and mandate of internal audit, including the responsibilities, budget and staffing of internal audit; | ||
b. | discuss with the head of internal audit the scope and performance of internal audit, including a review of the annual internal audit plan, and whether there are any restrictions or limitations on internal audit; | ||
c. | obtain periodic reports from the head of internal audit regarding internal audit findings, including those related to the Corporations internal controls, and the Corporations progress in remedying any audit findings. | ||
2. | Meet periodically with the head of internal audit in the absence of management and the shareholders auditor. | ||
D. | Oversight of the Corporations internal control system | ||
1. | Review and discuss with management, the shareholders auditor and internal audit, monitor, report and, where appropriate, provide recommendations to the Board of Directors on the following: | ||
a. | the Corporations systems of internal controls over financial reporting; | ||
b. | compliance with the policies and practices of the Corporation relating to business ethics; | ||
c. | compliance by Directors, Officers and other management personnel with the Corporations Disclosure Policy; and | ||
d. | the relationship of the Audit Committee with other committees of the Board of Directors, management and the Corporations consolidated subsidiaries audit committees. | ||
2. | Review and discuss with the Chief Executive Officer and Chief Financial Officer of the Corporation the process for the certifications to be provided in the Corporations public disclosure documents. | ||
3. | Review, monitor, report, and, where appropriate, provide recommendations to the Board of Directors on the Corporations disclosure controls and procedures. |
BCE Inc. 2015 ANNUAL INFORMATION FORM 37 |
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SCHEDULE 2 AUDIT COMMITTEE CHARTER |
4. | Establish procedures for the receipt, retention, and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters, including procedures for confidential, anonymous submissions by employees regarding questionable accounting or auditing matters. | |||
5. | Meet periodically with management in the absence of the shareholders auditor and internal audit. | |||
E. | Oversight of the Corporations risk management | |||
1. | Review, monitor, report and, where appropriate, provide recommendations to the Board of Directors on the following: | |||
a. | the Corporations processes for identifying, assessing, mitigating and, where required, reporting strategic, operational, regulatory and general risks exposures and the steps the Corporation has taken to monitor and control such exposures, including: | |||
| the Corporations major financial risk exposures including fraud prevention; | |||
| the Corporations major operational risk exposures including the Corporations business continuity plans, work stoppage and disaster recovery plans; | |||
| the Corporations major vendor oversight risk exposures; | |||
| the Corporations major security risks, including the physical, information and cyber security as well as security trends that may impact the Corporations operations and business; | |||
| the Corporations major legal obligation and compliance risks including regulatory, privacy and records management, environmental risks, and environment trends that may impact the Corporations operations and business. | |||
2. | Review, monitor, report and, where appropriate, provide recommendations to the Board of Directors on the Corporations compliance with internal policies and the Corporations progress in remedying any material deficiencies related to: | |||
a. | security policies, including the physical safeguarding of corporate assets and security of networks and information systems; | |||
b. | environmental policy and environmental management systems. | |||
3. | When appropriate, ensure that the Corporations subsidiaries establish an environmental policy and environmental management systems, and review and report thereon to the Board of Directors. | |||
F. | Journalistic Independence | |||
1. | Consider and approve, on recommendation from the Chief Executive Officer, the appointment and termination of the President, CTV News. | |||
2. | At least annually, obtain and review a report by the President, CTV News regarding compliance with the Corporations Journalistic Independence Policy. | |||
G. | Compliance with legal requirements | |||
1. | Review and discuss with management, the shareholders auditor and internal audit, monitor, report and, when appropriate, provide recommendation to the Board of Directors on the adequacy of the Corporations process for complying with laws and regulations. | |||
2. | Receive, on a periodic basis, reports from the Corporations Chief Legal Officer, with respect to the Corporations pending or threatened material litigation. | |||
III. | EVALUATION OF THE AUDIT COMMITTEE AND REPORT TO BOARD OF DIRECTORS | |||
A. | The Audit Committee shall evaluate and review with the Corporate Governance Committee of the Board of Directors, on an annual basis, the performance of the Audit Committee. | |||
B. | The Audit Committee shall review and discuss with the Corporate Governance Committee of the Board of Directors, on an annual basis, the adequacy of the Audit Committee charter. | |||
C. | The Audit Committee shall report to the Board of Directors periodically on the Audit Committees activities. | |||
IV. | OUTSIDE ADVISORS | |||
The Audit Committee shall have the authority to engage outside counsel and other outside advisors as it deems appropriate to assist the Audit Committee in the performance of its functions. The Corporation shall provide appropriate funding for such advisors as determined by the Audit Committee. | ||||
V. | MEMBERSHIP | |||
The Audit Committee shall consist of such number of directors, in no event to be less than three, as the Board of Directors may from time to time by resolution determine. The members of the Audit Committee shall meet the independence, experience and other membership requirements under applicable laws, rules and regulations as determined by the Board of Directors. | ||||
VI. | AUDIT COMMITTEE CHAIR | |||
The Chair of the Audit Committee shall be appointed by the Board of Directors. The Chair of the Audit Committee leads the Audit Committee in all aspects of its work and is responsible to effectively manage the affairs of the Audit Committee and ensure that it is properly organized and functions efficiently. More specifically, the Chair of the Audit Committee shall: | ||||
A. | Provide leadership to enable the Audit Committee to act effectively in carrying out its duties and responsibilities as described elsewhere in this charter and as otherwise may be appropriate; | |||
B. | In consultation with the Board Chair and the Chief Executive Officer, ensure that there is an effective relationship between management and the members of the Audit Committee; | |||
C. | Chair meetings of the Audit Committee; | |||
D. | In consultation with the Chief Executive Officer, the Corporate Secretarys Office and the Board Chair, determine the frequency, dates and locations of meetings of the Audit Committee; |
38 BCE Inc. 2015 ANNUAL INFORMATION FORM | ||
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SCHEDULE 2 AUDIT COMMITTEE CHARTER |
E. | In consultation with the Chief Executive Officer, the Chief Financial Officer, the Corporate Secretarys Office and, as required, other Officers, review the annual work plan and the meeting agendas to ensure all required business is brought before the Audit Committee to enable it to efficiently carry out its duties and responsibilities; | |
F. | Ensure, in consultation with the Board Chair, that all items requiring the Audit Committees approval are appropriately tabled; | |
G. | Ensure the proper flow of information to the Audit Committee and review, with the Chief Executive Officer, the Chief Financial Officer, the Corporate Secretarys Office and, as required, other Officers, the adequacy and timing of materials in support of managements proposals; | |
H. | Report to the Board of Directors on the matters reviewed by, and on any decisions or recommendations of, the Audit Committee at the next meeting of the Board of Directors following any meeting of the Audit Committee; and | |
I. | Carry out any special assignments or any functions as requested by the Board of Directors. | |
VII. | TERM | |
The members of the Audit Committee shall be appointed or changed by resolution of the Board of Directors to hold office from the time of their appointment until the next annual general meeting of the shareholders or until their successors are so appointed. | ||
VIII. | PROCEDURES FOR MEETINGS | |
The Audit Committee shall fix its own procedure at meetings and for the calling of meetings. The Audit Committee shall meet separately in executive session in the absence of management, internal audit and the shareholders auditor, at each regularly scheduled meeting. | ||
IX. | QUORUM AND VOTING | |
Unless otherwise determined from time to time by resolution of the Board of Directors, two members of the Audit Committee shall constitute a quorum for the transaction of business at a meeting. For any meeting(s) at which the Audit Committee Chair is absent, the Chair of the meeting shall be the person present who shall be decided upon by all members present. At a meeting, any question shall be decided by a majority of the votes cast by members of the Audit Committee, except where only two members are present, in which case any question shall be decided unanimously. | ||
X. | SECRETARY | |
Unless otherwise determined by resolution of the Board of Directors, the Corporate Secretary of the Corporation or his/her delegate shall be the Secretary of the Audit Committee. | ||
XI. | VACANCIES | |
Vacancies at any time occurring shall be filled by resolution of the Board of Directors. | ||
XII. | RECORDS | |
The Audit Committee shall keep such records as it may deem necessary of its proceedings and shall report regularly its activities and recommendations to the Board of Directors as appropriate. |
BCE Inc. 2015 ANNUAL INFORMATION FORM 39 |
Exhibit 99.2
Managements discussion and analysis
In this managements discussion and analysis of financial condition and results of operations (MD&A), we, us, our, BCE and the company mean, as the context may require, either BCE Inc. or, collectively, BCE Inc., Bell Canada, their subsidiaries, joint arrangements and associates. Bell means, as the context may require, either Bell Canada or, collectively, Bell Canada, its subsidiaries, joint arrangements and associates. Bell Aliant means, as the context may require, until December 31, 2014, either Bell Aliant Inc. or, collectively, Bell Aliant Inc., its subsidiaries and associates, or after December 31, 2014 and up to, and including, June 30, 2015, either Bell Aliant Regional Communications Inc. or, collectively, Bell Aliant Regional Communications Inc., its subsidiaries and associates, or after June 30, 2015 the Bell Aliant brand.
All amounts in this MD&A are in millions of Canadian dollars, except where noted. Please refer to section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) on pages 108 to 110 for a list of defined non-GAAP financial measures and key performance indicators.
Please refer to BCEs audited consolidated financial statements for the year ended December 31, 2015 when reading this MD&A.
In preparing this MD&A, we have taken into account information available to us up to March 3, 2016, the date of this MD&A, unless otherwise stated.
You will find BCEs audited consolidated financial statements for the year ended December 31, 2015, BCEs annual information form for the year ended December 31, 2015, dated March 3, 2016 (BCE 2015 AIF) and recent financial reports on BCEs website at BCE.ca, on SEDAR at sedar.com and on EDGAR at sec.gov.
This MD&A comments on our business operations, performance, financial position and other matters for the two years ended December 31, 2015 and 2014.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS |
BCEs 2015 annual report including this MD&A and, in particular, but without limitation, section 1.4, Capital markets strategy, section 2, Strategic imperatives, section 3.2, Business outlook and assumptions, section 5, Business segment analysis and section 6.8, Liquidity of this MD&A, contain forward-looking statements. These forward-looking statements include, but are not limited to, BCEs 2016 annualized common share dividend and common share dividend policy, the expected improvement of BCEs net debt leverage ratio and return thereof within BCEs target range, the sources of liquidity we expect to use to meet our anticipated 2016 cash requirements, our expected 2016 post-employment benefit plans funding, our network deployment plans, the value of network infrastructure capital investments we plan to make by the end of 2020, and BCEs business outlook, objectives, plans and strategic priorities. Forward-looking statements also include any other statements that do not refer to historical facts. A statement we make is forward-looking when it uses what we know and expect today to make a statement about the future. Forward-looking statements are typically identified by the words assumption, goal, guidance, objective, outlook, project, strategy, target and other similar expressions or future or conditional verbs such as aim, anticipate, believe, could, expect, intend, may, plan, seek, should, strive and will. All such forward-looking statements are made pursuant to the safe harbour provisions of applicable Canadian securities laws and of the United States Private Securities Litigation Reform Act of 1995. Unless otherwise indicated by us, forward-looking statements in BCEs 2015 annual report, including in this MD&A, describe our expectations as at March 3, 2016 and, accordingly, are subject to change after this date. Except as may be required by Canadian securities laws, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements, by their very nature, are subject to inherent risks and uncertainties and are based on several assumptions, both general and specific, which give rise to the possibility that actual results or events could differ materially from our expectations expressed in, or implied by, such forward-looking statements and that our business outlook, objectives, plans and strategic priorities may not be achieved. As a result, we cannot guarantee that any forward-looking statement will materialize and we caution you against relying on any of these forward-looking statements. Forward-looking statements are presented in BCEs 2015 annual report, including in this MD&A, for the purpose of assisting investors and others in understanding our objectives, strategic priorities and business outlook as well as our anticipated operating environment. Readers are cautioned, however, that such information may not be appropriate for other purposes.
We have made certain economic, market and operational assumptions in preparing the forward-looking statements contained in BCEs 2015 annual report and, in particular, but without limitation, the forward-looking statements contained in the previously-mentioned sections of this MD&A. These assumptions include, without limitation, the assumptions described in the various sections of this MD&A entitled Business outlook and assumptions, which sections are incorporated by reference in this cautionary statement. In addition, the value of network infrastructure capital investments we plan to make by the end of 2020 assumes that capital investments will continue at current levels. However, there can be no assurance that such investment levels will be maintained with the result that the value of actual capital investments made by us by the end of 2020 could materially differ from current expectations. We believe that our assumptions were reasonable at March 3, 2016. If our assumptions turn out to be inaccurate, our actual results could be materially different from what we expect.
Important risk factors including, without limitation, regulatory, competitive, technological, economic, financial and other risks that could cause actual results or events to differ materially from those expressed in, or implied by, the previously-mentioned forward-looking statements and other forward-looking statements contained in BCEs 2015 annual report, and in particular in this MD&A, include, but are not limited to, the risks described or referred to in section 9, Business risks, which section is incorporated by reference in this cautionary statement.
We caution readers that the risks described in the previously-mentioned section and in other sections of this MD&A are not the only ones that could affect us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse effect on our financial position, financial performance, cash flows, business or reputation. Except as otherwise indicated by us, forward-looking statements do not reflect the potential impact of any special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after March 3, 2016. The financial impact of these transactions and special items can be complex and depends on the facts particular to each of them. We therefore cannot describe the expected impact in a meaningful way or in the same way we present known risks affecting our business.
28 BCE Inc. 2015 ANNUAL REPORT | |||
1 |
OVERVIEW |
MD&A |
1 Overview
1.1 Introduction
At a glance
BCE is Canadas largest communications company, providing residential, business and wholesale customers with a wide range of solutions for all their communications needs. BCEs shares are publicly traded on the Toronto Stock Exchange and on the New York Stock Exchange (TSX, NYSE: BCE).
Beginning January 1, 2015, our results are reported in three segments: Bell Wireless, Bell Wireline and Bell Media. Due to the privatization of Bell Aliant in 2014 as outlined in section 6.5, Privatization of Bell Aliant, the results of our former Bell Aliant segment are included within our Bell Wireless and Bell Wireline segments, with prior periods reclassified for comparative purposes.
Bell Wireless provides wireless voice and data communications products and services to our residential, small and medium-sized business and large enterprise customers across Canada.
Bell Wireline provides data, including Internet access and Internet protocol television (IPTV), local telephone, long distance, as well as other communications services and products to our residential, small and medium-sized business and large enterprise customers, primarily in Ontario, Québec and the Atlantic provinces, while Satellite television (TV) service and connectivity to business customers are available nationally across Canada. In addition, this segment includes our wholesale business, which buys and sells local telephone, long distance, data and other services from or to resellers and other carriers.
Bell Media provides conventional, specialty and pay TV, digital media, and radio broadcasting services to customers across Canada and out of home (OOH) advertising services.
BCE is Canadas
largest communications company
We also hold investments in a number of other assets, including:
BCE Inc. 2015 ANNUAL REPORT 29 |
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1 |
OVERVIEW |
MD&A |
BCE consolidated results |
BCE customer connections |
Our goal |
Our goal is to be recognized by customers as Canadas leading communications company. Our primary business objectives are to maximize subscribers, revenues, operating profit, free cash flow(1) and return on invested capital by further enhancing our position as the foremost provider in Canada of comprehensive communications services to residential and business customers. We seek to take advantage of opportunities to leverage our networks, infrastructure, sales channels, and brand and marketing resources across our various lines of business to create value for both our customers and other stakeholders.
Our strategy is centred on our disciplined focus and execution of six strategic imperatives. The six strategic imperatives that underlie BCEs business plan are:
(1) | Adjusted EBITDA and free cash flow are non-GAAP financial measures and do not have any standardized meaning under International Financial Reporting Standards (IFRS). Therefore, they are unlikely to be comparable to similar measures presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) Adjusted EBITDA and adjusted EBITDA margin and Free cash flow and free cash flow per share for more details, including, for free cash flow, a reconciliation to the most comparable IFRS financial measure. |
30 BCE Inc. 2015 ANNUAL REPORT | |||
1 |
OVERVIEW |
MD&A |
1.2 About BCE |
In 2015, we reported the results of our operations in three segments: Bell Wireless, Bell Wireline and Bell Media, with prior periods reclassified for comparative purposes to include our former Bell Aliant segment. We describe our product lines by segment below, to provide further insight into our operations.
Our products and services |
Bell Wireless |
SEGMENT DESCRIPTION
OUR BRANDS INCLUDE
OUR NETWORKS AND REACH
We hold licensed national wireless spectrum, with holdings across various spectrum bands, totalling more than 4,500 million Megahertz per Population (MHz-pop), corresponding to a weighted-average of approximately 135 MHz-pop of spectrum across Canada.
We have deployed and operate a number of leading nationwide wireless broadband networks compatible with global standards that deliver high-quality and reliable voice and high-speed data services to virtually all of the Canadian population.
OUR PRODUCTS AND SERVICES
BCE Inc. 2015 ANNUAL REPORT 31 |
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1 |
OVERVIEW |
MD&A |
Bell Wireline |
SEGMENT DESCRIPTION
OUR BRANDS INCLUDE
OUR NETWORKS AND REACH
OUR PRODUCTS AND SERVICES
RESIDENTIAL
BUSINESS
32 BCE Inc. 2015 ANNUAL REPORT | |||
1 |
OVERVIEW |
MD&A |
Bell Media |
SEGMENT DESCRIPTION
OUR BRANDS INCLUDE
OUR ASSETS AND REACH
TV
RADIO
OOH ADVERTISING
DIGITAL MEDIA
BROADCAST RIGHTS
OTHER ASSETS
OUR PRODUCTS AND SERVICES
BCE Inc. 2015 ANNUAL REPORT 33 |
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1 |
OVERVIEW |
MD&A |
Other BCE investments |
BCE also holds investments in a number of other assets, including:
Our people |
EMPLOYEES
At the end of 2015, our team included 49,968 employees dedicated to driving shareholder return and improving customer service.
The total number of BCE employees at the end of 2015 decreased by 7,266 employees compared to the end of 2014, due primarily to the sale of a call centre subsidiary, workforce restructuring initiatives at our Bell Media and Bell Wireline segments to confront changing consumer preferences, new TV unbundling rules, a soft business market as a result of the economy and declines in home phone subscribers, as well as other workforce reductions attributable to normal attrition, retirements and productivity improvements, including synergies realized from the privatization of Bell Aliant.
Approximately 45% of total BCE employees are represented by labour unions.
BELL CODE OF BUSINESS CONDUCT
The ethical business conduct of our people is core to the integrity with which we operate our business. The Bell Code of Business Conduct sets out specific expectations and accountabilities, providing employees with practical guidelines to conduct business in an ethical manner. Our commitment to the Code of Business Conduct is renewed by employees each year in an ongoing effort to ensure that all employees are aware of, and adhere to, Bells standards of conduct.
34 BCE Inc. 2015 ANNUAL REPORT | |||
1 |
OVERVIEW |
MD&A |
1.3 Key corporate developments |
Bell Mobility acquires new wireless spectrum licences
In April 2015, Bell Mobility acquired advanced wireless services-3 (AWS-3) wireless spectrum in key urban and rural markets as part of Industry Canadas (now Innovation, Science and Economic Development Canada (ISED)) AWS-3 spectrum auction. Bell Mobility acquired 13 licences for 169 million MHz-pop of AWS-3 spectrum for $500 million. This band of spectrum is strategically valuable in providing Bell Mobility with future incremental broadband capacity to meet growing consumer and business demand for mobile data services as well as for carrier aggregation.
In May 2015, Bell Mobility acquired an additional 243 million MHz-pop of 2500 MHz wireless spectrum for $29 million as part of Industry Canadas spectrum auction, supplementing existing holdings in key urban and rural markets across Canada. Bell Mobility will use the additional 2500 MHz spectrum to further support 4G LTE services in eastern and western Ontario, Québec, Atlantic Canada, Alberta, British Columbia and all three Territories.
Acquisition of mobile phone distributor Glentel completed |
On May 20, 2015, BCE completed the previously announced acquisition of all of the issued and outstanding common shares of Glentel, a Canadian-based dual-carrier multi-brand mobile products distributor, for a total consideration of $592 million, of which $296 million ($284 million, net of cash on hand) was paid in cash and the balance through the issuance of 5,548,908 BCE common shares. Immediately following the closing of the acquisition, BCE repaid Glentels outstanding debt in the amount of approximately $112 million and contributed $53 million in exchange for additional Glentel common shares. Subsequently, also on May 20, 2015 and further to an agreement dated December 24, 2014, BCE divested 50% of its ownership interest in Glentel to Rogers Communications Inc. (Rogers) for a total cash consideration of approximately $473 million ($407 million, net of divested cash and transaction costs).
Bell Media signs HBO exclusive and expands TMN nationally |
In November 2015, Bell Media signed a long-term agreement with HBO whereby it would exclusively deliver in Canada all current, past and library HBO programming across linear, on-demand and OTT platforms, and also entered into a new original co-production partnership. Bell Media further announced that it would expand TMN into a national pay TV service and become the sole operator of HBO Canada in the first quarter of 2016 following Corus Entertainment Inc. (Corus)s waiver of its HBO content rights and wind down of the operations of its Movie Central and Encore Avenue pay TV services in Western and Northern Canada. TMN was successfully launched nationally on March 1, 2016 and Movie Central and Encore Avenues operations ceased on the same day.
Joint acquisition of Toronto Argonauts Football Club |
On December 31, 2015, Bell Canada jointly acquired the Argos of the Canadian Football League (CFL) with a partner in MLSE, Larry Tanenbaums Kilmer Group. Live sports have become increasingly important to executing Bells media leadership strategy. By acquiring the Argos, Bell strengthens its media strategy by adding another iconic brand to an already extensive sports line-up.
Bell is Canadas most valuable communications brand |
Bell moved up two spots to number three in Brand Finances annual rankings of Canadas most valuable brands for 2015. Bell Canada was the only company in the top five from outside the financial services sector. The top 100 brands are compiled by global brand valuation firm Brand Finance in partnership with The Globe and Mails Report on Business magazine. Bell Canada was the only Canadian company to earn a AAA brand rating from Brand Finance, which factors in brand strength, risk and potential relative to competitors. A brands value reflects a companys reputation and loyalty from customers, employees and investors, as well as future revenues attributable to the brands strength.
Thomas ONeill to retire as BCE Chair, Board to nominate Gordon Nixon |
Thomas C. ONeill will retire as Chair of the board of directors of BCE (BCE Board or Board) at the BCE Annual General Shareholder Meeting scheduled for April 28, 2016 in Montréal. The Board plans to nominate BCE director Gordon M. Nixon as Chair contingent upon his re-election as a director by BCE shareholders at the April 28 annual meeting.
A director of BCE since November 2014, Gordon Nixon was President and Chief Executive Officer (CEO) of the Royal Bank of Canada from 2001 until 2014, and CEO of RBC Dominion Securities from 1999 to 2001. A member of the Order of Canada, Mr. Nixon is a director of George Weston Limited and of BlackRock Inc. He also serves as Chair of scientific research and collaboration centre MaRS and of the Queens University Capital Campaign.
BCE Inc. 2015 ANNUAL REPORT 35 |
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1 |
OVERVIEW |
MD&A |
1.4 Capital markets strategy |
We seek to deliver sustainable shareholder returns through consistent dividend growth. That objective is underpinned by continued growth in free cash flow, a healthy level of ongoing capital investment in the business, a strong balance sheet and an investment-grade credit profile.
Dividend growth and payout policy
On February 4, 2016, we announced a 5.0%, or 13 cent, increase in the annualized dividend payable on BCEs common shares for 2016 to $2.73 per share from $2.60 per share in 2015, starting with the quarterly dividend payable on April 15, 2016. This represents BCEs 12th increase to its annual common share dividend, representing an 87% increase, since the fourth quarter of 2008.
The dividend increase for 2016 is consistent with BCEs common share dividend policy of a target payout between 65% and 75% of free cash flow. We intend to grow BCEs common share dividend if we achieve free cash flow growth. BCEs dividend policy and the declaration of dividends are subject to the discretion of the BCE Board and, consequently, there can be no guarantee that BCEs dividend policy will be maintained or that dividends will be declared.
We have a strong alignment of interest between shareholders and our managements equity-based long-term incentive compensation plan. The vesting of performance share units depends on the realization of our dividend growth policy, while stock options reflect our objective to increase the share price for our shareholders.
Use of excess cash |
Our dividend payout policy allows BCE to retain a high level of excess cash. Consistent with our capital markets objective to deliver sustainable shareholder returns through dividend growth while maintaining appropriate levels of capital investment, investment-grade credit ratings and considerable overall financial flexibility, we deploy excess cash in a balanced manner.
Uses of excess cash include, but are not limited to:
In 2015, BCEs excess cash of $830 million was directed towards the purchase of AWS-3 and 2500 MHz wireless spectrum and a voluntary contribution to Bell Canadas DB pension plan.
36 BCE Inc. 2015 ANNUAL REPORT | |||
1 |
OVERVIEW |
MD&A |
Total shareholder return performance |
This graph compares the yearly change in the cumulative annual total shareholder return of BCE common shares against the cumulative annual total return of the S&P/TSX Composite Index(2), for the five-year period ending December 31, 2015, assuming an initial investment of $100 on December 31, 2010 and the quarterly reinvestment of all dividends.
(1) | Based on BCEs common share price on the Toronto Stock Exchange and assumes the reinvestment of dividends. |
(2) | As the headline index for the Canadian equity market, the S&P/TSX Composite Index is the primary gauge against which to measure total shareholder return for Canadian-based, Toronto Stock Exchange-listed companies. |
Strong capital structure |
BCEs balance sheet is supported by substantial liquidity and an investment-grade credit profile, providing the company with a solid financial foundation and a high level of overall financial flexibility. BCE is well-positioned with an attractive long-term debt maturity profile and manageable near-term requirements to repay debt. We continue to monitor the capital markets for opportunities where we can further reduce our cost of debt and our cost of capital. We seek to proactively manage financial risk in terms of currency exposure of our U.S. dollar-denominated purchases, as well as equity risk exposure under BCEs long-term equity-based incentive plans and interest rate and foreign currency exposure under our various debt instruments. We also seek to maintain investment-grade credit ratings with stable outlooks.
ATTRACTIVE LONG-TERM DEBT MATURITY PROFILE
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STRONG LIQUIDITY POSITION
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FAVOURABLE CREDIT PROFILE
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The committed amount under Bell Canadas unsecured revolving facility was increased from $2.5 billion to $3 billion in the first quarter of 2015, providing us with additional financing flexibility.
In February 2015, Bell Canada renewed its MTN program, enabling it to offer up to $4 billion of MTN debentures from time to time until December 14, 2016. The MTN debentures will be fully and unconditionally guaranteed by BCE. Consistent with past practice, the MTN program was renewed to continue to provide Bell Canada with financial flexibility and efficient access to the Canadian and United States (U.S.) capital markets.
Pursuant to this MTN program, Bell Canada successfully accessed the capital markets in March 2015 and October 2015, raising a total of $1.5 billion in gross proceeds from the issuance of 30-year and seven-year MTN debentures. The October 2015 issuance of seven-year MTN debentures, which carries an annual interest rate of 3%, represented the lowest coupon ever achieved by Bell Canada on any MTN debenture issuance. The net proceeds of these offerings were used for the repayment of MTN debentures prior to their maturity, as well as for general corporate purposes including to repay outstanding commercial paper and to fund capital expenditures.
BCE Inc. 2015 ANNUAL REPORT 37 |
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1 |
OVERVIEW |
MD&A |
BCE also completed a public bought deal common share offering in December 2015, the first by the company since 2002. The base equity offering of $750 million, and the exercise of the 15% over-allotment option, that together resulted in the sale of 15,111,000 common shares at the offering price of $57.10 per share, generated total gross proceeds of $863 million. These proceeds were principally used to support debt reduction through the early redemption of $700 million principal amount of Bell Canada MTN debentures maturing in 2016, thereby contributing to the maintenance of a healthy balance sheet.
As a result of financing a number of strategic acquisitions made since 2010, including CTV, Astral Media Inc. (Astral), MLSE and Bell Aliant, voluntary pension plan funding contributions to reduce our pension solvency deficit, wireless spectrum purchases, and the incremental debt that was assumed as a result of the privatization of Bell Aliant, our net debt(1) leverage ratio(2) has, as shown in the table below, increased above the limit of our internal target range of 1.75 to 2.25 times adjusted EBITDA. That ratio is expected to improve over time and return within the net debt leverage ratio target range through growth in free cash flow and applying a portion of excess cash to the reduction of BCEs indebtedness.
BCE CREDIT RATIOS |
INTERNAL TARGET | DECEMBER 31, 2015 | ||
Net debt leverage ratio |
1.752.25 | 2.53 | ||
Adjusted EBITDA to net interest expense ratio(2) |
>7.5 | 8.76 |
(1) | Net debt is a non-GAAP financial measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) Net debt for more details, including a reconciliation to the most comparable IFRS financial measure. |
(2) | Net debt leverage ratio and adjusted EBITDA to net interest expense ratio are non-GAAP financial measures and do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) Net debt leverage ratio and Adjusted EBITDA to net interest expense ratio for more details. |
1.5 Corporate governance and risk management |
Corporate governance philosophy
The BCE Board and management believe that strong corporate governance practices contribute to superior results in creating and maintaining shareholder value. That is why we continually seek to strengthen our leadership in corporate governance and ethical business conduct by adopting best practices, and providing full transparency and accountability to our stakeholders.
Key governance strengths and actions in support of our governance philosophy include:
For more information, please refer to BCEs most recent notice of annual general shareholder meeting and management proxy circular filed with the Canadian provincial securities regulatory authorities (available at sedar.com) and with the United States Securities and Exchange Commission (available at sec.gov), and available on BCEs website at BCE.ca.
Risk governance framework |
BOARD OVERSIGHT
BCEs full Board is entrusted with the responsibility for identifying and overseeing the principal risks to which our business is exposed and seeking to ensure there are processes in place to effectively identify, monitor and manage them. These processes seek to mitigate rather than eliminate risk. A risk is the possibility that an event might happen in the future that could have a negative effect on our financial position, financial performance, cash flows, business or reputation. The Board delegates responsibility for the execution of certain elements of the risk oversight program to Board committees in order to ensure that they are treated with appropriate expertise, attention and diligence, with reporting to the Board in the ordinary course. The Board retains overall responsibility for, as well as direct oversight of, other risks or elements thereof, such as those relating to our regulatory environment, competitive environment, customer experience, technology/infrastructure transformation, operational performance and vendor oversight.
Risk information is reviewed by the Board or the relevant committee throughout the year and business leaders present regular updates on the execution of business strategies, risks and mitigation activities.
38 BCE Inc. 2015 ANNUAL REPORT | |||
1 |
OVERVIEW |
MD&A |
The Audit Committee is responsible for overseeing financial reporting and disclosure as well as overseeing that appropriate risk management processes are in place across the organization. As part of its risk management activities, the Audit Committee reviews the organizations risk reports and ensures that responsibility for each principal risk is formally assigned to a specific committee or the full Board, as appropriate. The Audit Committee also regularly considers risks relating to financial reporting, legal proceedings, performance of critical infrastructure, information, cyber and physical security, journalistic independence, privacy and records management, business continuity and the environment. The Management Resources and Compensation Committee (Compensation Committee) oversees risks relating to compensation, succession planning, and health and safety practices. The Pension Fund Committee (Pension Committee) has oversight responsibility for risks associated with the pension fund. The Corporate Governance Committee (Governance Committee) assists the Board in developing and implementing BCEs corporate governance guidelines and determining the composition of the Board and its committees. In addition, the Governance Committee oversees matters such as the organizations policies concerning business conduct, ethics and public disclosure of material information.
RISK MANAGEMENT CULTURE
There is a strong culture of risk management at BCE that is actively promoted by the Board and the companys President and CEO at all levels within the organization. It has become a part of how the company operates on a day-to-day basis and is woven into its structure and operating principles, guiding the implementation of the organizations strategic imperatives.
The President and CEO, selected by the Board, has set his strategic focus through the establishment of six strategic imperatives and focuses risk management around the factors that could impact the achievement of those strategic imperatives. While the constant state of change in the economic environment and the industry creates challenges to be managed, the clarity around strategic objectives, performance expectations, risk management and integrity in execution ensures discipline and balance in all aspects of our business.
RISK MANAGEMENT FRAMEWORK
While the Board is responsible for BCEs risk oversight program, operational business units are central to the proactive identification and management of risk. They are supported by a range of corporate support functions that provide independent expertise to reinforce implementation of risk management approaches in collaboration with the operational business units. The Internal Audit function provides a further element of expertise and assurance, working to provide insight and support to the operational business units and corporate support functions, while also providing the Audit Committee with an independent perspective on the state of risk and control within the organization. Collectively, these elements can be thought of as a Three Lines of Defence approach to risk management, that is aligned with industry best practices and is endorsed by the Institute of Internal Auditors.
FIRST LINE OF DEFENCE OPERATIONAL MANAGEMENT
The first line refers to management within our operational business segments (Bell Wireless, Bell Wireline and Bell Media) who are expected to understand their operations in great detail and the financial results that underpin them. There are regular reviews of operating performance involving the organizations executive and senior management. The discipline and precision associated with this process, coupled with the alignment and focus around performance goals, create a high degree of accountability and transparency in support of our risk management practices.
As risks emerge in the business environment, they are discussed in a number of regular forums to share details and explore their relevance across the organization. Executive and senior management are integral to these activities in driving the identification, assessment, mitigation and reporting of risks at all levels. Formal risk reporting occurs through strategic planning sessions, management presentations to the Board and formal enterprise risk reporting, which is shared with the Board and the Audit Committee during the year.
Management is also responsible for maintaining effective internal controls and for executing risk and control procedures on a day-today basis. Each operational business unit develops its own operating controls and procedures that fit the needs of its unique environment.
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1 |
OVERVIEW |
MD&A |
SECOND LINE OF DEFENCE CORPORATE SUPPORT FUNCTIONS
BCE is a very large enterprise with approximately 50,000 employees, multiple business units and a diverse portfolio of risks that is constantly evolving based on internal and external factors. In a large organization, it is common to manage certain functions centrally for efficiency, scale and consistency. While the first line of defence is often central to identification and management of business risks, in many instances operational management works both collaboratively with, and also relies on, the corporate functions that make up the second line of defence for support in these areas. These corporate functions include Finance, Corporate Security and Corporate Risk Management, as well as others such as Legal and Regulatory, Corporate Responsibility, Real Estate and Procurement.
Finance function: BCEs Finance function plays a pivotal role in seeking to identify, assess and manage risks through a number of different activities, which include financial performance management, external reporting, pension management, capital management, and oversight and execution practices related to the United States Sarbanes-Oxley Act of 2002.
Corporate Security function: This function is responsible for all aspects of security, which requires a deep understanding of the business, the risk environment and the external stakeholder environment. Based on this understanding, Corporate Security sets the standards of performance required across the organization through security policy definitions and monitors the organizations performance against these policies. In high and emerging risk areas such as cybersecurity, Corporate Security leverages its experience and competence and, through collaboration with the operational business units, develops strategies intended to mitigate the organizations risks.
Corporate Risk Management function: This function works across the company to gather information and report on the organizations assessment of its principal risks and the related exposures. Annually, senior management participates in a risk survey that provides an important reference point in the overall risk assessment process.
In addition to the activities described above, the second line of defence is also critical in building and operating the oversight mechanisms that bring focus to relevant areas of risk and reinforce the bridges between the first and second lines of defence, thereby seeking to ensure that there is a clear understanding of emerging risks, their relevance to the organization and the proposed mitigation plans. To further coordinate efforts between the first and second lines of defence, BCE has established a Security, Environmental and Health and Safety Committee (SEHS). A significant number of BCEs most senior leaders are members of this committee, whose purpose is to oversee BCEs strategic security, environmental, health and safety risks and opportunities. This cross-functional committee seeks to ensure that relevant risks are adequately recognized and mitigation activities are well-integrated and aligned across the organization and are supported with sufficient resources.
THIRD LINE OF DEFENCE INTERNAL AUDIT FUNCTION
Internal Audit is a part of the overall management information and control system and has the responsibility to act as an independent appraisal function. Its purpose is to provide the Audit Committee and management with objective evaluations of the companys risk and control environment, to support management in delivering against BCEs strategic imperatives and to maintain an audit presence throughout BCE and its subsidiaries.
40 BCE Inc. 2015 ANNUAL REPORT | |||
2 |
STRATEGIC IMPERATIVES |
MD&A |
2 Strategic imperatives
Our success is built on the BCE teams dedicated execution of the six Strategic Imperatives that support our goal to be recognized by customers as Canadas leading communications company. |
2.1 Invest in broadband networks and services
We invest in wireline and wireless broadband platforms to deliver the most advanced wireless, TV, Internet and other IP-based services available, to support continued subscriber and data growth across all our residential product lines as well as the needs of our business market customers.
2015 PROGRESS
2016 FOCUS
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2 |
STRATEGIC IMPERATIVES |
MD&A |
2.2 Accelerate wireless |
Our objective is to grow our Bell Wireless business profitably by focusing on postpaid subscriber acquisition and retention, maximizing average revenue per user (ARPU) by targeting premium smartphone subscribers in all geographic markets we operate in, leveraging our wireless networks, and maintaining device and mobile content leadership to drive greater wireless data penetration and usage.
2015 PROGRESS
2016 FOCUS
42 BCE Inc. 2015 ANNUAL REPORT | |||
2 |
STRATEGIC IMPERATIVES |
MD&A |
2.3 Leverage wireline momentum |
We focus on leveraging our fibre-based TV and Internet services to develop attractive residential offers that drive higher multi-product bundle sales and improve customer satisfaction and retention. These new services contribute to the ongoing shift of our operating mix away from legacy wireline voice services.
In our business markets, we remain focused on expanding our broadband network and strengthening our delivery of integrated solutions to Canadian businesses, while continuing to manage the transformation of our business from legacy network services to a fully-integrated data hosting, cloud computing and managed services provider.
2015 PROGRESS
2016 FOCUS
(1) | Nielsen Consumer Insights findings published in Customer Interaction Metric study (October 2015) |
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2 |
STRATEGIC IMPERATIVES |
MD&A |
2.4 Expand media leadership |
We strive to deliver leading sports, news, entertainment and business content across multiple broadband platforms TV, Internet, smartphones and tablets (four screens) to grow audiences. We also plan to create more of our own content, ensuring that Canadian attitudes, opinions, values and artistic creativity are reflected in our programming and in our coverage of events in Canada and around the world, and to introduce new services in support of new revenue streams.
2015 PROGRESS
2016 FOCUS
44 BCE Inc. 2015 ANNUAL REPORT | |||
2 |
STRATEGIC IMPERATIVES |
MD&A |
2.5 Improve customer service |
Our objective is to enhance customers overall experience by delivering call centre efficiency, meeting commitments for the installation and timely repair of services, increasing network quality, and implementing process improvements to simplify customer transactions and interactions with our front-line employees and self-serve tools. All of these will help differentiate us from our competitors and gain long-term customer loyalty. We intend to achieve this by making the investments we need to improve our front-line service capabilities, our networks, our products and our distribution channels to win and keep customers.
2015 PROGRESS
2016 FOCUS
2.6 Achieve a competitive cost structure |
Cost containment is a core element of our financial performance. It remains a key factor in our objective to preserve steady margins as we continue to experience revenue declines in our legacy wireline voice and data services and further shift our product mix towards growth services. We aim to accomplish this through operating our business in the most cost-effective way possible to extract maximum operational efficiency and productivity gains.
2015 PROGRESS
2016 FOCUS
(1) | J.D. Power and Associates 2015 Canadian Wireless Customer Care Study |
(2) | Adjusted EBITDA margin is a non-GAAP financial measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) Adjusted EBITDA and adjusted EBITDA margin for more details. |
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3 |
PERFORMANCE TARGETS,
OUTLOOK, ASSUMPTIONS AND RISKS |
MD&A |
3 Performance targets, outlook, assumptions and risks
This section provides information pertaining to our performance against 2015 targets, our consolidated business outlook and operating assumptions for 2016 and our principal business risks.
3.1 2015 performance vs. guidance targets
FINANCIAL GUIDANCE |
2015 TARGET |
2015 PERFORMANCE AND RESULTS |
ACHIEVED |
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BCE |
Revenue growth | 1%3% | 2.2% | Driven by strong Bell Wireless revenue growth of 8.7% along with Bell Media revenue growth of 1.3%, moderated by a modest decline in Bell Wireline revenue of 0.5%. | |
Adjusted EBITDA growth | 2%4% | 3.0% | Increase reflected 4.3% higher revenues from Bell growth services (wireless, wireline broadband and TV as well as media), offsetting the decline in traditional wireline voice service revenues. This, along with effective cost containment, resulted in a relatively stable adjusted EBITDA margin of 39.7%. | ||
Capital intensity | Approx. 17% | 16.9% | BCE invested $3,626 million in new capital in 2015 resulting in a capital intensity ratio of 16.9% compared to 17.7% in 2014. Capital spending was focused on the ongoing deployment of our broadband fibre, the continued rollout of our 4G LTE and LTE-A mobile services, expansion of network capacity to support greater speeds and increasing data usage, as well as enhancements to our customer service delivery systems. | ||
Adjusted net earnings per share (adjusted EPS)(1) | $3.28$3.38 | $3.36 | Adjusted net earnings(1) in 2015 increased by $321 million, or $0.18 per common share, driven by higher adjusted EBITDA, lower non-controlling interest as a result of the privatization of Bell Aliant, lower amortization expense and reduced interest expense, partly offset by higher other expense. The average number of BCE common shares outstanding increased, as a result of the privatization of Bell Aliant, our investment in Glentel and shares issued under a public bought deal offering, which moderated the increase in adjusted EPS. | ||
Free cash flow growth | Approx. 8%15% | 9.3% | Increase in free cash flow of $255 million in 2015 was driven by higher adjusted EBITDA, the favourable impact of the privatization of Bell Aliant and lower capital expenditures, partly offset by lower cash from working capital. |
3.2 Business outlook and assumptions
Outlook
BCEs 2016 outlook builds on the sound financial results achieved in 2015 and reflects continued progress in the execution of our six strategic imperatives to drive healthy projected revenues, adjusted EBITDA, net earnings and free cash flow growth from operations, which is expected to support substantial capital investment programs in strategic network infrastructure and a higher BCE common share dividend for 2016. Our outlook also reflects the confidence we have in continuing to successfully manage our Bell Wireless, Bell Wireline and Bell Media businesses within the context of a highly competitive and dynamic market.
The key 2016 operational priorities for BCE are to:
(1) | Adjusted net earnings and adjusted EPS are non-GAAP financial measures and do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) - Adjusted net earnings and adjusted EPS in this MD&A for more details, including a reconciliation to the most comparable IFRS financial measures. |
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3 |
PERFORMANCE TARGETS,
OUTLOOK, ASSUMPTIONS AND RISKS |
MD&A |
Our projected financial performance for 2016 enabled us to increase the annualized BCE common share dividend for 2016 by 13 cents, or 5.0%, to $2.73 per share, maintaining our payout ratio within our target policy range of 65% to 75% of free cash flow.
Assumptions |
ASSUMPTIONS ABOUT THE CANADIAN ECONOMY
MARKET ASSUMPTIONS
3.3 Principal business risks |
Provided below is a summary description of certain of our principal business risks that could have a material adverse effect on all of our segments. Certain additional business segment-specific risks are reported in section 5, Business segment analysis. For a detailed description of the principal risks relating to our regulatory environment and a description of the other principal business risks that could have a material adverse effect on our financial position, financial performance, cash flows, business or reputation, refer to section 8, Regulatory environment, and section 9, Business risks, respectively.
Regulatory environment |
Although most of our retail services are not price-regulated, government agencies and departments such as the Canadian Radio-television and Telecommunications Commission (CRTC), Innovation, Science and Economic Development Canada (ISED) (previously called Industry Canada), Canadian Heritage and the Competition Bureau continue to play a significant role in regulatory matters such as mandatory access to networks, net neutrality, spectrum auctions, approval of acquisitions, broadcast licensing and foreign ownership requirements. Adverse decisions by regulatory agencies or increased regulation could have negative financial, operational, reputational or competitive consequences for our business. For a discussion of our regulatory environment and the principal risks related thereto, refer to section 8, Regulatory environment.
Competitive environment |
As the scope of our businesses increases and evolving technologies drive new services, new delivery models and creative strategic partnerships, our competitive landscape expands to include new and emerging competitors, certain of which were historically our partners or suppliers, as well as other global scale competitors including, in particular, OTT TV service and voice over Internet protocol (VoIP) providers. Pricing and investment decisions of market participants are based on many factors, such as strategy, market position, technology evolution, customer confidence and economic climate, and collectively these could adversely affect our market shares, service volumes and pricing strategies and, consequently, our financial results. Technology substitution and IP networks, in particular, continue to reduce barriers to entry in our industry. This has allowed competitors to launch new products and services and
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3 |
PERFORMANCE TARGETS,
OUTLOOK, ASSUMPTIONS AND RISKS |
MD&A |
gain market share with far less investment in financial, marketing, human, technological and network resources than has historically been required. In particular, some competitors sell their services through the use of our networks, without the need to invest to build their own networks. Such lower necessary investment has enabled some competitors to be very disruptive in their pricing. We expect these trends to continue in the future, which could negatively impact our business including, without limitation, in the following ways:
For a further discussion of our competitive environment and competition risk, as well as a list of our main competitors, on a segmented basis, refer to Competitive landscape and industry trends and Principal business risks in section 5, Business segment analysis.
Security management |
Our operations, service performance and reputation depend on how well we protect our assets, including networks, information technology (IT) systems, offices and sensitive information, from events and attacks such as those referred to in section 9, Business risks Operational performance Our operations and business continuity depend on how well we protect, test, maintain and replace our networks, IT systems, equipment and other facilities. The protection and effective organization of our systems, applications and information repositories are central to the secure and continuous operation of our networks and business as electronic and physical records of proprietary business and personal data, such as confidential customer and employee information, are all sensitive from a market and privacy perspective. In particular, cyber threats, which include cyber attacks such as, but not limited to, hacking, computer viruses, denial of service attacks, industrial espionage, unauthorized access to confidential, proprietary or sensitive information or other breaches of network or IT security, are constantly evolving and our IT defences need to be constantly monitored and adapted. We are also exposed to cyber threats as a result of actions that may be taken by our customers or by our employees, whether malicious or not, including as a result of the use of social media and IT consumerization. In addition, cloud-based solutions may increase the risk of security and data leakage exposure if security control protocols are bypassed. Vulnerabilities could harm our brand and reputation as well as our customer relationships and may lead to:
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4 |
CONSOLIDATED FINANCIAL ANALYSIS |
MD&A |
4 Consolidated financial analysis
This section provides detailed information and analysis about BCEs performance in 2015 compared with 2014. It focuses on BCEs consolidated operating results and provides financial information for each of our businesses. For further discussion and analysis of our Bell Wireless, Bell Wireline, and Bell Media business segments, refer to section 5, Business segment analysis.
4.1 Introduction
BCE consolidated income statements
|
2015 | 2014 | $ CHANGE | % CHANGE | ||||
Operating revenues |
21,514 | 21,042 | 472 | 2.2 | % | |||
Operating costs |
(12,963 | ) | (12,739 | ) | (224 | ) | (1.8 | %) |
Adjusted EBITDA |
8,551 | 8,303 | 248 | 3.0 | % | |||
Adjusted EBITDA margin |
39.7 | % | 39.5 | % | 0.2 | % | ||
Severance, acquisition and other costs |
(446 | ) | (216 | ) | (230 | ) | n.m. | |
Depreciation |
(2,890 | ) | (2,880 | ) | (10 | ) | (0.3 | %) |
Amortization |
(530 | ) | (572 | ) | 42 | 7.3 | % | |
Finance costs |
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Interest expense |
(909 | ) | (929 | ) | 20 | 2.2 | % | |
Interest on post-employment benefit obligations |
(110 | ) | (101 | ) | (9 | ) | (8.9 | %) |
Other (expense) income |
(12 | ) | 42 | (54 | ) | n.m. | ||
Income taxes |
(924 | ) | (929 | ) | 5 | 0.5 | % | |
Net earnings |
2,730 | 2,718 | 12 | 0.4 | % | |||
Net earnings attributable to: |
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Common shareholders |
2,526 | 2,363 | 163 | 6.9 | % | |||
Preferred shareholders |
152 | 137 | 15 | 10.9 | % | |||
Non-controlling interest |
52 | 218 | (166 | ) | (76.1 | %) | ||
Net earnings |
2,730 | 2,718 | 12 | 0.4 | % | |||
Adjusted net earnings attributable to common shareholders |
2,845 | 2,524 | 321 | 12.7 | % | |||
Net earnings per common share (EPS) |
2.98 | 2.98 | | | ||||
Adjusted EPS |
3.36 | 3.18 | 0.18 | 5.7 | % |
n.m.: not meaningful
BCE had a successful 2015, delivering revenue and adjusted EBITDA growth of 2.2% and 3.0%, respectively that yielded a stable adjusted EBITDA margin of 39.7% compared to 39.5% in 2014. This drove adjusted net earnings growth of 12.7% and healthy free cash flow growth of 9.3%.
BCEs strong adjusted EBITDA performance was led by continued revenue growth from our wireless, Internet, IPTV and media businesses together with disciplined management of our operating costs, including cost reductions and synergy savings achieved from the Bell Aliant integration. This more than offset the higher spending on customer retention and postpaid subscriber acquisition at Bell Wireless, the erosion in traditional voice and data revenues at Bell Wireline and escalating content costs at Bell Media.
Net earnings in 2015 increased 0.4% compared to 2014, reflecting adjusted EBITDA growth, lower amortization expense due to an increase in the useful life of application software and reduced interest expense on various Bell Canada debt instruments. This was partly offset by higher severance, acquisition and other costs and higher other expense.
In 2015, BCEs cash flows from operating activities increased $33 million compared to 2014, as a result of higher adjusted EBITDA, a lower voluntary DB pension plan contribution made in 2015 and lower income taxes paid in 2015, partly offset by lower cash from working capital and higher acquisition and other costs paid, mainly due to the payment in full satisfaction of the judgment rendered in a litigation claim for Satellite TV signal piracy as well as severance and integration costs relating to the privatization of Bell Aliant.
Our earnings and free cash flow supported our capital investment in our strategic priorities, particularly our broadband wireless and wireline networks and services, which helped to drive higher wireless, TV and Internet subscribers, while supporting the return of value to BCE shareholders through higher dividends.
BCE Inc. 2015 ANNUAL REPORT 49 |
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4 |
CONSOLIDATED FINANCIAL ANALYSIS |
MD&A |
4.2 Customer connections |
TOTAL BCE CONNECTIONS
|
2015 | 2014 | % CHANGE | |||
Wireless subscribers |
8,245,831 | 8,118,628 | 1.6 | % | ||
Postpaid |
7,375,416 | 7,110,047 | 3.7 | % | ||
High-speed Internet subscribers(1)(2) |
3,413,147 | 3,297,026 | 3.5 | % | ||
TV (Satellite and IPTV subscribers)(1)(2) |
2,738,496 | 2,642,608 | 3.6 | % | ||
IPTV(1)(2) |
1,182,791 | 933,547 | 26.7 | % | ||
Total growth services |
14,397,474 | 14,058,262 | 2.4 | % | ||
Wireline NAS lines(1)(2) |
6,688,666 | 7,130,852 | (6.2 | %) | ||
Total services |
21,086,140 | 21,189,114 | (0.5 | %) |
(1) | Our Q1 2015 Internet, IPTV, total TV, and NAS subscriber base included a beginning of period adjustment to reduce the number of subscribers by 7,505, 2,236, 7,702, and 4,409, respectively, for deactivations as a result of the CRTC decision to eliminate the 30-day notice period required to cancel services. |
(2) | Subsequent to a review of our subscriber metrics, our Q1 2015 beginning of period Internet, IPTV and total TV subscriber base was reduced by 31,426, 1,849 and 3,790 subscribers, respectively, while our NAS base was increased by 657 subscribers. These adjustments primarily consisted of older balances. |
BCE NET ACTIVATIONS
|
2015 | 2014 | % CHANGE | |||
Wireless subscribers |
127,203 | 193,596 | (34.3 | %) | ||
Postpaid |
265,369 | 311,954 | (14.9 | %) | ||
High-speed Internet subscribers |
155,052 | 160,390 | (3.3 | %) | ||
TV (Satellite and IPTV subscribers) |
107,380 | 153,360 | (30.0 | %) | ||
IPTV |
253,329 | 276,034 | (8.2 | %) | ||
Total growth services |
389,635 | 507,346 | (23.2 | %) | ||
Wireline NAS lines |
(438,434 | ) | (464,717 | ) | 5.7 | % |
Total services |
(48,799 | ) | 42,629 | n.m. |
n.m.: not meaningful
BCE added 389,635 net new customer connections to its growth services in 2015, down 23.2% year over year. This was comprised of:
NAS net losses of 438,434 in 2015 improved by 5.7% compared to last year.
Total BCE customer connections across all services declined by 0.5% in 2015, reflecting an aggregate increase of 2.4% in our growth services subscriber bases, moderated by a stable year-over-year decline in wireline NAS of 6.2%. At the end of 2015, BCE customer connections totalled 21,086,140 and were comprised of the following:
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4 |
CONSOLIDATED FINANCIAL ANALYSIS |
MD&A |
4.3 Operating revenues |
|
2015 | 2014 | $ CHANGE | % CHANGE | ||||
Bell Wireless |
6,876 | 6,327 | 549 | 8.7 | % | |||
Bell Wireline |
12,258 | 12,324 | (66 | ) | (0.5 | %) | ||
Bell Media |
2,974 | 2,937 | 37 | 1.3 | % | |||
Inter-segment eliminations |
(594 | ) | (546 | ) | (48 | ) | (8.8 | %) |
Total BCE operating revenues |
21,514 | 21,042 | 472 | 2.2 | % |
BCE
Total operating revenues for BCE increased by 2.2% in 2015, attributable to strong growth in our Bell Wireless segment together with higher revenues in our Bell Media segment, offset in part by a modest decline in our Bell Wireline segment. This was comprised of service revenues of $19,757 million, which grew by 2.2% compared to 2014, and product revenues of $1,757 million, which increased by 2.9% year over year.
BELL WIRELESS
Bell Wireless revenue growth of 8.7%, reflected 7.6% higher service revenues driven by a larger postpaid subscriber base combined with increased blended ARPU, resulting from higher average rate plan pricing, as customers continued to shift from three-year contracts to two-year contracts. Additionally, the growth in data usage, driven by higher smartphone penetration and greater usage of data applications along with improved collections of termination charges, further contributed to the growth in wireless revenues. This was partly offset by lower voice usage. Product revenues increased 22.2% in 2015, as a result of increased pricing on certain handsets, a greater number of premium smartphone devices in our sales mix and increased sales following the commencement of the convergence of three-year and two-year contract expiries (referred to as the double cohort in the wireless industry) due to the Wireless Code.
BELL WIRELINE
Bell Wireline revenues decreased a modest 0.5% in 2015, compared to last year, reflecting the continued erosion in our traditional voice and data revenues as well as a reduction in spending by business customers on data equipment as a result of continued slow economic growth, and competitive pricing pressures. The negative impact of legislation enacted in December 2014, which eliminated charges for paper bills in our residential market, also contributed to the decline. This was partly offset by higher Internet and TV service revenues, driven by subscriber growth and higher household ARPU.
BELL MEDIA
Bell Media revenues were up 1.3% compared to prior year, driven by increased conventional TV and OOH advertising, as well as higher subscriber revenues from growth in CraveTV, our streaming service launched in December 2014, and our broad suite of TV Everywhere services. This was partly offset by lower revenues from the discontinuance of Viewers Choice, which ceased operations in 2014, and a reduction in pay TV subscribers.
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4 |
CONSOLIDATED FINANCIAL ANALYSIS |
MD&A |
4.4 Operating costs |
|
2015 | 2014 | $ CHANGE | % CHANGE | ||||
Bell Wireless |
(4,048 | ) | (3,703 | ) | (345 | ) | (9.3 | %) |
Bell Wireline |
(7,258 | ) | (7,379 | ) | 121 | 1.6 | % | |
Bell Media |
(2,251 | ) | (2,203 | ) | (48 | ) | (2.2 | %) |
Inter-segment eliminations |
594 | 546 | 48 | 8.8 | % | |||
Total BCE operating costs |
(12,963 | ) | (12,739 | ) | (224 | ) | (1.8 | %) |
BCE
Total BCE operating costs increased by 1.8% compared to 2014, mainly as a result of higher revenues. Operating cost increases at Bell Wireless and Bell Media were moderated by cost savings realized at our Bell Wireline segment.
BELL WIRELESS
The 9.3%, or $345 million, year-over-year increase in operating costs, was attributable to:
These factors were partly offset by lower advertising expense and reduced content costs.
BELL WIRELINE
Operating costs improved by 1.6%, or $121 million, compared to last year, as a result of:
These factors were partly offset by higher TV programming costs, due to a larger IPTV subscriber base, programming rate increases and the launch of CraveTV in December 2014.
BELL MEDIA
Operating costs increased by 2.2%, or $48 million, over 2014, primarily from greater content and programming costs related to CraveTV and sports broadcast rights, the expiry of certain CRTC benefits including the completion of the Local Programming Improvement Fund (LPIF) and higher spending on Canadian programming. This was partly offset by the loss of the broadcast rights for the 2015 NHL playoffs, reduced amortization of the fair value of certain programming rights, lower costs from the discontinuance of the Viewers Choice channel and disciplined expense management.
(1) | Cost of revenues includes costs of wireless devices and other equipment sold, network and content costs, and payments to other carriers. |
(2) | Labour costs (net of capitalized costs) include wages, salaries, and related taxes and benefits, post-employment benefit plans service cost, and other labour costs, including contractor and outsourcing costs. |
(3) | Other operating costs include marketing, advertising and sales commission costs, bad debt expense, taxes other than income taxes, information technology (IT) costs, professional service fees and rent. |
52 BCE Inc. 2015 ANNUAL REPORT | |||
4 |
CONSOLIDATED FINANCIAL ANALYSIS |
MD&A |
4.5 Adjusted EBITDA |
|
2015 | 2014 | $ CHANGE | % CHANGE | ||||
Bell Wireless |
2,828 | 2,624 | 204 | 7.8 | % | |||
Bell Wireline |
5,000 | 4,945 | 55 | 1.1 | % | |||
Bell Media |
723 | 734 | (11 | ) | (1.5 | %) | ||
Total BCE adjusted EBITDA |
8,551 | 8,303 | 248 | 3.0 | % |
BCE
BCEs adjusted EBITDA was 3.0% higher in 2015 compared to last year, due to strong Bell Wireless performance and positive Bell Wireline growth, offset in part by a modest decline in Bell Media.
BCEs adjusted EBITDA margin of 39.7% in 2015 remained relatively stable compared to 39.5% achieved in 2014, reflecting organic growth in revenues, tight operating cost control, and integration synergies from the privatization of Bell Aliant. This result was achieved even with higher wireless customer retention and postpaid subscriber acquisition spending, business markets softness and escalating content costs at Bell Media.
BELL WIRELESS
Bell Wireless adjusted EBITDA increased by 7.8% in 2015, compared to 2014, reflecting strong service revenue growth, partly offset by increased spending on customer retention and acquisitions driven by an increased number of customer contract expirations and a higher level of promotional activity as a result of the double cohort.
BELL WIRELINE
Bell Wireline adjusted EBITDA increased by 1.1% in 2015, compared to last year, attributable to:
This was offset in part by:
BELL MEDIA
Bell Media adjusted EBITDA declined by 1.5% in 2015 compared to last year, as a result of increased content and programming costs, which was moderated in part by revenue growth and lower amortization of the fair value of certain programming rights.
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4 |
CONSOLIDATED FINANCIAL ANALYSIS |
MD&A |
4.6 Severance, acquisition and other costs |
This category includes various income and expenses that are not related directly to the operating revenues generated during the year.
2015
Severance, acquisition and other costs included:
2014
Severance, acquisition and other costs included:
4.7 Depreciation and amortization |
The amount of our depreciation and amortization in any year is affected by:
DEPRECIATION
Depreciation in 2015 increased by $10 million compared to 2014 due to a higher net depreciable asset base as we continued to invest in our broadband and wireless networks, as well as our IPTV service, partly offset by a reduction in the estimates of useful lives of certain network assets starting July 1, 2014 which increased depreciation expense in 2014, as described in section 10.1, Our accounting policies Critical accounting estimates and key judgments.
AMORTIZATION
Amortization in 2015 decreased by $42 million compared to 2014, due mainly to an increase in 2014 in the estimates of useful lives of certain IT software assets from five to seven years, which was applied prospectively effective July 1, 2014, as described in section 10.1, Our accounting policies Critical accounting estimates and key judgments, partly offset by a higher net asset base.
54 BCE Inc. 2015 ANNUAL REPORT | |||
4 |
CONSOLIDATED FINANCIAL ANALYSIS |
MD&A |
4.8 Finance costs |
INTEREST EXPENSE
Interest expense in 2015 decreased by $20 million compared to 2014 as a result of higher capitalized interest and lower average interest rates, partly offset by higher average debt levels.
INTEREST ON POST-EMPLOYMENT BENEFIT OBLIGATIONS
Interest on our post-employment benefit obligations is based on market conditions that existed at the beginning of the year.
In 2015, interest expense increased by $9 million compared to last year due to a higher post-employment benefit obligation and a lower discount rate, which decreased from 4.9% on January 1, 2014 to 4.0% on January 1, 2015.
The impacts of changes in market conditions during the year are recognized in other comprehensive income (loss) (OCI).
4.9 Other (expense) income |
Other (expense) income includes income and expense, such as:
2015
Other expense included losses on disposal of software, plant and equipment of $55 million, a net impairment charge of $49 million mainly related to Bell Medias music properties resulting from revenue and profitability declines from lower viewership and higher TV content costs, and losses totalling $49 million from our equity investments which included a loss on investments of $54 million representing our share of an obligation to repurchase at fair value the minority interest in one of BCEs joint ventures. These factors were partly offset by a gain on investments of $72 million mainly due to a $94 million gain on the sale of our 50% ownership interest in Glentel to Rogers, and net mark-to-market gains of $54 million on derivatives used as economic hedges of share-based compensation and U.S. dollar purchases.
2014
Other income included net mark-to-market gains of $134 million on derivatives used as economic hedges of share-based compensation and U.S. dollar purchases, dividend income of $42 million from earnings generated in trust prior to the divestiture of Bell Media assets held for sale and foreign exchange gains in 2014. These were partly offset by a net impairment charge of $105 million, mainly relating to Bell Medias conventional TV properties resulting from a softness in the overall Canadian TV advertising market and higher TV content costs, losses on disposal of software, plant and equipment of $51 million, and early debt redemption costs of $29 million.
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4 |
CONSOLIDATED FINANCIAL ANALYSIS |
MD&A |
4.10 Income taxes |
The following table provides information and reconciles the amount of reported income taxes in the income statements with income taxes calculated at a statutory income tax rate of 26.9% and 26.6% for 2015 and 2014, respectively.
FOR THE YEAR ENDED DECEMBER 31 |
2015 | 2014 | ||
Net earnings |
2,730 | 2,718 | ||
Add back income taxes |
924 | 929 | ||
Earnings before income taxes |
3,654 | 3,647 | ||
Applicable statutory tax rate |
26.9 | % | 26.6 | % |
Income taxes computed at applicable statutory rates |
(983 | ) | (970 | ) |
Non-taxable portion of gains on investments |
26 | 4 | ||
Resolution of uncertain tax positions |
41 | 1 | ||
Utilization of previously unrecognized tax credits |
5 | 23 | ||
Effect of change in provincial corporate tax rate |
(6 | ) | | |
Change in estimate relating to prior periods |
8 | 11 | ||
Other |
(15 | ) | 2 | |
Total income taxes |
(924 | ) | (929 | ) |
Average effective tax rate |
25.3 | % | 25.5 | % |
4.11 Net earnings and EPS |
Net earnings attributable to common shareholders in 2015 increased by $163 million, due to higher adjusted EBITDA, lower non-controlling interest due to the privatization of Bell Aliant, lower amortization expense due to an increase in the useful life of application software, and reduced interest expense on various Bell Canada debt instruments. This was partly offset by higher severance, acquisition and other costs and higher other expense.
Excluding the impact of severance, acquisition and other costs, net gains (losses) on investments, and early debt redemption costs, adjusted net earnings in 2015 were $2,845 million, or $3.36 per common share, compared to $2,524 million, or $3.18 per common share in 2014. The increase in adjusted EPS was partly offset by an increase in the average number of BCE common shares outstanding as a result of the privatization of Bell Aliant, our investment in Glentel and shares issued under a public bought deal offering.
56 BCE Inc. 2015 ANNUAL REPORT | |||
4 |
CONSOLIDATED FINANCIAL ANALYSIS |
MD&A |
4.12 Capital expenditures |
BCE capital expenditures declined by $91 million, or 2.4%, in 2015 due to lower spending in our Bell Wireline and Bell Media segments, partly offset by increased spending at Bell Wireless. As a percentage of revenue, BCE capital expenditures were 16.9% compared to 17.7% in 2014. Our capital investment supported the ongoing deployment of broadband fibre, including the build-out of Gigabit Fibe in Toronto and other urban locations, the continued rollout of our 4G LTE and LTE-A mobile services, expansion of our network capacity to support greater LTE speeds and increasing data consumption, as well as enhancements to our customer service delivery systems.
4.13 Cash flows |
In 2015, BCEs cash flows from operating activities increased $33 million compared to 2014, as a result of higher adjusted EBITDA, a lower voluntary DB pension plan contribution made in 2015 and lower income taxes paid in 2015, partly offset by lower cash from working capital and higher acquisition and other costs paid, mainly due to the payment in full satisfaction of the judgment rendered in a litigation claim for Satellite TV signal piracy as well as severance and integration costs relating to the privatization of Bell Aliant.
Free cash flow available to BCEs common shareholders increased $255 million in 2015, driven by the favourable impact of the privatization of Bell Aliant, lower capital expenditures and higher cash flows from operating activities.
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5 |
BUSINESS SEGMENT ANALYSIS BELL WIRELESS |
MD&A |
5 Business segment analysis
5.1 Bell Wireless
In 2015, we achieved industry-leading profitability through disciplined postpaid customer acquisition and retention and increasing ARPU by driving higher smartphone adoption and mobile data usage. |
Key elements of relevant strategic imperatives
INVEST IN BROADBAND NETWORKS AND SERVICES
2015 PROGRESS
2016 FOCUS
ACCELERATE WIRELESS
2015 PROGRESS
2016 FOCUS
IMPROVE CUSTOMER SERVICE
2015 PROGRESS
(1) | J.D. Power and Associates 2015 Canadian Wireless Customer Care Study |
58 BCE Inc. 2015 ANNUAL REPORT | |||
5 |
BUSINESS
SEGMENT ANALYSIS |
MD&A |
2016 FOCUS
ACHIEVE A COMPETITIVE COST STRUCTURE
2015 PROGRESS
2016 FOCUS
Financial performance analysis |
2015 PERFORMANCE HIGHLIGHTS
BELL WIRELESS RESULTS
REVENUES
|
2015 | 2014 | $ CHANGE | % CHANGE | ||||
Service |
6,246 | 5,806 | 440 | 7.6 | % | |||
Product |
590 | 483 | 107 | 22.2 | % | |||
Total external revenues |
6,836 | 6,289 | 547 | 8.7 | % | |||
Inter-segment revenues |
40 | 38 | 2 | 5.3 | % | |||
Total Bell Wireless revenues |
6,876 | 6,327 | 549 | 8.7 | % |
(1) | J.D. Power and Associates 2015 Canadian Wireless Customer Care Study |
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5 |
BUSINESS SEGMENT ANALYSIS BELL WIRELESS |
MD&A |
Bell Wireless operating revenues increased 8.7% in 2015 compared to last year, as a result of higher service and product revenues.
OPERATING COSTS AND ADJUSTED EBITDA
|
2015 | 2014 | $ CHANGE | % CHANGE | ||||
Operating costs |
(4,048 | ) | (3,703 | ) | (345 | ) | (9.3 | %) |
Adjusted EBITDA |
2,828 | 2,624 | 204 | 7.8 | % | |||
Total adjusted EBITDA margin |
41.1 | % | 41.5 | % | (0.4 | %) | ||
Service adjusted EBITDA margin |
45.3 | % | 45.2 | % | 0.1 | % |
Bell Wireless operating costs increased 9.3% in 2015 compared to last year, as a result of:
These factors were offset partly by lower advertising expense and lower wireless content expenses.
Bell Wireless adjusted EBITDA grew 7.8% in 2015 compared to last year, fuelled by higher operating revenues, as described above, which was moderated by greater customer retention spending and subscriber acquisition costs, higher bad debt expense, increased payments to other carriers and higher network operating costs. This resulted in relatively stable year-over-year adjusted EBITDA margin, based on service revenues, of 45.3% in 2015 compared to 45.2% achieved in 2014.
BELL WIRELESS OPERATING METRICS
|
2015 | 2014 | CHANGE | % CHANGE | ||||
Blended ARPU ($/month) |
63.09 | 59.92 | 3.17 | 5.3 | % | |||
Gross activations |
1,600,147 | 1,643,451 | (43,304 | ) | (2.6 | %) | ||
Postpaid |
1,338,141 | 1,291,207 | 46,934 | 3.6 | % | |||
Prepaid |
262,006 | 352,244 | (90,238 | ) | (25.6 | %) | ||
Net activations |
127,203 | 193,596 | (66,393 | ) | (34.3 | %) | ||
Postpaid |
265,369 | 311,954 | (46,585 | ) | (14.9 | %) | ||
Prepaid |
(138,166 | ) | (118,358 | ) | (19,808 | ) | (16.7 | %) |
Blended churn % (average per month) |
1.51 | % | 1.52 | % | 0.01 | % | ||
Postpaid |
1.28 | % | 1.22 | % | (0.06 | %) | ||
Prepaid |
3.32 | % | 3.44 | % | 0.12 | % | ||
Subscribers |
8,245,831 | 8,118,628 | 127,203 | 1.6 | % | |||
Postpaid |
7,375,416 | 7,110,047 | 265,369 | 3.7 | % | |||
Prepaid |
870,415 | 1,008,581 | (138,166 | ) | (13.7 | %) | ||
Cost of acquisition (COA) ($/subscriber) |
467 | 441 | (26 | ) | (5.9 | %) |
60 BCE Inc. 2015 ANNUAL REPORT | |||
5 |
BUSINESS
SEGMENT ANALYSIS |
MD&A |
Blended ARPU of $63.09 reflected a year-over-year increase of 5.3% in 2015 compared to last year, due to an increased mix of customers on higher-rate two year plans, disciplined pricing, greater data usage, improved collection of termination charges and a higher percentage of postpaid customers in our total subscriber base. This was partly offset by lower voice ARPU, compared to last year, as customers continue to substitute voice with data services.
Total gross wireless activations decreased 2.6% in 2015, compared to last year, due to lower prepaid activations. Postpaid activations were higher year over year.
Smartphone users as a percentage of postpaid subscribers increased to 78% at December 31, 2015 compared to 76% at the end of 2014.
Blended wireless churn of 1.51% in 2015 remained relatively stable compared to 1.52% in 2014, despite higher deactivations due to a greater number of total subscribers compared to last year.
Postpaid net activations decreased 14.9% in 2015, compared to the prior year, due to higher customer deactivations.
Prepaid net customer losses increased 16.7% in 2015, compared to last year, as a result of lower gross activations.
Wireless subscribers at December 31, 2015 totalled 8,245,831 representing an increase of 1.6% since the end of 2014. The proportion of Bell Wireless customers subscribing to postpaid service increased to 89% in 2015 from 88% last year.
COA per gross activation in 2015 increased $26 over last year to $467, due to a higher proportion of postpaid smartphone customers in our activation mix combined with greater promotional pricing.
Retention costs as a percentage of service revenue increased to 12.6% in 2015 compared to 11.0% in 2014, as a result of more subsidized customer upgrades reflecting increased market activity as a result of the double cohort, the ongoing shift to more expensive smartphone models in our upgrade mix and greater promotional pricing.
Competitive landscape and industry trends |
COMPETITIVE LANDSCAPE
The wireless market is the largest sector of the Canadian telecommunications industry, representing 48% of total revenues, and is currently growing at a mid-single digit rate annually.
There are over 29 million wireless subscribers in Canada. The three large national incumbents, Bell, TELUS and Rogers, account for over 90% of industry subscribers and revenues. Rogers holds the largest share by virtue of its legacy global system for mobile (GSM) network. However, Bell has recaptured significant subscriber market share, as well as the largest proportion of industry revenue and adjusted EBITDA growth since 2009, helped by the launch of our HSPA+ and 4G LTE networks, expanded retail distribution, the purchase of Virgin Mobile, a refreshed brand and improved customer service.
Canadas wireless penetration was approximately 82% at the end of 2015, compared to 110% for the U.S. and as high as 180% in certain countries in Europe. Canadas wireless sector is expected to continue growing at a steady pace for the foreseeable future, driven by the increasing usage of data services, the further expansion of 4G LTE service in the more rural and remote regions of Canada and the deployment of LTE-A network service enabled by the aggregation of multiple channels of wireless spectrum.
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BUSINESS SEGMENT ANALYSIS BELL WIRELESS |
MD&A |
Competitors
Large facilities-based national wireless service providers Rogers and TELUS.
Smaller facilities-based wireless service provider WIND Mobile(1), which provides service in Toronto, Calgary, Vancouver, Edmonton, Ottawa, as well as in several communities in southwestern Ontario.
Regional facilities-based wireless service providers Vidéotron Ltée (Vidéotron), which provides service in Montréal and other parts of Québec; Saskatchewan Telecommunications Holding Corporation (SaskTel), which provides service in Saskatchewan; Manitoba Telecom Services Inc. (MTS Mobility), which provides service in Manitoba; and EastLink, which launched service in Nova Scotia and Prince Edward Island in February 2013.
Mobile virtual network operators (MVNOs), who resell competitors wireless networks such as PC Mobile.
Canadian wireless market share
(1) | Shaw Communications Inc. (Shaw) completed its acquisition of WIND Mobile on March 1, 2016. |
(2) | Percentages may not add to 100 due to rounding. |
(3) | Bell metrics shown include Bell Aliant as of 2015. |
(4) | TELUS metrics shown include Public Mobile Inc. as of 2015. |
62 BCE Inc. 2015 ANNUAL REPORT | |||
5 |
BUSINESS
SEGMENT ANALYSIS |
MD&A |
INDUSTRY TRENDS
ACCELERATING DATA CONSUMPTION
Wireless data growth continues to be driven by the ongoing adoption of smartphones and tablets, and associated data plans. The demand for wireless data services is expected to continue to grow, due to ongoing investment in faster network technologies, such as 4G LTE and LTE-A that provide a richer user experience, a larger appetite for mobile connectivity and social networking, greater selection of smartphones and tablets, as well as increasing adoption of shared plans with multiple devices by families. Greater customer adoption of data services, including mobile TV, data roaming for travel, mobile commerce, mobile banking, and other IoT applications in the areas of retail and transportation (connected car, asset tracking, remote monitoring) should also contribute to the growth. In the consumer market, IoT is projected to be a future growth area for the industry as wireless connectivity on everyday devices, from home automation to cameras, becomes ubiquitous.
NEED FOR MORE WIRELESS SPECTRUM AND CARRIER AGGREGATION
Fast growth in mobile data traffic is increasingly putting a strain on wireless carriers networks and their ability to manage and service this traffic. Industry Canadas 700 MHz, AWS-3, and 2500 MHz spectrum auctions that concluded in 2014 and 2015 provided wireless carriers with prime spectrum to roll out faster next-generation wireless networks and build greater capacity. Furthermore, carrier aggregation (CA) is a technology currently being employed by Canadian wireless carriers (and which is expected to be used more extensively in the future) that allows for multiple spectrum channels to be used together, thereby significantly increasing capacity and data transfer rates.
GREATER SPENDING ON CUSTOMER RETENTION
As wireless penetration in Canada increases further, together with a growing number of off-contract subscribers and a continued high level of competitive intensity, even greater focus will be required to improve customer service, enhance existing service offerings and spend on upgrading more customers to new devices. In particular, as a result of the Wireless Code, which has limited wireless contract terms to two years from three years previously, a higher level of transactional market activity is expected as a result of a growing number of customers who will be eligible to renew their plans or change carriers. However, as the number of customer contract migrations from three-year to two-year contracts slows down, ARPU growth is expected to moderate.
Business outlook and assumptions |
2016 OUTLOOK
We expect continued revenue growth driven by a greater number of postpaid subscribers, accelerating data usage from smartphone customers and higher rate plan pricing for both two-year contracts and bring-your-own-device (BYOD) plans. We will seek to achieve higher revenues from data growth, delivered through our HSPA+, 4G LTE and LTE-A networks, higher demand for services such as web browsing, music and video streaming and community portals such as Facebook and YouTube, as well as nascent services including mobile commerce and other IoT applications. Our intention is to introduce these new products and services to the market in a way that balances innovation with profitability.
Three-year contracts established before the Wireless Code came into effect and, a new wave of two-year contracts, expired in 2015, leading to a higher level of transactional market activity across the Canadian wireless industry. This higher level of activity is expected to continue into 2016 and highlights the critical importance of our ongoing focus on improving customer satisfaction and maintaining discipline in subscriber acquisition and retention spending to acquire and retain high-quality postpaid subscribers. We plan to deliver adjusted EBITDA growth in 2016 from continued solid revenue growth, which should be partly offset by higher acquisition and retention investment consistent with the expected increase in market activity.
ASSUMPTIONS
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5 |
BUSINESS SEGMENT ANALYSIS BELL WIRELESS |
MD&A |
Key growth driver |
Principal business risks |
This section discusses certain principal business risks specifically related to the Bell Wireless segment. For a detailed description of the principal risks that could have a material adverse effect on our business, refer to section 9, Business risks.
AGGRESSIVE COMPETITION RISK
POTENTIAL IMPACT
|
REGULATORY ENVIRONMENT RISK
POTENTIAL IMPACT
|
CONTINUING IMPACT OF THE WIRELESS CODE RISK
POTENTIAL IMPACT
|
64 BCE Inc. 2015 ANNUAL REPORT | |||
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BUSINESS
SEGMENT ANALYSIS |
MD&A |
5.2 Bell Wireline |
Our Bell Wireline segment achieved positive adjusted EBITDA and cash flow growth in 2015 driven by growing TV and Internet scale as well as lower operating costs, which contributed to maintaining an industry-best adjusted EBITDA margin. |
Key elements of relevant strategic imperatives
INVEST IN BROADBAND NETWORKS AND SERVICES
2015 PROGRESS
2016 FOCUS
LEVERAGE WIRELINE MOMENTUM
2015 PROGRESS
2016 FOCUS
(1) | Nielsen Consumer Insights findings published in Customer Interaction Metric study (October 2015) |
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BUSINESS SEGMENT ANALYSIS BELL WIRELINE |
MD&A |
IMPROVE CUSTOMER SERVICE
2015 PROGRESS
2016 FOCUS
ACHIEVE A COMPETITIVE COST STRUCTURE
2015 PROGRESS
2016 FOCUS
Financial performance analysis |
2015 PERFORMANCE HIGHLIGHTS
66 BCE Inc. 2015 ANNUAL REPORT | |||
5 |
BUSINESS
SEGMENT ANALYSIS |
MD&A |
BELL WIRELINE RESULTS
REVENUES
|
2015 | 2014 | $ CHANGE | % CHANGE | ||||
Data |
7,163 | 6,978 | 185 | 2.7 | % | |||
Local and access |
3,271 | 3,420 | (149 | ) | (4.4 | %) | ||
Long distance |
831 | 922 | (91 | ) | (9.9 | %) | ||
Equipment and other |
778 | 791 | (13 | ) | (1.6 | %) | ||
Total external revenues |
12,043 | 12,111 | (68 | ) | (0.6 | %) | ||
Inter-segment revenues |
215 | 213 | 2 | 0.9 | % | |||
Total Bell Wireline revenues |
12,258 | 12,324 | (66 | ) | (0.5 | %) |
Bell Wireline operating revenues decreased by 0.5% in 2015 compared to last year, as a result of lower local and access, long distance and equipment and other revenues, as well as the negative impact of legislation enacted in December 2014 which eliminated charges for paper bills. This decline was moderated by the growth in data revenues.
Bell Wireline service revenues have remained essentially stable, year over year, due to growth at our Bell Residential Services unit driven by the continued expansion of our IPTV and Internet subscriber bases, higher household ARPU and stable voice revenue erosion. This was largely offset by the year-over-year decline at Bell Business Markets reflecting market softness and competitive pricing.
OPERATING COSTS AND ADJUSTED EBITDA
|
2015 | 2014 | $ CHANGE | % CHANGE | ||||
Operating costs |
(7,258 | ) | (7,379 | ) | 121 | 1.6 | % | |
Adjusted EBITDA |
5,000 | 4,945 | 55 | 1.1 | % | |||
Adjusted EBITDA margin |
40.8 | % | 40.1 | % | 0.7 | % |
Bell Wireline operating costs were $121 million, or 1.6%, lower in 2015 compared to last year, driven by:
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5 |
BUSINESS SEGMENT ANALYSIS BELL WIRELINE |
MD&A |
These factors were partly offset by:
Bell Wireline adjusted EBITDA grew by 1.1% in 2015 with a corresponding increase in adjusted EBITDA margin to 40.8% from 40.1% in 2014. This was attributable to:
This was partly offset by:
BELL WIRELINE OPERATING METRICS
Data
High-speed Internet
|
2015 | 2014 | CHANGE | % CHANGE | ||||
High-speed Internet net activations |
155,052 | 160,390 | (5,338 | ) | (3.3 | %) | ||
High-speed Internet subscribers(1)(2) |
3,413,147 | 3,297,026 | 116,121 | 3.5 | % |
(1) | Our Q1 2015 subscriber base included a beginning of period adjustment to reduce the number of subscribers by 7,505 for deactivations as a result of the CRTCs decision to eliminate the 30-day notice period required to cancel services. |
(2) | Subsequent to a review of our subscriber metrics, our Q1 2015 beginning of period subscriber base was reduced by 31,426 subscribers. This adjustment primarily consisted of older balances. |
High-speed Internet subscriber net activations in 2015 declined 3.3%, or 5,338, to 155,052 compared to 2014, due to lower net activations in our small and large business markets. Residential net activations remained relatively stable, year over year, despite more aggressive bundle offers from cable competitors as we continued to benefit from the favourable pull-through impact of IPTV subscriber activations.
High-speed Internet subscribers at December 31, 2015 totalled 3,413,147, up 3.5% from the end of 2014.
TV
|
2015 | 2014 | CHANGE | % CHANGE | ||||
Net subscriber activations |
107,380 | 153,360 | (45,980 | ) | (30.0 | %) | ||
IPTV |
253,329 | 276,034 | (22,705 | ) | (8.2 | %) | ||
Total subscribers(1)(2) |
2,738,496 | 2,642,608 | 95,888 | 3.6 | % | |||
IPTV(1)(2) |
1,182,791 | 933,547 | 249,244 | 26.7 | % |
(1) | Our Q1 2015 IPTV and total TV subscriber base included a beginning of period adjustment to reduce the number of subscribers by 2,236 and 7,702, respectively, for deactivations as a result of the CRTCs decision to eliminate the 30-day notice period required to cancel services. |
(2) | Subsequent to a review of our subscriber metrics, our Q1 2015 beginning of period IPTV and total TV subscriber base was reduced by 1,849 and 3,790 subscribers, respectively. These adjustments primarily consisted of older balances. |
IPTV subscriber net activations decreased by 8.2%, or 22,705 to 253,329 compared to 2014, reflecting aggressive offers for service bundles from cable competitors and a slowdown in the pace of our IPTV footprint expansion. This was partly offset by lower residential customer churn attributable to a more mature subscriber base.
Satellite TV net customer losses of 145,949 were 19.0% higher in 2015, compared to 2014, mainly as a result of a reduced number of retail activations driven by aggressive offers from cable TV competitors, particularly in our service areas where our IPTV services are not available, combined with lower wholesale net activations driven by the roll-out of IPTV services by other competing providers in Western Canada. This was moderated by lower residential customer churn resulting from a more mature subscriber base.
Total TV net subscriber activations (IPTV and Satellite TV combined) decreased 30.0%, or 45,980, to 107,380 compared to 2014, due to lower IPTV and Satellite TV net activations compared to 2014.
IPTV subscribers at December 31, 2015 totalled 1,182,791, up 26.7% from 933,547 at the end of 2014.
Satellite TV subscribers at December 31, 2015 totalled 1,555,705, down 9.0% from 1,709,061 at the end of 2014.
Total TV subscribers (IPTV and Satellite TV combined) at December 31, 2015 totalled 2,738,496, representing a 3.6% increase since the end of 2014.
68 BCE Inc. 2015 ANNUAL REPORT | |||
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BUSINESS
SEGMENT ANALYSIS |
MD&A |
Local and access
|
2015 | 2014 | CHANGE | % CHANGE | ||||
NAS LINES |
||||||||
Residential(1)(2) |
3,533,732 | 3,815,608 | (281,876 | ) | (7.4 | %) | ||
Business |
3,154,934 | 3,315,244 | (160,310 | ) | (4.8 | %) | ||
Total |
6,688,666 | 7,130,852 | (442,186 | ) | (6.2 | %) | ||
NAS NET LOSSES |
||||||||
Residential |
(278,124 | ) | (305,729 | ) | 27,605 | 9.0 | % | |
Business |
(160,310 | ) | (158,988 | ) | (1,322 | ) | (0.8 | %) |
Total |
(438,434 | ) | (464,717 | ) | 26,283 | 5.7 | % |
(1) | Our Q1 2015 subscriber base included a beginning of period adjustment to reduce the number of subscribers by 4,409 for deactivations as a result of the CRTCs decision to eliminate the 30-day notice period required to cancel services. |
(2) | Subsequent to a review of our subscriber metrics, our Q1 2015 beginning of period subscriber base was increased by 657 subscribers. This adjustment primarily consisted of older balances. |
NAS net losses improved 5.7%, or by 26,283 lines, in 2015 compared to 2014, reflecting fewer residential NAS losses, offset in part by higher business access line losses.
Residential NAS net losses were 9.0%, or 27,605 lines, fewer in 2015 than in 2014. The year-over-year improvement reflected the favourable pull-through impact of IPTV activations and greater NAS customer retention through the acquisition of a greater number of multi-product households. The reduction in residential NAS net losses was partly offset by more aggressive promotions and service bundle discounts offered by the cable TV operators, as well as from ongoing wireless and Internet-based technology substitution for local services.
Business NAS net losses increased 0.8%, or by 1,322 lines, in 2015 compared to 2014, as a result of higher large business market and wholesale customer deactivations and the ongoing conversion of voice lines to wireless and IP-based services. Additionally, the relatively low level of new business formation and employment growth in the economy has resulted in continued soft demand for new access line installations. This was moderated by reduced customer losses in our small and mid-business markets.
The annualized rate of NAS erosion in our customer base was essentially stable in 2015 at 6.2%, compared to rate of decline of 6.1% in 2014. At December 31, 2015, we had 6,688,666 NAS lines, compared to 7,130,852 at the end of 2014.
Competitive landscape and industry trends |
COMPETITIVE LANDSCAPE
The financial performance of the overall Canadian wireline telecommunications market in recent years has been impacted by continued declines in legacy voice service revenues resulting from technological substitution to wireless and OTT services, as well as by ongoing conversion to IP-based data services and networks by large business customers. Aggressive competition from cable companies also continues to erode traditional telephone providers market share of residential local telephony. Canadas four largest cable companies had over 4.1 million telephony subscribers at the end of 2015, representing a national residential market share of 44%, unchanged from 2014.
Competition for residential local and long distance services comes primarily from substitution to wireless services, including our own Bell Mobility and Virgin Mobile offerings. Approximately 29% of households in Ontario and Québec are estimated to be wireless only.
In 2015, cable companies continued to increase the speeds of their Internet offerings while promoting aggressive customer acquisition offers. At the end of the year, the four largest cable companies had 6.3 million Internet subscribers, representing 55% of the total Internet market based on publicly reported data, while incumbent local exchange carriers (ILECs) held the remaining 45% or 5.2 million subscribers. Although the residential Internet market is maturing, with approximately 87% penetration across Canada, subscriber growth is expected to continue over the next several years.
ILECs offering IPTV service grew their subscriber bases by 17% in 2015 to 2.3 million customers, driven by expanded network coverage, enhanced service offerings, and marketing and promotions focused on IPTV. This growth came at the expense of Canadas four largest cable companies, which saw their collective TV market share in 2015 decline two percentage points to 57%.
BCE Inc. 2015 ANNUAL REPORT 69 |
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BUSINESS SEGMENT ANALYSIS
BELL WIRELINE |
MD&A |
Competitors
EastLink in every province except Saskatchewan, where it does not provide cable TV and Internet service
Wholesale competitors include cable operators, domestic CLECs, U.S. or other international carriers for certain services, and electrical utility-based telecommunications providers.
INDUSTRY TRENDS
INVESTMENT IN BROADBAND FIBRE DEPLOYMENT
The Canadian ILECs have made substantial investments in deploying broadband fibre within their territories. These investments have enabled the delivery of IPTV and high-speed Internet service in order to better compete with cable TV offerings in urban areas. IPTV is considered a superior video product to traditional cable TV, given innovative features such as a next-generation user interface, wireless receivers, Restart, which enables customers to rewind and watch TV shows already in progress from the beginning, and Trending (available on Fibe TV), which highlights in real time the five most-watched shows in the country and lets you switch to watch them live or Restart from the beginning. FTTN enables speeds of up to 25 Mbps, which can be doubled to 50 Mbps with pair bonding, while FTTP delivers broadband speeds of up to 940 Mbps (higher than any other technology), and is expected to rise to a full 1 Gbps or faster in 2016 as equipment evolves to support these speeds. Going forward, ILECs are expected to maintain high levels of capital spending, primarily for the ongoing expansion of their broadband fibre networks, with an increasing emphasis on upgrading current FTTN networks to FTTP. Fibre architecture has significant structural and operating cost advantages over cable, enabling the ILECs, such as Bell, to achieve significantly higher speeds more quickly.
ALTERNATIVE TV AND OTT SERVICES
The growing popularity of watching TV anywhere is expected to continue as customers adopt services that enable them to view content on multiple screens, including computers, smartphones and tablets, as well as on their TVs. OTT content providers are competing for share of viewership. To date, these OTT services have largely complemented existing TV services. However, to mitigate the threat of video substitution, TV and Internet service providers have launched customer-authenticated on-demand streaming services that provide programming content over mobile and Wi-Fi networks to smartphones, tablets and computers. Additionally, sports and live event programming are important differentiators for traditional TV providers as they face increasing competition from OTT content providers. As OTT offers become more compelling and consumers demand greater flexibility in choosing the content most relevant to them, the disconnection of and reduction in spending for traditional TV continues to rise. While this trend is increasing, it is anticipated that growth in Internet subscriptions and Internet-only households, as well as the introduction of direct-to-consumer on-demand streaming services by the incumbent wireline telecom and cable companies, will help to offset the decline in TV as OTT video increases the value of broadband Internet.
UNBUNDLING OF TV SERVICES
As a result of new TV pick and pay rules to be implemented in 2016, TV distributors revenues are expected to come under pressure as households reduce their TV spending by choosing to subscribe to fewer TV channels and/or smaller TV packages, particularly as the number and breadth of OTT services that substitute for traditional linear TV programming grows. Similarly, lower revenue growth is expected for the TV broadcasting industry as a result of TV channel unbundling, due to lower anticipated channel penetration as well as the loss of ratings and advertising dollars from fewer channels.
WIRELESS SUBSTITUTION
Wireless substitution is the most significant driver of residential NAS losses and voice revenue declines for telecommunication companies. Wireless-only households were estimated to represent approximately 29% of households in Ontario and Québec at the end of 2015, compared to approximately 25% at the end of 2014. To mitigate the impact of wireless substitution, wireline service providers have
70 BCE Inc. 2015 ANNUAL REPORT | |||
5 |
BUSINESS SEGMENT ANALYSIS
BELL WIRELINE |
MD&A |
been packaging voice services with Internet and TV and offering discounted triple-play bundles. Wireless substitution is expected to continue to steadily increase in 2016.
ADOPTION OF IP-BASED SERVICES
The convergence of IT and telecommunications, facilitated by the ubiquity of IP, continues to shape competitive investments for business customers. Telecommunications companies are providing professional and managed services, as well as other IT services and support, while IT service providers are bundling network connectivity with their
software as service offerings. In addition, manufacturers continue to bring all-IP and converged (IP plus legacy) equipment to market, enabling ongoing migration to IP-based solutions. The development of IP-based platforms, which provide combined IP voice, data and video solutions, creates potential cost efficiencies that compensate, in part, for reduced margins resulting from the continuing shift from legacy to IP-based services. The evolution of IT has created significant opportunities for our Business Markets unit, such as cloud services and data hosting, that can have a greater business impact than traditional telecommunications services.
Business outlook and assumptions |
2016 OUTLOOK
We expect positive full-year adjusted EBITDA growth for our Bell Wireline segment in 2016. This is predicated on delivering positive residential net activations, as we leverage our IPTV footprint to drive greater multi-product household penetration, higher broadband and TV market share, as well as fewer residential NAS customer losses attributable to targeted retention and service bundle offers as well as a continued high pull-through rate from IPTV services.
TV subscriber growth is expected to be driven by continued strong customer adoption of IPTV as we increase penetration of existing IPTV-enabled neighbourhoods, further extend our IPTV broadband fibre footprint, and drive ongoing innovation in IPTV services. We also intend to seek greater penetration within the multiple-dwelling units (MDU) market, capitalize on our extensive retail distribution network, and leverage our market leadership position in HD and 4K programming and on-demand streaming services to drive incremental subscriber growth and higher revenue per household.
Internet subscriber acquisition is expected to improve in 2016 through increased FTTP coverage as we leverage the speed and reliability of our broadband Internet network to drive greater IPTV expansion and Internet attach rates. This is expected to have an associated positive impact on ARPU growth and customer churn.
Residential wireline revenues in 2016 are also anticipated to benefit from price increases, which followed similar pricing actions by our cable competitors, a higher penetration of multi-product households, and the positive impact of product enhancements to our IPTV service. Additionally, in late 2015, the sales and marketing functions for small business services were transferred from our Business Markets unit to our Residential Services group. Given the many similarities in product and service offerings for small business and residential customers, this organizational restructuring enables us to better leverage our residential wireline scale in sales and marketing, pricing and product development.
In our Bell Business Markets unit, the ongoing economy-related and competitive market challenges, together with continued customer migration to IP-based systems, will likely continue to negatively impact overall business markets results in 2016. We intend on seeking to minimize the overall revenue decline from legacy services by leveraging our market position to develop unique services and value enhancements. We intend to use marketing initiatives to slow NAS erosion, while investing in new solutions in key portfolios such as Internet and private networks, data centre and cloud services, unified communications, and security services. We will continue to deliver network-centric managed and professional services solutions to large business and public sector clients that increase the value of connectivity services. We expect to experience continued competitive intensity in our mid-sized business segment as cable operators and other telecom competitors continue to intensify their focus on the business segment. We also intend to introduce service offerings that help drive innovative solutions and value for our mid-sized customers by leveraging Bells network assets, broadband fibre expansion and service capabilities to expand our relationships with them. We will maintain a focus on overall profitability by seeking to increase revenue per customer and customer retention, as well as through improving our processes to achieve further operating efficiencies and productivity gains.
Operating cost reduction will continue to be a key focus for our Bell Wireline segment, helping to offset costs related to growth in IPTV subscribers, Internet subscribers, IP broadband services and hosted IP voice subscribers, the ongoing erosion of high-margin wireline voice revenues and other legacy revenues, as well as competitive repricing pressures in our business and wholesale markets. This, combined with further service-level improvements and operating synergies from the integration of Bell Aliant, is expected to support our objective of maintaining our consolidated adjusted EBITDA margin stable year over year.
We also aim to continue investing significantly in broadband infrastructure and fibre expansion and upgrades to support our IPTV and residential Internet services, as well as new business solutions in key portfolios such as Internet and private networks, data centre and cloud services, unified communications and security services. We intend to pursue pricing methods that will assist us in covering the capital costs of upgrading our networks, providing new services and expanding capacity to meet growing data consumption.
ASSUMPTIONS
BCE Inc. 2015 ANNUAL REPORT 71 |
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5 |
BUSINESS SEGMENT ANALYSIS
BELL WIRELINE |
MD&A |
Key growth driver |
Principal business risks |
This section discusses certain principal business risks specifically related to the Bell Wireline segment. For a detailed description of the principal risks that could have a material adverse effect on our business, refer to section 9, Business risks.
AGGRESSIVE COMPETITION RISK
POTENTIAL IMPACT
|
REGULATORY ENVIRONMENT RISK
POTENTIAL IMPACT
|
TV SUBSCRIBERS PENETRATION RISK
POTENTIAL IMPACT
|
72 BCE Inc. 2015 ANNUAL REPORT | |||
5 |
BUSINESS SEGMENT ANALYSIS
BELL WIRELINE |
MD&A |
5.3 Bell Media |
Bell Media delivered higher revenue in 2015, driven by strong TV ratings and the launch of CraveTV, while adjusted EBITDA declined, as expected, due to the increased cost of sports broadcast rights and content investments in TV and on-demand programming to drive future growth. |
Key elements of relevant strategic imperatives
EXPAND MEDIA LEADERSHIP
2015 PROGRESS
2016 FOCUS
ACHIEVE A COMPETITIVE COST STRUCTURE
2015 PROGRESS
2016 FOCUS
BCE Inc. 2015 ANNUAL REPORT 73 |
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5 |
BUSINESS SEGMENT ANALYSIS
BELL WIRELINE |
MD&A |
Financial performance analysis |
2015 PERFORMANCE HIGHLIGHTS
BELL MEDIA RESULTS
REVENUES
2015 | 2014 | $ CHANGE | % CHANGE | |||||
Total external revenues | 2,635 | 2,642 | (7 | ) | (0.3 | %) | ||
Inter-segment revenues | 339 | 295 | 44 | 14.9 | % | |||
Total Bell Media revenues | 2,974 | 2,937 | 37 | 1.3 | % |
Bell Media revenues grew 1.3% in 2015 compared to last year, due to higher advertising and subscriber revenues.
Advertising revenues increased in 2015, reflecting:
Subscriber revenues increased in 2015 compared to 2014, primarily due to growth from CraveTV, our streaming service launched in December 2014, and from our TV Everywhere services. This was partly offset by the discontinuance of Viewers Choice, which ceased operations in the third quarter of 2014, as well as a reduction in pay TV service subscribers.
74 BCE Inc. 2015 ANNUAL REPORT | |||
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BUSINESS SEGMENT ANALYSIS
BELL WIRELINE |
MD&A |
OPERATING COSTS AND ADJUSTED EBITDA
2015 | 2014 | $ CHANGE | % CHANGE | |||||
Operating costs | (2,251 | ) | (2,203 | ) | (48 | ) | (2.2 | %) |
Adjusted EBITDA | 723 | 734 | (11 | ) | (1.5 | %) | ||
Adjusted EBITDA margin | 24.3 | % | 25.0 | % | (0.7 | %) |
Bell Media operating costs increased by 2.2%, or $48 million, in 2015, due to escalating programming and content costs related to CraveTV and sports broadcasting rights, and greater spending on Canadian programming. The expiry of certain CRTC benefits, including the completion of the LPIF, also contributed to the year-over-year increase in operating costs. This was moderated by lower costs due to the loss of broadcast rights for the NHL playoffs, lower amortization of the fair value of certain programming rights, reduced costs from the discontinuance of Viewers Choice and disciplined management of other operating costs.
Bell Media adjusted EBITDA declined by 1.5% in 2015, compared to last year, driven by increasing content and programming costs, moderated by higher year-over-year operating revenues and lower amortization of the fair value of certain programming rights.
BELL MEDIA OPERATING METRICS
Competitive landscape and industry trends |
COMPETITIVE LANDSCAPE
The Canadian media industry is highly competitive, with competitors having significant scale and financial resources. In recent years, there has been increased consolidation of traditional media assets across the Canadian media landscape. The majority of players have become more vertically integrated to better enable the acquisition and monetization of premium content.
Bell Media competes in the TV, radio and OOH advertising markets:
Consumers have also been shifting their media consumption towards digital media, mobile devices and on-demand content. This has caused new business models to emerge and advertisers to shift portions of their spending to digital platforms.
BCE Inc. 2015 ANNUAL REPORT 75 |
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5 |
BUSINESS SEGMENT ANALYSIS
BELL WIRELINE |
MD&A |
Competitors
TV
RADIO
OOH ADVERTISING
INDUSTRY TRENDS
TECHNOLOGY AND CONSUMER HABITS TRANSFORMING THE WAY TV IS DELIVERED
Technology used in the media industry continues to evolve rapidly, which has led to alternative methods for the distribution, storage and consumption of content. These technological developments have driven and reinforced changes in consumer behaviour as consumers seek more control over when, where and how they consume content. For example, consumer electronics innovations have enabled consumers to view content on TVs, computers, tablets, smartphones and other mobile electronic devices. The number of Canadian users who are connected to the Internet through their TVs is growing as connection becomes easier and more affordable. Changes in technology and consumer behaviour have resulted in a number of challenges for content aggregators and distributors. The technological developments may disrupt traditional distribution platforms by enabling content owners to provide content directly to distributors and consumers, thus bypassing traditional content aggregators.
GROWTH OF ALTERNATIVES TO TRADITIONAL LINEAR TV
Consumers now have improved access to online entertainment and information alternatives that did not exist a few years ago. While traditional linear TV was the only way to access primetime programming in the past, many consumers now watch TV in non-traditional ways for at least a portion of their viewing. In particular, todays viewers are consuming more content online, watching less scheduled programming live, time-shifting original broadcasts through PVRs, viewing more TV on mobile devices, and catching up on past programming on-demand. In addition, many consumers are spending considerable time viewing online alternatives to traditional TV. This is evident in the growing number and popularity of OTT video services like Netflix. To date, these OTT services have largely complemented existing TV services. Media companies are evolving their content and launching their own solutions to better compete with these non-traditional offerings through services such as Bell Medias CraveTV on-demand TV streaming service and authenticated TV Everywhere services such as CTV GO, TSN GO, RDS GO, Discovery GO and TMN GO.
ESCALATING CONTENT COSTS AND SHIFTS IN ADVERTISING
Viewership and usage trends suggest that online and mobile Internet video consumption is increasing rapidly. Changing content consumption patterns and growth of alternative content providers could exert downward pressure on rates and advertising revenues for traditional media broadcasters. However, live sports and special events should continue to draw audiences and advertisers, which is expected to result in pricing pressure on future broadcasting rights. Growing interest in 4K content could also drive additional programming acquisition and production costs. Additionally, while access to premium content has become increasingly important to media companies in attracting viewers and advertisers, there is now increased competition for these rights. This has resulted in higher TV program rights costs, which is a trend that is expected to continue into the future.
(1) | On January 13, 2016, Corus announced its proposed acquisition of Shaw Media Inc. |
(2) | Broadcast year-end at August 31, 2015, 2+ age category, Fall 2015 for radio |
76 BCE Inc. 2015 ANNUAL REPORT | |||
5 |
BUSINESS SEGMENT ANALYSIS
BELL WIRELINE |
MD&A |
Business outlook and assumptions |
2016 OUTLOOK
Bell Medias financial results in 2016 are expected to be positively impacted by growth of CraveTV, the national expansion of our English-language pay TV service (TMN), and labour savings from workforce reductions undertaken in 2015. These factors are anticipated to more than offset higher content costs to secure TV programming, continued CraveTV investment and the financial impact of TV unbundling. CraveTV growth is projected to accelerate with the direct-to-consumer launch in January 2016 and increased customer penetration from partnering with licensed BDUs. We will also continue to carefully manage costs by leveraging assets, achieving productivity gains and pursuing operational efficiencies across all of our media properties, while continuing to invest in premium content for all four screens.
While the advertising market is expected to remain relatively stable in 2016, we anticipate that the strength of our programming, which includes the 2016 UEFA European Championship, and the benefit from numerous contract wins in 2015 and our recent Métromédia acquisition in our Astral OOH business, will offset some advertising pressure from an expected shift in spending to the main broadcaster of the Rio 2016 Summer Olympic Games. Subscriber fee revenues are projected to increase, driven by CraveTV subscriber growth and the national expansion of TMN, which should help offset potential declines in specialty TV as the industry transitions to new rules governing the packaging of channels to consumers.
In conventional TV, we intend to leverage the strength of our market position to continue offering advertisers, both nationally and locally, premium opportunities to reach their target audiences. Success in this area requires that we focus on a number of factors, including:
Our sports specialty TV offerings are expected to continue to deliver premium content and exceptional viewing experiences to our viewers. Investment in 4K content, combined with the integration of our digital platforms, are integral parts of our strategy to enhance viewership and engagement. Contractual price increases for strategic sports properties, along with planned new investments in other sports and events, are the principal factors driving continued increases in sports rights costs. We will also continue to focus on creating innovative high-quality productions in the areas of sports news and editorial coverage.
In non-sports specialty TV, audiences and advertising revenues are expected to be driven by investment in quality programming and production. As part of our objective to drive revenue growth, we intend to capitalize on our leading position in key specialty services to improve both channel strength and channel selection.In pay TV, we will continue to leverage our investments in premium content (including HBO and SHOWTIME) in order to attract subscribers. In addition, we will focus on driving growth and increased scale with our planned national expansion of TMN.
In our French-language pay and specialty services, we will optimize the CRTC tangible benefits in order to maximize quality content on screen and deploy such content on authenticated multi platforms.
In radio, we intend to leverage the strength of our market position to continue offering advertisers, both nationally and locally, premium opportunities to reach their target audiences. We also plan to focus on launching our iHeartRadio digital service in Canada that will showcase content from our 106 licensed radio stations in 54 markets across the country. Additionally, in conjunction with our local TV properties, we will continue to pursue opportunities that leverage our promotional capabilities, provide an expanded platform for content sharing, and offer synergistic co-location and efficiencies.
In our OOH operations, we plan to leverage the strength of our products and recent contract wins to provide advertisers with premium opportunities in key Canadian markets. We will also continue to seek new opportunities in digital markets, including integrating and leveraging our recent Métromédia acquisition.
ASSUMPTIONS
BCE Inc. 2015 ANNUAL REPORT 77 |
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5 |
BUSINESS SEGMENT ANALYSIS
BELL WIRELINE |
MD&A |
Key growth driver |
Principal business risks |
This section discusses certain principal business risks specifically related to the Bell Media segment. For a detailed description of the principal risks that could have a material adverse effect on our business, refer to section 9, Business risks.
AGGRESSIVE COMPETITION AND REGULATORY CHANGES RISK
POTENTIAL IMPACT
|
ADVERTISING REVENUE UNCERTAINTY RISK
POTENTIAL IMPACT
|
RISING CONTENT COSTS AND ABILITY TO SECURE KEY CONTENT RISK
POTENTIAL IMPACT
|
78 BCE Inc. 2015 ANNUAL REPORT | |||
6 |
FINANCIAL AND CAPITAL MANAGEMENT |
MD&A |
6 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 our financial condition, cash flows and liquidity on a consolidated basis.
6.1 Net debt (1)
DECEMBER 31, 2015 | DECEMBER 31, 2014 | $ CHANGE | % CHANGE | |||||
Debt due within one year | 4,895 | 3,743 | 1,152 | 30.8 | % | |||
Long-term debt | 15,390 | 16,355 | (965 | ) | (5.9 | %) | ||
Preferred shares(2) | 2,002 | 2,002 | | | ||||
Cash and cash equivalents | (613 | ) | (566 | ) | (47 | ) | (8.3 | %) |
Net debt | 21,674 | 21,534 | 140 | 0.7 | % |
(1) | Net debt is a non-GAAP financial measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) Net debt in this MD&A for more details. |
(2) | 50% of outstanding preferred shares of $4,004 million in both 2015 and 2014 are classified as debt as it is consistent with the treatment by some credit rating agencies. |
The increase of $187 million in debt due within one year and long-term debt was due to:
Partly offset by:
The increase in cash and cash equivalents of $47 million was due to:
Partly offset by:
6.2 Outstanding share data |
COMMON SHARES OUTSTANDING |
NUMBER OF SHARES | |
Outstanding, January 1, 2015 |
840,330,353 | |
Shares issued under bought deal offering |
15,111,000 | |
Shares issued for the acquisition of Glentel |
5,548,908 | |
Shares issued under employee stock option plan |
2,289,677 | |
Shares issued under ESP |
2,334,250 | |
Outstanding, December 31, 2015 |
865,614,188 |
|
WEIGHTED AVERAGE | |||
STOCK OPTIONS OUTSTANDING |
NUMBER OF OPTIONS | EXERCISE PRICE ($) | ||
Outstanding, January 1, 2015 |
9,278,190 | $43 | ||
Granted |
2,835,667 | $56 | ||
Exercised(1) |
(2,289,677 | ) | $39 | |
Forfeited |
(157,276 | ) | $49 | |
Outstanding, December 31, 2015 |
9,666,904 | $48 | ||
Exercisable, December 31, 2015 |
1,174,191 | $38 |
(1) | The weighted average share price for options exercised in 2015 was $56. |
At March 3, 2016, 868,085,742 common shares and 11,204,584 stock options were outstanding.
BCE Inc. 2015 ANNUAL REPORT 79 |
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6 |
FINANCIAL AND CAPITAL MANAGEMENT |
MD&A |
6.3 Cash flows |
|
2015 | 2014 | $ CHANGE | % CHANGE | ||||
Cash flows from operating activities |
6,274 | 6,241 | 33 | 0.5 | % | |||
Bell Aliant dividends paid to BCE |
| 95 | (95 | ) | (100.0 | %) | ||
Capital expenditures |
(3,626 | ) | (3,717 | ) | 91 | 2.4 | % | |
Cash dividends paid on preferred shares |
(150 | ) | (134 | ) | (16 | ) | (11.9 | %) |
Cash dividends paid by subsidiaries to non-controlling interest |
(41 | ) | (145 | ) | 104 | 71.7 | % | |
Acquisition and other costs paid |
292 | 131 | 161 | n.m. | ||||
Voluntary defined benefit pension plan contribution |
250 | 350 | (100 | ) | (28.6 | %) | ||
Bell Aliant free cash flow |
| (77 | ) | 77 | 100.0 | % | ||
Free cash flow |
2,999 | 2,744 | 255 | 9.3 | % | |||
Bell Aliant free cash flow, excluding dividends paid |
| (18 | ) | 18 | 100.0 | % | ||
Business acquisitions |
(311 | ) | (18 | ) | (293 | ) | n.m. | |
Acquisition and other costs paid |
(292 | ) | (131 | ) | (161 | ) | n.m. | |
Voluntary defined benefit pension plan contribution |
(250 | ) | (350 | ) | 100 | 28.6 | % | |
Business dispositions |
409 | 720 | (311 | ) | (43.2 | %) | ||
Acquisition of spectrum licences |
(535 | ) | (566 | ) | 31 | 5.5 | % | |
Other investing activities |
(51 | ) | 11 | (62 | ) | n.m. | ||
Net (repayment) issuance of debt instruments |
(510 | ) | 784 | (1,294 | ) | n.m. | ||
Privatization of Bell Aliant |
| (989 | ) | 989 | 100.0 | % | ||
Issue of common shares |
952 | 49 | 903 | n.m. | ||||
Common shares issuance cost |
(35 | ) | | (35 | ) | n.m. | ||
Repurchase of shares for settlement of share-based payments |
(138 | ) | (83 | ) | (55 | ) | (66.3 | %) |
Cash dividends paid on common shares |
(2,169 | ) | (1,893 | ) | (276 | ) | (14.6 | %) |
Other financing activities |
(22 | ) | (29 | ) | 7 | 24.1 | % | |
Net increase in cash and cash equivalents |
47 | 231 | (184 | ) | (79.7 | %) | ||
Free cash flow per share(1) |
$3.54 | $3.46 | $0.08 | 2.3 | % |
(1) | Free cash flow per share is a non-GAAP financial measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) Free cash flow and free cash flow per share in this MD&A for more details. |
n.m.: not meaningful |
Cash flows from operating activities and free cash flow |
In 2015, BCEs cash flows from operating activities increased $33 million compared to 2014, as a result of higher adjusted EBITDA, lower voluntary DB pension plan contribution made in 2015 and lower income taxes paid in 2015, partly offset by lower cash from working capital, higher acquisition and other costs paid mainly due to the payment in full satisfaction of the judgment rendered in a litigation claim for Satellite TV signal piracy and severance and integration costs relating to the privatization of Bell Aliant.
Free cash flow available to BCEs common shareholders increased $255 million in 2015, driven by the favourable impact of the privatization of Bell Aliant, lower capital expenditures and higher cash flows from operating activities.
Free cash flow per share in 2015 was $3.54 per common share, compared to $3.46 per common share in 2014.
80 BCE Inc. 2015 ANNUAL REPORT | |||
6 |
FINANCIAL AND CAPITAL MANAGEMENT |
MD&A |
Capital expenditures |
|
2015 | 2014 | $ CHANGE | % CHANGE | ||||
Bell Wireless |
716 | 687 | (29 | ) | (4.2 | %) | ||
Capital intensity ratio |
10.4 | % | 10.9 | % | 0.5 | % | ||
Bell Wireline |
2,809 | 2,893 | 84 | 2.9 | % | |||
Capital intensity ratio |
22.9 | % | 23.5 | % | 0.6 | % | ||
Bell Media |
101 | 137 | 36 | 26.3 | % | |||
Capital intensity ratio |
3.4 | % | 4.7 | % | 1.3 | % | ||
BCE |
3,626 | 3,717 | 91 | 2.4 | % | |||
Capital intensity ratio |
16.9 | % | 17.7 | % | 0.8 | % |
BCE capital expenditures declined by $91 million, or 2.4%, compared to 2014, due to reduced spending in our Bell Wireline and Bell Media segments, offset in part by higher capital spending in our Bell Wireless segment. Capital expenditures as a percentage of revenue (capital intensity ratio) was 16.9% in 2015, compared to 17.7% in 2014. This reflected:
Voluntary DB pension plan contribution |
In 2015, we made a voluntary contribution of $250 million, compared to a voluntary contribution of $350 million in 2014, to fund our post-employment benefit obligation. The voluntary contributions were funded from cash on hand at the end of 2015 and 2014 and will reduce the amount of BCEs future pension funding obligations.
Business acquisitions |
On May 20, 2015, BCE completed the acquisition of all of Glentels issued and outstanding common shares for a total consideration of $592 million, of which $296 million ($284 million net of cash on hand) was paid in cash and the balance through the issuance of 5,548,908 BCE common shares.
Additionally, Bell Media paid a deposit of $21 million to Corus in 2015 in connection with the national expansion of HBO Canada and TMN. Subsequent to year end, Bell Media completed the final payment of $190 million which will be recorded in our consolidated statements of cash flows in the first quarter of 2016. TMN was successfully launched nationally on March 1, 2016 and Movie Central and Encore Avenues operations ceased on the same day at which point the transaction was recorded in our consolidated statements of financial position.
Business dispositions |
Business dispositions of $409 million in 2015 reflect BCEs divestiture of 50% of its ownership interest in Glentel to Rogers for a total cash consideration of approximately $473 million ($407 million net of divested cash and transaction costs).
In 2014, we completed the sale of certain radio stations and TV services for total proceeds of $720 million.
BCE Inc. 2015 ANNUAL REPORT 81 |
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6 |
FINANCIAL AND CAPITAL MANAGEMENT |
MD&A |
Acquisition of spectrum licences |
On April 21, 2015, Bell Mobility acquired AWS-3 wireless spectrum in key urban and rural markets as part of Industry Canadas AWS-3 spectrum auction. Bell Mobility acquired 13 licences for 169 million MHz-pop of AWS-3 spectrum for $500 million.
On May 12, 2015, Bell Mobility acquired an additional 243 million MHz-pop of 2500 MHz wireless spectrum for $29 million. This acquisition increased Bell Mobilitys 2500 MHz spectrum holdings in a number of urban and rural markets.
On April 2, 2014, Bell Mobility acquired 700 MHz spectrum licences in every province and territorial market, comprised of 31 licences for $566 million.
Debt instruments |
We use a combination of short-term and long-term debt to finance our operations. Our short-term debt consists mostly of notes payable under commercial paper programs, loans securitized by trade receivables and bank facilities. We usually pay fixed rates of interest on our long-term debt and floating rates on our short-term debt. As at December 31, 2015, all of our debt was denominated in Canadian dollars with the exception of one of our credit facilities and a portion of our commercial paper, which are denominated in U.S. dollars, all of which have been hedged for foreign currency fluctuations through forward currency contracts.
2015
We repaid $510 million of debt, net of issuances. This included the repayment of approximately $500 million of our unsecured committed term credit facility, redemption of Series M-21 MTN debentures at Bell Canada with a principal amount of $1 billion, a $474 million repayment
of finance leases and other debt, and a $112 million repayment of Glentels outstanding debt. These repayments were partly offset by the issuance of Series M-39 and M-40 MTN debentures at Bell Canada with principal amounts of $500 million and $1 billion, respectively, and the issuance, net of repayments, of $76 million of notes payable.
2014
We issued $784 million of debt, net of repayments. This included the issuance of Series M-30 and Series M-31 MTN debentures at Bell Canada with a principal amount of $1.25 billion and MTNs at Bell Aliant with a principal amount of $150 million, as well as $469 million of notes payable, partly offset by repayments of finance leases and other debt of $435 million, $350 million of early debt redemption of MTNs at Bell Aliant and $300 million of CTV Specialty Television Inc. notes on February 18, 2014.
Privatization of Bell Aliant |
In 2014, we paid $989 million in connection with the privatization of Bell Aliant, representing 25% of the consideration for the acquisition of the outstanding publicly held common shares of Bell Aliant that we did not already own. Refer to section 6.5, Privatization of Bell Aliant, for details on the privatization.
Issue of common shares |
In 2015, we issued 15,111,000 BCE common shares for $863 million under a public bought deal offering.
Cash dividends paid on common shares |
In 2015, cash dividends paid on common shares increased by $276 million, compared to 2014, due to a higher number of outstanding common shares as a result of the issuance of shares in connection with the privatization of Bell Aliant and the purchase of our investment in Glentel, and a higher dividend paid in 2015 of $2.5675 per common share compared to $2.435 per common share in 2014.
6.4 Post-employment benefit plans |
For the year ended December 31, 2015, we recorded a decrease in our post-employment benefit obligations and a gain, before taxes and non-controlling interest (NCI), in OCI of $590 million. This was due to a higher actual discount rate of 4.2% at December 31, 2015, compared to 4.0% at December 31, 2014, and a higher-than-expected return on plan assets.
For the year ended December 31, 2014, we recorded an increase in our post-employment benefit obligations and a loss, before taxes and NCI, in OCI of $938 million. This was due to a lower actual discount rate of 4.0% at December 31, 2014, compared to 4.9% at December 31, 2013, partly offset by a higher-than-expected return on plan assets.
82 BCE Inc. 2015 ANNUAL REPORT | |||
6 |
FINANCIAL AND CAPITAL MANAGEMENT |
MD&A |
6.5 Privatization of Bell Aliant |
On July 23, 2014, BCE announced its offer to acquire all of the issued and outstanding common shares of Bell Aliant that it did not already own for a total consideration of approximately $3.95 billion. BCE already controlled Bell Aliant which provided local telephone, long distance, Internet, data, TV, wireless, home security and value-added business solutions to residential and business customers in the Atlantic provinces and in rural and regional areas of Ontario and Québec. On the same day, BCE also announced its offer to exchange all of the issued and outstanding preferred shares of Bell Aliant Preferred Equity Inc. (Prefco) for newly issued First Preferred Shares of BCE, with the same financial terms as the existing Prefco preferred shares (Preferred Share Exchange).
The privatization was completed on October 31, 2014 and the Preferred Share Exchange was completed on November 1, 2014. The privatization has simplified BCEs corporate structure and increased overall operating and capital investment efficiencies, while supporting BCEs broadband investment strategy and dividend growth objective.
The privatization of Bell Aliant in 2014 was accounted for as an equity transaction which increased BCEs deficit by $2,143 million, BCEs common shares by $2,928 million and preferred shares by $609 million, and reduced NCI by $877 million and contributed surplus by $1,499 million.
6.6 Financial risk management |
Managements objectives are to protect BCE and its subsidiaries on a consolidated basis against material economic exposures and variability of results from various financial risks that include credit risk, liquidity risk, foreign currency risk, interest rate risk, equity price risk and longevity risk. These risks are further described in Note 2, Significant accounting policies, Note 8, Other (expense) income, Note 21, Post-employment benefit plans and Note 23, Financial and capital management in BCEs 2015 consolidated financial statements.
The following table outlines our financial risks, how we manage these risks and their financial statement classification.
FINANCIAL RISK | DESCRIPTION OF RISK | MANAGEMENT OF RISK AND FINANCIAL STATEMENT CLASSIFICATION |
Credit risk | We are exposed to credit risk from operating activities and certain financing activities, the maximum exposure of which is represented by the carrying amounts reported in the statements of financial position. We are exposed to credit risk if counterparties to our trade receivables and derivative instruments are unable to meet their obligations. |
|
Liquidity risk | We are exposed to liquidity risk for financial liabilities. |
|
Foreign currency risk |
We are exposed to foreign currency risk related to anticipated transactions and certain foreign currency debt. Refer to the following Fair value section for details on our derivative financial instruments. |
|
BCE Inc. 2015 ANNUAL REPORT 83 |
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6 |
FINANCIAL AND CAPITAL MANAGEMENT |
MD&A |
FINANCIAL RISK | DESCRIPTION OF RISK | MANAGEMENT OF RISK AND FINANCIAL STATEMENT CLASSIFICATION |
Interest rate risk |
We are exposed to risk on the interest rates of our debt, our post-employment benefit plans and on dividend rate resets on our preferred shares. Refer to the following Fair value section for details on our derivative financial instruments. |
|
Equity price risk |
We are exposed to risk on our cash flow related to share-based payment plans. Refer to the following Fair value section for details on our derivative financial instruments. |
|
Longevity risk | We are exposed to life expectancy risk on our post-employment benefit plans. |
|
Fair value |
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Certain fair value estimates are affected by assumptions we make about the amount and timing of future cash flows and discount rates, all of which reflect varying degrees of risk. Income taxes and other expenses that would be incurred on disposition of financial instruments are not reflected in the fair values. As a result, the fair values are not the net amounts that would be realized if these instruments were settled.
The carrying values of our cash and cash equivalents, trade and other receivables, trade payables and accruals, compensation payable, severance and other costs payable, interest payable, dividends payable, notes payable and loans secured by trade receivables approximate fair value as they are short term.
The following table provides the fair value details of financial instruments measured at amortized cost in the statements of financial position.
DECEMBER 31, 2015 |
DECEMBER 31, 2014 |
|||||||||
CARRYING | FAIR | CARRYING | FAIR | |||||||
CLASSIFICATION | FAIR VALUE METHODOLOGY | VALUE | VALUE | VALUE | VALUE | |||||
CRTC tangible benefits obligation |
Other current and non-current liabilities |
Present value of estimated future cash flows discounted using observable market interest rates |
227 |
234 |
285 |
289 |
|
|||
CRTC deferral account obligation |
Other current and non-current liabilities |
Present value of estimated future cash flows discounted using observable market interest rates |
154 |
163 |
174 |
191 |
|
|||
Debentures, finance leases and other debt |
Debt due within one year and long-term debt |
Quoted market price of debt or present value of future cash flows discounted using observable market interest rates |
17,688 |
19,764 |
17,723 |
20,059 |
|
84 BCE Inc. 2015 ANNUAL REPORT | |||
6 |
FINANCIAL AND CAPITAL MANAGEMENT |
MD&A |
The following table provides the fair value details of financial instruments measured at fair value in the statements of financial position.
|
|
FAIR VALUE AT DECEMBER 31 |
|||||||
|
|
QUOTED PRICES IN | |||||||
|
|
CARRYING VALUE OF | ACTIVE MARKETS FOR | OBSERVABLE | NON-OBSERVABLE | ||||
|
|
ASSET (LIABILITY) AT | IDENTICAL ASSETS | MARKET DATA | MARKET INPUTS | ||||
|
CLASSIFICATION |
DECEMBER 31 | (LEVEL 1) |
(LEVEL 2) |
(1) |
(LEVEL 3) |
(2) | ||
2015 |
|
||||||||
Available-for-sale (AFS) publicly-traded and privately-held investments(3) |
Other non-current assets |
128 |
|
16 |
|
|
|
112 |
|
Derivative financial instruments |
Other current assets, trade payables and other liabilities, other non-current assets and liabilities |
256 |
|
|
|
256 |
|
|
|
MLSE financial liability(4) |
Other non-current liabilities |
(135 |
) |
|
|
|
|
(135 |
) |
Other |
Other non-current assets and liabilities |
30 |
|
|
|
56 |
|
(26 |
) |
2014 |
|
||||||||
AFS publicly-traded and privately-held investments(3) |
Other non-current assets |
107 |
17 |
|
90 |
||||
Derivative financial instruments |
Other current assets, trade payables and other liabilities, other non-current assets and liabilities |
276 |
|
|
276 |
|
|
|
|
MLSE financial liability(4) |
Other non-current liabilities |
(135 |
) |
|
|
|
|
(135 |
) |
Other |
Other non-current assets and liabilities |
12 |
|
|
|
22 |
|
(10 |
) |
(1) | Observable market data such as equity prices, interest rates, swap rate curves and foreign currency exchange rates. |
(2) | Non-observable market inputs such as discounted cash flows and earnings multiples. A reasonable change in our assumptions would not result in a significant increase (decrease) to our level 3 financial instruments. |
(3) | Unrealized gains and losses on AFS financial assets are recorded in OCI and are reclassified to Other (expense) income in the income statements when realized or when an impairment is determined. |
(4) | Represents BCEs obligation to repurchase the BCE Master Trust Funds (Master Trust) 9% interest in MLSE at a price not less than an agreed minimum price should the Master Trust exercise its put option. |
6.7 Credit ratings |
Credit ratings generally address the ability of a company to repay principal and pay interest on debt or dividends on issued and outstanding preferred shares.
Our ability to raise financing depends on our ability to access the public equity and debt capital markets as well as the bank credit market. Our ability to access such markets and the cost and amount of funding available partly depends on the quality of our credit ratings at the time capital is raised. Investment-grade credit ratings usually mean that when we borrow money, we qualify for lower interest rates than companies that have ratings lower than investment-grade. A ratings downgrade could result in adverse consequences for our funding capacity or ability to access the capital markets.
The following table provides BCEs and Bell Canadas credit ratings, which are considered investment grade, as at March 3, 2016 from DBRS and Moodys and S&P.
Key credit ratings |
BELL CANADA(1) |
||||||
MARCH 3, 2016 | DBRS | MOODY'S | S&P | |||
Commercial paper | R-1 (low) | P-2 | A-1 (Low) (Canadian scale) | |||
A-2 (Global scale) | ||||||
Long-term debt | A (low) | Baa 1 | BBB+ | |||
Subordinated long-term debt | BBB | Baa 2 | BBB | |||
BCE(1) |
||||||
DBRS | MOODY'S | S&P | ||||
Preferred shares | Pfd-3 (high) | | P-2 (low) (Canadian scale) | |||
BBB- (Global scale) |
(1) | Outlooks on all ratings are stable. These credit ratings are not recommendations to buy, sell or hold any of the securities referred to above, and they may be revised or withdrawn at any time by the assigning rating organization. Each credit rating should be evaluated independently of any other credit rating. |
BCE Inc. 2015 ANNUAL REPORT 85 |
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6 |
FINANCIAL AND CAPITAL MANAGEMENT |
MD&A |
6.8 Liquidity |
Sources of liquidity
Our cash and cash equivalents balance at the end of 2015 was $613 million. We expect that this balance, our 2016 estimated cash flows from operations, and possible capital markets financing, including commercial paper, will permit us to meet our cash requirements in 2016 for capital expenditures, post-employment benefit plans funding, dividend payments, the payment of contractual obligations, maturing debt, ongoing operations, and other cash requirements.
Should our 2016 cash requirements exceed our cash and cash equivalents balance, cash generated from our operations, and capital markets financing, we would expect to cover such a shortfall by drawing under committed revolving credit facilities that are currently in place or through new facilities, to the extent available.
Our cash flows from operations, cash and cash equivalents balance, capital markets financing and credit facilities should give us flexibility in carrying out our plans for future growth, including business acquisitions and contingencies.
|
TOTAL | LETTERS OF | COMMERCIAL PAPER | NET | ||||||
DECEMBER 31, 2015 |
AVAILABLE | DRAWN | CREDIT | OUTSTANDING | AVAILABLE | |||||
Committed credit facilities |
||||||||||
Unsecured revolving facility(1)(2) |
3,000 | | | 1,659 | 1,341 | |||||
Unsecured committed term credit facility (Astral)(3) |
526 | 526 | | | | |||||
Other |
121 | | 119 | | 2 | |||||
Total committed credit facilities |
3,647 | 526 | 119 | 1,659 | 1,343 | |||||
Total non-committed credit facilities |
1,372 | | 676 | | 696 | |||||
Total committed and non-committed credit facilities |
5,019 | 526 | 795 | 1,659 | 2,039 |
(1) | Bell Canadas $2.5 billion revolving facility expires in November 2020 and its $500 million expansion facility expires in November 2018. |
(2) | As of December 31, 2015, Bell Canadas outstanding commercial paper included $856 million in U.S. dollars ($1,185 million in Canadian dollars). All of Bell Canadas commercial paper outstanding is included in debt due within one year. |
(3) | The outstanding balance at December 31, 2015 was $380 million in U.S. dollars ($526 million in Canadian dollars), which is included in debt due within one year and has been hedged using cross currency basis swaps. |
Bell Canada may issue notes in an aggregate amount of up to $2 billion in either Canadian or U.S. dollars under its commercial paper program, supported by a committed revolving bank credit facility. The total amount of this credit facility may be drawn at any time. Some of our credit agreements require us to meet specific financial ratios and to offer to repay and cancel the credit agreement upon a change of control of BCE or Bell Canada. We are in compliance with all conditions and restrictions under such agreements.
Subsequent to year end, on January 11, 2016, Bell Canada redeemed, prior to maturity, its 4.64% Series M-19 MTN debentures, having an outstanding principal amount of $200 million which were due on February 22, 2016, as well as its 3.65% Series M-23 MTN debentures, having an outstanding principal amount of $500 million which were due on May 19, 2016.
In addition, on February 29, 2016, Bell Canada issued 3.55% Series M-41 MTN debentures under its 1997 trust indenture, with a principal amount of $750 million, which mature on March 2, 2026.
Cash requirements |
CAPITAL EXPENDITURES
In 2016, our planned capital spending will be focused on our strategic imperatives, reflecting an appropriate level of investment in our networks and services.
POST-EMPLOYMENT BENEFIT PLANS FUNDING
Our post-employment benefit plans include DB pension and defined contribution (DC) pension plans, as well as other post-employment benefits (OPEBs). The funding requirements of our post-employment benefit plans, resulting from valuations of our plan assets and liabilities, depend on a number of factors, including actual returns on post-employment benefit plan assets, long-term interest rates, plan demographics, and applicable regulations and actuarial standards. Our expected funding for 2016 is detailed in the following table and is subject to actuarial valuations that will be completed in mid-2016. An actuarial valuation was last performed for our significant post-employment benefit plans as at December 31, 2014.
2016 EXPECTED FUNDING |
TOTAL |
|
DB pension plans service cost |
216 | |
DB pension plans deficit |
19 | |
DB pension plans |
235 | |
OPEBs |
85 | |
DC pension plans |
105 | |
Total net post-employment benefit plans |
425 |
BCE closed the membership of its DB pension plans to new employees in January 2005 to reduce the impact of pension volatility on earnings over time. Generally, new employees now enrol in the DC pension plans. In 2006, we announced the phase-out, over a 10-year period, of OPEBs for most employees, which will result in OPEBs funding being phased out gradually after 2016.
86 BCE Inc. 2015 ANNUAL REPORT | |||
6 |
FINANCIAL AND CAPITAL MANAGEMENT |
MD&A |
DIVIDEND PAYMENTS
In 2016, the cash dividends to be paid on BCEs common shares are expected to be higher than in 2015 as BCEs annual common share dividend increased by 5.0% to $2.73 per common share from $2.60 per common share effective with the dividend payable on April 15, 2016. This increase is consistent with BCEs common share dividend policy of a target payout between 65% and 75% of free cash flow. BCEs dividend policy and the declaration of dividends are subject to the discretion of the BCE Board.
CONTRACTUAL OBLIGATIONS
The following table is a summary of our contractual obligations at December 31, 2015 that are due in each of the next five years and thereafter.
|
2016 | 2017 | 2018 | 2019 | 2020 |
THERE- AFTER |
TOTAL | |||||||
Recognized financial liabilities |
||||||||||||||
Long-term debt |
1,899 | 1,107 | 1,731 | 1,309 | 1,401 | 7,995 | 15,442 | |||||||
Notes payable |
1,666 | | | | | | 1,666 | |||||||
Minimum future lease payments under finance leases |
544 | 484 | 337 | 261 | 240 | 1,199 | 3,065 | |||||||
Loans secured by trade receivables |
931 | | | | | | 931 | |||||||
Interest payable on long-term debt, notes payable and loan secured by trade receivables |
728 | 639 | 575 | 506 | 457 | 5,077 | 7,982 | |||||||
MLSE financial liability |
| 135 | | | | | 135 | |||||||
Net interest receipts on derivatives |
(25 | ) | (12 | ) | | | | | (37 | ) | ||||
Commitments (off-balance sheet) |
||||||||||||||
Operating leases |
287 | 257 | 206 | 178 | 154 | 814 | 1,896 | |||||||
Commitments for property, plant and equipment and intangible assets |
946 | 650 | 570 | 497 | 448 | 1,373 | 4,484 | |||||||
Purchase obligations |
1,140 | 578 | 541 | 525 | 452 | 1,645 | 4,881 | |||||||
National expansion of TMN(1) |
190 | | | | | | 190 | |||||||
Total |
8,306 | 3,838 | 3,960 | 3,276 | 3,152 | 18,103 | 40,635 |
(1) | This commitment was settled in the first quarter of 2016. |
BCEs significant finance leases are for satellites and office premises. The leases for satellites, used to provide programming to our Bell TV customers, have a term of 15 years. The satellite leases are non-cancellable. The office leases have a typical lease term of 25 years. Minimum future lease payments under finance leases include future finance costs of $805 million.
BCEs significant operating leases are for office premises, cellular tower sites and retail outlets with lease terms ranging from 1 to 42 years. These leases are non-cancellable and are renewable at the end of the lease period. Rental expense relating to operating leases was $340 million in 2015 and $335 million in 2014.
Our commitments for property, plant and equipment and intangible assets include program and feature film rights and investments to expand and update our networks to meet customer demand.
Purchase obligations consist of contractual obligations under service and product contracts for operating expenditures.
INDEMNIFICATIONS AND GUARANTEES (OFF-BALANCE SHEET)
As a regular part of our business, we enter into agreements that provide for indemnifications and guarantees to counterparties in transactions involving business dispositions, sales of assets, sales of services, purchases and development of assets, securitization agreements and operating leases. While some of the agreements specify a maximum potential exposure, many do not specify a maximum amount or termination date.
We cannot reasonably estimate the maximum potential amount we could be required to pay counterparties because of the nature of almost all of these indemnifications and guarantees. As a result, we cannot determine how they could affect our future liquidity, capital resources or credit risk profile. We have not made any significant payments under indemnifications or guarantees in the past.
Litigation |
We become involved in various legal proceedings as a part of our business. While we cannot predict the final outcome or timing of the legal proceedings that were pending at March 3, 2016, based on information currently available and managements assessment of the merits of such legal proceedings, management believes that the resolution of these legal proceedings will not have a material and negative effect on our financial statements. We believe that we have strong defences and we intend to vigorously defend our positions.
You will find a description of the principal legal proceedings pending at March 3, 2016 in the BCE 2015 AIF.
BCE Inc. 2015 ANNUAL REPORT 87 |
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7 |
SELECTED ANNUAL AND
QUARTERLY INFORMATION |
MD&A |
7 Selected annual and quarterly information
7.1 Annual financial information
The following table shows selected consolidated financial data of BCE for 2015, 2014 and 2013, prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB). We discuss the factors that caused our results to vary over the past two years throughout this MD&A.
|
2015 | 2014 | (1) | 2013 | (2) | |
CONSOLIDATED INCOME STATEMENTS |
||||||
Operating revenues |
21,514 | 21,042 | 20,400 | |||
Operating costs |
(12,963 | ) | (12,739 | ) | (12,311 | ) |
Adjusted EBITDA |
8,551 | 8,303 | 8,089 | |||
Severance, acquisition and other costs |
(446 | ) | (216 | ) | (406 | ) |
Depreciation |
(2,890 | ) | (2,880 | ) | (2,734 | ) |
Amortization |
(530 | ) | (572 | ) | (646 | ) |
Finance costs |
||||||
Interest expense |
(909 | ) | (929 | ) | (931 | ) |
Interest on post-employment benefit obligations |
(110 | ) | (101 | ) | (150 | ) |
Other (expense) income |
(12 | ) | 42 | (6 | ) | |
Income taxes |
(924 | ) | (929 | ) | (828 | ) |
Net earnings |
2,730 | 2,718 | 2,388 | |||
Net earnings attributable to: |
||||||
Common shareholders |
2,526 | 2,363 | 1,975 | |||
Preferred shareholders |
152 | 137 | 131 | |||
Non-controlling interest |
52 | 218 | 282 | |||
Net earnings |
2,730 | 2,718 | 2,388 | |||
Net earnings per common share |
||||||
Basic |
2.98 | 2.98 | 2.55 | |||
Diluted |
2.98 | 2.97 | 2.54 | |||
Included in net earnings: |
||||||
Severance, acquisition and other costs |
(327 | ) | (148 | ) | (299 | ) |
Net gains (losses) on investments |
21 | 8 | (7 | ) | ||
Early debt redemption costs |
(13 | ) | (21 | ) | (36 | ) |
Adjusted net earnings |
2,845 | 2,524 | 2,317 | |||
Adjusted EPS |
3.36 | 3.18 | 2.99 | |||
RATIOS |
||||||
Adjusted EBITDA margin (%) |
39.7 | % | 39.5 | % | 39.7 | % |
Return on equity (%)(3) |
21.1 | % | 21.0 | % | 17.9 | % |
(1) | On October 31, 2014, BCE completed its acquisition of all the issued and outstanding common shares of Bell Aliant that it did not already own. Refer to section 6.5, Privatization of Bell Aliant for further details on the transaction. |
(2) | On July 5, 2013, BCE acquired 100% of the issued and outstanding shares of Astral. As part of its approval of the Astral acquisition, the CRTC ordered BCE to spend $246.9 million in new benefits for French- and English-language TV, radio and film content development, support for emerging Canadian musical talent, training and professional development for Canadian media, and new consumer participation initiatives. The present value of this tangible benefits obligation, amounting to $230 million, was recorded as an acquisition cost in Severance, acquisition and other costs in 2013. Total acquisition and other costs relating to Astral, including the tangible benefits obligation, amounted to $266 million in 2013. |
(3) | Net earnings attributable to common shareholders divided by total average equity attributable to BCE shareholders excluding preferred shares. |
88 BCE Inc. 2015 ANNUAL REPORT | |||
7 |
SELECTED ANNUAL AND
QUARTERLY INFORMATION |
MD&A |
|
2015 | 2014 | 2013 | |||
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
||||||
Total assets |
47,993 | 46,297 | 45,384 | |||
Cash and cash equivalents |
613 | 566 | 335 | |||
Debt due within one year (including bank advances, notes payable and loan secured by trade receivables) |
4,895 | 3,743 | 2,571 | |||
Long-term debt |
15,390 | 16,355 | 16,341 | |||
Total non-current liabilities |
20,672 | 21,969 | 21,244 | |||
Equity attributable to BCE shareholders |
17,023 | 14,946 | 15,011 | |||
Total equity |
17,329 | 15,239 | 16,250 | |||
CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||
Cash flows from operating activities |
6,274 | 6,241 | 6,476 | |||
Cash flows used in investing activities |
(4,114 | ) | (3,570 | ) | (6,401 | ) |
Capital expenditures |
(3,626 | ) | (3,717 | ) | (3,571 | ) |
Business acquisitions |
(311 | ) | (18 | ) | (2,850 | ) |
Business dispositions |
409 | 720 | 1 | |||
Acquisition of spectrum licences |
(535 | ) | (566 | ) | | |
Cash flows (used in) from financing activities |
(2,113 | ) | (2,440 | ) | 131 | |
Issue of common shares |
952 | 49 | 13 | |||
Net (repayment) issuance of debt instruments |
(510 | ) | 784 | 2,215 | ||
Common shares issuance cost |
(35 | ) | | | ||
Cash dividends paid on common shares |
(2,169 | ) | (1,893 | ) | (1,795 | ) |
Privatization of Bell Aliant |
| (989 | ) | | ||
Cash dividends paid on preferred shares |
(150 | ) | (134 | ) | (127 | ) |
Cash dividends paid by subsidiaries to non-controlling interest |
(41 | ) | (145 | ) | (283 | ) |
Free cash flow |
2,999 | 2,744 | 2,571 | |||
SHARE INFORMATION |
||||||
Average number of common shares (millions) |
847.1 | 793.7 | 775.8 | |||
Common shares outstanding at end of year (millions) |
865.6 | 840.3 | 775.9 | |||
Market capitalization(1) |
46,275 | 44,771 | 35,691 | |||
Dividends declared per common share (dollars) |
2.60 | 2.47 | 2.33 | |||
Dividends declared on common shares |
(2,213 | ) | (1,960 | ) | (1,807 | ) |
Dividends declared on preferred shares |
(152 | ) | (138 | ) | (131 | ) |
Closing market price per common share (dollars) |
53.46 | 53.28 | 46.00 | |||
Total shareholder return(2) |
5.3 | % | 21.7 | % | 13.6 | % |
RATIOS |
||||||
Capital intensity (%) |
16.9 | % | 17.7 | % | 17.5 | % |
Price to earnings ratio (times)(3) |
17.94 | 17.88 | 18.04 | |||
Price to cash flow ratio (times)(4) |
17.08 | 16.75 | 12.30 | |||
OTHER DATA |
||||||
Number of employees (thousands) |
50 | 57 | 56 |
(1) | BCEs common share price at the end of the year multiplied by the number of common shares outstanding at the end of the year. |
(2) | The change in BCEs common share price for a specified period plus BCE common share dividends reinvested, divided by BCEs common share price at the beginning of the year. |
(3) | BCEs common share price at the end of the year divided by earnings per share. |
(4) | BCEs common share price at the end of the year divided by cash flow per common share. Cash flow per common share is cash flow from operating activities less capital expenditures, divided by the average number of common shares outstanding. |
BCE Inc. 2015 ANNUAL REPORT 89 |
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MD&A |
7.2 Quarterly financial information |
The following table shows selected BCE consolidated financial data by quarter for 2015 and 2014. This quarterly information is unaudited but has been prepared on the same basis as the annual consolidated financial statements. We discuss the factors that caused our results to vary over the past eight quarters throughout this MD&A.
|
2015 | 2014 | |||||||||||||||
|
Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||
Operating revenues |
5,603 | 5,345 | 5,326 | 5,240 | 5,528 | 5,195 | 5,220 | 5,099 | |||||||||
Adjusted EBITDA |
2,073 | 2,187 | 2,197 | 2,094 | 2,022 | 2,115 | 2,144 | 2,022 | |||||||||
Severance, acquisition and other costs |
(152 | ) | (46 | ) | (24 | ) | (224 | ) | (58 | ) | (66 | ) | (54 | ) | (38 | ) | |
Depreciation |
(731 | ) | (727 | ) | (720 | ) | (712 | ) | (734 | ) | (739 | ) | (708 | ) | (699 | ) | |
Amortization |
(136 | ) | (133 | ) | (134 | ) | (127 | ) | (118 | ) | (116 | ) | (171 | ) | (167 | ) | |
Net earnings |
542 | 791 | 814 | 583 | 594 | 703 | 707 | 714 | |||||||||
Net earnings attributable to common shareholders |
496 | 739 | 759 | 532 | 542 | 600 | 606 | 615 | |||||||||
Net earnings per common share |
|||||||||||||||||
Basic |
0.58 | 0.87 | 0.90 | 0.63 | 0.64 | 0.77 | 0.78 | 0.79 | |||||||||
Diluted |
0.58 | 0.87 | 0.90 | 0.63 | 0.63 | 0.77 | 0.78 | 0.79 | |||||||||
Included in net earnings: |
|||||||||||||||||
Severance, acquisition and other costs |
(112 | ) | (35 | ) | (16 | ) | (164 | ) | (42 | ) | (45 | ) | (38 | ) | (23 | ) | |
Net (losses) gains on investments |
(1 | ) | (16 | ) | 40 | (2 | ) | (8 | ) | | 4 | 12 | |||||
Early debt redemption costs |
(6 | ) | | | (7 | ) | (18 | ) | (3 | ) | | | |||||
Adjusted net earnings |
615 | 790 | 735 | 705 | 610 | 648 | 640 | 626 | |||||||||
Adjusted EPS |
0.72 | 0.93 | 0.87 | 0.84 | 0.72 | 0.83 | 0.82 | 0.81 | |||||||||
Average number of common shares outstanding basic (millions) |
853.5 | 848.9 | 844.9 | 841.0 | 837.7 | 782.1 | 777.7 | 776.5 | |||||||||
OTHER INFORMATION |
|||||||||||||||||
Cash flows from operating activities |
1,510 | 1,878 | 1,841 | 1,045 | 1,527 | 1,882 | 1,850 | 982 | |||||||||
Free cash flow |
916 | 921 | 931 | 231 | 833 | 834 | 815 | 262 | |||||||||
Capital expenditures |
958 | 927 | 914 | 827 | 1,076 | 975 | 937 | 729 |
Fourth quarter highlights |
OPERATING REVENUES | Q4 2015 | Q4 2014 | $ CHANGE | % CHANGE | ||||
Bell Wireless |
1,770 | 1,671 | 99 | 5.9 | % | |||
Bell Wireline |
3,161 | 3,210 | (49 | ) | (1.5 | %) | ||
Bell Media |
816 | 789 | 27 | 3.4 | % | |||
Inter-segment eliminations |
(144 | ) | (142 | ) | (2 | ) | (1.4 | %) |
Total BCE operating revenues |
5,603 | 5,528 | 75 | 1.4 | % |
ADJUSTED EBITDA | Q4 2015 | Q4 2014 | $ CHANGE | % CHANGE | ||||
Bell Wireless |
641 | 600 | 41 | 6.8 | % | |||
Bell Wireline |
1,248 | 1,230 | 18 | 1.5 | % | |||
Bell Media |
184 | 192 | (8 | ) | (4.2 | %) | ||
Total BCE adjusted EBITDA |
2,073 | 2,022 | 51 | 2.5 | % |
90 BCE Inc. 2015 ANNUAL REPORT | |||
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SELECTED ANNUAL AND
QUARTERLY INFORMATION |
MD&A |
BCE operating revenues were 1.4% higher in Q4 2015, compared to Q4 2014, driven by solid performance in both our Bell Wireless and Bell Media segments, partly offset by a 1.5% decline in our Bell Wireline segment, due to the impact of continued slow economic growth and competitive pricing pressures on service and product revenue in our Business Markets unit.
BCE adjusted EBITDA grew by 2.5% in Q4 2015, compared to Q4 2014, reflecting year-over-year increases at Bell Wireless of 6.8% and at Bell Wireline of 1.5%. This was moderated by a 4.2% decline at Bell Media. BCE adjusted EBITDA margin expanded to 37.0% compared to 36.6% in Q4 2014.
Bell Wireless operating revenues were 5.9% higher in Q4 2015 compared to last year, reflecting service revenue growth of 6.3% driven by a larger postpaid subscriber base and blended ARPU growth of 4.4%, driven by higher average monthly rates due to the ongoing migration by customers from three-year to two-year rate plans, as well as increased data usage. Bell Wireless operating revenues also reflected higher product sales in Q4 2015 with growth of 2.4%, as a result of a higher number of customer upgrades and postpaid gross additions compared to Q4 2014. Bell Wireless adjusted EBITDA was up 6.8%, year over year, yielding a 0.2 percentage point expansion in adjusted EBITDA service margin to 40.4%, despite higher customer retention spending and subscriber acquisition costs, attributable to more subsidized customer upgrades and postpaid gross activations, mainly as a result of the double cohort.
Bell Wireline operating revenues in Q4 2015 decreased by 1.5%, year over year, due to pressures in our Business Markets unit from a soft economy that contributed to reduced customer spending on connectivity services, business service solutions and data and voice equipment, as well as competitive pricing pressures. Additionally, continued voice erosion in our residential market, the sale of a call centre subsidiary on September 1, 2015 and lower international long distance minute sales further reduced operating revenues. The decline was moderated by Internet and IPTV subscriber growth and price increases across our residential services. Bell Wireline adjusted EBITDA in Q4 2015 was up 1.5%, year over year, with a corresponding adjusted EBITDA margin improvement to 39.5% from 38.3% in Q4 2014, reflecting effective management of our operating costs, including Bell Aliant integration synergies and workforce reductions.
Bell Media operating revenues in Q4 2015 increased by 3.4%, compared to Q4 2014, reflecting higher conventional TV advertising revenues, driven by the federal election and Bell Medias strong fall season primetime line-up, and an increase in OOH advertising revenues due to new contract wins. This was partly offset by modest declines in specialty TV and radio advertising revenues. Subscriber revenues were up year over year, due to continued growth from CraveTV and TV Everywhere services, as well as favourable rate adjustments with certain BDUs. Bell Media adjusted EBITDA decreased by 4.2% in Q4 2015, as a result of higher content and programming costs related to CraveTV combined with escalating costs for sports broadcast rights and a return to normalized spending for Canadian programming expenditures following a one-time benefit in the fourth quarter of 2014.
BCE capital expenditures totalled $958 million in Q4 2015, which was $118 million lower than Q4 2014, corresponding to a 2.4 percentage-point decline in capital intensity to 17.1%. The decrease in capital expenditures reflected lower spending across all our segments, due to timing of spend and the substantial completion of our FibreOP deployment in Atlantic Canada as well as less new IPTV service footprint expansion in Québec and Ontario. Our capital investment supported the continued rollout of broadband fibre, including the build-out of Gigabit Fibe infrastructure in Toronto and other urban locations, the deployment of our 4G LTE and LTE-A wireless networks as well as increases in wireless and Internet network capacity to support greater speeds and growing data usage.
BCE severance, acquisition and other costs of $152 million in Q4 2015 increased by $94 million mainly due to costs related to workforce reduction initiatives at our Bell Media and Bell Wireline segments to address increasing competition, media industry regulation, a soft business market and declines in home phone subscribers.
BCE depreciation of $731 million in Q4 2015 decreased by $3 million, year over year, due to a reduction in the estimates of useful lives of certain network assets starting July 2014, which increased depreciation expense in 2014, as described in section 10.1, Our accounting policies Critical accounting estimates and key judgments, partly offset by a higher depreciable asset base as we continued to invest in our broadband wireline and wireless networks, as well as our IPTV service.
BCE amortization was $136 million in Q4 2015, up from $118 million in Q4 2014, as a result of a higher net asset base, partly offset by an increase in the estimates of useful lives of certain assets from five to seven years, as described in section 10.1, Our accounting policies Critical accounting estimates and key judgments.
BCE net earnings attributable to common shareholders of $496 million in Q4 2015, or $0.58 per share, were lower than the $542 million, or $0.64 per share, reported in Q4 2014. The year-over-year decrease was due to higher severance, acquisition and other costs, related mainly to workforce reduction initiatives, and lower mark-to-market gains on equity derivative contracts entered into to economically hedge future payments under our share-based compensation plans. This was partly offset by higher adjusted EBITDA, lower asset impairment charges at Bell Media, and lower income taxes. Adjusted net earnings increased by 0.8% to $615 million, and adjusted EPS remained flat at $0.72.
BCE cash flow from operating activities was $1,510 million in Q4 2015 compared to $1,527 million in Q4 2014. The decrease is mainly attributable to higher acquisition and other costs paid in 2015, due largely to the payment in full satisfaction of the judgment rendered in a litigation claim for Satellite TV signal piracy, and lower cash from working capital, partly offset by lower voluntary contribution made to post-employment benefit plans, compared to Q4 2014, and higher adjusted EBITDA.
BCE free cash flow generated in Q4 2015 was $916 million, or 10.0%, higher than in Q4 2014. This was driven by higher adjusted EBITDA, lower capital expenditures and the favourable impact of the privatization of Bell Aliant, partly offset by lower cash from working capital.
BCE Inc. 2015 ANNUAL REPORT 91 |
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SELECTED ANNUAL AND
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MD&A |
Seasonality considerations |
Some of our segments revenues and expenses vary slightly by season, which may impact quarter-to-quarter operating results.
Bell Wireless operating results are influenced by the timing of our marketing and promotional expenditures and higher levels of subscriber additions and handset discounts, resulting in higher subscriber acquisition and activation-related expenses in certain quarters. In particular, subscriber activations are typically lowest in the first quarter, while adjusted EBITDA tends to be lower in the third and fourth quarters, due to higher subscriber acquisition and retention costs associated with a higher number of new subscriber activations and upgrades during the back-to-school, Black Friday and Christmas holiday periods.
Bell Wireline revenues tend to be higher in the fourth quarter because of higher data and equipment product sales to business customers and higher consumer electronics equipment sales during the Q4 Christmas holiday period. However, this may vary from year to year depending on the strength of the economy and the presence of targeted sales initiatives, which can influence customer spending. Home Phone, TV and Internet subscriber activity is subject to modest seasonal fluctuations, attributable largely to residential moves during the summer months and the back-to-school period in the third quarter. Targeted marketing efforts conducted during various times of the year to coincide with special events or broad-based marketing campaigns also may have an impact on overall wireline operating results.
Bell Media revenues and related expenses from TV and radio broadcasting are largely derived from the sale of advertising, the demand for which is affected by prevailing economic conditions, as well as cyclical and seasonal variations. Seasonal variations are driven by the strength of TV ratings, particularly during the fall programming season, major sports league seasons and other special sporting events such as the Olympic Games, NHL playoffs and World Cup soccer, as well as fluctuations in consumer retail activity during the year.
92 BCE Inc. 2015 ANNUAL REPORT | |||
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REGULATORY ENVIRONMENT |
MD&A |
8 Regulatory environment
8.1 Introduction
This section describes certain legislation that governs our businesses and provides highlights of recent regulatory initiatives and proceedings, government consultations and government positions that affect us, influence our business and may continue to affect our flexibility to compete in the marketplace. Bell Canada and several of its direct and indirect subsidiaries, including Bell Mobility, Bell ExpressVu Limited Partnership (Bell ExpressVu), NorthernTel, Limited Partnership (NorthernTel), Télébec, Limited Partnership (Télébec) and Northwestel, are governed by the Telecommunications Act, the Broadcasting Act, the Radiocommunication Act and/or the Bell Canada Act. They are also subject to regulations and policies enforced by the CRTC. Our business is affected by decisions made by various regulatory agencies, including the CRTC, a quasi-judicial agency of the Government of Canada responsible for regulating Canadas telecommunications and broadcasting industries. Other aspects of the businesses of these entities are regulated in various ways by federal government departments, in particular Innovation, Science and Economic Development Canada (ISED, previously called Industry Canada).
The CRTC regulates the prices we can charge for telecommunications services in areas where it determines there is not enough competition to protect the interests of consumers. The CRTC has determined that competition was sufficient to grant forbearance from retail price regulation under the Telecommunications Act for the vast majority of our residential and business telephone services, as well as for our wireless (except our domestic wholesale wireless roaming service) and Internet services (except in certain parts of Northwestels territory, where the CRTC re-regulated Internet services in 2013). Our TV distribution business is subject to the Broadcasting Act and is, for the most part, not subject to retail price regulation. However, the CRTC has recently mandated that all TV providers offer a small entry-level package consisting of only Canadian conventional TV services, certain public-interest services and, if the TV provider chooses to include them, one set of American over-the-air (OTA) stations. The price of this package cannot exceed $25 per month.
Although most of our retail services are not price-regulated, government agencies and departments such as the CRTC, ISED, Canadian Heritage and the Competition Bureau continue to play a significant role in regulatory matters such as mandatory access to networks, net neutrality, spectrum auctions, approval of acquisitions, broadcast licensing and foreign ownership requirements. Adverse decisions by regulatory agencies or increasing regulation could have negative financial, operational, reputational or competitive consequences for our business.
8.2 Telecommunications Act |
The Telecommunications Act governs telecommunications in Canada. It defines the broad objectives of Canadas telecommunications policy and provides the Government of Canada with the power to give general direction to the CRTC on any of its policy objectives. It applies to several of the BCE group companies and partnerships, including Bell Canada, Bell Mobility, NorthernTel, Télébec and Northwestel.
Under the Telecommunications Act, all facilities-based telecommunications service providers in Canada, known as telecommunications common carriers (TCCs), must seek regulatory approval for all proposed tariffs for telecommunications services, unless the services are exempt from regulation or forborne from regulation. The CRTC may exempt an entire class of carriers from regulation under the Telecommunications Act if the exemption meets the objectives of Canadas telecommunications policy. In addition, a few large TCCs, including the BCE group TCCs, must also meet certain Canadian ownership requirements. BCE monitors and periodically reports on the level of non-Canadian ownership of its common shares.
Review of basic telecommunications services |
On April 9, 2015, the CRTC launched Telecom Notice of Consultation CRTC 2015-134, Review of basic telecommunications services. In this proceeding, the CRTC requests parties to comment on which telecommunications services Canadians require to participate in the digital economy and what the CRTCs role should be in ensuring access to these services for all Canadians. As a result of this proceeding, the CRTC may make modifications to its basic service objective and obligation to serve policies, which currently describe the level of voice service that ILECs must provide to customers in regulated areas that they serve. Potential modifications could involve the introduction of new regulation to support the delivery of broadband services, including the implementation of a new contribution mechanism or tax regime on all large telecommunications service providers to fund access to broadband services. Such modifications could have a significant impact on our business and investment decisions. A decision is not expected before late 2016.
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MD&A |
Complaint regarding pricing of broadcasting content accessed via mobile devices |
On January 29, 2015, the CRTC issued a decision (Mobile TV decision) concerning a complaint against Bell Mobility about the pricing of our Bell Mobile TV service compared with the rates applicable when consumers access programming content received via mobile devices over the Internet. The CRTC found that we were conferring an undue preference on our Mobile TV service by not subjecting it to the standard data charges. In accordance with the CRTCs Mobile TV decision, we have ceased exempting our Mobile TV service from data charges as of April 29, 2015.
On February 20, 2015, Bell Canada filed a motion seeking leave to appeal the CRTCs Mobile TV decision in the Federal Court of Appeal, which was granted on April 2, 2015. Bell Canada alleges that the CRTC made certain errors in law in conjunction with the Mobile TV decision. The appeal was heard on January 19, 2016 and a decision is expected later this year.
Proceedings regarding wholesale domestic wireless services |
On May 5, 2015, the CRTC released Telecom Regulatory Policy CRTC 2015-177 (TRP 2015-177), which concluded its investigation into the competitiveness of wholesale wireless markets in Canada. TRP 2015-177 requires Bell Mobility, Rogers Communications Partnership (now Rogers Communications Canada Inc.) (Rogers Canada) and Telus Communications Company to issue tariffs for domestic wholesale roaming services based on the GSM standard, which are provided to all other Canadian wireless carriers but not to each other. As a condition of offering GSM-based wholesale roaming services, Bell Mobility, Rogers Canada and Telus Communications Company must provide domestic roaming service to all subscribers served by their wholesale roaming customers, including the subscribers of any MVNOs operating on their roaming customers networks. The CRTC is expected to grant final approval of Bell Mobilitys, Rogers Canadas and Telus Communications Companys proposed wholesale roaming rates later in 2016.
On August 3, 2015, the Canadian Network Operators Consortium (CNOC) applied to the CRTC to review and vary TRP 2015-177. CNOCs application sought: (i) a CRTC order mandating full MVNO services on the networks of Bell Mobility, Rogers Canada and Telus Communications Company at regulated rates; and (ii) a follow-up regulatory proceeding to determine whether wholesale tower and site sharing services should also be mandated, and if so, on what terms and conditions. On February 18, 2016, the CRTC denied both of CNOCs requests, leaving the determinations in TRP 2015-177 unaltered.
Wholesale wireline services framework review |
On July 22, 2015, the CRTC issued Telecom Decision 2015-326, which concluded a review of its wholesale wireline telecommunications policies. The CRTC mandated the introduction of a new disaggregated wholesale high-speed access service, including over FTTP facilities, which had so far been exempt from mandated wholesale high-speed access. While this new service is mandated for all major incumbent telephone companies and cable carriers, the first stage of its implementation is to take place only in Ontario and Québec, our two largest markets. No wholesale service previously forborne was re-regulated.
On October 20, 2015, we requested that the Governor in Council vary the CRTCs decision so that it does not implement legacy wholesale regulation for FTTP or next-generation DOCSIS 3.1 cable networks.
The CRTCs decision would continue to apply to legacy broadband technology, such as DSL, FTTN, and cable broadband based on DOCSIS 3.0 providing speeds up to 100 Mbps, where it exists today. Also on October 20, 2015, we filed an application with the CRTC requesting the addition of conditions regarding competitor eligibility for the new disaggregated wholesale high-speed access service.
The introduction of mandated wholesale services over FTTP by the CRTC will undermine the incentives for facilities-based digital infrastructure providers to invest in next-generation wireline networks, particularly in smaller communities and rural areas.
94 BCE Inc. 2015 ANNUAL REPORT | |||
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MD&A |
National wireless services consumer code |
On June 3, 2013, the CRTC issued Telecom Regulatory Policy CRTC 2013-271, which established the Wireless Code. The Wireless Code applies to all wireless services provided to individual and small business consumers (i.e. businesses that on average spend less than $2,500 per month on telecom services) in all provinces and territories.
The Wireless Code establishes regulations related to unlocking mobile phones, limiting the amount of early cancellation fees, price changes for different categories of services, and setting default caps for data roaming charges and data overage charges, among other measures. The Wireless Code also stipulates that wireless service providers may not charge an early cancellation fee after a customer has been under contract for 24 months and that handset subsidies must be recovered in two years or less. These requirements reduce the incentive for wireless service providers to offer contracts with terms greater than two years.
The Wireless Code has applied to all wireless contracts since June 3, 2015.
Canadas telecommunications foreign ownership rules |
Under the Telecommunications Act, there are no foreign investment restrictions applicable to TCCs that have less than a 10% share of the total Canadian telecommunications market as measured by annual revenues. However, foreign investment in telecommunications companies can still be refused by the government under the Investment Canada Act. The absence of foreign ownership restrictions on such small or new entrant TCCs could result in more foreign companies entering the Canadian market, including by acquiring spectrum licences or Canadian TCCs. Under the Broadcasting Act, foreign ownership restrictions continue to apply to broadcasters such as licensed cable and Satellite TV service providers, and programming licensees such as Bell Media.
8.3 Broadcasting Act |
The Broadcasting Act outlines the broad objectives of Canadas broadcasting policy and assigns the regulation and supervision of the broadcasting system to the CRTC. Key policy objectives of the Broadcasting Act are to protect and strengthen the cultural, political, social and economic fabric of Canada and to encourage the development of Canadian expression.
Most broadcasting activities require a programming or broadcasting distribution licence from the CRTC. The CRTC may exempt broadcasting undertakings from complying with certain licensing and regulatory requirements if it is satisfied that non-compliance will not materially affect the implementation of Canadian broadcasting policy. A corporation must also meet certain Canadian ownership and control requirements to obtain a broadcasting or broadcasting distribution licence and corporations must have the CRTCs approval before they can transfer effective control of a broadcasting licensee.
The TV distribution business of our Bell TV business unit (Bell TV) and Bell Medias TV and radio broadcasting operations are subject to the requirements of the Broadcasting Act, the policies and decisions of the CRTC and their respective broadcasting licences. Any changes in the Broadcasting Act, amendments to regulations or the adoption of new ones, or amendments to licences could negatively affect Bell TVs or Bell Medias competitive position or the cost of providing services.
Changes to simultaneous substitution |
On January 29, 2015, the CRTC announced in Broadcasting Regulatory Policy 2015-25 that it would eliminate simultaneous substitution for specialty channels starting December 1, 2015 and for the Super Bowl starting in 2017, and that it would enact new penalties for broadcasters and require BDUs to pay consumer rebates for simultaneous substitution errors. This decision, as far as it relates to the elimination of simultaneous substitution for the Super Bowl, could have an adverse impact on Bell Medias conventional TV businesses and financial results, the full extent of which is unclear at this time.
On March 2, 2015, Bell Canada and Bell Media filed an application with the Federal Court of Appeal for leave to appeal the CRTCs decision relating to simultaneous substitution in so far as it: (i) prohibits simultaneous substitution for the Super Bowl starting in 2017; (ii) prohibits simultaneous substitution for specialty channels; and (iii) purports to grant the CRTC authority to impose penalties on broadcasters and requires BDUs to pay rebates for errors in the performance of simultaneous substitution. Bell Canada and Bell Media are challenging the legal validity of these rules on the basis of the following arguments: (i) unlawful interference with Bell Medias vested economic rights as the exclusive Canadian rights holder of the Super Bowl; (ii) administrative law discrimination by eliminating the benefits of simultaneous substitution for Bell Medias Super Bowl broadcast while maintaining the benefits of simultaneous substitution for others; (iii) breach of procedural fairness in the CRTCs failure to give notice that the prohibition of simultaneous substitution was a live issue in the TV Policy Review; (iv) the unreasonableness of the decision in light of the broadcasting policy for Canada as set out in the Broadcasting Act and in light of the CRTCs acknowledgement of the benefits of simultaneous substitution; and (v) that the CRTC has no authority to enact regulations that empower it to penalize broadcasters or impose rebates on BDUs for errors in carrying out simultaneous substitution. The Federal Court of Appeal granted our application for leave to appeal on May 5, 2015. On November 19, 2015, the CRTC released an additional decision stating, for the first time, new grounds for its decision relating to simultaneous substitution. On December 14, 2015, Bell Canada and Bell Media filed an application with the Federal Court of Appeal for leave to appeal this decision as well. The hearing of these appeals is now expected to take place later this year.
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MD&A |
Unbundling of TV services |
On March 19, 2015, the CRTC released Broadcasting Regulatory Policy 2015-96, which deals primarily with issues related to the distribution of TV services. In it, the CRTC mandates that all TV providers offer a small entry-level package consisting of only Canadian conventional TV services, certain public-interest services and, if the TV provider chooses to include them, one set of American OTA stations. The price of this package cannot exceed $25 per month exclusive of equipment. The small entry-level offer had to be introduced by March 1, 2016. The decision also requires all TV providers to offer every channel not included in a small entry-level package on both a standalone (à la carte) basis and in either build-your-own packages (e.g. pick 10) or small theme packs of no more than 10 channels. The CRTC did not regulate the price at which such packages can be sold. Either a standalone, build-your-own package, or small theme pack option must be offered by March 1, 2016 and both standalone and one of build-your-own package or small theme pack options must be offered by December 1, 2016. TV providers can continue to offer TV services in other packages, including their existing package options, as long as they also offer the mandated alternatives. The CRTC also decided that, with the exception of mainstream national news services, TV channels that previously had access rights, in that TV providers were required to carry them, will lose those rights when they renew their licences beginning in September 2017. A TV provider will, therefore, be able to cease to offer any of these services that it does not wish to carry. While the impact of the decision on Bell Media is potentially negative, the extent of the impact on Bell Medias business and financial results is unclear at this time.
Wholesale code |
On September 24, 2015, the CRTC released Broadcasting Regulatory Policy 2015-438, announcing a new Wholesale Code. The Wholesale Code governs the commercial arrangements between BDUs, programming services and digital media services, including imposing additional restrictions on the sale of TV channels at wholesale and the carriage of TV channels by BDUs. On October 23, 2015, Bell Canada and Bell Media filed with the Federal Court of Appeal an application for leave to appeal the CRTCs decision to implement the Wholesale Code, which application was granted on December 22, 2015. We allege that the CRTCs implementation of the Wholesale Code conflicts with the Copyright Act and is outside the CRTCs jurisdiction under the Broadcasting Act. A decision on the appeal is not expected until later in the year.
8.4 Radiocommunication Act |
ISED regulates the use of radio spectrum under the Radiocommunication Act. Under the Radiocommunication Act, ISED ensures that radiocommunication in Canada is developed and operated efficiently. Under the Radiocommunication Regulations, companies that are eligible for radio licences, such as Bell Canada and Bell Mobility, must meet the same ownership requirements that apply to companies under the Telecommunications Act.
Companies must have a spectrum licence to operate a wireless system in Canada. While we anticipate that the licences under which we provide wireless services will be renewed upon expiry, there is no assurance that this will happen, or of the terms under which renewal will be granted. ISED can revoke a companys licence at any time if the licensee does not comply with the licences conditions. While we believe that we comply with the conditions of our licences, there is no assurance that ISED will agree. Should there be a disagreement, this could have a negative effect on our business and financial performance.
600 MHz spectrum consultation |
Industry Canada (now ISED) held a consultation in December 2014 seeking comments on various questions related to repurposing the 600 MHz broadcasting band for mobile use. This spectrum is currently used primarily by OTA TV broadcasters for local TV transmissions. This was the first step of a multistep process on the matter. The two key questions related to whether Industry Canada should repurpose the band to include commercial mobile broadband and whether to participate in a joint spectrum repacking process with the United States. In addition, Industry Canada also sought comments regarding the anticipated future spectrum requirements for OTA TV broadcasting, taking into consideration the overall changes in the broadcasting industry.
On August 14, 2015, Industry Canada announced its decision on the results of the consultation. Industry Canada determined it would proceed with the repacking initiative for the 600 MHz band to include commercial mobile use and that it would jointly establish a new digital TV (DTV) allotment plan in collaboration with the U.S. ISED has indicated that it is waiting for the results of the U.S. auction, which is expected to take place in March or April 2016, before proceeding with further consultation concerning the final 600 MHz band plan to be adopted and its auction process, as ISEDs auction parameters will be coordinated with the band plan that results from the auction in the U.S. The repurposing of 600 MHz spectrum will have an impact on existing Bell Media TV broadcasting stations, which will need to transition to alternative spectrum. The extent of such impact is not yet known.
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8.5 Bell Canada Act |
Under the Bell Canada Act, the CRTC must approve any sale or other disposal of Bell Canada voting shares that are held by BCE, unless the sale or disposal would result in BCE retaining at least 80% of all of the issued and outstanding voting shares of Bell Canada. Except in the ordinary course of business, the sale or other disposal of facilities integral to Bell Canadas telecommunications activities must also receive CRTC approval.
8.6 Other key legislation |
Personal Information Protection and Electronic Documents Act
The Digital Privacy Act amending the Personal Information Protection and Electronic Documents Act (PIPEDA) received Royal Assent on June 18, 2015. The amendments introduce mandatory notification requirements that must be followed in relation to the loss or unauthorized disclosure of personal information held by an organization resulting from a breach of the organizations security safeguards. Failure to comply with these notification requirements, or to log security breaches, may result in a fine of up to $100,000 per occurrence. These provisions dealing with notification requirements will come into force when related regulations are brought into force.
Canadas anti-spam legislation |
Federal legislation referred to as Canadas anti-spam legislation (CASL) came into force on July 1, 2014. Pursuant to CASL, commercial electronic messages (CEMs) can be sent only if the recipient has provided prior consent and the message complies with certain formalities, including the ability to unsubscribe easily from subsequent messages. As of January 15, 2015, CASL also requires that an organization have prior informed consent before downloading software to an end-users computer. Penalties for non-compliance include administrative monetary penalties of up to $10 million and a private right of action is scheduled to come into force on July 1, 2017. CASL limits the ability of the various BCE group companies to contact prospective customers, and imposes additional costs and processes with respect to communicating with existing and prospective customers.
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9 Business risks
A risk is the possibility that an event might happen in the future that could have a negative effect on our financial position, financial performance, cash flows, business or reputation. The actual effect of any event could be materially different from what we currently anticipate. The risks described in this MD&A are not the only ones that could affect us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our financial position, financial performance, cash flows, business or reputation.
This section describes the principal business risks that could have a material adverse effect on our financial position, financial performance, cash flows, business or reputation, and cause actual results or events to differ materially from our expectations expressed in, or implied by, our forward-looking statements. As indicated in the table below, certain of these principal business risks have already been discussed in other sections of this MD&A, and we refer the reader to those sections for a discussion of such risks. All of the risk discussions set out in the sections referred to in the table below are incorporated by reference in this section 9.
RISKS DISCUSSED IN OTHER SECTIONS OF THIS MD&A |
SECTION REFERENCES |
Regulatory environment |
Section 3.3, Principal business risks |
Competitive environment |
Section 3.3, Principal business risks |
Security management |
Section 3.3, Principal business risks |
Risks specifically relating to our
Bell Wireless, |
Section 5, Business segment analysis (Principal business risks section for each segment) |
The other principal business risks that could also have a material adverse effect on our financial position, financial performance, cash flows, business or reputation are discussed below.
Customer experience |
Driving a positive customer experience in all aspects of our engagement with customers by embracing new approaches and challenging operational limitations is important to avoid adverse impacts on our business and financial performance
As the bar continues to be raised based on customers evolving expectations of service and value, failure to get ahead of such expectations and build a more robust service experience could hinder products and services differentiation and customer loyalty. With the proliferation of connectivity services, apps and devices, customers are accustomed to doing things when, how and where they want through websites, self-serve options, web chat, call centres, facebook, twitter and other social media forums. Failure to embrace these new media in a positive way, incorporate them into multiple elements of our service delivery and ensure that we understand their potential impact on customer perceptions could adversely affect our reputation and brand value. As the foundation of effective customer service stems from our ability to deliver simple solutions to customers in an expeditious manner, on mutually agreeable terms, complexity in our operations resulting from multiple technology platforms, billing systems, marketing databases and a myriad of rate plans, promotions and product offerings may limit our ability to respond quickly to market changes and reduce costs. Complexity in our operations may also lead to customer confusion or billing errors, which could adversely affect customer satisfaction, acquisition and retention.
Technology/infrastructure transformation |
The failure to optimize network and IT deployment and upgrading timelines, accurately assess the potential of new technologies, and invest and evolve in the appropriate direction, could have an adverse impact on our business and financial results
Globalization, increased competition and ongoing technological advances are driving customer expectations of faster market responses, enhanced user experiences and cost-effective delivery. Meeting these expectations requires the deployment of new service and product technologies that are network-neutral and based on a more collaborative and integrated development environment. Change can be difficult and may present unforeseen obstacles which might impact successful execution, and this transition is made more challenging by the complexity of our multi-product environment, combined with the complexity of our network and IT structures. In addition, new technologies may quickly become obsolete or their launch may be delayed. The failure to optimize network and IT deployment and upgrading timelines, considering customer demand and competitor activities, to accurately assess the potential of new technologies and to invest and evolve in the appropriate direction in an environment of changing business models could have an adverse impact on our business and financial results.
In particular, our network and IT evolution activities seek to install FTTP and enable an integrated IP-based competitive network offering that facilitates rapid development of new product and service offerings.
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If this cannot be achieved in accordance with our deployment schedules while maintaining network availability and performance through the migration process, we may lose customers as a result of poor service performance, which could adversely affect our ability to achieve our operational and financial objectives. Failure to leverage IP across all facets of our network and product and service portfolio could inhibit a fully customer-centric approach, limiting or preventing comprehensive self-serve convenience, real-time provisioning, cost savings and flexibility in delivery and consumption, leading to negative business and financial outcomes.
Parallel to our focus on next-generation investment, adverse regulatory decisions may impact the specific nature, magnitude, location and timing of investment decisions. In particular, the introduction by the CRTC of mandated wholesale services over FTTP or wireless networks will undermine the incentives for facilities-based digital infrastructure providers to invest in next-generation wireline and wireless networks, particularly in smaller communities and rural areas. Failure to continue investment in a disciplined and strategic manner in next-generation capabilities, including real-time information-based customer service strategies, could limit our ability to compete effectively and achieve desired business and financial results.
Other examples of risks to achieving our desired technology/ infrastructure transformation include:
Operational performance |
Our networks, IT systems and data centre assets are the foundation of high-quality consistent services which are critical to meeting service expectations
Our ability to provide consistent wireless, wireline, media broadcasting, satellite and data centre services to customers in a complex and constantly changing operating environment is crucial for sustained success. In particular, network capacity demands for TV and other bandwidth-intensive applications on our Internet and wireless networks have been growing at unprecedented rates. Unexpected capacity pressures on our networks may negatively affect our network performance and our ability to provide services. Issues relating to network availability, speed, consistency and traffic management on our more current as well as aging networks could have an adverse impact on our business and financial performance.
In addition, we currently use a very large number of interconnected operational and business support systems including for provisioning, networking, distribution, broadcast management, billing and accounting. If we fail to implement or maintain highly effective customer-facing IT systems supported by an effective governance and operating framework, this may lead to inconsistent performance and dissatisfied customers, which over time could result in higher churn.
Further examples of risks to operational performance that could impact our reputation, business operations and financial performance include the following:
Our operations and business continuity depend on how well we protect, test, maintain and replace our networks, IT systems, equipment and other facilities
Our operations depend on how well we and our contracted service providers protect our networks and IT systems, as well as other infrastructure and facilities, against damage from fire, natural disaster (including, without limitation, seismic and severe weather-related events such as ice, snow and wind storms, flooding, hurricanes, tornados and tsunamis), power loss, building cooling loss, unauthorized access or entry, cyber threats, disabling devices, acts of war or terrorism, sabotage, vandalism, actions of neighbours and other events. Establishing response strategies and business continuity protocols to maintain service consistency if any disruptive event materializes is critical to the achievement of effective customer service. Any of the above-mentioned events, as well as the failure to complete the planned testing, maintenance or replacement of our networks, equipment and other facilities due to factors beyond our control, could disrupt our operations (including through disruptions such as network failures, billing errors or delays in customer service), require significant resources and result in significant remediation
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costs, which in turn could have an adverse effect on our business and financial performance, or impair our ability to keep existing subscribers or attract new ones.
Satellites used by Bell TV are subject to significant operational risks that could have an adverse effect on Bell TVs business and financial performance
Pursuant to a set of commercial arrangements between Bell TV and Telesat Canada (Telesat), Bell TV currently has two satellites under contract with Telesat. Telesat operates or directs the operation of these satellites. Satellites utilize highly complex technology and operate in the harsh environment of space and are therefore subject to significant operational risks while in orbit. These risks include in-orbit equipment failures, malfunctions and other problems, commonly referred to as anomalies, that could reduce the commercial usefulness of a satellite used by Bell TV. Acts of war or terrorism, magnetic, electrostatic or solar storms, and space debris or meteoroids could also damage the satellites used by Bell TV. Any loss, failure, manufacturing defect, damage or destruction of these satellites, of Bell TVs terrestrial broadcasting infrastructure or of Telesats tracking, telemetry and control facilities to operate the satellites could have an adverse effect on Bell TVs business and financial performance and could result in customers terminating their subscriptions to Bell TVs DTH Satellite TV service.
Vendor oversight |
We depend on third-party suppliers and outsourcers, some of which are critical, to provide an uninterrupted supply of the products and services we need to operate our business
We depend on key third-party suppliers and outsourcers, over which we have no operational or financial control, for products and services, some of which are critical to our operations. If there are gaps in our supplier governance and oversight models established to ensure full risk transparency at point of purchase and throughout the relationship, including any contract renegotiations, there is the potential for a breakdown in supply, which could impact our ability to make sales, service customers and achieve our business and financial objectives. The outsourcing of services generally involves transfer of risk, and we must take appropriate steps to ensure that the outsourcers approach to risk management is aligned with our own standards in order to maintain continuity of supply and brand strength. Further, as cloud-based supplier models continue to evolve, our procurement and vendor management practices must also continue to evolve to fully address associated risk exposures.
Other examples of risks associated with vendor oversight include the following:
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People |
Our employees and contractors are key resources and there is a broad and complex range of risks which must be managed effectively to drive a winning corporate culture and outstanding performance
Our business depends on the efforts, engagement and expertise of our management and non-management employees and contractors, who must be able to operate safely and securely based on the tasks they are completing and the environment in which they are functioning. If we fail to achieve this basic expectation, this could adversely affect our organizational culture, reputation and financial results as well as our ability to attract high-performing team members. Competition for highly skilled team members is intense, which makes the development of approaches to identify and secure high-performing candidates for a broad range of job functions, roles and responsibilities essential. Failure to appropriately train, motivate, remunerate or deploy employees on initiatives that further our strategic imperatives, or to efficiently replace retiring employees, could have an adverse impact on our ability to attract and retain talent and drive performance across the organization. The positive engagement of members of our team represented by unions is contingent on negotiating collective agreements which deliver competitive labour conditions and uninterrupted service, both of which are critical to achieving our business objectives. In addition, if the skill sets, diversity and size of the workforce do not match the operational requirements of the business and foster a winning culture, we will likely not be able to sustain our performance.
Other examples of people-related risks include the following:
Financial management |
If we are unable to raise the capital we need or generate sufficient cash flows from operations, we may need to limit our capital expenditures or our investments in new businesses, or try to raise capital by disposing of assets
Our ability to meet our cash requirements and provide for planned growth depends on having access to adequate sources of capital and on our ability to generate cash flows from operations, which is subject to various risks, including those described in this MD&A.
Our ability to raise financing depends on our ability to access the public equity and debt capital markets, as well as the bank credit market. Our ability to access such markets and the cost and amount of funding available depend largely on prevailing market conditions and the outlook for our business and credit ratings at the time capital is raised. Risk factors such as capital market disruptions, sovereign credit concerns in Europe, central bank monetary policies, increased bank capitalization regulations, reduced bank lending in general or fewer banks as a result of reduced activity or consolidation could reduce capital available or increase the cost of such capital. In addition, an increased level of debt borrowings could result in lower credit ratings, increased borrowing costs and a reduction in the amount of funding available to us, including through equity offerings. Business acquisitions could also adversely affect our outlook and credit ratings and have similar adverse consequences. In addition, participants in the public capital and bank credit markets have internal policies limiting their ability to invest in, or extend credit to, any single entity or entity group or a particular industry.
Our bank credit facilities, including credit facilities supporting our commercial paper program, are provided by various financial institutions. While it is our intention to renew certain of such credit facilities from time to time, there are no assurances that these facilities will be renewed on favourable terms or in similar amounts.
Differences between BCEs actual or anticipated financial results and the published expectations of financial analysts, as well as events affecting our business or operating environment, may contribute to volatility in BCEs securities. A major decline in the capital markets in general, or an adjustment in the market price or trading volumes of BCEs securities, may negatively affect our ability to raise capital, issue debt, retain senior executives and other key employees, make strategic acquisitions or enter into joint arrangements.
If we cannot access the capital we need or generate cash flows to implement our business plan or meet our financial obligations on acceptable terms, we may have to limit our ongoing capital expenditures and our investment in new businesses or try to raise additional capital by selling or otherwise disposing of assets. Any of these could have an adverse effect on our cash flows from operations and on our growth prospects.
We cannot guarantee that BCEs dividend policy will be maintained or that dividends will be declared
The BCE Board reviews from time to time the adequacy of BCEs dividend policy with the objective of allowing sufficient financial flexibility to continue investing in our business while growing returns to shareholders. Under the current dividend policy, increases in the common share dividend are directly linked to growth in BCEs free cash flow. BCEs dividend policy and the declaration of dividends on any of its outstanding shares are subject to the discretion of the BCE Board and, consequently, there can be no guarantee that BCEs
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dividend policy will be maintained or that dividends will be declared. The declaration of dividends by the BCE Board is ultimately dependent on BCEs operations and financial results which are, in turn, subject to various assumptions and risks, including those set out in this MD&A.
We are exposed to various credit, liquidity and market risks
Our exposure to credit, liquidity and market risks, including equity price, interest rate and currency fluctuations, is discussed in section 6.6, Financial risk management in this MD&A and in Note 23 to BCEs 2015 consolidated financial statements.
Our failure to identify and manage our exposure to changes in interest rates, foreign exchange rates, BCEs share price and other market conditions could lead to missed opportunities, cash flow shortages, inability to complete planned capital expenditures, reputational damage, stock and debenture devaluations and challenges in raising capital on market-competitive terms.
The economic environment, pension rules or ineffective governance could have an adverse effect on our pension obligations, liquidity and financial performance, and we may be required to increase contributions to our post-employment benefit plans in the future
With a large pension plan membership and DB pension plans that are subject to the pressures of the global economic environment and changing regulatory and reporting requirements, our pension obligations are exposed to potential volatility. Failure to recognize and manage economic exposure and pension rule changes or to ensure that effective governance is in place for management and funding of pension plan assets and obligations could have an adverse impact on our liquidity and financial performance.
The funding requirements of our post-employment benefit plans, based on valuations of plan assets and obligations, depend on a number of factors, including actual returns on post-employment benefit plan assets, long-term interest rates, plan demographics, and applicable regulations and actuarial standards. Changes in these factors could cause future contributions to significantly differ from our current estimates and could require us to increase contributions to our post-employment benefit plans in the future and, therefore, could have a negative effect on our liquidity and financial performance.
There is no assurance that the assets of our post-employment benefit plans will earn their assumed rate of return. A substantial portion of our post-employment benefit plans assets is invested in public equity and debt securities. As a result, the ability of our post-employment benefit plans assets to earn the rate of return that we have assumed significantly depends on the performance of capital markets. Market conditions also impact the discount rate used to calculate our solvency obligations and could therefore also significantly affect our cash funding requirements.
Our expected funding for 2016 is in accordance with the latest post-employment benefit plan valuations as of December 31, 2014, filed in June 2015, and takes into account a voluntary contribution of $250 million in 2015.
Income and commodity tax amounts may materially differ from the expected amounts
Our complex business operations are subject to various tax laws and the adoption of new tax laws, or regulations or rules thereunder, or changes thereto or in the interpretation thereof, could result in higher tax rates, new taxes or other adverse tax implications. In addition, while we believe that we have adequately provided for all income and commodity taxes based on all of the information that is currently available, the calculation of income taxes and the applicability of commodity taxes in many cases require significant judgment in interpreting tax rules and regulations. Our tax filings are subject to government audits that could result in material changes to the amount of current and deferred income tax assets and liabilities and other liabilities and could, in certain circumstances, result in an assessment of interest and penalties.
The failure to reduce costs as well as unexpected increases in costs could adversely affect our ability to achieve our strategic imperatives and our financial results
Our objectives for targeted cost reductions continue to be aggressive but there is no assurance that we will be successful in reducing costs, especially since incremental cost savings are more difficult to achieve on an ongoing basis. Our cost reduction objectives require aggressive negotiations with our suppliers and there can be no assurance that such negotiations will be successful or that replacement products or services provided will not lead to operational issues.
Examples of risks to our ability to reduce costs or of potential cost increases include:
The failure to evolve practices to effectively monitor and control fraudulent activities could result in financial loss and brand degradation
As a public company with a range of desirable and valuable products and services and approximately 50,000 employees, fraud requires a disciplined program covering governance, exposure identification and assessment, prevention, detection and reporting that considers corruption, misappropriation of assets and intentional manipulation of financial statements by employees and/or external parties. Fraud events can result in financial loss and brand degradation.
Specific examples relevant to us include:
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Litigation and legal obligations |
Legal proceedings, changes in applicable laws and the failure to proactively address our legal and regulatory obligations could have an adverse effect on our business and financial performance
We become involved in various legal proceedings as part of our business. Plaintiffs within Canada are able to launch and obtain certification of class actions on behalf of a large group of people with increasing ease, and Canadian provincial securities laws facilitate the introduction in Canada of class action lawsuits by secondary market investors against public companies for alleged misrepresentations in public disclosure documents and oral statements. Changes in laws or regulations, or in how they are interpreted, and the adoption of new laws or regulations, as well as pending or future litigation, including an increase in certified class actions which, by their nature, could result in sizeable damage awards and costs relating to litigation, could have an adverse effect on our business and financial performance.
Examples of legal and regulatory obligations that we must comply with include those resulting from:
For a description of the principal legal proceedings involving us, please see the section entitled Legal Proceedings contained in the BCE 2015 AIF.
Health and environmental concerns |
Health concerns about radiofrequency emissions from wireless communication devices, as well as epidemics and other health risks, could have an adverse effect on our business
Many studies have been performed or are ongoing to assess whether wireless phones, networks and towers pose a potential health risk. While some studies suggest links to certain conditions, others conclude there is no established causation between mobile phone usage and adverse health effects. ISED is responsible for approving radiofrequency equipment and performing compliance assessments and has chosen Health Canadas Safety Code 6, which sets the limits for safe exposure to radiofrequency emissions at home or at work, as its exposure standard. This code also outlines safety requirements for the installation and operation of devices that emit radiofrequency fields such as mobile phones, Wi-Fi technologies and base station antennas. ISED has made compliance to Safety Code 6 mandatory for all proponents and operators of radio installations.
Our business is heavily dependent on radiofrequency technologies, which could present significant challenges to our business and financial performance, such as the following:
In addition, epidemics, pandemics and other health risks could also occur, which could adversely affect our ability to maintain operational networks and provide services to our customers. Any of these events could have an adverse effect on our business and financial performance.
Climate change and other environmental concerns could have an adverse effect on our business
Global climate change could exacerbate certain of the threats facing our business, including the frequency and severity of weather-related events referred to in Operational performance Our operations and business continuity depend on how well we protect, test, maintain and replace our networks, IT systems, equipment and other facilities in this section 9. Several areas of our operations further raise environmental considerations, such as fuel storage, greenhouse gas emissions, disposal of hazardous residual materials, and recovery and recycling of end-of-life electronic products we sell or lease. Failure to recognize and adequately respond to changing governmental and public expectations on environmental matters could result in fines, missed opportunities, additional regulatory scrutiny or harm our brand and reputation.
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10 Financial measures, accounting policies and controls
10.1 Our accounting policies
This section discusses key estimates and assumptions that management has made and how they affect the amounts reported in the financial statements and notes. It also describes key changes in accounting standards and our accounting policies, and how they affect our financial statements.
We have prepared our consolidated financial statements using IFRS. Other significant accounting policies, not involving the same level of measurement uncertainty as those discussed in this section, are nevertheless important to an understanding of our financial statements. See Note 2 to BCEs 2015 consolidated financial statements for more information about the accounting principles we use to prepare our consolidated financial statements.
Critical accounting estimates and key judgments |
When preparing financial statements, management makes estimates and judgments relating to:
We base our estimates on a number of factors, including historical experience, current events and actions that the company may undertake in the future, and other assumptions that we believe are reasonable under the circumstances. By their nature, these estimates and judgments are subject to measurement uncertainty and actual results could differ.
We consider the estimates and judgments described in this section to be an important part of understanding our financial statements because they require management to make assumptions about matters that were highly uncertain at the time the estimate and judgment were made, and changes to these estimates and judgments could have a material impact on our financial statements and our segments.
Our senior management has reviewed the development and selection of the critical accounting estimates and judgments described in this section with the Audit Committee of the BCE Board.
Any sensitivity analysis included in this section should be used with caution as the changes are hypothetical and the impact of changes in each key assumption may not be linear.
Our more significant estimates and judgments are described below.
ESTIMATES
USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT AND FINITE-LIFE INTANGIBLE ASSETS
We review our estimates of the useful lives of property, plant and equipment and finite-life intangible assets on an annual basis and adjust depreciation or amortization on a prospective basis, if needed.
Property, plant and equipment represent a significant proportion of our total assets. Changes in technology or our intended use of these assets, as well as changes in business prospects or economic and industry factors, may cause the estimated useful lives of these assets to change.
The estimated useful lives of property, plant and equipment and finite-life intangible assets are determined by internal asset life studies, which take into account actual and expected future usage, physical wear and tear, replacement history and assumptions about technology evolution. When factors indicate that assets useful lives are different from the prior assessment, we depreciate or amortize the remaining carrying value prospectively over the adjusted estimated useful lives.
Change in accounting estimate
In 2014, as part of our ongoing annual review of property, plant and equipment and finite-life intangible assets, and to better reflect their useful lives, we increased the lives of certain IT software assets from five years to seven years and reduced the lives of certain network assets, including our CDMA network. The changes have been applied prospectively effective July 1, 2014 and did not have a significant impact on our financial statements.
POST-EMPLOYMENT BENEFIT PLANS
The amounts reported in the financial statements relating to DB pension plans and OPEBs are determined using actuarial calculations that are based on several assumptions.
Our actuaries perform a valuation at least every three years to determine the actuarial present value of the accrued DB pension plan and OPEB obligations. The actuarial valuation uses managements assumptions for, among other things, the discount rate, life expectancy, the rate of compensation increase, trends in healthcare costs and expected average remaining years of service of employees.
While we believe that these assumptions are reasonable, differences in actual results or changes in assumptions could materially affect post-employment benefit obligations and future net post-employment benefit plans cost.
We account for differences between actual and expected results in benefit obligations and plan performance in OCI, which are then recognized immediately in the deficit.
The most significant assumptions used to calculate the net post-employment benefit plans cost are the discount rate and life expectancy.
A discount rate is used to determine the present value of the future cash flows that we expect will be needed to settle post-employment benefit obligations.
The discount rate is based on the yield on long-term, high-quality corporate fixed income investments, with maturities matching the estimated cash flows of the post-employment benefit plans. Life
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expectancy is based on publicly available Canadian mortality tables and is adjusted for the companys specific experience.
A lower discount rate and a higher life expectancy result in a higher net post-employment benefit obligation and a higher current service cost.
Sensitivity analysis
The following table shows a sensitivity analysis of key assumptions used to measure the net post-employment benefit obligations and the net post-employment benefit plans cost for our DB pension plans and OPEB plans.
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IMPACT ON NET POST-EMPLOYMENT |
IMPACT ON POST-EMPLOYMENT BENEFIT |
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CHANGE IN |
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INCREASE IN |
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DECREASE IN |
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INCREASE IN |
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DECREASE IN |
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ASSUMPTION |
|
ASSUMPTION |
|
ASSUMPTION |
|
ASSUMPTION |
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ASSUMPTION |
|
Discount rate |
1 |
% |
(148 |
) |
112 |
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(2,783 |
) |
3,178 |
|
Mortality rate |
25 |
% |
(66 |
) |
70 |
|
(1,386 |
) |
1,477 |
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IMPAIRMENT OF NON-FINANCIAL ASSETS
Goodwill and indefinite-life intangible assets are tested for impairment annually or when there is an indication that the asset may be impaired. Property, plant and equipment and finite-life intangible assets are tested for impairment if events or changes in circumstances, assessed at each reporting period, indicate that their carrying amount may not be recoverable. For the purpose of impairment testing, assets other than goodwill are grouped at the lowest level for which there are separately identifiable cash inflows.
Impairment losses are recognized and measured as the excess of the carrying value of the assets over their recoverable amount. An assets recoverable amount is the higher of its fair value less costs of disposal and its value in use. Previously recognized impairment losses, other than those attributable to goodwill, are reviewed for possible reversal at each reporting date and, if the assets recoverable amount has increased, all or a portion of the impairment is reversed.
We make a number of estimates when calculating recoverable amounts using discounted future cash flows or other valuation methods to test for impairment. These estimates include the assumed growth rates for future cash flows, the number of years used in the cash flow model, and the discount rate. When impairment charges occur they are recorded in Other (expense) income.
In 2015, we recorded an impairment charge of $49 million, of which $38 million was allocated to indefinite-life intangible assets, $9 million to finite-life intangible assets and $2 million to property, plant and equipment. The impairment charge related mainly to our music cash generating unit (CGU) within our Bell Media segment and resulted from revenue and profitability declines from lower viewership and higher TV content costs. The charge was determined by comparing the carrying value of the CGU to its fair value less costs of disposal. We estimated the fair value of the CGU using both discounted cash flows and market-based valuation models which include five-year cash flow projections from business plans reviewed by senior management for the period of January 1, 2016 to December 31, 2020, using a discount rate of 9.0% and a perpetuity growth rate of nil, as well as market multiple data from public companies and market transactions. The carrying value of our music CGU was $171 million at December 31, 2015.
In 2014, we recorded an impairment charge of $105 million, of which $67 million was allocated to property, plant and equipment and $38 million to indefinite-life intangible assets. The impairment charge related mainly to our Conventional TV CGU within our Bell Media segment and resulted from a softness in the overall Canadian TV advertising market and higher TV content costs. The charge was determined by comparing the carrying value of the CGU to its fair value less costs of disposal, based on five-year expected future discounted cash flows from business plans reviewed by senior management for the period of January 1, 2015 to December 31, 2019 using a discount rate of 9.5% and a perpetuity growth rate of nil. The carrying value of our conventional TV CGU was $327 million at December 31, 2014.
Goodwill impairment testing
We perform an annual test for goodwill impairment in the fourth quarter for each of our CGUs or groups of CGUs to which goodwill is allocated and whenever there is an indication that goodwill might be impaired.
A CGU is the smallest identifiable group of assets that generates cash inflows that are independent of the cash inflows from other assets or groups of assets.
We identify any potential impairment by comparing the carrying value of a CGU or groups of CGUs to its recoverable amount. The recoverable amount of a CGU or groups of CGUs is the higher of its fair value less costs of disposal and its value in use. Fair value less costs of disposal is based on estimates of discounted future cash flows or other valuation methods. Cash flows are projected based on past experience, actual operating results and business plans. When the recoverable amount of a CGU or groups of CGUs is less than its carrying value, the recoverable amount is determined for its identifiable assets and liabilities. The excess of the recoverable amount of the CGU or groups of CGUs over the total of the amounts assigned to its assets and liabilities is the recoverable amount of goodwill.
An impairment charge is deducted from earnings for any excess of the carrying value of goodwill over its recoverable amount. For purposes of impairment testing of goodwill, BCEs CGUs or groups of CGUs correspond to our reporting segments as disclosed in Note 4 to BCEs 2015 consolidated financial statements.
Any significant change in each of the estimates used could have a material impact on the calculation of the recoverable amount and resulting impairment charge. As a result, we are unable to reasonably quantify the changes in our overall financial performance if we had used different assumptions.
We cannot predict whether an event that triggers impairment will occur, when it will occur or how it will affect the asset values we have reported.
For the Bell Media group of CGUs, a decrease of (0.3%) in the perpetuity growth rate or an increase of 0.2% in the discount rate, would have resulted in its recoverable amount being equal to its carrying value.
There were no goodwill impairment charges in 2015 or 2014.
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DEFERRED TAXES
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply when the asset or liability is recovered or settled. Both our current and deferred tax assets and liabilities are calculated using tax rates that have been enacted or substantively enacted at the reporting date.
Deferred taxes are provided on temporary differences arising from investments in subsidiaries, joint arrangements and associates, except where we control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The amount of deferred tax assets is estimated with consideration given to the timing, sources and amounts of future taxable income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Certain financial instruments, such as investments in equity securities accounted for as AFS, derivative financial instruments and certain elements of borrowings, are carried in the statements of financial position at fair value, with changes in fair value reflected in the income statements and the statements of comprehensive income. Fair values are estimated by reference to published price quotations or by using other valuation techniques that may include inputs that are not based on observable market data, such as discounted cash flows.
CONTINGENCIES
We become involved in various litigation matters as a part of our business. Pending litigations represent a potential cost to our business. We estimate the amount of the loss by analyzing potential outcomes and assuming various litigation and settlement strategies, based on information that is available at the time.
If the final resolution of a legal or regulatory matter results in a judgment against us or requires us to pay a large settlement, it could have a material adverse effect on our consolidated financial statements in the period in which the judgment or settlement occurs. Any accrual would be charged to earnings and included in Trade payables and other liabilities or Other non-current liabilities. Any payment as a result of a judgment or cash settlement would be deducted from cash from operating activities.
ONEROUS CONTRACTS
A provision for onerous contracts is recognized when the unavoidable costs of meeting our obligations under a contract exceed the expected benefits to be received from a contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of completing the contract.
JUDGMENTS
POST-EMPLOYMENT BENEFIT PLANS
The determination of the discount rate used to value our post-employment benefit obligations requires judgement. The rate is set by reference to market yields of high quality corporate fixed income investments at the beginning of each fiscal year. Significant judgement is required when setting the criteria for fixed income investments to be included in the population from which the yield curve is derived. The most significant criteria considered for the selection of investments include the size of the issue and credit quality, along with the identification of outliers, which are excluded.
INCOME TAXES
The calculation of income taxes requires judgment in interpreting tax rules and regulations. There are transactions and calculations for which the ultimate tax determination is uncertain. Our tax filings are also subject to audits, the outcome of which could change the amount of current and deferred tax assets and liabilities. Management believes that it has sufficient amounts accrued for outstanding tax matters based on information that currently is available.
Management judgment is used to determine the amounts of deferred tax assets and liabilities and future tax liabilities to be recognized. In particular, judgment is required when assessing the timing of the reversal of temporary differences to which future income tax rates are applied.
MULTIPLE ELEMENT ARRANGEMENTS
Determining the amount of revenue to be recognized for multiple element arrangements requires judgment to establish the separately identifiable components and the allocation of the total price between those components.
CASH GENERATING UNITS
The determination of CGUs or groups of CGUs for the purpose of annual impairment testing requires judgment.
CONTINGENCIES
We accrue a potential loss if we believe a loss is probable and an outflow of resources is likely and can be reasonably estimated, based on information that is available at the time. Any accrual would be charged to earnings and included in Trade payables and other liabilities or Other non-current liabilities. Any cash settlement would be deducted from cash from operating activities. We estimate the amount of a loss by analyzing potential outcomes and assuming various litigation and settlement strategies.
The determination of whether a loss is probable from litigation and whether an outflow of resources is likely requires judgment.
Future changes to accounting standards |
The following new or amended standards issued by the IASB have an effective date after December 31, 2015 and have not yet been adopted by BCE.
STANDARD | DESCRIPTION | IMPACT | EFFECTIVE DATE |
Amendments to International Accounting Standard (IAS) 16 Property, Plant and Equipment and IAS 38 Intangible Assets | Clarifies that a revenue-based approach to calculate depreciation and amortization generally is not appropriate as it does not reflect the consumption of the economic benefits embodied in the related asset. | The amendments to IAS 16 and IAS 38 are not expected to have a significant impact on our financial statements. | Annual periods beginning on or after January 1, 2016, applied prospectively. |
106 BCE Inc. 2015 ANNUAL REPORT | |||
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FINANCIAL MEASURES,
ACCOUNTING POLICIES AND CONTROLS |
MD&A |
STANDARD | DESCRIPTION | IMPACT | EFFECTIVE DATE |
Amendments to IFRS 11 Joint Arrangements
|
Provides guidance on the accounting for acquisitions of interests in joint operations in which the activity constitutes a business, as defined in IFRS 3 Business Combinations. The amended standard requires the acquirer to apply all of the principles on accounting for business combinations in IFRS 3 and other IFRSs except for any principles that conflict with IFRS 11. | The amendments to IFRS 11 are not expected to have a significant impact on our financial statements. |
Annual periods beginning on or after January 1, 2016, applied prospectively.
|
Amendments to IAS 7 Statement of Cash Flows | Requires enhanced disclosures about changes in liabilities arising from financing activities, including changes from financing cash flows, changes arising from obtaining or losing control of subsidiaries or other businesses, the effect of changes in foreign exchange rates and changes in fair values. | We are currently evaluating the impact of the amendments to IAS 7 on our financial statements. |
Annual periods beginning on or after January 1, 2017, applied prospectively.
|
IFRS 15 Revenue from Contracts with Customers
|
Establishes principles to record revenues from contracts for the sale of goods or services, unless the contracts are in the scope of IAS 17 Leases or other IFRSs. Under IFRS 15, revenue is recognized at an amount that reflects the expected consideration receivable in exchange for transferring goods or services to a customer, applying the following five steps: 1. Identify the contract with a customer 2. Identify the performance obligations in the contract3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract5. Recognize revenue when (or as) the entity satisfies a performance obligation The new standard also provides guidance relating to contract costs and for the measurement and recognition of gains and losses on the sale of certain non-financial assets such as property and equipment. Additional disclosures will also be required under the new standard. |
IFRS 15 will principally affect the timing of revenue recognition and how we classify revenues as between product and service, how we account for costs to obtain a contract and contract fulfilment costs. Under multiple element arrangements, although the total revenue recognized during the term of a contract will be largely unaffected, the revenue allocated to a delivered item will no longer be limited to the non-contingent amount, which may accelerate the recognition of revenue ahead of the associated cash inflows. This would result in a change in the upfront classification of revenues to an asset on the balance sheet which would be realized over the term of the contract. Although we have made progress in our implementation of IFRS 15, it is not yet possible to make a reliable estimate of the impact of the new standard on our financial statements as we are required to implement significant changes to our systems and processes across the organization in order to collect the new data requirements, as well as compile historical comparatives. It is expected that the changes will be most pronounced in our Bell Wireless segment.
|
Annual periods beginning on or after January 1, 2018, using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach.
|
IFRS 9 Financial Instruments
|
Sets out the requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. The new standard establishes a single classification and measurement approach for financial assets that reflects the business model in which they are managed and their cash flow characteristics. It also provides guidance on an entitys own credit risk relating to financial liabilities and has modified the hedge accounting model to better link the economics of risk management with its accounting treatment. Additional disclosures will also be required under the new standard. |
We are currently evaluating the impact of IFRS 9 on our financial statements.
|
Annual periods beginning on or after January 1, 2018, with early adoption permitted.
|
IFRS 16 Leases
|
Eliminates the distinction between operating and finance leases for lessees, requiring instead that leases be capitalized by recognizing the present value of the lease payments and showing them either as lease assets (right-of-use assets) or together with property, plant and equipment. If lease payments are made over time, an entity recognizes a financial liability representing its obligation to make future lease payments. A depreciation charge for the lease asset is recorded within operating costs and an interest expense on the lease liability is recorded within finance costs. IFRS 16 does not require a lessee to recognize assets and liabilities for short-term leases and leases of low-value assets, nor does it substantially change lease accounting for lessors. |
We are currently evaluating the impact of IFRS 16 on our financial statements.
|
Annual periods beginning on or after January 1, 2019, using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach, with early adoption permitted if an entity has adopted IFRS 15.
|
BCE Inc. 2015 ANNUAL REPORT 107 |
|||
10 |
FINANCIAL MEASURES,
ACCOUNTING POLICIES AND CONTROLS |
MD&A |
10.2 Non-GAAP financial measures and key performance indicators (KPIs) |
This section describes the non-GAAP financial measures and KPIs we use in this MD&A to explain our financial results. It also provides reconciliations of the non-GAAP financial measures to the most comparable IFRS financial measures.
Adjusted EBITDA and adjusted EBITDA margin |
The terms adjusted EBITDA and adjusted EBITDA margin do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers.
We define adjusted EBITDA as operating revenues less operating costs, as shown in BCEs consolidated income statements. Adjusted EBITDA for BCEs segments is the same as segment profit as reported in Note 4 to BCEs 2015 consolidated financial statements. We define adjusted EBITDA margin as adjusted EBITDA divided by operating revenues.
We use adjusted EBITDA and adjusted EBITDA margin to evaluate the performance of our businesses as they reflect their ongoing profitability. We believe that certain investors and analysts use adjusted EBITDA to measure a companys ability to service debt and to meet other payment obligations or as a common measurement to value companies in the telecommunications industry. We believe that certain investors and analysts also use adjusted EBITDA and adjusted EBITDA margin to evaluate the performance of our businesses. Adjusted EBITDA is also one component in the determination of short-term incentive compensation for all management employees.
Adjusted EBITDA and adjusted EBITDA margin have no directly comparable IFRS financial measure. Alternatively, the following table provides a reconciliation of net earnings to adjusted EBITDA.
2015 | 2014 | |||
Net earnings |
2,730 | 2,718 | ||
Severance, acquisition and other costs |
446 | 216 | ||
Depreciation |
2,890 | 2,880 | ||
Amortization |
530 | 572 | ||
Finance costs |
||||
Interest expense |
909 | 929 | ||
Interest on post-employment benefit obligations |
110 | 101 | ||
Other expense (income) |
12 | (42 | ) | |
Income taxes |
924 | 929 | ||
Adjusted EBITDA |
8,551 | 8,303 | ||
BCE Operating revenues |
21,514 | 21,042 | ||
Adjusted EBITDA margin |
39.7 | % | 39.5 | % |
Adjusted net earnings and adjusted EPS |
The terms adjusted net earnings and adjusted EPS do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers.
We define adjusted net earnings as net earnings attributable to common shareholders before severance, acquisition and other costs, net (gains) losses on investments, and early debt redemption costs. We define adjusted EPS as adjusted net earnings per BCE common share.
We use adjusted net earnings and adjusted EPS, and we believe that certain investors and analysts use these measures, among other ones, to assess the performance of our businesses without the effects of severance, acquisition and other costs, net (gains) losses on investments, and early debt redemption costs, net of tax and NCI. We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring.
108 BCE Inc. 2015 ANNUAL REPORT | |||
10 |
FINANCIAL MEASURES,
ACCOUNTING POLICIES AND CONTROLS |
MD&A |
The most comparable IFRS financial measures are net earnings attributable to common shareholders and EPS. The following table is a reconciliation of net earnings attributable to common shareholders and EPS to adjusted net earnings on a consolidated basis and per BCE common share (adjusted EPS), respectively.
|
2015 |
2014 |
||||||
TOTAL | PER SHARE | TOTAL | PER SHARE | |||||
Net earnings attributable to common shareholders |
2,526 | 2.98 | 2,363 | 2.98 | ||||
Severance, acquisition and other costs |
327 | 0.38 | 148 | 0.18 | ||||
Net (gains) losses on investments |
(21 | ) | (0.02 | ) | (8 | ) | (0.01 | ) |
Early debt redemption costs |
13 | 0.02 | 21 | 0.03 | ||||
Adjusted net earnings |
2,845 | 3.36 | 2,524 | 3.18 |
Free cash flow and free cash flow per share |
The terms free cash flow and free cash flow per share do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers.
As of November 1, 2014, BCEs free cash flow includes 100% of Bell Aliants free cash flow rather than cash dividends received from Bell Aliant. We define free cash flow as cash flows from operating activities, excluding acquisition and other costs paid (which include significant litigation costs) and voluntary pension funding, less capital expenditures, preferred share dividends and dividends paid by subsidiaries to NCI.
Prior to November 1, 2014, free cash flow was defined as cash flows from operating activities, excluding acquisition and other costs paid (which include significant litigation costs) and voluntary pension funding, plus dividends received from Bell Aliant, less capital expenditures, preferred share dividends, dividends paid by subsidiaries to NCI and Bell Aliant free cash flow.
We define free cash flow per share as free cash flow divided by the average number of common shares outstanding.
We consider free cash flow and free cash flow per share to be important indicators of the financial strength and performance of our businesses because they show how much cash is available to pay dividends, repay debt and reinvest in our company.
We believe that certain investors and analysts use free cash flow to value a business and its underlying assets. We believe that certain investors and analysts also use free cash flow and free cash flow per share to evaluate the financial strength and performance of our businesses.
The most comparable IFRS financial measure is cash flows from operating activities. The following table is a reconciliation of cash flows from operating activities to free cash flow on a consolidated basis.
2015 | 2014 | |||
Cash flows from operating activities |
6,274 | 6,241 | ||
Bell Aliant dividends to BCE |
| 95 | ||
Capital expenditures |
(3,626 | ) | (3,717 | ) |
Cash dividends paid on preferred shares |
(150 | ) | (134 | ) |
Cash dividends paid by subsidiaries to non-controlling interest |
(41 | ) | (145 | ) |
Acquisition and other costs paid |
292 | 131 | ||
Voluntary defined benefit pension plan contribution |
250 | 350 | ||
Bell Aliant free cash flow |
| (77 | ) | |
Free cash flow |
2,999 | 2,744 | ||
Average number of common shares outstanding (millions) |
847.1 | 793.7 | ||
Free cash flow per share |
3.54 | 3.46 |
BCE Inc. 2015 ANNUAL REPORT 109 |
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10 |
FINANCIAL MEASURES,
ACCOUNTING POLICIES AND CONTROLS |
MD&A |
Net debt |
The term net debt does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers.
We define net debt as debt due within one year plus long-term debt and 50% of preferred shares, less cash and cash equivalents, as shown in BCEs consolidated statement of financial position. We include 50% of outstanding preferred shares in our net debt as it is consistent with the treatment by certain credit rating agencies.
We consider net debt to be an important indicator of the companys financial leverage because it represents the amount of debt that is not covered by available cash and cash equivalents. We believe that certain investors and analysts use net debt to determine a companys financial leverage. Net debt has no directly comparable IFRS financial measure, but rather is calculated using several asset and liability categories from the statements of financial position, as shown in the following table.
2015 | 2014 | |||
Debt due within one year |
4,895 | 3,743 | ||
Long-term debt |
15,390 | 16,355 | ||
50% of outstanding preferred shares |
2,002 | 2,002 | ||
Cash and cash equivalents |
(613 | ) | (566 | ) |
Net debt |
21,674 | 21,534 |
Net debt leverage ratio |
The net debt leverage ratio does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. We use, and believe that certain investors and analysts use, the net debt leverage ratio as a measure of financial leverage.
The net debt leverage ratio represents net debt divided by adjusted EBITDA.
Adjusted EBITDA to net interest expense ratio |
The ratio of adjusted EBITDA to net interest expense does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. We use, and believe that certain investors and analysts use, the adjusted EBITDA to net interest expense ratio as a measure of financial health of the company.
The adjusted EBITDA to net interest expense ratio represents adjusted EBITDA divided by net interest expense. Net interest expense represents net interest expense as shown in our statements of cash flows, plus 50% of declared preferred share dividends as shown in our income statements.
KPIs |
In addition to the non-GAAP financial measures previously described, we use a number of KPIs to measure the success of our strategic imperatives. These KPIs are not accounting measures and may not be comparable to similar measures presented by other issuers.
KPI | DEFINITION |
Capital intensity | Capital expenditures divided by operating revenues. |
ARPU | Average revenue per user or subscriber represents the measurement of certain service revenues divided by the average subscriber base for the specified period. |
Churn | Churn is the rate at which existing subscribers cancel their services, expressed as a percentage. Churn is calculated as the number of subscribers disconnected divided by the average subscriber base. It is a measure of monthly customer turnover. |
COA | COA is also referred to as subscriber acquisition costs. COA represents the total cost associated with acquiring a customer and includes costs such as hardware discounts, marketing and distribution costs. This measure is expressed per gross activation during the period. |
Dividend payout ratio | Dividends paid on common shares divided by free cash flow. |
110 BCE Inc. 2015 ANNUAL REPORT | |||
10 |
FINANCIAL MEASURES,
ACCOUNTING POLICIES AND CONTROLS |
MD&A |
10.3 Effectiveness of internal controls |
Disclosure controls and procedures |
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under Canadian and U.S. securities laws is recorded, processed, summarized and reported within the time periods specified under those laws, and include controls and procedures that are designed to ensure that the information is accumulated and communicated to management, including BCEs President and CEO and Executive Vice-President and CFO, to allow timely decisions regarding required disclosure.
As at December 31, 2015, management evaluated, under the supervision of and with the participation of the CEO and the CFO, the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934, as amended, and under National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings.
Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as at December 31, 2015.
Internal control over financial reporting |
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the U.S. Securities Exchange Act of 1934, as amended, and under National Instrument 52-109. Our internal control over financial reporting is a process designed under the supervision of the CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis.
Management evaluated, under the supervision of and with the participation of the CEO and the CFO, the effectiveness of our internal control over financial reporting as at December 31, 2015, based on the criteria established in the Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on that evaluation, the CEO and CFO concluded that our internal control over financial reporting was effective as at December 31, 2015.
There have been no changes during the year ended December 31, 2015 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
BCE Inc. 2015 ANNUAL REPORT 111 |
CONSOLIDATED FINANCIAL STATEMENTS |
Consolidated financial statements
Managements responsibility for financial reporting
These financial statements form the basis for all of the financial information that appears in this annual report.
The financial statements and all of the information in this annual report are the responsibility of the management of BCE Inc. (BCE) and have been reviewed and approved by the board of directors. The board of directors is responsible for ensuring that management fulfills its financial reporting responsibilities. Deloitte LLP, Independent Registered Public Accounting Firm, have audited the financial statements.
Management has prepared the financial statements according to International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Under these principles, management has made certain estimates and assumptions that are reflected in the financial statements and notes. Management believes that these financial statements fairly present BCEs consolidated financial position, results of operations and cash flows.
Management has a system of internal controls designed to provide reasonable assurance that the financial statements are accurate and complete in all material respects. This is supported by an internal audit group that reports to the Audit Committee, and includes communication with employees about policies for ethical business conduct. Management believes that the internal controls provide reasonable assurance that our financial records are reliable and form a proper basis for preparing the financial statements, and that our assets are properly accounted for and safeguarded.
The board of directors has appointed an Audit Committee, which is made up of unrelated and independent directors. The Audit Committees responsibilities include reviewing the financial statements and other information in this annual report, and recommending them to the board of directors for approval. You will find a description of the Audit Committees other responsibilities on page 158 of this annual report. The internal auditors and the shareholders auditors have free and independent access to the Audit Committee.
(signed) George A. Cope
President and Chief Executive
Officer
(signed) Glen LeBlanc
Executive Vice-President and
Chief Financial Officer
(signed) Thierry Chaumont
Senior Vice-President and
Controller
March 3, 2016
114 BCE Inc. 2015 ANNUAL REPORT | |
CONSOLIDATED FINANCIAL STATEMENTS |
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of BCE Inc.
We have audited the accompanying consolidated financial statements of BCE Inc. and its subsidiaries (the Company), which comprise the consolidated statements of financial position as at December 31, 2015 and December 31, 2014, and the consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity, and consolidated statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.
MANAGEMENTS RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
AUDITORS RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
OPINION
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of BCE Inc. and its subsidiaries as at December 31, 2015 and December 31, 2014, and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
OTHER MATTER
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2016 expressed an unqualified opinion on the Companys internal control over financial reporting.
/s/ Deloitte LLP[1]
Montréal, Canada
March 3, 2016
(1) CPA auditor, CA, public accountancy permit No. A104630
BCE Inc. 2015 ANNUAL REPORT 115 |
|
CONSOLIDATED FINANCIAL STATEMENTS |
Consolidated income statements |
FOR THE YEAR ENDED DECEMBER 31 |
||||||
(IN MILLIONS OF CANADIAN DOLLARS, EXCEPT SHARE AMOUNTS) |
NOTE | 2015 | 2014 | |||
Operating revenues |
4 | 21,514 | 21,042 | |||
Operating costs |
4, 5 | (12,963 | ) | (12,739 | ) | |
Severance, acquisition and other costs |
4, 6 | (446 | ) | (216 | ) | |
Depreciation |
4, 13 | (2,890 | ) | (2,880 | ) | |
Amortization |
4, 14 | (530 | ) | (572 | ) | |
Finance costs |
||||||
Interest expense |
7 | (909 | ) | (929 | ) | |
Interest on post-employment benefit obligations |
21 | (110 | ) | (101 | ) | |
Other (expense) income |
8 | (12 | ) | 42 | ||
Income taxes |
9 | (924 | ) | (929 | ) | |
Net earnings |
2,730 | 2,718 | ||||
Net earnings attributable to: |
||||||
Common shareholders |
2,526 | 2,363 | ||||
Preferred shareholders |
152 | 137 | ||||
Non-controlling interest |
29 | 52 | 218 | |||
Net earnings |
2,730 | 2,718 | ||||
Net earnings per common share |
||||||
Basic |
10 | 2.98 | 2.98 | |||
Diluted |
10 | 2.98 | 2.97 | |||
Average number of common shares outstanding basic (millions) |
847.1 | 793.7 |
Consolidated statements of comprehensive income |
FOR THE YEAR ENDED DECEMBER 31 |
||||||
(IN MILLIONS OF CANADIAN DOLLARS) |
NOTE | 2015 | 2014 | |||
Net earnings |
2,730 | 2,718 | ||||
Other comprehensive income (loss), net of income taxes |
||||||
Items that will be subsequently reclassified to net earnings |
||||||
Net change in value of available-for-sale (AFS) financial assets, net of income taxes of nil for 2015 and 2014 |
23 | 58 | ||||
Net change in value of derivatives designated as cash flow hedges, net of income taxes of ($2) million and ($13) million for 2015 and 2014, respectively |
1 | 34 | ||||
Items that will not be reclassified to net earnings |
||||||
Actuarial gains (losses) on post-employment benefit plans, net of income taxes of ($161) million and $253 million for 2015 and 2014, respectively |
21 | 429 | (685 | ) | ||
Other comprehensive income (loss) |
453 | (593 | ) | |||
Total comprehensive income |
3,183 | 2,125 | ||||
Total comprehensive income attributable to: |
||||||
Common shareholders |
2,977 | 1,862 | ||||
Preferred shareholders |
152 | 137 | ||||
Non-controlling interest |
29 | 54 | 126 | |||
Total comprehensive income |
3,183 | 2,125 |
116 BCE Inc. 2015 ANNUAL REPORT | |
CONSOLIDATED FINANCIAL STATEMENTS |
Consolidated statements of financial position |
(IN MILLIONS OF CANADIAN DOLLARS) |
NOTE | DECEMBER 31, 2015 | DECEMBER 31, 2014 | |||
ASSETS |
||||||
Current assets |
||||||
Cash |
100 | 142 | ||||
Cash equivalents |
513 | 424 | ||||
Trade and other receivables |
11 | 3,009 | 3,069 | |||
Inventory |
12 | 416 | 333 | |||
Prepaid expenses |
393 | 379 | ||||
Other current assets |
377 | 201 | ||||
Total current assets |
4,808 | 4,548 | ||||
Non-current assets |
||||||
Property, plant and equipment |
13 | 21,630 | 21,327 | |||
Intangible assets |
14 | 11,176 | 10,224 | |||
Deferred tax assets |
9 | 89 | 162 | |||
Investments in associates and joint ventures |
3, 15 | 1,119 | 776 | |||
Other non-current assets |
16 | 794 | 875 | |||
Goodwill |
17 | 8,377 | 8,385 | |||
Total non-current assets |
43,185 | 41,749 | ||||
Total assets |
47,993 | 46,297 | ||||
LIABILITIES |
||||||
Current liabilities |
||||||
Trade payables and other liabilities |
18 | 4,287 | 4,398 | |||
Interest payable |
148 | 145 | ||||
Dividends payable |
576 | 534 | ||||
Current tax liabilities |
86 | 269 | ||||
Debt due within one year |
19 | 4,895 | 3,743 | |||
Total current liabilities |
9,992 | 9,089 | ||||
Non-current liabilities |
||||||
Long-term debt |
20 | 15,390 | 16,355 | |||
Deferred tax liabilities |
9 | 1,824 | 1,321 | |||
Post-employment benefit obligations |
21 | 2,038 | 2,772 | |||
Other non-current liabilities |
22 | 1,420 | 1,521 | |||
Total non-current liabilities |
20,672 | 21,969 | ||||
Total liabilities |
30,664 | 31,058 | ||||
Commitments and contingencies |
27 | |||||
EQUITY |
||||||
Equity attributable to BCE shareholders |
||||||
Preferred shares |
24, 25 | 4,004 | 4,004 | |||
Common shares |
24, 25 | 18,100 | 16,717 | |||
Contributed surplus |
24, 25 | 1,150 | 1,141 | |||
Accumulated other comprehensive income |
119 | 97 | ||||
Deficit |
24 | (6,350 | ) | (7,013 | ) | |
Total equity attributable to BCE shareholders |
17,023 | 14,946 | ||||
Non-controlling interest |
24, 29 | 306 | 293 | |||
Total equity |
17,329 | 15,239 | ||||
Total liabilities and equity |
47,993 | 46,297 |
BCE Inc. 2015 ANNUAL REPORT 117 |
|
CONSOLIDATED FINANCIAL STATEMENTS |
Consolidated statements of changes in equity |
FOR THE YEAR ENDED DECEMBER 31, 2015 |
ATTRIBUTABLE TO BCE SHAREHOLDERS |
|||||||||||||||||
ACCUMU- | ||||||||||||||||||
LATED | ||||||||||||||||||
OTHER | NON- | |||||||||||||||||
CONTRI- | COMPRE- | CONTROL- | ||||||||||||||||
PREFERRED | COMMON | BUTED | HENSIVE | LING | TOTAL | |||||||||||||
NOTE | SHARES | SHARES | SURPLUS | INCOME | DEFICIT | TOTAL | INTEREST | EQUITY | ||||||||||
Balance at January 1, 2015 |
4,004 | 16,717 | 1,141 | 97 | (7,013 | ) | 14,946 | 293 | 15,239 | |||||||||
Net earnings |
| | | | 2,678 | 2,678 | 52 | 2,730 | ||||||||||
Other comprehensive income |
| | | 22 | 429 | 451 | 2 | 453 | ||||||||||
Total comprehensive income |
| | | 22 | 3,107 | 3,129 | 54 | 3,183 | ||||||||||
Common shares issued under employee stock option plan |
25 | | 96 | (7 | ) | | | 89 | | 89 | ||||||||
Common shares issued under employee savings plan |
25 | | 128 | | | | 128 | | 128 | |||||||||
Other share-based compensation |
| | 16 | | (53 | ) | (37 | ) | | (37 | ) | |||||||
Dividends declared on BCE common and preferred shares |
| | | | (2,365 | ) | (2,365 | ) | | (2,365 | ) | |||||||
Dividends declared by subsidiaries to non-controlling interest |
| | | | | | (41 | ) | (41 | ) | ||||||||
Common shares issued under bought deal offering |
25 | | 863 | | | (26 | ) | 837 | | 837 | ||||||||
Common shares issued for the acquisition of Glentel Inc. |
3, 25 | | 296 | | | | 296 | | 296 | |||||||||
Balance at December 31, 2015 |
4,004 | 18,100 | 1,150 | 119 | (6,350 | ) | 17,023 | 306 | 17,329 |
FOR THE YEAR ENDED DECEMBER 31, 2014 (IN MILLIONS OF CANADIAN DOLLARS) |
ATTRIBUTABLE TO BCE SHAREHOLDERS |
|||||||||||||||||
ACCUMU- | ||||||||||||||||||
LATED | ||||||||||||||||||
OTHER | ||||||||||||||||||
COMPRE- | NON- | |||||||||||||||||
CONTRI- | HENSIVE | CONTROL- | ||||||||||||||||
PREFERRED | COMMON | BUTED | INCOME | LING | TOTAL | |||||||||||||
NOTE | SHARES | SHARES | SURPLUS | (LOSS) | DEFICIT | TOTAL | INTEREST | EQUITY | ||||||||||
Balance at January 1, 2014 |
3,395 | 13,629 | 2,615 | 14 | (4,642 | ) | 15,011 | 1,239 | 16,250 | |||||||||
Net earnings |
| | | | 2,500 | 2,500 | 218 | 2,718 | ||||||||||
Other comprehensive (loss) income |
| | | 90 | (591 | ) | (501 | ) | (92 | ) | (593 | ) | ||||||
Total comprehensive income |
| | | 90 | 1,909 | 1,999 | 126 | 2,125 | ||||||||||
Common shares issued under employee stock option plan |
25 | | 53 | (4 | ) | | | 49 | | 49 | ||||||||
Common shares issued under employee savings plan |
25 | | 107 | | | | 107 | | 107 | |||||||||
Other share-based compensation |
| | 29 | | (4 | ) | 25 | 7 | 32 | |||||||||
Dividends declared on BCE common and preferred shares |
| | | | (2,098 | ) | (2,098 | ) | | (2,098 | ) | |||||||
Dividends declared by subsidiaries to non-controlling interest |
| | | | | | (145 | ) | (145 | ) | ||||||||
Privatization of Bell Aliant |
24, 25 | 609 | 2,928 | (1,499 | ) | (7 | ) | (2,143 | ) | (112 | ) | (877 | ) | (989 | ) | |||
Privatization transaction costs |
24 | | | | | (35 | ) | (35 | ) | (5 | ) | (40 | ) | |||||
Other |
| | | | | | (52 | ) | (52 | ) | ||||||||
Balance at December 31, 2014 |
4,004 | 16,717 | 1,141 | 97 | (7,013 | ) | 14,946 | 293 | 15,239 |
118 BCE Inc. 2015 ANNUAL REPORT | |
CONSOLIDATED FINANCIAL STATEMENTS |
Consolidated statements of cash flows |
FOR THE YEAR ENDED DECEMBER 31 |
||||||
(IN MILLIONS OF CANADIAN DOLLARS) |
NOTE | 2015 | 2014 | |||
Cash flows from operating activities |
||||||
Net earnings |
2,730 | 2,718 | ||||
Adjustments to reconcile net earnings to cash flows from operating activities |
||||||
Severance, acquisition and other costs |
6 | 446 | 216 | |||
Depreciation and amortization |
13, 14 | 3,420 | 3,452 | |||
Post-employment benefit plans cost |
21 | 391 | 377 | |||
Net interest expense |
900 | 921 | ||||
Gains on investments |
8 | (72 | ) | (10 | ) | |
Income taxes |
9 | 924 | 929 | |||
Contributions to post-employment benefit plans |
21 | (566 | ) | (683 | ) | |
Payments under other post-employment benefit plans |
21 | (75 | ) | (73 | ) | |
Severance and other costs paid |
(190 | ) | (190 | ) | ||
Interest paid |
(911 | ) | (907 | ) | ||
Income taxes paid (net of refunds) |
(672 | ) | (743 | ) | ||
Acquisition and other costs paid |
(292 | ) | (131 | ) | ||
Net change in operating assets and liabilities |
241 | 365 | ||||
Cash flows from operating activities |
6,274 | 6,241 | ||||
Cash flows used in investing activities |
||||||
Capital expenditures |
4 | (3,626 | ) | (3,717 | ) | |
Business acquisitions |
3 | (311 | ) | (18 | ) | |
Business dispositions |
3 | 409 | 720 | |||
Acquisition of spectrum licences |
14 | (535 | ) | (566 | ) | |
Other investing activities |
(51 | ) | 11 | |||
Cash flows used in investing activities |
(4,114 | ) | (3,570 | ) | ||
Cash flows used in financing activities |
||||||
Increase in notes payable |
76 | 469 | ||||
Issue of long-term debt |
20 | 1,498 | 1,428 | |||
Repayment of long-term debt |
20 | (2,084 | ) | (1,113 | ) | |
Privatization of Bell Aliant |
24 | | (989 | ) | ||
Issue of common shares |
25 | 952 | 49 | |||
Common shares issuance cost |
25 | (35 | ) | | ||
Repurchase of shares for settlement of share-based payments |
26 | (138 | ) | (83 | ) | |
Cash dividends paid on common shares |
(2,169 | ) | (1,893 | ) | ||
Cash dividends paid on preferred shares |
(150 | ) | (134 | ) | ||
Cash dividends paid by subsidiaries to non-controlling interest |
(41 | ) | (145 | ) | ||
Other financing activities |
(22 | ) | (29 | ) | ||
Cash flows used in financing activities |
(2,113 | ) | (2,440 | ) | ||
Net decrease in cash |
(42 | ) | (78 | ) | ||
Cash at beginning of year |
142 | 220 | ||||
Cash at end of year |
100 | 142 | ||||
Net increase in cash equivalents |
89 | 309 | ||||
Cash equivalents at beginning of year |
424 | 115 | ||||
Cash equivalents at end of year |
513 | 424 |
BCE Inc. 2015 ANNUAL REPORT 119 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Notes to consolidated financial statements
We, us, our, BCE and the company mean, as the context may require, either BCE Inc. or, collectively, BCE Inc., its subsidiaries, joint arrangements and associates. Bell Aliant means, as the context may require, until December 31, 2014, either Bell Aliant Inc. or, collectively, Bell Aliant Inc., its subsidiaries and associates, or after December 31, 2014 and up to, and including, June 30, 2015, either Bell Aliant Regional Communications Inc. or, collectively, Bell Aliant Regional Communications Inc., its subsidiaries and associates.
Note 1 Corporate information |
BCE is incorporated and domiciled in Canada. BCEs head office is located at 1, Carrefour Alexander-Graham-Bell, Verdun, Québec, Canada. BCE is a telecommunications and media company providing wireless, wireline, Internet and television (TV) services to residential, business and wholesale customers in Canada. Our Bell Media segment provides conventional, specialty and pay TV, digital media and radio broadcasting services to customers across Canada and out-of-home advertising services. The consolidated financial statements (financial statements) were approved by BCEs board of directors on March 3, 2016.
Note 2 Significant accounting policies |
a) Basis of presentation
The financial statements were prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). The financial statements have been prepared on a historical cost basis, except for certain financial instruments that are measured at fair value as described in our accounting policies.
All amounts are in millions of Canadian dollars, except where noted.
FUNCTIONAL CURRENCY
The financial statements are presented in Canadian dollars, the companys functional currency.
b) Basis of consolidation |
We consolidate the financial statements of all of our subsidiaries. Subsidiaries are entities we control, where control is achieved when the company is exposed or has the right to variable returns from its involvement with the investee and has the current ability to direct the activities of the investee that significantly affect the investees returns.
The results of subsidiaries acquired during the year are consolidated from the date of acquisition and the results of subsidiaries sold during the year are deconsolidated from the date of disposal. Where necessary, adjustments are made to the financial statements of acquired subsidiaries to conform their accounting policies to ours. All intercompany transactions, balances, income and expenses are eliminated on consolidation.
Changes in BCEs ownership interest in a subsidiary that do not result in a change of control are accounted for as equity transactions, with no effect on net earnings or on other comprehensive income.
c) Revenue recognition |
We recognize revenues from the sale of products or the rendering of services when they are earned; specifically when all the following conditions are met:
In particular, we recognize:
120 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
We measure revenues at the fair value of the arrangement consideration. We record payments we receive in advance, including upfront non-refundable payments, as deferred revenues until we provide the service or deliver the product to customers. Deferred revenues are presented in Trade payables and other liabilities or in Other non-current liabilities on the consolidated statements of financial position (statements of financial position).
Revenues are reduced for customer rebates and allowances and exclude sales and other taxes we collect from our customers.
We expense subscriber acquisition costs when the related services are activated.
MULTIPLE ELEMENT ARRANGEMENTS
We enter into arrangements that may include the sale of a number of products and services together, primarily to our wireless and business customers. When two or more products or services have value to our customers on a stand-alone basis, we separately account for each product or service according to the methods previously described. The total price to the customer is allocated to each product or service based on its relative fair value. When an amount allocated to a delivered item is contingent upon the delivery of additional items or meeting specified performance conditions, the amount allocated to that delivered item is limited to the non-contingent amount.
If the conditions to account for each product or service separately are not met, we recognize revenues proportionately over the term of the sale agreement.
SUBCONTRACTED SERVICES
We may enter into arrangements with subcontractors and others who provide services to our customers. When we act as the principal in these arrangements, we recognize revenues based on the amounts billed to our customers. Otherwise, we recognize the net amount that we retain as revenues.
d) Share-based payments |
Our share-based payment arrangements include stock options, restricted share units and performance share units (RSUs/PSUs), deferred share units (DSUs), an employee savings plan (ESP) and a deferred share plan (DSP).
STOCK OPTIONS
We use a fair value-based method to measure the cost of our employee stock options, based on the number of stock options that are expected to vest. Compensation expense is adjusted for subsequent changes in managements estimate of the number of stock options that are expected to vest.
We credit contributed surplus for stock option expense recognized over the vesting period. When stock options are exercised, we credit share capital for the amount received and the amounts previously credited to contributed surplus.
RSUs/PSUs
For each RSU/PSU granted, we recognize compensation expense in operating costs on the consolidated income statements (income statements) equal to the market value of a BCE common share at the date of grant and based on the number of RSUs/PSUs expected to vest, recognized over the term of the vesting period, with a corresponding credit to contributed surplus. Additional RSUs/PSUs are issued to reflect dividends declared on the common shares.
Compensation expense is adjusted for subsequent changes in managements estimate of the number of RSUs/PSUs that are expected to vest. The effect of these changes is recognized in the period of the change. Upon settlement of the RSUs/PSUs, any difference between the cost of shares purchased on the open market and the amount credited to contributed surplus is reflected in the deficit. Vested RSUs/PSUs are settled in BCE common shares, DSUs or a combination thereof.
DSUs
If compensation is elected to be taken in DSUs, we issue DSUs equal to the fair value of the services received. Additional DSUs are issued to reflect dividends declared on the common shares. DSUs are settled in BCE common shares purchased on the open market following the cessation of employment or when a director leaves the board. We credit contributed surplus for the fair value of DSUs at the issue date. Upon settlement of the DSUs, any difference between the cost of shares purchased on the open market and the amount credited to contributed surplus is reflected in the deficit.
ESP
We recognize our contributions to our ESP as compensation expense in operating costs on the income statements. Employer ESP contributions accrue over a two-year vesting period. We credit contributed surplus for the ESP expense recognized over the vesting period, based on managements estimate of the accrued contributions that are expected to vest. Upon settlement of shares under the ESP, any difference between the cost of shares purchased on the open market and the amount credited to contributed surplus is reflected in the deficit.
DSP
For each deferred share granted under the DSP, we recognize compensation expense in operating costs on the income statements equal to the market value of a BCE common share and based on the number of deferred shares expected to vest, recognized over the term of the vesting period. Additional deferred shares are issued to reflect dividends declared on the common shares.
Compensation expense is adjusted for subsequent changes in the market value of BCE common shares and any change in managements estimate of the number of deferred shares that are expected to vest. The cumulative effect of any change in value is recognized in the period of the change. Participants have the option to receive either BCE common shares or a cash equivalent for each vested deferred share upon qualifying for payout under the terms of the grant.
BCE Inc. 2015 ANNUAL REPORT 121 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
e) Income and other taxes |
Current and deferred income tax expense is recognized in the income statements, except to the extent that the expense relates to items recognized in other comprehensive income or directly in equity.
A current or non-current tax asset (liability) is the estimated tax receivable (payable) on taxable earnings for the current or past periods. We also record future tax liabilities, which are included in Other non-current liabilities in the statements of financial position.
We use the liability method to account for deferred tax assets and liabilities, which arise from:
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply when the asset or liability is recovered or settled. Both our current and deferred tax assets and liabilities are calculated using tax rates that have been enacted or substantively enacted at the reporting date.
Deferred taxes are provided on temporary differences arising from investments in subsidiaries, joint arrangements and associates, except where we control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Tax liabilities are, where permitted, offset against tax assets within the same taxable entity and tax jurisdiction.
INVESTMENT TAX CREDITS (ITCs), OTHER TAX CREDITS AND GOVERNMENT GRANTS
We recognize ITCs, other tax credits and government grants given on eligible expenditures when it is reasonably assured that they will be realized. They are presented as part of Trade and other receivables when they are expected to be utilized in the next year. We use the cost reduction method to account for ITCs and government grants, under which the credits are applied against the expense or asset to which the ITC or government grant relates.
f) Cash equivalents |
Cash equivalents are comprised of highly liquid investments with original maturities of three months or less from the date of purchase.
g) Securitization of trade receivables |
Proceeds on the securitization of trade receivables are recognized as a collateralized borrowing as we do not transfer control and substantially all the risks and rewards of ownership to another entity.
h) Inventory |
We measure inventory at the lower of cost and net realizable value. Inventory includes all costs to purchase, convert and bring the inventories to their present location and condition. We determine cost using specific identification for major equipment held for resale and the weighted average cost formula for all other inventory. We maintain inventory valuation reserves for inventory that is slow-moving or potentially obsolete, calculated using an inventory ageing analysis.
i) Property, plant and equipment |
We record property, plant and equipment at historical cost. Historical cost includes expenditures that are attributable directly to the acquisition or construction of the asset, including the purchase cost, and labour.
Borrowing costs are capitalized for qualifying assets if the time to build or develop is in excess of one year at a rate that is based on our weighted average interest rate on our outstanding long-term debt. Gains or losses on the sale or retirement of property, plant and equipment are recorded in Other (expense) income in the income statements.
LEASES
Leases of property, plant and equipment are recognized as finance leases when we obtain substantially all the risks and rewards of ownership of the underlying assets. At the inception of the lease, we record an asset, together with a corresponding long-term lease liability, at the lower of the fair value of the leased asset or the present value of the minimum future lease payments. If there is reasonable certainty that the lease transfers ownership of the asset to us by the end of the lease term, the asset is amortized over its useful life. Otherwise, the asset is amortized over the shorter of its useful life and the lease term. The long-term lease liability is measured at amortized cost using the effective interest method.
All other leases are classified as operating leases. Operating lease payments are expensed on a straight-line basis over the term of the lease.
ASSET RETIREMENT OBLIGATIONS
We initially measure and record asset retirement obligations at managements best estimate using a present value methodology, adjusted subsequently for any changes in the timing or amount of the cash flows and changes in discount rates. We capitalize asset retirement costs as part of the related assets and amortize them into earnings over time. We also increase the asset retirement obligation and record a corresponding amount in interest expense to reflect the passage of time.
122 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
j) Intangible assets |
FINITE-LIFE INTANGIBLE ASSETS
Finite-life intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any.
SOFTWARE
We record internal-use software at historical cost. Cost includes expenditures that are attributable directly to the acquisition or development of the software, including the purchase cost, and labour.
Software development costs are capitalized when all the following conditions are met:
CUSTOMER RELATIONSHIPS
Customer relationship assets are acquired through business combinations and are recorded at fair value at the date of acquisition.
PROGRAM AND FEATURE FILM RIGHTS
We account for program and feature film rights as intangible assets when these assets are acquired for the purpose of broadcasting. Program and feature film rights, which include producer advances and licence fees paid in advance of receipt of the program or film, are stated at acquisition cost less accumulated amortization and accumulated impairment losses, if any. Programs and feature films under licence agreements are recorded as assets for rights acquired and Iiabilities for obligations incurred when:
Programs and feature films are classified as non-current assets with related liabilities classified as current or non-current, based on the payment terms. Amortization of program and feature film rights is recorded in Operating costs in the income statements.
INDEFINITE-LIFE INTANGIBLE ASSETS
Brand assets, mainly comprised of the Bell and Bell Media brands, and broadcast licences are acquired through business combinations, and are recorded at fair value at the date of acquisition, less accumulated impairment losses, if any. Wireless spectrum licences are recorded at acquisition cost, including borrowing costs when the time to build or develop the related network is in excess of one year.
Currently there are no legal, regulatory, competitive or other factors that limit the useful lives of our brands or spectrum licences.
k) Depreciation and amortization |
We depreciate property, plant and equipment and amortize finite-life intangible assets on a straight-line basis over their estimated useful lives. We review our estimates of useful lives on an annual basis and adjust depreciation and amortization on a prospective basis, if needed. Land and assets under construction or development are not depreciated.
|
ESTIMATED USEFUL LIFE | |
Property, plant and equipment |
||
Network infrastructure and equipment |
2 to 50 years | |
Buildings |
5 to 50 years | |
Finite-life intangible assets |
||
Software |
2 to 12 years | |
Customer relationships |
6 to 30 years | |
Program and feature film rights |
Up to 5 years |
l) Investments in associates and joint arrangements |
Our financial statements incorporate our share of the results of our associates and joint ventures using the equity method of accounting, except when the investment is classified as held for sale. Equity income from investments is recorded in Other (expense) income in the income statements.
Investments in associates and joint ventures are recognized initially at cost and adjusted thereafter to include the companys share of income or loss and comprehensive income on an after-tax basis. Investments are reviewed for impairment at each reporting period by comparing their recoverable amount to their carrying amount.
We recognize our share of the assets, liabilities, revenues and expenses of joint operations in accordance with the related contractual agreements.
BCE Inc. 2015 ANNUAL REPORT 123 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
m) Business combinations and goodwill |
Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value at the date of acquisition. Acquisition-related transaction costs are expensed as incurred and recorded in Severance, acquisition and other costs in the income statements.
Identifiable assets and liabilities, including intangible assets, of acquired businesses are recorded at their fair values at the date of acquisition. When we acquire control of a business, any previously-held equity interest also is remeasured to fair value. The excess of the purchase consideration and any previously-held equity interest over the fair value of identifiable net assets acquired is recorded as Goodwill in the statements of financial position. If the fair value of identifiable net assets acquired exceeds the purchase consideration and any previously-held equity interest, the difference is recognized in earnings immediately as a bargain purchase gain.
Changes in our ownership interest in subsidiaries that do not result in a loss of control are accounted for as equity transactions. Any difference between the change in the carrying amount of non-controlling interest (NCI) and the consideration paid or received is attributed to owners equity.
n) Impairment of non-financial assets |
Goodwill and indefinite-life intangible assets are tested for impairment annually or when there is an indication that the asset may be impaired. Property, plant and equipment and finite-life intangible assets are tested for impairment if events or changes in circumstances, assessed at each reporting period, indicate that their carrying amount may not be recoverable. For the purpose of impairment testing, assets other than goodwill are grouped at the lowest level for which there are separately identifiable cash inflows.
Impairment losses are recognized and measured as the excess of the carrying value of the assets over their recoverable amount. An assets recoverable amount is the higher of its fair value less costs of disposal and its value in use. Previously recognized impairment losses, other than those attributable to goodwill, are reviewed for possible reversal at each reporting date and, if the assets recoverable amount has increased, all or a portion of the impairment is reversed.
GOODWILL IMPAIRMENT TESTING
We perform an annual test for goodwill impairment in the fourth quarter for each of our cash generating units (CGUs) or groups of CGUs to which goodwill is allocated, and whenever there is an indication that goodwill might be impaired.
A CGU is the smallest identifiable group of assets that generates cash inflows that are independent of the cash inflows from other assets or groups of assets.
We identify any potential impairment by comparing the carrying value of a CGU or group of CGUs to its recoverable amount. The recoverable amount of a CGU or group of CGUs is the higher of its fair value less costs of disposal and its value in use. Fair value less costs of disposal is based on estimates of discounted future cash flows or other valuation methods. Cash flows are projected based on past experience, actual operating results and business plans. When the recoverable amount of a CGU or group of CGUs is less than its carrying value, the recoverable amount is determined for its identifiable assets and liabilities. The excess of the recoverable amount of the CGU or group of CGUs over the total of the amounts assigned to its assets and liabilities is the recoverable amount of goodwill.
An impairment charge is deducted from earnings for any excess of the carrying value of goodwill over its recoverable amount. For purposes of impairment testing of goodwill, BCEs CGUs or groups of CGUs correspond to our reporting segments as disclosed in Note 4, Segmented information.
o) Financial instruments |
TRADE AND OTHER RECEIVABLES
Trade and other receivables, which include trade receivables and other short-term receivables, are measured at amortized cost using the effective interest method, net of any allowance for doubtful accounts. An allowance for doubtful accounts is established based on individually significant exposures or on historical trends. Factors considered when establishing an allowance include current economic conditions, historical information and the reason for the delay in payment. Amounts considered uncollectible are written off.
AVAILABLE FOR SALE (AFS) FINANCIAL ASSETS
Our portfolio investments in equity securities are classified as AFS and are presented in our statements of financial position as Other non-current assets. They have been designated as such based on managements intentions or because they are not classified in any other categories. These securities are recorded at fair value on the date of acquisition, including related transaction costs, and are adjusted to fair value at each reporting date. The corresponding unrealized gains and losses are recorded in other comprehensive income and are reclassified to Other (expense) income in the income statements when realized or when an impairment is determined.
OTHER FINANCIAL LIABILITIES
Other financial liabilities, which include trade payables and accruals, compensation payable, obligations imposed by the Canadian Radio-television and Telecommunications Commission (CRTC), interest payable and long-term debt, are recorded at amortized cost using the effective interest method.
COSTS OF ISSUING DEBT AND EQUITY
The cost of issuing debt is included as part of long-term debt and is accounted for at amortized cost using the effective interest method. The cost of issuing equity is reflected in the consolidated statements of changes in equity as a charge to the deficit.
124 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
p) Derivative financial instruments |
We use derivative financial instruments to manage interest rate risk, foreign currency risk and cash flow exposures related to share-based payment plans, capital expenditures, long-term debt instruments and purchase commitments. We do not use derivative financial instruments for speculative or trading purposes.
HEDGE ACCOUNTING
To qualify for hedge accounting, we document the relationship between the derivative and the related identified risk exposure, and our risk management objective and strategy. This includes associating each derivative to a specific asset or liability, a specific firm commitment or a specific anticipated transaction.
We assess the effectiveness of a derivative in managing an identified risk exposure when hedge accounting is initially applied, and on an ongoing basis thereafter. If a hedge becomes ineffective, we stop using hedge accounting.
FAIR VALUE HEDGES
Our fair value hedges consist of interest rate swaps used to manage the effect of changes in interest rates relating to fixed-rate long-term debt. These swaps involve exchanging interest payments without exchanging the notional amount on which the payments are based. We record the exchange of payments as an adjustment to interest expense on the hedged debt. We include the related net receivable or payable from counterparties in Other current assets or Trade payables and other liabilities for swaps due within one year and in Other non-current assets or Other non-current liabilities for swaps that have a maturity of more than one year. Changes in the fair value of these derivatives and the related long-term debt are recognized in Other (expense) income in the income statements and offset, unless a portion of the hedging relationship is ineffective.
CASH FLOW HEDGES
Our cash flow hedges are used to mitigate foreign currency risk on certain long-term debt instruments and purchase commitments, as well as interest rate risk related to future debt issuances. We use foreign currency forward contracts to manage the exposure to anticipated transactions denominated in foreign currencies. Changes in the fair value of these derivatives are recognized in our consolidated statements of comprehensive income (statements of comprehensive income), except for any ineffective portion, which is recognized immediately in earnings. Realized gains and losses in Accumulated other comprehensive income are reclassified to the income statements in the same periods as the corresponding hedged items are recognized in earnings. Cash flow hedges that mature within one year are included in Other current assets or Trade payables and other liabilities, whereas hedges that have a maturity of more than one year are included in Other non-current assets or Other non-current liabilities.
We use cross currency basis swaps to manage our U.S. dollar borrowings under our unsecured committed term credit facility. Changes in the fair value of these derivatives and the related credit facility are recognized in Other (expense) income in the income statements and offset, unless a portion of the hedging relationship is ineffective.
DERIVATIVES USED AS ECONOMIC HEDGES
We use derivatives to manage cash flow exposures related to equity-settled share-based payment plans and capital expenditures, equity price risk related to a cash-settled share-based payment plan, and interest rate risk related to preferred share dividend rate resets. As these derivatives do not qualify for hedge accounting, the changes in their fair value are recorded in the income statements in Operating costs for derivatives used to hedge cash-settled share-based payments and in Other (expense) income for other derivatives.
q) Post-employment benefit plans |
DEFINED BENEFIT (DB) AND OTHER POST-EMPLOYMENT BENEFIT (OPEB) PLANS
We maintain DB pension plans that provide pension benefits for certain employees. Benefits are based on the employees length of service and average rate of pay during the highest paid consecutive five years of service. Most employees are not required to contribute to the plans. Certain plans provide cost of living adjustments to help protect the income of retired employees against inflation.
We are responsible for adequately funding our DB pension plans. We make contributions to them based on various actuarial cost methods permitted by pension regulatory bodies. Contributions reflect actuarial assumptions about future investment returns, salary projections, future service and life expectancy.
We provide OPEBs to some of our employees, including:
We accrue our obligations and related costs under post-employment benefit plans, net of the fair value of the benefit plan assets. Pension and OPEB costs are determined using:
We value post-employment benefit plan assets at fair value using current market values.
BCE Inc. 2015 ANNUAL REPORT 125 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Post-employment benefit plans current service cost is included in Operating costs. Interest on our post-employment benefit obligations is recognized in net earnings and represents the accretion of interest on the net obligations under the post-employment benefit plans. The interest rate is based on market conditions that existed at the beginning of the year. Actuarial gains and losses for all post-employment benefit plans are recorded in other comprehensive income in the period in which they occur and are recognized immediately in the deficit.
December 31 is the measurement date for our significant post-employment benefit plans. Our actuaries perform a valuation at least every three years to determine the actuarial present value of the accrued DB pension plan and OPEB obligations. The most recent actuarial valuation of our significant pension plans was December 31, 2014.
DEFINED CONTRIBUTION (DC) PENSION PLANS
We maintain DC pension plans that provide certain employees with benefits. Under these plans, we are responsible for contributing a predetermined amount to an employees retirement savings, based on a percentage of the employees salary.
We recognize a post-employment benefit plans service cost for DC pension plans when the employee provides service to the company, essentially coinciding with our cash contributions.
Generally, new employees can participate only in the DC pension plans.
r) Provisions |
Provisions are recognized when all the following conditions are met:
Provisions are measured at the present value of the estimated expenditures expected to settle the obligation, if the effect of the time value of money is material. The present value is determined using current market assessments of the discount rate and risks specific to the obligation. The obligation increases as a result of the passage of time, resulting in interest expense.
s) Estimates and key judgments |
When preparing financial statements, management makes estimates and judgments relating to:
We base our estimates on a number of factors, including historical experience, current events and actions that the company may undertake in the future, and other assumptions that we believe are reasonable under the circumstances. By their nature, these estimates and judgments are subject to measurement uncertainty and actual results could differ. Our more significant estimates and judgments are described below.
ESTIMATES
USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT AND FINITE-LIFE INTANGIBLE ASSETS
Property, plant and equipment represent a significant proportion of our total assets. Changes in technology or our intended use of these assets, as well as changes in business prospects or economic and industry factors, may cause the estimated useful lives of these assets to change.
POST-EMPLOYMENT BENEFIT PLANS
The amounts reported in the financial statements relating to DB pension plans and OPEBs are determined using actuarial calculations that are based on several assumptions.
The actuarial valuation uses managements assumptions for, among other things, the discount rate, life expectancy, the rate of compensation increase, trends in healthcare costs and expected average remaining years of service of employees.
The most significant assumptions used to calculate the net post-employment benefit plans cost are the discount rate and life expectancy.
The discount rate is based on the yield on long-term, high-quality corporate fixed income investments, with maturities matching the estimated cash flows of the post-employment benefit plans. Life expectancy is based on publicly available Canadian mortality tables and is adjusted for the companys specific experience.
IMPAIRMENT OF NON-FINANCIAL ASSETS
We make a number of estimates when calculating recoverable amounts using discounted future cash flows or other valuation methods to test for impairment. These estimates include the assumed growth rates for future cash flows, the number of years used in the cash flow model and the discount rate.
DEFERRED TAXES
The amount of deferred tax assets is estimated with consideration given to the timing, sources and amounts of future taxable income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Certain financial instruments, such as investments in equity securities, derivative financial instruments and certain elements of borrowings, are carried in the statements of financial position at fair value, with changes in fair value reflected in the income statements and the statements of comprehensive income. Fair values are estimated by reference to published price quotations or by using other valuation techniques that may include inputs that are not based on observable market data, such as discounted cash flows.
126 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
CONTINGENCIES
We become involved in various litigation matters as a part of our business. Pending litigations represent a potential cost to our business. We estimate the amount of a loss by analyzing potential outcomes and assuming various litigation and settlement strategies, based on information that is available at the time.
ONEROUS CONTRACTS
A provision for onerous contracts is recognized when the unavoidable costs of meeting our obligations under a contract exceed the expected benefits to be received from a contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of completing the contract.
JUDGMENTS
POST-EMPLOYMENT BENEFIT PLANS
The determination of the discount rate used to value our post-employment benefit obligations requires judgment. The rate is set by reference to market yields of high-quality corporate fixed income investments at the beginning of each fiscal year. Significant judgment is required when setting the criteria for fixed income investments to be included in the population from which the yield curve is derived. The most significant criteria considered for the selection of investments include the size of the issue and credit quality, along with the identification of outliers, which are excluded.
INCOME TAXES
The calculation of income taxes requires judgment in interpreting tax rules and regulations. There are transactions and calculations for which the ultimate tax determination is uncertain. Our tax filings are also subject to audits, the outcome of which could change the amount of current and deferred tax assets and liabilities.
Management judgment is used to determine the amounts of deferred tax assets and liabilities and future tax liabilities to be recognized. In particular, judgment is required when assessing the timing of the reversal of temporary differences to which future income tax rates are applied.
MULTIPLE ELEMENT ARRANGEMENTS
Determining the amounts of revenue to be recognized for multiple element arrangements requires judgment to establish the separately identifiable components and the allocation of the total price between those components.
CASH GENERATING UNITS
The determination of CGUs or groups of CGUs for the purpose of annual impairment testing requires judgment.
CONTINGENCIES
The determination of whether a loss is probable from litigation and whether an outflow of resources is likely requires judgment.
t) Change in accounting estimate |
In 2014, as part of our ongoing annual review of property, plant and equipment and finite-life intangible assets, and to better reflect their useful lives, we increased the lives of certain information technology (IT) software assets from five to seven years and reduced the lives of certain network assets, including our code division multiple access (CDMA) network. The changes have been applied prospectively effective July 1, 2014 and did not have a significant impact on our financial statements.
u) Future changes to accounting standards |
The following new or amended standards issued by the IASB have an effective date after December 31, 2015 and have not yet been adopted by BCE.
STANDARD | DESCRIPTION | IMPACT | EFFECTIVE DATE | ||||
Amendments to International Accounting Standard (IAS) 16 Property, Plant and Equipment and IAS 38 Intangible Assets | Clarifies that a revenue-based approach to calculate depreciation and amortization generally is not appropriate as it does not reflect the consumption of the economic benefits embodied in the related asset. | The amendments to IAS 16 and IAS 38 are not expected to have a significant impact on our financial statements. | Annual periods beginning on or after January 1, 2016, applied prospectively. | ||||
Amendments to IFRS 11 Joint Arrangements | Provides guidance on the accounting for acquisitions of interests in joint operations in which the activity constitutes a business, as defined in IFRS 3 Business Combinations. The amended standard requires the acquirer to apply all of the principles on accounting for business combinations in IFRS 3 and other IFRSs except for any principles that conflict with IFRS 11. | The amendments to IFRS 11 are not expected to have a significant impact on our financial statements. | Annual periods beginning on or after January 1, 2016, applied prospectively. | ||||
Amendments to IAS 7 Statement of Cash Flows | Requires enhanced disclosures about changes in liabilities arising from financing activities, including changes from financing cash flows, changes arising from obtaining or losing control of subsidiaries or other businesses, the effect of changes in foreign exchange rates and changes in fair values. | We are currently evaluating the impact of the amendments to IAS 7 on our financial statements. | Annual periods beginning on or after January 1, 2017, applied prospectively. |
BCE Inc. 2015 ANNUAL REPORT 127 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
STANDARD | DESCRIPTION | IMPACT | EFFECTIVE DATE | ||||
IFRS 15 Revenue from Contracts with Customers |
Establishes principles to record
revenues from contracts for the sale of goods or services, unless the contracts
are in the scope of IAS 17Leases or other IFRSs. Under IFRS 15, revenue is
recognized at an amount that reflects the expected consideration receivable in
exchange for transferring goods or services to a customer, applying the
following five steps:
The new standard also provides guidance relating to contract costs and for the measurement and recognition of gains and losses on the sale of certain non-financial assets such as property and equipment. Additional disclosures will also be required under the new standard. |
IFRS 15 will principally affect the
timing of revenue recognition and how we classify revenues between product and
service, how we account for costs to obtain a contract and contract fulfilment
costs. Under multiple element arrangements, although the total revenue recognized during the term of a contract will be largely unaffected, the revenue allocated to a delivered item will no longer be limited to the non-contingent amount, which may accelerate the recognition of revenue ahead of the associated cash inflows. This would result in a change in the upfront classification of revenues to an asset on the balance sheet, which would be realized over the term of the contract. Although we have made progress in our implementation of IFRS 15, it is not yet possible to make a reliable estimate of the impact of the new standard on our financial statements, as we are required to implement significant changes to our systems and processes across the organization in order to collect the new data requirements, as well as compile historical comparatives. It is expected that the changes will be most pronounced in our Bell Wireless segment. |
Annual periods beginning on or after January 1, 2018, using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. | ||||
IFRS 9 Financial Instruments | Sets out the requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. The new standard establishes a single classification and measurement approach for financial assets that reflects the business model in which they are managed and their cash flow characteristics. It also provides guidance on an entitys own credit risk relating to financial liabilities and has modified the hedge accounting model to better link the economics of risk management with its accounting treatment. Additional disclosures will also be required under the new standard. | We are currently evaluating the impact of IFRS 9 on our financial statements. | Annual periods beginning on or after January 1, 2018, with early adoption permitted. | ||||
IFRS 16 Leases |
Eliminates the distinction between
operating and finance leases for lessees, requiring instead that leases be
capitalized by recognizing the present value of the lease payments and showing
them either as lease assets (right-of-use assets) or together with property,
plant and equipment. If lease payments are made over time, an entity recognizes
a financial liability representing its obligation to make future lease payments.
A depreciation charge for the lease asset is recorded within operating costs and
an interest expense on the lease liability is recorded within finance costs. IFRS 16 does not require a lessee to recognize assets and liabilities for short-term leases and leases of low-value assets, nor does it substantially change lease accounting for lessors. |
We are currently evaluating the impact of IFRS 16 on our financial statements. | Annual periods beginning on or after January 1, 2019, using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach, with early adoption permitted if an entity has adopted IFRS 15. |
128 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Note 3 Business acquisitions and dispositions |
Glentel
On May 20, 2015, BCE completed the acquisition of all of Glentel Inc.s (Glentel) issued and outstanding common shares for a total consideration of $592 million, of which $296 million ($284 million, net of cash on hand) was paid in cash and the balance through the issuance of 5,548,908 BCE common shares. Immediately following the closing of the acquisition, BCE repaid Glentels outstanding debt in the amount of approximately $112 million and contributed $53 million in exchange for additional Glentel common shares.
Subsequently, also on May 20, 2015 and further to an agreement dated December 24, 2014, BCE divested 50% of its ownership interest in Glentel to Rogers Communications Inc. for a total cash consideration of approximately $473 million ($407 million, net of divested cash and transaction costs). The resulting gain of $94 million is recorded in Other (expense) income. Our remaining investment in Glentel is $379 million and is recorded in Investments in associates and joint ventures.
Glentel is a Canadian-based dual-carrier, multi-brand mobile products distributor. The transaction is part of our strategy to accelerate wireless and improve customer service. BCE accounts for its investment in Glentel as a joint venture using the equity method.
National expansion of HBO and The Movie Network (TMN) |
On November 19, 2015, BCE announced a transaction with Corus Entertainment Inc. (Corus) whereby Bell Media would pay Corus a total consideration of $211 million for Corus to waive its HBO content rights in Canada and wind down operations of its Movie Central and Encore Avenue pay TV services in Western and Northern Canada, thereby allowing Bell Media to become the sole operator of HBO Canada nationally across all platforms and to expand TMN into a national pay TV service. Bell Media paid a deposit of $21 million to Corus in 2015.
Subsequent to year end, Bell Media completed the final payment of $190 million, which will be recorded in our consolidated statements of cash flows in the first quarter of 2016. TMN was successfully launched nationally on March 1, 2016 and Movie Central and Encore Avenues operations ceased on the same day at which point the transaction was recorded in our consolidated statements of financial position. The transaction is part of our strategy to create, negotiate and deliver premium TV programming to Canadian consumers across more platforms on a national basis.
Sale of Astral radio stations and TV services |
As a result of BCEs acquisition of Astral Media Inc. (Astral) on July 5, 2013 and consistent with the CRTCs Common Ownership Policy for radio, BCE was required to sell ten Bell Media and Astral English-language radio stations. BCE also was required to sell eleven Astral TV services in order to comply with conditions attached to the Competition Bureau and CRTC approvals.
In 2014, we completed the sale of the radio stations and TV services for total proceeds of $720 million.
Note 4 Segmented information |
The accounting policies used in our segment reporting are the same as those we describe in Note 2, Significant accounting policies. Beginning January 1, 2015, our results are reported in three segments: Bell Wireless, Bell Wireline and Bell Media. Due to the privatization of Bell Aliant in 2014 as outlined in Note 24, Privatization of Bell Aliant, the results of our former Bell Aliant segment are included within our Bell Wireless and Bell Wireline segments, with prior periods reclassified for comparative purposes. Goodwill and indefinite life intangible assets of our former Bell Aliant segment are now primarily included in the Bell Wireline segment. Our segments reflect how we manage our business and how we classify our operations for planning and measuring performance. Accordingly, we operate and manage our segments as strategic business units organized by products and services. Segments negotiate sales with each other as if they were unrelated parties.
We measure the performance of each segment based on segment profit, which is equal to operating revenues less operating costs for the segment. We report severance, acquisition and other costs and depreciation and amortization by segment for external reporting purposes. Substantially all of our finance costs and other (expense) income are managed on a corporate basis and, accordingly, are not reflected in segment results.
Our operations and virtually all of our assets are located in Canada. Below is a description of our segments at December 31, 2015:
Our Bell Wireless segment provides wireless voice and data communication products and services to our residential, small and medium-sized business and large enterprise customers across Canada.
BCE Inc. 2015 ANNUAL REPORT 129 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Our Bell Wireline segment provides data, including Internet access and IPTV, local telephone, long distance, as well as other communications services and products to our residential, small and medium-sized business and large enterprise customers primarily in Ontario, Québec and the Atlantic provinces, while Satellite TV service and connectivity to business customers are available nationally across Canada. In addition, this segment includes our wholesale business, which buys and sells local telephone, long distance, data and other services from or to resellers and other carriers.
Our Bell Media segment provides conventional, specialty and pay TV, digital media, and radio broadcasting services to customers across Canada and out-of-home advertising services.
Segmented information |
|
INTER-SEGMENT | |||||||||||
FOR THE YEAR ENDED DECEMBER 31, 2015 |
NOTE | BELL WIRELESS | BELL WIRELINE | BELL MEDIA | ELIMINATIONS | BCE | ||||||
Operating revenues |
||||||||||||
External customers |
6,836 | 12,043 | 2,635 | | 21,514 | |||||||
Inter-segment |
40 | 215 | 339 | (594 | ) | | ||||||
Total operating revenues |
6,876 | 12,258 | 2,974 | (594 | ) | 21,514 | ||||||
Operating costs |
5 | (4,048 | ) | (7,258 | ) | (2,251 | ) | 594 | (12,963 | ) | ||
Segment profit(1) |
2,828 | 5,000 | 723 | | 8,551 | |||||||
Severance, acquisition and other costs |
6 | (16 | ) | (363 | ) | (67 | ) | | (446 | ) | ||
Depreciation and amortization |
13, 14 | (503 | ) | (2,785 | ) | (132 | ) | | (3,420 | ) | ||
Finance costs |
||||||||||||
Interest expense |
7 | (909 | ) | |||||||||
Interest on post-employment benefit obligations |
21 | (110 | ) | |||||||||
Other expense |
8 | (12 | ) | |||||||||
Income taxes |
9 | (924 | ) | |||||||||
Net earnings |
2,730 | |||||||||||
Goodwill |
17 | 2,303 | 3,491 | 2,583 | | 8,377 | ||||||
Indefinite-life intangible assets |
14 | 3,597 | 1,685 | 2,652 | | 7,934 | ||||||
Capital expenditures |
716 | 2,809 | 101 | | 3,626 |
(1) | The chief operating decision maker uses primarily one measure of profit to make decisions and assess performance, being operating revenues less operating costs. |
|
INTER-SEGMENT ELIMINATIONS |
|||||||||||
FOR THE YEAR ENDED DECEMBER 31, 2014 |
NOTE | BELL WIRELESS | BELL WIRELINE | BELL MEDIA | BCE | |||||||
Operating revenues |
||||||||||||
External customers |
6,289 | 12,111 | 2,642 | | 21,042 | |||||||
Inter-segment |
38 | 213 | 295 | (546 | ) | | ||||||
Total operating revenues |
6,327 | 12,324 | 2,937 | (546 | ) | 21,042 | ||||||
Operating costs |
5 | (3,703 | ) | (7,379 | ) | (2,203 | ) | 546 | (12,739 | ) | ||
Segment profit(1) |
2,624 | 4,945 | 734 | | 8,303 | |||||||
Severance, acquisition and other costs |
6 | (5 | ) | (165 | ) | (46 | ) | | (216 | ) | ||
Depreciation and amortization |
13, 14 | (545 | ) | (2,781 | ) | (126 | ) | | (3,452 | ) | ||
Finance costs |
||||||||||||
Interest expense |
7 | (929 | ) | |||||||||
Interest on post-employment benefit obligations |
21 | (101 | ) | |||||||||
Other income |
8 | 42 | ||||||||||
Income taxes |
9 | (929 | ) | |||||||||
Net earnings |
2,718 | |||||||||||
Goodwill |
17 | 2,302 | 3,491 | 2,592 | | 8,385 | ||||||
Indefinite-life intangible assets |
14 | 3,033 | 1,685 | 2,680 | | 7,398 | ||||||
Capital expenditures |
687 | 2,893 | 137 | | 3,717 |
(1) | The chief operating decision maker uses primarily one measure of profit to make decisions and assess performance, being operating revenues less operating costs. |
130 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Revenues by product |
FOR THE YEAR ENDED DECEMBER 31 | 2015 | 2014 | ||
Wireless | 6,246 | 5,806 | ||
Data | 7,163 | 6,978 | ||
Local and access | 3,271 | 3,420 | ||
Long distance | 831 | 922 | ||
Media | 2,635 | 2,642 | ||
Equipment and other(1) | 1,368 | 1,274 | ||
Total operating revenues(2) | 21,514 | 21,042 |
(1) | Includes wireless product revenues of $590 million and $483 million in 2015 and 2014, respectively. |
(2) | Due to the privatization of Bell Aliant, as outlined in Note 24, Privatization of Bell Aliant, we have reclassified amounts for the prior year to make them consistent with the presentation for the current year. |
Note 5 Operating costs |
FOR THE YEAR ENDED DECEMBER 31 |
NOTE | 2015 | 2014 | |||
Labour costs |
||||||
Wages, salaries and related taxes and benefits |
(4,224 | ) | (4,351 | ) | ||
Post-employment benefit plans service cost (net of capitalized amounts) |
21 | (281 | ) | (276 | ) | |
Other labour costs(1) |
(949 | ) | (957 | ) | ||
Less: |
||||||
Capitalized labour |
954 | 1,002 | ||||
Total labour costs |
(4,500 | ) | (4,582 | ) | ||
Cost of revenues(2) |
(6,598 | ) | (6,265 | ) | ||
Other operating costs(3) |
(1,865 | ) | (1,892 | ) | ||
Total operating costs |
(12,963 | ) | (12,739 | ) |
(1) | Other labour costs include contractor and outsourcing costs. |
(2) | Cost of revenues includes costs of wireless devices and other equipment sold, network and content costs, and payments to other carriers. |
(3) | Other operating costs include marketing, advertising and sales commission costs, bad debt expense, taxes other than income taxes, information technology costs, professional service fees and rent. |
Research and development expenses of $134 million and $167 million are included in operating costs for 2015 and 2014, respectively.
Note 6 Severance, acquisition and other costs |
FOR THE YEAR ENDED DECEMBER 31 |
2015 | 2014 | ||
Severance |
(197 | ) | (82 | ) |
Acquisition and other |
(249 | ) | (134 | ) |
Total severance, acquisition and other costs |
(446 | ) | (216 | ) |
Severance costs
Severance costs consist of charges related to involuntary and voluntary employee terminations. Severance in 2015 includes costs related to workforce reduction initiatives incurred in our Bell Media and Bell Wireline segments to confront changing consumer preferences, new TV unbundling rules, a soft business market as a result of the economy and declines in home phone subscribers.
BCE Inc. 2015 ANNUAL REPORT 131 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Acquisition and other costs |
Acquisition and other costs consist of transaction costs, such as legal and financial advisory fees, related to completed or potential acquisitions, employee severance costs related to the purchase of a business, the costs to integrate acquired companies into our operations and litigation costs, when they are significant. Acquisition costs also include severance and integration costs relating to the privatization of Bell Aliant. Refer to Note 24, Privatization of Bell Aliant.
SIGNAL PIRACY LITIGATION
On August 31, 2005, a motion to institute legal proceedings was filed in the Québec Superior Court against Bell ExpressVu Limited Partnership (Bell ExpressVu) by Vidéotron ltée, Vidéotron (Régional) ltée and CF Cable TV Inc. (a subsidiary of Vidéotron ltée). The claim was for an initial amount of $374 million in damages, plus interest and costs. In the statement of claim, the plaintiffs alleged that Bell ExpressVu had failed to adequately protect its system against satellite signal piracy, thereby depriving the plaintiffs of subscribers who, but for their alleged ability to pirate Bell ExpressVus signal, would have subscribed to the plaintiffs services. On July 23, 2012, the Superior Court issued a judgment pursuant to which it did not find Bell ExpressVu at fault in its overall efforts to fight signal piracy but concluded that the complete smart card swap it undertook should have been completed earlier. In this regard, the court granted the plaintiffs damages of $339,000, plus interest and costs. The plaintiffs appealed to the Québec Court of Appeal the quantum of damages awarded by the trial judge and sought revised damages in the amount of $164.5 million, plus costs, interest and an additional indemnity. Bell ExpressVu also filed an appeal of the lower court decision on its finding of liability.
On March 6, 2015, the Québec Court of Appeal reversed the judgment of the lower court regarding the quantum of damages, granting plaintiffs damages of $82 million, plus interest and costs. A charge of $137 million was recorded in Q1 2015 and was included in acquisition and other costs.
On October 15, 2015, the Supreme Court of Canada dismissed Bell ExpressVus application for leave to appeal the Québec Court of Appeals judgment. Accordingly, the aggregate amount of $141.6 million, including interest and costs, was paid by Bell ExpressVu on October 19, 2015 in full satisfaction of the judgment as rendered by the Québec Court of Appeal and was recorded in Acquisition and other costs paid in the statements of cash flows.
Note 7 Interest expense |
FOR THE YEAR ENDED DECEMBER 31 |
2015 | 2014 | ||
Interest expense on long-term debt |
(875 | ) | (865 | ) |
Interest expense on other debt |
(84 | ) | (97 | ) |
Capitalized interest |
50 | 33 | ||
Total interest expense |
(909 | ) | (929 | ) |
Interest expense on long-term debt includes interest on finance leases of $161 million and $166 million for 2015 and 2014, respectively.
Capitalized interest was calculated using an average rate of 4.08% and 4.49% for 2015 and 2014, respectively, which represents the weighted average interest rate on our outstanding long-term debt.
Note 8 Other (expense) income |
FOR THE YEAR ENDED DECEMBER 31 |
NOTE | 2015 | 2014 | |||
Losses on disposal/retirement of software, plant and equipment |
(55 | ) | (51 | ) | ||
Impairment of assets |
13, 14 | (49 | ) | (105 | ) | |
Equity (losses) income from investments in associates and joint ventures |
15 | |||||
Loss on investment |
(54 | ) | | |||
Operations |
5 | (12 | ) | |||
Early debt redemption costs |
20 | (18 | ) | (29 | ) | |
Gains on investments |
3 | 72 | 10 | |||
Net mark-to-market gains on derivatives used as economic hedges |
54 | 134 | ||||
Dividend income from assets held for sale |
3 | | 42 | |||
Other |
33 | 53 | ||||
Total other (expense) income |
(12 | ) | 42 |
132 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Impairment of assets |
In 2015, we recorded an impairment charge of $49 million, of which $38 million was allocated to indefinite-life intangible assets, $9 million to finite-life intangible assets and $2 million to property, plant and equipment. The impairment charge related mainly to our music CGU within our Bell Media segment and resulted from revenue and profitability declines from lower viewership and higher TV content costs. The charge was determined by comparing the carrying value of the CGU to its fair value less costs of disposal. We estimated the fair value of the CGU using both discounted cash flows and market-based valuation models which include five-year cash flow projections from business plans reviewed by senior management for the period of January 1, 2016 to December 31, 2020, using a discount rate of 9.0% and a perpetuity growth rate of nil, as well as market multiple data from public companies and market transactions. The carrying value of our music CGU was $171 million at December 31, 2015.
In 2014, we recorded an impairment charge of $105 million, of which $67 million was allocated to property, plant and equipment and $38 million to indefinite-life intangible assets. The impairment charge related mainly to our conventional TV CGU within our Bell Media segment and resulted from a softness in the overall Canadian TV advertising market and higher TV content costs. The charge was determined by comparing the carrying value of the CGU to its fair value less costs of disposal, based on five-year expected future discounted cash flows from business plans reviewed by senior management for the period of January 1, 2015 to December 31, 2019 using a discount rate of 9.5% and a perpetuity growth rate of nil The carrying value of our conventional TV CGU was $327 million at December 31, 2014.
Equity (losses) income from investments in associates and joint ventures |
In 2015, we recorded a loss on investment of $54 million, representing equity losses on our share of an obligation to repurchase at fair value the minority interest in one of BCEs joint ventures. The obligation is marked to market each reporting period and the gain or loss on investment is recorded as equity gains or losses from investments in associates and joint ventures.
Gains on investments |
In 2015, BCE recognized a gain of $94 million as a result of its divestiture of its 50% ownership in Glentel to Rogers Communications Inc. Refer to Note 3, Business acquisitions and dispositions. Additionally, BCE recognized a $22 million loss on investments, which includes a loss on the sale of a call centre subsidiary, as well as a write down of the fair value of a financial asset related to one of our equity investments.
Note 9 Income taxes |
The following table shows the significant components of income taxes deducted from net earnings.
FOR THE YEAR ENDED DECEMBER 31 |
2015 | 2014 | ||
Current taxes |
||||
Current taxes |
(687 | ) | (789 | ) |
Resolution of uncertain tax positions |
27 | 1 | ||
Change in estimate relating to prior periods |
114 | 93 | ||
Utilization of previously unrecognized tax credits |
5 | 23 | ||
Deferred taxes |
||||
Deferred taxes relating to the origination and reversal of temporary differences |
(271 | ) | (165 | ) |
Change in estimate relating to prior periods |
(106 | ) | (82 | ) |
Recognition and utilization of loss carryforwards |
(14 | ) | (10 | ) |
Effect of change in provincial corporate tax rate |
(6 | ) | | |
Resolution of uncertain tax positions |
14 | | ||
Total income taxes |
(924 | ) | (929 | ) |
BCE Inc. 2015 ANNUAL REPORT 133 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table reconciles the amount of reported income taxes in the income statements with income taxes calculated at a statutory income tax rate of 26.9% and 26.6% for 2015 and 2014, respectively.
FOR THE YEAR ENDED DECEMBER 31 |
2015 | 2014 | ||
Net earnings |
2,730 | 2,718 | ||
Add back income taxes |
924 | 929 | ||
Earnings before income taxes |
3,654 | 3,647 | ||
Applicable statutory tax rate |
26.9 | % | 26.6 | % |
Income taxes computed at applicable statutory rates |
(983 | ) | (970 | ) |
Non-taxable portion of gains on investments |
26 | 4 | ||
Resolution of uncertain tax positions |
41 | 1 | ||
Utilization of previously unrecognized tax credits |
5 | 23 | ||
Effect of change in provincial corporate tax rate |
(6 | ) | | |
Change in estimate relating to prior periods |
8 | 11 | ||
Other |
(15 | ) | 2 | |
Total income taxes |
(924 | ) | (929 | ) |
Average effective tax rate |
25.3 | % | 25.5 | % |
The following table shows aggregate current and deferred taxes relating to items recognized outside the income statements.
FOR THE YEAR ENDED DECEMBER 31 |
2015 |
2014 |
||||||
|
OTHER | OTHER | ||||||
|
COMPREHENSIVE | COMPREHENSIVE | ||||||
|
INCOME | DEFICIT | INCOME | DEFICIT | ||||
Current taxes |
29 | 19 | 12 | 8 | ||||
Deferred taxes |
(192 | ) | (3 | ) | 228 | 11 | ||
Total income tax (expense) recovery |
(163 | ) | 16 | 240 | 19 |
The following table shows deferred taxes resulting from temporary differences between the carrying amounts of assets and liabilities recognized in the statements of financial position and their corresponding tax basis, as well as tax loss carryforwards.
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PROPERTY, | |||||||||||||||
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PLANT AND | |||||||||||||||
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NON- | POST- | EQUIPMENT | |||||||||||||
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CAPITAL | EMPLOY- | INDEFINITE- | AND | ||||||||||||
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LOSS | MENT | LIFE | FINITE-LIFE | CRTC | |||||||||||
|
CARRY- | BENEFIT | INTANGIBLE | INTANGIBLE | INVESTMENT | TANGIBLE | ||||||||||
NET DEFERRED TAX LIABILITY |
FORWARD | PLANS | ASSETS | ASSETS | TAX CREDITS | BENEFITS | OTHER | TOTAL | ||||||||
January 1, 2014 |
36 | 547 | (1,521 | ) | (601 | ) | (21 | ) | 93 | 314 | (1,153 | ) | ||||
Income statement |
(10 | ) | (75 | ) | (33 | ) | (98 | ) | 14 | (18 | ) | (37 | ) | (257 | ) | |
Other comprehensive loss |
| 242 | | | | | (14 | ) | 228 | |||||||
Deficit |
| | | | | | 11 | 11 | ||||||||
Other |
| | | | | | 12 | 12 | ||||||||
December 31, 2014 |
26 | 714 | (1,554 | ) | (699 | ) | (7 | ) | 75 | 286 | (1,159 | ) | ||||
Income statement |
(14 | ) | (4 | ) | (64 | ) | (268 | ) | 1 | (14 | ) | (20 | ) | (383 | ) | |
Business acquisition |
| | (1 | ) | | | | | (1 | ) | ||||||
Business disposition |
| | | (1 | ) | | | | (1 | ) | ||||||
Other comprehensive income |
| (190 | ) | | | | | (2 | ) | (192 | ) | |||||
Deficit |
| | | | | | (3 | ) | (3 | ) | ||||||
Other |
| | | | | | 4 | 4 | ||||||||
December 31, 2015 |
12 | 520 | (1,619 | ) | (968 | ) | (6 | ) | 61 | 265 | (1,735 | ) |
At December 31, 2015, BCE had $197 million of non-capital loss carryforwards. We:
At December 31, 2015, BCE had $783 million of unrecognized capital loss carryforwards, which can be carried forward indefinitely.
134 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
At December 31, 2014, BCE had $212 million of non-capital loss carryforwards. We:
At December 31, 2014, BCE had $766 million of unrecognized capital loss carryforwards, which can be carried forward indefinitely.
Note 10 Earnings per share |
The following table shows the components used in the calculation of basic and diluted earnings per common share for earnings attributable to common shareholders.
FOR THE YEAR ENDED DECEMBER 31 |
2015 | 2014 | ||
Net earnings attributable to common shareholders basic |
2,526 | 2,363 | ||
Dividends declared per common share (in dollars) |
2.60 | 2.47 | ||
Weighted average number of common shares outstanding (in millions) |
||||
Weighted average number of common shares outstanding basic |
847.1 | 793.7 | ||
Assumed exercise of stock options(1) |
1.2 | 0.9 | ||
Weighted average number of common shares outstanding diluted (in millions) |
848.3 | 794.6 |
(1) | The calculation of the assumed exercise of stock options includes the effect of the average unrecognized future compensation cost of dilutive options. It excludes options for which the exercise price is higher than the average market value of a BCE common share. The number of excluded options was 2,779,299 in 2015 and 2,871,730 in 2014. |
Note 11 Trade and other receivables |
FOR THE YEAR ENDED DECEMBER 31 |
NOTE | 2015 | 2014 | |||
Trade receivables(1) |
2,969 | 3,068 | ||||
Allowance for doubtful accounts |
23 | (64 | ) | (69 | ) | |
Allowance for revenue adjustments |
(75 | ) | (86 | ) | ||
Current tax receivable |
90 | 87 | ||||
Other accounts receivable |
89 | 69 | ||||
Total trade and other receivables |
3,009 | 3,069 |
(1) | The details of securitized trade receivables are set out in Note 19, Debt due within one year. |
Note 12 Inventory |
FOR THE YEAR ENDED DECEMBER 31 |
2015 | 2014 | ||
Work in progress |
66 | 57 | ||
Finished goods |
368 | 297 | ||
Provision |
(18 | ) | (21 | ) |
Total inventory |
416 | 333 |
The total amount of inventory subsequently recognized as an expense in cost of revenues was $2,689 million and $2,421 million for 2015 and 2014, respectively.
BCE Inc. 2015 ANNUAL REPORT 135 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Note 13 Property, plant and equipment |
|
NETWORK | |||||||||
|
INFRASTRUCTURE | LAND AND | ASSETS UNDER | |||||||
FOR THE YEAR ENDED DECEMBER 31, 2015 |
NOTE | AND EQUIPMENT | BUILDINGS | CONSTRUCTION | TOTAL | (1) | ||||
COST |
||||||||||
January 1, 2015 |
54,968 | 5,100 | 1,427 | 61,495 | ||||||
Additions |
2,145 | 68 | 1,525 | 3,738 | ||||||
Acquisition through business combinations |
1 | | | 1 | ||||||
Transfers |
1,112 | 44 | (1,661 | ) | (505 | ) | ||||
Retirements and disposals |
(991 | ) | (38 | ) | (4 | ) | (1,033 | ) | ||
Impairment losses recognized in earnings |
8 | (2 | ) | | | (2 | ) | |||
December 31, 2015 |
57,233 | 5,174 | 1,287 | 63,694 | ||||||
ACCUMULATED DEPRECIATION |
||||||||||
January 1, 2015 |
37,461 | 2,707 | | 40,168 | ||||||
Depreciation |
2,698 | 192 | | 2,890 | ||||||
Retirements and disposals |
(937 | ) | (24 | ) | | (961 | ) | |||
Other |
(39 | ) | 6 | | (33 | ) | ||||
December 31, 2015 |
39,183 | 2,881 | | 42,064 | ||||||
NET CARRYING AMOUNT |
||||||||||
January 1, 2015 |
17,507 | 2,393 | 1,427 | 21,327 | ||||||
December 31, 2015 |
18,050 | 2,293 | 1,287 | 21,630 |
(1) | Includes assets under finance leases. |
|
NETWORK | |||||||||
|
INFRASTRUCTURE | LAND AND | ASSETS UNDER | |||||||
FOR THE YEAR ENDED DECEMBER 31, 2014 |
NOTE | AND EQUIPMENT | BUILDINGS | CONSTRUCTION | TOTAL | (1) | ||||
COST |
||||||||||
January 1, 2014 |
54,674 | 4,996 | 1,276 | 60,946 | ||||||
Additions |
2,150 | 84 | 1,640 | 3,874 | ||||||
Acquisition through business combinations |
2 | | | 2 | ||||||
Transfers |
1,108 | 67 | (1,487 | ) | (312 | ) | ||||
Retirements and disposals |
(2,923 | ) | (23 | ) | (2 | ) | (2,948 | ) | ||
Impairment losses recognized in earnings |
8 | (43 | ) | (24 | ) | | (67 | ) | ||
December 31, 2014 |
54,968 | 5,100 | 1,427 | 61,495 | ||||||
ACCUMULATED DEPRECIATION |
||||||||||
January 1, 2014 |
37,665 | 2,538 | | 40,203 | ||||||
Depreciation |
2,690 | 190 | | 2,880 | ||||||
Retirements and disposals |
(2,868 | ) | (19 | ) | | (2,887 | ) | |||
Other |
(26 | ) | (2 | ) | | (28 | ) | |||
December 31, 2014 |
37,461 | 2,707 | | 40,168 | ||||||
NET CARRYING AMOUNT |
||||||||||
January 1, 2014 |
17,009 | 2,458 | 1,276 | 20,743 | ||||||
December 31, 2014 |
17,507 | 2,393 | 1,427 | 21,327 |
(1) | Includes assets under finance leases. |
136 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Finance leases |
BCEs significant finance leases are for satellites and office premises. The office leases have a typical lease term of 25 years. The leases for satellites, used to provide programming to our Bell TV customers, have a term of 15 years.
The following table shows additions to and the net carrying amount of assets under finance leases.
|
ADDITIONS |
NET CARRYING AMOUNT |
||||||
FOR THE YEAR ENDED DECEMBER 31 |
2015 | 2014 | 2015 | 2014 | ||||
Network infrastructure and equipment |
418 | 317 | 1,677 | 1,605 | ||||
Land and buildings |
8 | 12 | 484 | 519 | ||||
Total |
426 | 329 | 2,161 | 2,124 |
The following table provides a reconciliation of our minimum future lease payments to the present value of our finance lease obligations.
|
THERE- | |||||||||||||||
AT DECEMBER 31, 2015 |
NOTE | 2016 | 2017 | 2018 | 2019 | 2020 | AFTER | TOTAL | ||||||||
Minimum future lease payments |
23 | 544 | 484 | 337 | 261 | 240 | 1,199 | 3,065 | ||||||||
Less: |
||||||||||||||||
Future finance costs |
(139 | ) | (125 | ) | (111 | ) | (98 | ) | (86 | ) | (246 | ) | (805 | ) | ||
Present value of future lease obligations |
405 | 359 | 226 | 163 | 154 | 953 | 2,260 |
Note 14 Intangible assets |
FOR THE YEAR |
FINITE-LIFE |
INDEFINITE-LIFE | ||||||||||||||||||||
CUSTOMER | PROGRAM | SPECTRUM | TOTAL | |||||||||||||||||||
RELATION- | AND FEATURE | AND OTHER | BROADCAST | INTANGIBLE | ||||||||||||||||||
NOTE | SOFTWARE | SHIPS | FILM RIGHTS | OTHER | TOTAL | BRAND | LICENCES (1) |
|
LICENCES | TOTAL | ASSETS | |||||||||||
COST |
||||||||||||||||||||||
January 1, 2015 |
6,298 | 865 | 524 | 287 | 7,974 | 2,333 | 2,693 | 2,372 | 7,398 | 15,372 | ||||||||||||
Additions(1) |
345 | | 917 | 52 | 1,314 | | 566 | | 566 | 1,880 | ||||||||||||
Acquired through business combination |
| | | | | | 10 | | 10 | 10 | ||||||||||||
Transfers |
519 | | | | 519 | | | | | 519 | ||||||||||||
Retirements and disposals |
(256 | ) | 1 | | (5 | ) | (260 | ) | | (2 | ) | | (2 | ) | (262 | ) | ||||||
Impairment losses recognized in earnings |
8 | | | | (9 | ) | (9 | ) | | | (38 | ) | (38 | ) | (47 | ) | ||||||
Amortization included in operating costs |
| | (864 | ) | | (864 | ) | | | | | (864 | ) | |||||||||
December 31, 2015 |
6,906 | 866 | 577 | 325 | 8,674 | 2,333 | 3,267 | 2,334 | 7,934 | 16,608 | ||||||||||||
ACCUMULATED AMORTIZATION |
||||||||||||||||||||||
January 1, 2015 |
4,606 | 419 | | 123 | 5,148 | | | | | 5,148 | ||||||||||||
Amortization |
460 | 46 | | 24 | 530 | | | | | 530 | ||||||||||||
Retirements and disposals |
(245 | ) | 1 | | (5 | ) | (249 | ) | | | | | (249 | ) | ||||||||
Other |
3 | | | | 3 | | | | | 3 | ||||||||||||
December 31, 2015 |
4,824 | 466 | | 142 | 5,432 | | | | | 5,432 | ||||||||||||
NET CARRYING AMOUNT |
||||||||||||||||||||||
January 1, 2015 |
1,692 | 446 | 524 | 164 | 2,826 | 2,333 | 2,693 | 2,372 | 7,398 | 10,224 | ||||||||||||
December 31, 2015 |
2,082 | 400 | 577 | 183 | 3,242 | 2,333 | 3,267 | 2,334 | 7,934 | 11,176 |
(1) | On April 21, 2015, Bell Mobility Inc. (Bell Mobility) acquired advanced wireless services 3 (AWS-3) wireless spectrum in key urban and rural markets comprised of 13 licences for 169 million Megahertz per Population (MHz-POP) of AWS-3 spectrum for $500 million. On May 12, 2015, Bell Mobility acquired an additional 243 million MHz-POP of 2500 Megahertz (MHz) wireless spectrum for $29 million. |
BCE Inc. 2015 ANNUAL REPORT 137 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEAR |
FINITE-LIFE |
INDEFINITE-LIFE | ||||||||||||||||||||
CUSTOMER | PROGRAM | SPECTRUM | TOTAL | |||||||||||||||||||
RELATION- | AND FEATURE | AND OTHER |
|
BROADCAST | INTANGIBLE | |||||||||||||||||
NOTE | SOFTWARE | SHIPS | FILM RIGHTS | OTHER | TOTAL | BRAND | LICENCES (1) |
|
LICENCES | TOTAL | ASSETS | |||||||||||
COST |
||||||||||||||||||||||
January 1, 2014 |
6,041 | 865 | 389 | 293 | 7,588 | 2,344 | 2,132 | 2,389 | 6,865 | 14,453 | ||||||||||||
Additions(1) |
271 | | 885 | | 1,156 | | 578 | | 578 | 1,734 | ||||||||||||
Transfers |
322 | | | (6 | ) | 316 | | | | | 316 | |||||||||||
Retirements and disposals |
(336 | ) | | | | (336 | ) | | (7 | ) | | (7 | ) | (343 | ) | |||||||
Impairment losses recognized in earnings |
8 | | | | | | (11 | ) | (10 | ) | (17 | ) | (38 | ) | (38 | ) | ||||||
Amortization included in operating costs |
| | (750 | ) | | (750 | ) | | | | | (750 | ) | |||||||||
December 31, 2014 |
6,298 | 865 | 524 | 287 | 7,974 | 2,333 | 2,693 | 2,372 | 7,398 | 15,372 | ||||||||||||
ACCUMULATED AMORTIZATION |
||||||||||||||||||||||
January 1, 2014 |
4,429 | 368 | | 104 | 4,901 | | | | | 4,901 | ||||||||||||
Amortization |
502 | 51 | | 19 | 572 | | | | | 572 | ||||||||||||
Retirements and disposals |
(336 | ) | | | | (336 | ) | | | | | (336 | ) | |||||||||
Other |
11 | | | | 11 | | | | | 11 | ||||||||||||
December 31, 2014 |
4,606 | 419 | | 123 | 5,148 | | | | | 5,148 | ||||||||||||
NET CARRYING AMOUNT |
||||||||||||||||||||||
January 1, 2014 |
1,612 | 497 | 389 | 189 | 2,687 | 2,344 | 2,132 | 2,389 | 6,865 | 9,552 | ||||||||||||
December 31, 2014 |
1,692 | 446 | 524 | 164 | 2,826 | 2,333 | 2,693 | 2,372 | 7,398 | 10,224 |
(1) | On April 2, 2014, Bell Mobility acquired 700 MHz spectrum licences in every province and territorial market, comprised of 31 licences for $566 million. |
Note 15 Investments in associates and joint ventures |
The following table provides summarized financial information in respect to BCEs associates and joint ventures. For a list of associates and joint ventures please see Note 28, Related party transactions.
FOR THE YEAR ENDED DECEMBER 31 |
NOTE | 2015 | 2014 | |||
Assets |
5,067 | 3,910 | ||||
Liabilities |
(2,699 | ) | (2,202 | ) | ||
Total net assets |
2,368 | 1,708 | ||||
BCEs share of net assets |
1,119 | 776 | ||||
Revenues |
2,125 | 871 | ||||
Expenses |
(2,261 | ) | (918 | ) | ||
Total net losses |
(136 | ) | (47 | ) | ||
BCEs share of net losses |
8 | (49 | ) | (12 | ) |
Note 16 Other non-current assets |
FOR THE YEAR ENDED DECEMBER 31 |
NOTE | 2015 | 2014 | |||
Net assets of post-employment benefit plans |
21 | 158 | 151 | |||
AFS publicly-traded and privately-held investments |
23 | 128 | 107 | |||
Long-term notes and other receivables |
55 | 47 | ||||
Derivative assets |
131 | 269 | ||||
Other |
322 | 301 | ||||
Total other non-current assets |
794 | 875 |
138 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Note 17 Goodwill |
The following table provides details about the changes in the carrying amounts of goodwill for the years ended December 31, 2015 and 2014. BCEs groups of CGUs correspond to our reporting segments.
|
BELL | BELL | BELL | |||||
|
WIRELESS |
WIRELINE |
(1) |
MEDIA | BCE | |||
Balance at January 1, 2014 |
2,302 | 3,491 | 2,588 | 8,381 | ||||
Acquisitions and other |
| | 4 | 4 | ||||
Balance at December 31, 2014 |
2,302 | 3,491 | 2,592 | 8,385 | ||||
Acquisitions and other |
1 | | (9 | ) | (8 | ) | ||
Balance at December 31, 2015 |
2,303 | 3,491 | 2,583 | 8,377 |
(1) | Goodwill of our former Bell Aliant segment is now included in the Bell Wireline segment. Refer to Note 24, Privatization of Bell Aliant. |
Impairment testing |
As described in Note 2, Significant accounting policies, goodwill is tested annually for impairment by comparing the carrying value of a CGU or group of CGUs to the recoverable amount, where the recoverable amount is the higher of fair value less costs of disposal or value in use.
VALUE IN USE
The value in use for a CGU or group of CGUs is determined by discounting five-year cash flow projections from business plans reviewed by senior management. The projections reflect managements expectations of revenue, segment profit, capital expenditures, working capital and operating cash flows, based on past experience and future expectations of operating performance.
Cash flows beyond the five-year period are extrapolated using perpetuity growth rates. None of the perpetuity growth rates exceed the long-term historical growth rates for the markets in which we operate.
The discount rates are applied to the cash flow projections and are derived from the weighted average cost of capital for each CGU or group of CGUs.
The following table shows the key assumptions used to estimate the recoverable amounts of the groups of CGUs.
|
ASSUMPTIONS USED | |||
|
PERPETUITY | |||
GROUPS OF CGUs |
GROWTH RATE | DISCOUNT RATE | ||
Bell Wireless |
0.8 | % | 9.1 | % |
Bell Wireline |
0.9 | % | 7.2 | % |
Bell Media |
1.0 | % | 8.7 | % |
We believe that any reasonable possible change in the key assumptions on which the estimate of recoverable amounts of the Bell Wireless or Bell Wireline groups of CGUs is based would not cause their carrying amounts to exceed their recoverable amounts.
For the Bell Media group of CGUs, a decrease of (0.3%) in the perpetuity growth rate or an increase of 0.2% in the discount rate would have resulted in its recoverable amount being equal to its carrying value.
Note 18 Trade payables and other liabilities |
FOR THE YEAR ENDED DECEMBER 31 |
NOTE | 2015 | 2014 | |||
Trade payables and accruals |
2,303 | 2,415 | ||||
Deferred revenues |
812 | 764 | ||||
Compensation payable |
512 | 631 | ||||
Taxes payable |
124 | 115 | ||||
Severance and other costs payable |
107 | 69 | ||||
CRTC tangible benefits obligation |
23 | 61 | 63 | |||
CRTC deferral account obligation |
23 | 16 | 24 | |||
Other current liabilities |
352 | 317 | ||||
Total trade payables and other liabilities |
4,287 | 4,398 |
BCE Inc. 2015 ANNUAL REPORT 139 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Note 19 Debt due within one year |
|
WEIGHTED AVERAGE | |||||||
FOR THE YEAR ENDED DECEMBER 31 |
NOTE | INTEREST RATE | 2015 | 2014 | ||||
Notes payable(1) |
23 | 0.66 | % | 1,666 | 1,454 | |||
Loans secured by trade receivables |
23 | 1.49 | % | 931 | 921 | |||
Long-term debt due within one year(2) |
4.38 | % | 1,778 | 1,376 | ||||
Unsecured committed term credit facility (Astral) |
1.29 | % | 526 | | ||||
Net unamortized discount |
| (1 | ) | |||||
Unamortized debt issuance costs |
(6 | ) | (7 | ) | ||||
Total long-term debt due within one year |
20 | 2,298 | 1,368 | |||||
Total debt due within one year |
4,895 | 3,743 |
(1) | Includes commercial paper of $856 million in U.S. dollars ($1,185 million in Canadian dollars) and $431 million in U.S. dollars ($501 million in Canadian dollars) as at December 31, 2015 and 2014, respectively, which were drawn under our U.S. commercial paper program and have been hedged for foreign currency fluctuations through forward currency contracts. Refer to Note 23, Financial and capital management. |
(2) | Included in long-term debt due within one year is the current portion of finance leases of $405 million at December 31, 2015 and $345 million at December 31, 2014. |
Securitized trade receivables |
Our securitized trade receivable programs are recorded as floating rate revolving loans secured by certain trade receivables, and expire on November 30, 2016 and December 31, 2017.
The following table provides further details on our securitized trade receivables.
FOR THE YEAR ENDED DECEMBER 31 |
2015 | 2014 | ||
Average interest rate throughout the year |
1.59 | % | 1.89 | % |
Secured trade receivables |
2,056 | 2,091 |
We continue to service these trade receivables. The buyers interest in the collection of these trade receivables ranks ahead of our interests, which means that we are exposed to certain risks of default on the amounts securitized.
We have provided various credit enhancements in the form of overcollateralization and subordination of our retained interests.
The buyers will reinvest the amounts collected by buying additional interests in our trade receivables until the securitized trade receivables agreements expire or are terminated. The buyers and their investors have no further claim on our other assets if customers do not pay the amounts owed.
Credit facilities |
Bell Canada may issue notes in an aggregate amount of up to $2 billion in either Canadian or U.S. dollars under its commercial paper program, supported by a committed revolving bank credit facility. The total amount of this credit facility may be drawn at any time.
The table below is a summary of our total bank credit facilities at December 31, 2015.
TOTAL AVAILABLE |
DRAWN | LETTERS OF CREDIT |
COMMERCIAL PAPER OUTSTANDING |
NET AVAILABLE | ||||||
Committed credit facilities |
||||||||||
Unsecured revolving facility(1)(2) |
3,000 | | | 1,659 | 1,341 | |||||
Unsecured committed term credit facility (Astral)(3) |
526 | 526 | | | | |||||
Other |
121 | | 119 | | 2 | |||||
Total committed credit facilities |
3,647 | 526 | 119 | 1,659 | 1,343 | |||||
Total non-committed credit facilities |
1,372 | | 676 | | 696 | |||||
Total committed and non-committed credit facilities |
5,019 | 526 | 795 | 1,659 | 2,039 |
(1) | Bell Canadas $2.5 billion revolving facility expires in November 2020 and its $500 million expansion facility expires in November 2018. |
(2) | As of December 31, 2015, Bell Canadas outstanding commercial paper included $856 million in U.S. dollars ($1,185 million in Canadian dollars). All of Bell Canadas commercial paper outstanding is included in debt due within one year. |
(3) | The outstanding balance at December 31, 2015 was $380 million in U.S. dollars ($526 million in Canadian dollars), which is included in debt due within one year and has been hedged using cross currency basis swaps. Refer to Note 23, Financial and capital management. |
140 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Restrictions |
Some of our credit agreements:
We are in compliance with all conditions and restrictions under such credit agreements.
Note 20 Long-term debt |
|
WEIGHTED AVERAGE INTEREST RATE |
|||||||||
FOR THE YEAR ENDED DECEMBER 31 |
NOTE | MATURITY | 2015 | 2014 | ||||||
Debentures |
||||||||||
1997 trust indenture |
4.34 | % | 20162045 | 13,400 | 12,900 | |||||
1976 trust indenture |
9.54 | % | 20212054 | 1,100 | 1,100 | |||||
Subordinated debentures |
8.21 | % | 20262031 | 275 | 275 | |||||
Finance leases |
6.77 | % | 20162047 | 2,260 | 2,221 | |||||
Unsecured committed term credit facility (Astral)(1) |
1.29 | % | 2016 | 526 | 1,018 | |||||
Other |
141 | 219 | ||||||||
Total debt |
17,702 | 17,733 | ||||||||
Net unamortized premium |
24 | 30 | ||||||||
Unamortized debt issuance costs |
(38 | ) | (40 | ) | ||||||
Less: |
||||||||||
Amount due within one year |
19 | (2,298 | ) | (1,368 | ) | |||||
Total long-term debt |
15,390 | 16,355 |
(1) | Represents $526 million in Canadian dollars ($380 million in U.S. dollars), which was drawn under Bell Canadas unsecured committed credit facility and has been hedged using cross currency basis swaps ($1,018 million in Canadian dollars or $877 million in U.S. dollars in 2014). Refer to Note 23, Financial and capital management. |
Bell Canadas debentures and subordinated debentures have been issued in Canadian dollars and the majority bear a fixed rate of interest.
Interest payments on debt for a principal amount of $700 million have been swapped from fixed to floating. See Note 23, Financial and capital management for additional details.
Restrictions |
Some of our debt agreements:
We are in compliance with all conditions and restrictions under such debt agreements.
All outstanding debentures are issued under trust indentures and are unsecured. All debentures are issued in series and certain series are redeemable at Bell Canadas option prior to maturity at the prices, times and conditions specified for each series.
2015
In 2015, Bell Canada repaid approximately $500 million ($395 million U.S. dollars) of the borrowings under its unsecured committed term credit facility that was used to partially fund the acquisition of Astral.
On November 2, 2015, Bell Canada redeemed early its 3.60% Series M-21 medium term notes (MTN) debentures, issued under its 1997 trust indenture, having an outstanding principal amount of $1 billion which were due on December 2, 2015.
On October 1, 2015, Bell Canada issued 3.00% Series M-40 MTN debentures under its 1997 trust indenture, with a principal amount of $1 billion, which mature on October 3, 2022.
On March 30, 2015, Bell Canada issued 4.35% Series M-39 MTN debentures under its 1997 trust indenture, with a principal amount of $500 million, which mature on December 18, 2045.
BCE Inc. 2015 ANNUAL REPORT 141 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Subsequent to year end, on January 11, 2016, Bell Canada redeemed, prior to maturity, its 4.64% Series M-19 MTN debentures, having an outstanding principal amount of $200 million which were due on February 22, 2016, as well as its 3.65% Series M-23 MTN debentures, having an outstanding principal amount of $500 million which were due on May 19, 2016.
In addition, on February 29, 2016, Bell Canada issued 3.55% Series M-41 MTN debentures under its 1997 trust indenture, with a principal amount of $750 million, which mature on March 2, 2026.
2014
On November 20, 2014, all Bell Aliant Regional Communications, Limited Partnership (Bell Aliant LP) MTNs and floating rate MTNs (collectively, Bell Aliant notes) in the aggregate principal amount of $2.3 billion were exchanged for Bell Canada debentures having the same financial terms as the Bell Aliant notes, including with respect to coupon rate, maturity date and redemption price. As a result, $25 million of deferred costs related to the Bell Aliant LP debt were expensed and recorded as early debt redemption costs in Other (expense) income in the income statement. Refer to Note 8, Other (expense) income.
The following Bell Canada debentures were issued in exchange for the previously held Bell Aliant notes.
SERIES |
COUPON RATE | MATURITY DATE | PRINCIPAL AMOUNT | |||
M-32 |
5.41 | % | September 26, 2016 | 500 | ||
M-33 |
5.52 | % | February 26, 2019 | 300 | ||
M-34 |
6.17 | % | February 26, 2037 | 300 | ||
M-35 |
4.37 | % | September 13, 2017 | 350 | ||
M-36 |
4.88 | % | April 26, 2018 | 300 | ||
M-37 |
3.54 | % | June 12, 2020 | 400 | ||
M-38 |
floating | April 22, 2016 | 150 | |||
Total |
2,300 |
On October 30, 2014, Bell Aliant LP redeemed early its 6.29% MTNs with a principal amount of $350 million which were due on February 17, 2015. We incurred a $4 million charge for the early debt redemption costs which was recorded in Other income (expense) in 2014 in the income statement.
On September 29, 2014, Bell Canada issued 3.15% Series M-30 MTN debentures under its 1997 trust indenture, with a principal amount of $750 million which mature on September 29, 2021. In addition, on the same date, Bell Canada issued 4.75% Series M-31 MTN debentures under its 1997 trust indenture, with a principal amount of $500 million, which mature on September 29, 2044.
On April 22, 2014, Bell Aliant LP issued floating rate MTNs, with a principal amount of $150 million, which would have matured on April 22, 2016. These MTNs were exchanged for Bell Canada debentures on November 20, 2014.
On February 18, 2014, all of the outstanding CTV Specialty Television Inc. (CTV Specialty) notes of $300 million were repaid upon maturity.
Note 21 Post-employment benefit plans |
Post-employment benefit plans cost
We provide pension and other benefits for most of our employees. These include DB pension plans, DC pension plans and OPEBs.
We operate our DB and DC pension plans under applicable Canadian and provincial pension legislation, which prescribes minimum and maximum DB funding requirements. Plan assets are held in trust, and the oversight of governance of the plans, including investment decisions, contributions to DB plans and the selection of the DC plans investment options offered to plan participants, lies with the Pension Fund Committee, a committee of our board of directors.
The interest rate risk is managed using a liability matching approach, which reduces the exposure of the DB plans to a mismatch between investment growth and obligation growth.
The longevity risk is managed using a longevity swap, which reduces the exposure of the DB plan to an increase in life expectancy.
142 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
COMPONENTS OF POST-EMPLOYMENT BENEFIT PLANS SERVICE COST
FOR THE YEAR ENDED DECEMBER 31 | 2015 | 2014 | ||
DB pension |
(232 | ) | (214 | ) |
DC pension |
(96 | ) | (94 | ) |
OPEBs |
(8 | ) | (9 | ) |
Less: |
||||
Capitalized benefit plans cost |
55 | 41 | ||
Total post-employment benefit plans service cost included in operating costs |
(281 | ) | (276 | ) |
Other costs recognized in severance, acquisition and other costs |
(44 | ) | (29 | ) |
Total post-employment benefit plans service cost |
(325 | ) | (305 | ) |
COMPONENTS OF POST-EMPLOYMENT BENEFIT PLANS FINANCING COST
FOR THE YEAR ENDED DECEMBER 31 | 2015 | 2014 | ||
DB pension |
(53 | ) | (35 | ) |
OPEBs |
(57 | ) | (66 | ) |
Total interest on post-employment benefit obligations |
(110 | ) | (101 | ) |
The statements of comprehensive income include the following amounts before income taxes.
2015 | 2014 | |||
Cumulative losses recognized directly in equity, January 1 |
(2,974 | ) | (2,036 | ) |
Actuarial gains (losses) in other comprehensive income(1) |
594 | (933 | ) | |
Increase in the effect of the asset limit(2) |
(4 | ) | (5 | ) |
Cumulative losses recognized directly in equity, December 31 |
(2,384 | ) | (2,974 | ) |
(1) | The cumulative actuarial losses recognized in the statements of comprehensive income are $2,640 million in 2015. |
(2) | The cumulative decrease in the effect of the asset limit recognized in the statements of comprehensive income is $256 million in 2015. |
COMPONENTS OF POST-EMPLOYMENT BENEFIT (OBLIGATIONS) ASSETS
The following table shows the change in post-employment benefit obligations and the fair value of plan assets.
DB PENSION PLANS | OPEB PLANS | TOTAL | ||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||
Post-employment benefit obligations, January 1 |
(20,988 | ) | (18,672 | ) | (1,707 | ) | (1,641 | ) | (22,695 | ) | (20,313 | ) |
Current service cost |
(232 | ) | (214 | ) | (8 | ) | (9 | ) | (240 | ) | (223 | ) |
Interest on obligations |
(825 | ) | (901 | ) | (67 | ) | (78 | ) | (892 | ) | (979 | ) |
Actuarial gains (losses)(1) |
291 | (2,240 | ) | 5 | (56 | ) | 296 | (2,296 | ) | |||
Net curtailment losses |
(39 | ) | (29 | ) | (5 | ) | | (44 | ) | (29 | ) | |
Benefit payments |
1,122 | 1,076 | 77 | 77 | 1,199 | 1,153 | ||||||
Employee contributions |
(5 | ) | (5 | ) | | | (5 | ) | (5 | ) | ||
Other |
1 | (3 | ) | | | 1 | (3 | ) | ||||
Post-employment benefit obligations, December 31 |
(20,675 | ) | (20,988 | ) | (1,705 | ) | (1,707 | ) | (22,380 | ) | (22,695 | ) |
Fair value of plan assets, January 1 |
19,819 | 18,082 | 261 | 241 | 20,080 | 18,323 | ||||||
Expected return on plan assets(2) |
772 | 866 | 10 | 12 | 782 | 878 | ||||||
Actuarial gains (losses) |
301 | 1,351 | (3 | ) | 12 | 298 | 1,363 | |||||
Benefit payments |
(1,122 | ) | (1,076 | ) | (77 | ) | (77 | ) | (1,199 | ) | (1,153 | ) |
Employer contributions |
469 | 591 | 75 | 73 | 544 | 664 | ||||||
Employee contributions |
5 | 5 | | | 5 | 5 | ||||||
Fair value of plan assets, December 31 |
20,244 | 19,819 | 266 | 261 | 20,510 | 20,080 | ||||||
Plan deficit |
(431 | ) | (1,169 | ) | (1,439 | ) | (1,446 | ) | (1,870 | ) | (2,615 | ) |
Effect of asset limit |
(10 | ) | (6 | ) | | | (10 | ) | (6 | ) | ||
Post-employment benefit liability, December 31 |
(441 | ) | (1,175 | ) | (1,439 | ) | (1,446 | ) | (1,880 | ) | (2,621 | ) |
Post-employment benefit assets included in other non-current assets |
158 | 151 | | | 158 | 151 | ||||||
Post-employment benefit obligations |
(599 | ) | (1,326 | ) | (1,439 | ) | (1,446 | ) | (2,038 | ) | (2,772 | ) |
(1) | Actuarial gains include experience gains of $123 million in 2015 and $1,534 million in 2014. |
(2) | The actual return on plan assets was $1,080 million or 5.25% in 2015 and $2,241 million or 12.6% in 2014. |
BCE Inc. 2015 ANNUAL REPORT 143 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
FUNDED STATUS OF POST-EMPLOYMENT BENEFIT PLANS COST
The following table shows the funded status of our post-employment benefit obligations.
FUNDED | PARTIALLY FUNDED (1) | UNFUNDED (2) | TOTAL | |||||||||||||
FOR THE YEAR ENDED DECEMBER 31 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||||
Present value of post-employment benefit obligations |
(20,064 | ) | (20,375 | ) | (2,061 | ) | (1,906 | ) | (255 | ) | (414 | ) | (22,380 | ) | (22,695 | ) |
Fair value of plan assets |
20,204 | 19,783 | 306 | 297 | | | 20,510 | 20,080 | ||||||||
Plan deficit |
140 | (592 | ) | (1,755 | ) | (1,609 | ) | (255 | ) | (414 | ) | (1,870 | ) | (2,615 | ) |
(1) | The partially funded plans consist of supplementary executive retirement plans (SERPs) for eligible employees and OPEBs. The company partially funds the SERPs through letters of credit and a retirement compensation arrangement account with Canada Revenue Agency. Certain paid-up life insurance benefits are funded through life insurance contracts. |
(2) | Our unfunded plans consist of OPEBs, which are pay-as-you-go. |
SIGNIFICANT ASSUMPTIONS
We used the following key assumptions to measure the post-employment benefit obligations and the net benefit plans cost for the DB pension plans and OPEB plans. These assumptions are long-term, which is consistent with the nature of post-employment benefit plans.
DB PENSION PLANS AND OPEB PLANS |
||||
2015 | 2014 | |||
At December 31 |
||||
Post-employment benefit obligations |
||||
Discount rate |
4.2 | % | 4.0 | % |
Rate of compensation increase |
2.5 | % | 2.5 | % |
Cost of living indexation rate(1) |
1.6 | % | 1.6 | % |
Life expectancy at age 65 (years) |
23.0 | 23.0 | ||
For the year ended December 31 |
||||
Net post-employment benefit plans cost |
||||
Discount rate |
4.0 | % | 4.9 | % |
Rate of compensation increase |
2.5 | % | 2.8 | % |
Cost of living indexation rate(1) |
1.6 | % | 1.7 | % |
Life expectancy at age 65 (years) |
23.0 | 22.4 |
(1) | Cost of living indexation rate is only applicable to DB pension plans. |
The weighted average duration of the post-employment benefit obligation is 15 years.
We assumed the following trend rates in healthcare costs:
Assumed trend rates in healthcare costs have a significant effect on the amounts reported for the healthcare plans.
The following table shows the effect of a 1% change in the assumed trend rates in healthcare costs.
EFFECT ON POST-EMPLOYMENT BENEFITS INCREASE (DECREASE) |
1% INCREASE | 1% DECREASE | ||
Total service and interest cost |
6 | (5 | ) | |
Post-employment benefit obligations |
142 | (112 | ) |
SENSITIVITY ANALYSIS
The following table shows a sensitivity analysis of key assumptions used to measure the net post-employment benefit obligations and the net post-employment benefit plans cost for our DB pension plans and OPEB plans.
IMPACT ON NET POST-EMPLOYMENT BENEFIT PLANS COST FOR 2015 INCREASE (DECREASE) |
IMPACT ON POST-EMPLOYMENT BENEFIT OBLIGATIONS AT DECEMBER 31, 2015 INCREASE (DECREASE) |
|||||||||
CHANGE IN | INCREASE IN | DECREASE IN | INCREASE IN | DECREASE IN | ||||||
ASSUMPTION | ASSUMPTION | ASSUMPTION | ASSUMPTION | ASSUMPTION | ||||||
Discount rate | 1 | % | (148 | ) | 112 | (2,783 | ) | 3,178 | ||
Mortality rate | 25 | % | (66 | ) | 70 | (1,386 | ) | 1,477 |
144 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
POST-EMPLOYMENT BENEFIT PLAN ASSETS
The investment strategy for the post-employment benefit plan assets is to maintain a diversified portfolio of assets invested in a prudent manner to maintain the security of funds.
The following table shows the target allocations for 2015 and the allocation of our post-employment benefit plan assets at December 31, 2015 and 2014.
WEIGHTED AVERAGE TARGET ALLOCATION |
TOTAL PLAN ASSETS FAIR VALUE AT DECEMBER 31 (%) |
|||||
ASSET CATEGORY | 2015 | 2015 | 2014 | |||
Equity securities |
20%35 | % | 26 | % | 30 | % |
Debt securities |
55%80 | % | 65 | % | 62 | % |
Alternative investments |
0%25 | % | 9 | % | 8 | % |
Total |
100 | % | 100 | % |
The fair value of the DB pension plan assets at the end of the year for each category are tabled below.
FOR THE YEAR ENDED DECEMBER 31 | 2015 | 2014 | ||
Observable market data |
||||
Equity securities |
||||
Canadian |
910 | 1,195 | ||
Foreign |
4,263 | 4,657 | ||
Debt securities |
||||
Canadian |
12,038 | 10,986 | ||
Foreign |
718 | 921 | ||
Money market |
431 | 463 | ||
Non-observable market inputs |
||||
Alternative investments |
||||
Private equities |
1,124 | 947 | ||
Hedge funds |
687 | 651 | ||
Other |
73 | (1 | ) | |
Total |
20,244 | 19,819 |
Equity securities included approximately $12 million of BCE common shares, or 0.06% of total plan assets, at December 31, 2015 and approximately $1 million of BCE common shares, or 0.01% of total plan assets, at December 31, 2014.
Debt securities included approximately $32 million of Bell Canada debentures, or 0.16% of total plan assets at December 31, 2015 and approximately $2 million of Bell Canada debentures, or 0.01% of total plan assets, at December 31, 2014.
Alternative investments included the pension plans investment in MLSE of $135 million, or 0.67% of total plan assets, at December 31, 2015 and $135 million, or 0.68% of total plan assets at December 31, 2014.
On February 23, 2015, the Bell Canada pension plan entered into an investment arrangement to hedge part of its exposure to potential increases in longevity, which covers approximately $5 billion of post-employment benefit obligations. The fair value of the arrangement is included within other alternative investments. As a hedging arrangement of the pension plan, the transaction requires no cash contributions from BCE.
CASH FLOWS
We are responsible for adequately funding our DB pension plans. We make contributions to them based on various actuarial cost methods that are permitted by pension regulatory bodies. Contributions reflect actuarial assumptions about future investment returns, salary projections and future service benefits. Changes in these factors could cause actual future contributions to differ from our current estimates and could require us to increase contributions to our post-employment benefit plans in the future, which could have a negative effect on our liquidity and financial performance.
We contribute to the DC pension plans as employees provide service.
BCE Inc. 2015 ANNUAL REPORT 145 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table shows the amounts we contributed to the DB and DC pension plans and the payments made to beneficiaries under OPEB plans.
DB PLANS (1) | DC PLANS | OPEB PLANS | ||||||||||
FOR THE YEAR ENDED DECEMBER 31 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||
Contributions | (469 | ) | (591 | ) | (97 | ) | (92 | ) | (75 | ) | (73 | ) |
(1) | Includes voluntary contributions of $250 million in 2015 and $350 million in 2014. |
We expect to contribute approximately $235 million to our DB pension plans in 2016, subject to actuarial valuations being completed. We expect to pay approximately $85 million to beneficiaries under OPEB plans and to contribute approximately $105 million to the DC pension plans in 2016.
Note 22 Other non-current liabilities |
FOR THE YEAR ENDED DECEMBER 31 | NOTE | 2015 | 2014 | |||
Long-term disability benefits obligation |
294 | 261 | ||||
CRTC tangible benefits obligation |
23 | 166 | 222 | |||
CRTC deferral account obligation |
23 | 138 | 150 | |||
Maple Leaf Sports and Entertainment Ltd. (MLSE) financial liability(1) |
23 | 135 | 135 | |||
Deferred revenue on long-term contracts |
85 | 96 | ||||
Future tax liabilities |
54 | 81 | ||||
Other |
548 | 576 | ||||
Total other non-current liabilities |
1,420 | 1,521 |
(1) | Represents BCEs obligation to repurchase the BCE Master Trust Funds (Master Trust) 9% interest in MLSE at a price not less than an agreed minimum price should the Master Trust exercise its put option. The obligation to repurchase is marked to market each reporting period and the gain or loss is recorded in Other (expense) income. |
Note 23 Financial and capital management |
Financial management
Managements objectives are to protect BCE and its subsidiaries on a consolidated basis against material economic exposures and variability of results from various financial risks that include credit risk, liquidity risk, foreign currency risk, interest rate risk and equity price risk.
DERIVATIVES
We use derivative instruments to manage our exposure to foreign currency risk, interest rate risk and changes in the price of BCE common shares under our share-based payment plans.
The following derivative instruments were outstanding during 2015 and/or 2014:
FAIR VALUE
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Certain fair value estimates are affected by assumptions we make about the amount and timing of future cash flows and discount rates, all of which reflect varying degrees of risk. Income taxes and other expenses that would be incurred on disposition of financial instruments are not reflected in the fair values. As a result, the fair values are not the net amounts that would be realized if these instruments were settled.
The carrying values of our cash and cash equivalents, trade and other receivables, trade payables and accruals, compensation payable, severance and other costs payable, interest payable, dividends payable, notes payable and loans secured by trade receivables approximate fair value as they are short-term.
146 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table provides the fair value details of financial instruments measured at amortized cost in the statements of financial position.
DECEMBER 31, 2015 | DECEMBER 31, 2014 | ||||||||||
CARRYING | FAIR | CARRYING | FAIR | ||||||||
|
FAIR VALUE METHODOLOGY |
NOTE |
|
VALUE |
|
VALUE |
|
VALUE |
|
VALUE |
|
CRTC tangible benefits obligation |
Present value of estimated future cash flows discounted using observable market interest rates |
18, 22 |
|
227 |
234 |
285 |
|
289 |
|
||
CRTC deferral account obligation |
Present value of estimated future cash flows discounted using observable market interest rates |
18, 22 |
|
154 |
163 |
|
174 |
|
191 |
|
|
Debentures, finance leases and other debt |
Quoted market price of debt or present value of future cash flows discounted using observable market interest rates |
19, 20 |
|
17,688 |
|
19,764 |
|
17,723 |
|
20,059 |
|
The following table provides the fair value details of financial instruments measured at fair value in the statements of financial position.
FAIR VALUE AT DECEMBER 31 |
||||||||||
NOTE |
CARRYING VALUE OF |
QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1) |
OBSERVABLE MARKET DATA (LEVEL 2)(1) |
NON-OBSERVABLE MARKET INPUTS (LEVEL 3)(2) |
||||||
2015 | ||||||||||
AFS publicly-traded and privately-held investments |
16 | 128 | 16 | | 112 | |||||
Derivative financial instruments |
256 | | 256 | | ||||||
MLSE financial liability |
22 | (135 | ) | | | (135 | ) | |||
Other |
30 | | 56 | (26 | ) |
2014 | ||||||||||
AFS publicly-traded and privately-held investments |
16 | 107 | 17 | | 90 | |||||
Derivative financial instruments |
276 | | 276 | | ||||||
MLSE financial liability |
22 | (135 | ) | | | (135 | ) | |||
Other |
12 | | 22 | (10 | ) |
(1) | Observable market data such as equity prices, interest rates, swap rate curves and foreign currency exchange rates. |
(2) | Non-observable market inputs such as discounted cash flows and earnings multiples. A reasonable change in our assumptions would not result in a significant increase (decrease) to our level 3 financial instruments. |
CREDIT RISK
We are exposed to credit risk from operating activities and certain financing activities, the maximum exposure of which is represented by the carrying amounts reported in the statements of financial position.
We are exposed to credit risk if counterparties to our trade receivables and derivative instruments are unable to meet their obligations. The concentration of credit risk from our customers is minimized because we have a large and diverse customer base. There was minimal credit risk relating to derivative instruments at December 31, 2015 and 2014. We deal with institutions that have investment-grade credit ratings, and as such we expect that they will be able to meet their obligations. We regularly monitor our credit risk and credit exposure.
The following table provides the change in allowance for doubtful accounts for trade receivables.
2015 | 2014 | |||
Balance, January 1 |
(69 | ) | (79 | ) |
Additions |
(86 | ) | (49 | ) |
Use |
91 | 59 | ||
Balance, December 31 |
(64 | ) | (69 | ) |
In many instances, trade receivables are written off directly to bad debt expense if the account has not been collected after a predetermined period of time.
The following table provides further details on trade receivables not impaired.
AT DECEMBER 31 | 2015 | 2014 | ||
Trade receivables not past due |
2,205 | 2,267 | ||
Trade receivables past due and not impaired |
||||
Under 60 days |
289 | 317 | ||
60 to 120 days |
339 | 352 | ||
Over 120 days |
72 | 63 | ||
Trade receivables, net of allowance for doubtful accounts |
2,905 | 2,999 |
BCE Inc. 2015 ANNUAL REPORT 147 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
LIQUIDITY RISK
Our cash and cash equivalents, cash flows from operations and possible capital markets financing, are expected to be sufficient to fund our operations and fulfill our obligations as they become due. Should our cash requirements exceed the above sources of cash, we would expect to cover such a shortfall by drawing on existing committed bank facilities and new ones, to the extent available.
The following table is a maturity analysis for recognized financial liabilities at December 31, 2015 for each of the next five years and thereafter.
AT DECEMBER 31, 2015 | NOTE | 2016 | 2017 | 2018 | 2019 | 2020 |
THERE- AFTER |
TOTAL | ||||||||
Long-term debt |
20 | 1,899 | 1,107 | 1,731 | 1,309 | 1,401 | 7,995 | 15,442 | ||||||||
Notes payable |
19 | 1,666 | | | | | | 1,666 | ||||||||
Minimum future lease payments under finance leases |
13 | 544 | 484 | 337 | 261 | 240 | 1,199 | 3,065 | ||||||||
Loan secured by trade receivables |
19 | 931 | | | | | | 931 | ||||||||
Interest payable on long-term debt, notes payable and loan secured by trade receivables |
728 | 639 | 575 | 506 | 457 | 5,077 | 7,982 | |||||||||
MLSE financial liability |
22 | | 135 | | | | | 135 | ||||||||
Net interest receipts on derivatives |
(25 | ) | (12 | ) | | | | | (37 | ) | ||||||
Total | 5,743 | 2,353 | 2,643 | 2,076 | 2,098 | 14,271 | 29,184 |
We are also exposed to liquidity risk for financial liabilities due within one year, as shown in the statements of financial position.
MARKET RISK
CURRENCY EXPOSURES
We use forward contracts, options and cross currency basis swaps to manage foreign currency risk related to anticipated transactions and certain foreign currency debt.
A 10% depreciation (appreciation) in the value of the Canadian dollar relative to the U.S. dollar would result in a gain of $29 million (loss of $33 million) recognized in net earnings at December 31, 2015 and a gain (loss) of $40 million recognized in other comprehensive income at December 31, 2015, with all other variables held constant.
The following table provides further details on our outstanding foreign currency forward contracts, options and cross currency basis swaps as at December 31, 2015.
BUY | AMOUNT TO | AMOUNT TO | ||||||||||
TYPE OF HEDGE |
CURRENCY |
|
RECEIVE IN USD |
|
SELL CURRENCY |
|
PAY IN CAD |
|
MATURITY |
|
HEDGED ITEM |
|
Cash flow | USD | 347 | CAD | 391 | 2016 | Purchase commitments | ||||||
Cash flow | USD | 857 | CAD | 1,145 | 2016 | Commercial paper | ||||||
Cash flow | USD | 46 | CAD | 56 | 20172018 | Purchase commitments | ||||||
Cash flow | USD | 380 | CAD | 508 | 2016 | Credit facility | ||||||
Economic | USD | 216 | CAD | 276 | 2016 | Purchase commitments | ||||||
Economic call options | USD | 120 | CAD | 154 | 2016 | Purchase commitments | ||||||
Economic put options | USD | 240 | CAD | 309 | 2016 | Purchase commitments |
INTEREST RATE EXPOSURES
We use interest rate swaps to manage the mix of fixed and floating interest rates of our debt. We also use interest rate locks to hedge the interest rates on future debt issuances and to economically hedge dividend rate resets on preferred shares.
The following table shows the interest rate locks outstanding at December 31, 2015.
TYPE OF HEDGE | NOTIONAL AMOUNT | MATURITY |
(1) |
RATE | SETTLEMENT DATE | HEDGED ITEM | ||||
Cash flow | 500 | 2025 | 1.92 | % | 2016 | Long-term debt | ||||
Economic | 350 | 2020 | 1.04 | % | 2016 | Preferred shares |
(1) | Represents maturity of the underlying Government of Canada bond. |
The following table shows the interest rate swap outstanding at December 31, 2015.
TYPE OF HEDGE | NOTIONAL AMOUNT | RECEIVE INTEREST RATE | PAY INTEREST RATE | MATURITY | HEDGED ITEM | |||||
Fair value | 700 | 5.00 | % |
3-month CDOR(1) + 0.42 |
% | 2017 | Long-term debt |
(1) | Canadian dollar offered rate. |
148 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In 2015, we recognized a loss of $18 million (2014$15 million) on an interest rate swap used as a fair value hedge of long-term debt and an offsetting gain of $18 million (2014$15 million) on the corresponding long-term debt.
A 1% increase (decrease) in interest rates would result in a decrease of $14 million (increase of $12 million) in net earnings at December 31, 2015 and a gain of $31 million (loss of $35 million) recognized in other comprehensive income as at December 31, 2015.
EQUITY PRICE EXPOSURES
We use equity forward contracts on BCEs common shares to economically hedge the cash flow exposure related to the settlement of share-based payment plans. See Note 26, Share-based payments for details on our share-based payment arrangements. The fair value of our equity forward contracts at December 31, 2015 was $86 million (2014$157 million).
A 10% increase (decrease) in the market price of BCEs common shares at December 31, 2015 would result in a gain (loss) of $69 million recognized in net earnings for 2015, all other variables held constant.
Capital management |
We have various capital policies, procedures and processes which are utilized to achieve our objectives for capital management. These include optimizing our cost of capital and maximizing shareholder return while balancing the interests of our stakeholders.
Our definition of capital includes equity attributable to BCE shareholders, debt, and cash and cash equivalents.
The key ratios that we use to monitor and manage our capital structure are a net debt leverage ratio(1) and an adjusted EBITDA to net interest expense ratio(2). Our net debt leverage ratio target range is 1.75 to 2.25 times adjusted EBITDA and our adjusted EBITDA to net interest expense ratio target is greater than 7.5 times. We monitor our capital structure and make adjustments, including to our dividend policy, as required. At December 31, 2015, we had exceeded the limit of our internal net debt leverage ratio target range by 0.28. This excess over the limit of our internal ratio target range does not create risk to our investment-grade credit rating.
These ratios do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. We use, and believe that certain investors and analysts use, our net debt leverage ratio and adjusted EBITDA to net interest expense ratio as a measure of financial leverage and health of the company.
The following table provides a summary of our key ratios.
AT DECEMBER 31 | 2015 | 2014 | ||
Net debt leverage ratio | 2.53 | 2.59 | ||
Adjusted EBITDA to net interest expense ratio | 8.76 | 8.38 |
On February 3, 2016, the board of directors of BCE approved an increase of 5.0% in the annual dividend on BCEs common shares, from $2.60 to $2.73 per common share. In addition, the board of directors of BCE declared a quarterly dividend of $0.6825 per common share, payable on April 15, 2016 to shareholders of record at March 15, 2016.
On February 4, 2015, the board of directors of BCE approved an increase of 5.3% in the annual dividend on BCEs common shares, from $2.47 to $2.60 per common share.
(1) | Our net debt leverage ratio represents net debt divided by adjusted EBITDA. We define net debt as debt due within one year plus long-term debt and 50% of preferred shares less cash and cash equivalents as shown in our statements of financial position. Adjusted EBITDA is defined as operating revenues less operating costs as shown in our income statements. |
(2) | Our adjusted EBITDA to net interest expense ratio represents adjusted EBITDA divided by net interest expense. Adjusted EBITDA is defined as operating revenues less operating costs as shown in our income statements. Net interest expense is net interest expense as shown in our statements of cash flows and 50% of declared preferred share dividends as shown in our income statements. |
BCE Inc. 2015 ANNUAL REPORT 149 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Note 24 Privatization of Bell Aliant |
On July 23, 2014, BCE announced its offer to acquire all of the issued and outstanding common shares of Bell Aliant that it did not already own for a total consideration of approximately $3.95 billion. BCE already controlled Bell Aliant, which provided local telephone, long distance, Internet, data, TV, wireless, home security and value-added business solutions to residential and business customers in the Atlantic provinces and in rural and regional areas of Ontario and Québec. On the same day, BCE also announced its offer to exchange all of the issued and outstanding preferred shares of Bell Aliant Preferred Equity Inc. (Prefco) for newly issued First Preferred Shares of BCE, with the same financial terms as the existing Prefco preferred shares (Preferred Share Exchange).
The privatization was completed on October 31, 2014 and the Preferred Share Exchange was completed on November 1, 2014. The privatization has simplified BCEs corporate structure and increased overall operating and capital investment efficiencies while supporting BCEs broadband investment strategy and dividend growth objective.
As BCE already consolidated the financial results of Bell Aliant, the privatization was accounted for as an equity transaction. The following table summarizes the impacts of the privatization in our 2014 consolidated statements of financial position.
FOR THE YEAR ENDED DECEMBER 31 | NOTE | 2014 | ||
Consideration |
||||
Issuance of 60.9 million BCE common shares(1) |
25 | 2,928 | ||
Cash |
989 | |||
Exchange of Prefco preferred shares for BCE First Preferred Shares(1) |
25 | 609 | ||
Total |
4,526 | |||
Allocated to |
||||
Carrying value of Bell Aliant non-controlling interest |
877 | |||
Contributed surplus |
1,499 | |||
Accumulated other comprehensive income |
7 | |||
Deficit |
2,143 | |||
Total |
4,526 |
(1) | The stated capital for the BCE common and First Preferred Shares was recorded at fair value on the date of issuance. |
The following table outlines the BCE First Preferred Shares for which the existing Prefco preferred shares were exchanged as part of the Preferred Share Exchange.
REDEMPTION DATE(1) | STATED | |||||||||||||||
NUMBER OF SHARES |
CAPITAL | |||||||||||||||
ANNUAL | ||||||||||||||||
DIVIDEND | CONVERTIBLE | REDEMPTION | ISSUED AND | |||||||||||||
SERIES | RATE | INTO | CONVERSION DATE | PRICE | AUTHORIZED | OUTSTANDING | ||||||||||
AM | 4.85 | % | AN | March 31, 2016 | March 31, 2016 | $25.00 | 30,000,000 | 11,500,000 | 263 | |||||||
AO | 4.55 | % | AP | March 31, 2017 | March 31, 2017 | $25.00 | 30,000,000 | 4,600,000 | 118 | |||||||
AQ | 4.25 | % | AR | September 30, 2018 | September 30, 2018 | $25.00 | 30,000,000 | 9,200,000 | 228 | |||||||
609 |
(1) | BCE may redeem each of these series of preferred shares on the applicable redemption date and every five years after that date. |
Additionally in 2014, $35 million was charged to the deficit to record the transaction costs incurred related to the privatization. These costs include financial advisory, filing and legal fees.
150 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Note 25 Share capital |
Preferred shares
BCEs articles of amalgamation provide for an unlimited number of First Preferred Shares and Second Preferred Shares, all without par value. The terms set out in the articles authorize BCEs directors to issue the shares in one or more series and to set the number of shares and the conditions for each series.
The following table is a summary of the principal terms of BCEs First Preferred Shares. There were no Second Preferred Shares issued and outstanding at December 31, 2015. BCEs articles of amalgamation, as amended, describe the terms and conditions of these shares in detail.
NUMBER OF SHARES |
STATED CAPITAL |
||||||||||||||||||
ANNUAL | |||||||||||||||||||
DIVIDEND | CONVERTIBLE | REDEMP- | ISSUED AND | DEC. 31, | DEC. 31, | ||||||||||||||
SERIES | RATE | INTO | CONVERSION DATE | REDEMPTION DATE | TION PRICE | AUTHORIZED | OUTSTANDING | 2015 | 2014 | ||||||||||
Q(1) | floating | Series R | December 1, 2025 | 8,000,000 | | | | ||||||||||||
R(2) | 4.13% | Series Q | December 1, 2020 | December 1, 2020 | $25.00 | 8,000,000 | 8,000,000 | 200 | 200 | ||||||||||
S | floating | Series T | November 1, 2016 | At any time | $25.50 | 8,000,000 | 3,606,225 | 90 | 90 | ||||||||||
T(2) | 3.393% | Series S | November 1, 2016 | November 1, 2016 | $25.00 | 8,000,000 | 4,393,775 | 110 | 110 | ||||||||||
Y | floating | Series Z | December 1, 2017 | At any time | $25.50 | 10,000,000 | 8,772,468 | 219 | 219 | ||||||||||
Z(2) | 3.152% | Series Y | December 1, 2017 | December 1, 2017 | $25.00 | 10,000,000 | 1,227,532 | 31 | 31 | ||||||||||
AA(2) | 3.45% | Series AB | September 1, 2017 | September 1, 2017 | $25.00 | 20,000,000 | 10,144,302 | 259 | 259 | ||||||||||
AB | floating | Series AA | September 1, 2017 | At any time | $25.50 | 20,000,000 | 9,855,698 | 251 | 251 | ||||||||||
AC(2) | 3.55% | Series AD | March 1, 2018 | March 1, 2018 | $25.00 | 20,000,000 | 5,069,935 | 129 | 129 | ||||||||||
AD | floating | Series AC | March 1, 2018 | At any time | $25.50 | 20,000,000 | 14,930,065 | 381 | 381 | ||||||||||
AE | floating | Series AF | February 1, 2020 | At any time | $25.50 | 24,000,000 | 9,292,133 | 232 | 36 | ||||||||||
AF(2) | 3.11% | Series AE | February 1, 2020 | February 1, 2020 | $25.00 | 24,000,000 | 6,707,867 | 168 | 364 | ||||||||||
AG(2) | 4.50% | Series AH | May 1, 2016 | May 1, 2016 | $25.00 | 22,000,000 | 10,841,056 | 271 | 271 | ||||||||||
AH | floating | Series AG | May 1, 2016 | At any time | $25.50 | 22,000,000 | 3,158,944 | 79 | 79 | ||||||||||
AI(2) | 4.15% | Series AJ | August 1, 2016 | August 1, 2016 | $25.00 | 22,000,000 | 10,754,990 | 269 | 269 | ||||||||||
AJ | floating | Series AI | August 1, 2016 | At any time | $25.50 | 22,000,000 | 3,245,010 | 81 | 81 | ||||||||||
AK(2) | 4.15% | Series AL | December 31, 2016 | December 31, 2016 | $25.00 | 25,000,000 | 25,000,000 | 625 | 625 | ||||||||||
AL(3) | floating | Series AK | December 31, 2021 | 25,000,000 | | | | ||||||||||||
AM(2) | 4.85% | Series AN | March 31, 2016 | March 31, 2016 | $25.00 | 30,000,000 | 11,500,000 | 263 | 263 | ||||||||||
AN(3) | floating | Series AM | March 31, 2021 | 30,000,000 | | | | ||||||||||||
AO(2) | 4.55% | Series AP | March 31, 2017 | March 31, 2017 | $25.00 | 30,000,000 | 4,600,000 | 118 | 118 | ||||||||||
AP(3) | floating | Series AO | March 31, 2022 | 30,000,000 | | | | ||||||||||||
AQ(2) | 4.25% | Series AR | September 30, 2018 | September 30, 2018 | $25.00 | 30,000,000 | 9,200,000 | 228 | 228 | ||||||||||
AR(3) | floating | Series AQ | September 30, 2023 | 30,000,000 | | | | ||||||||||||
4,004 | 4,004 |
(1) | If series Q first preferred shares are issued on December 1, 2020, BCE may redeem such shares at $25.50 per share on any date after December 1, 2020. |
(2) | BCE may redeem each of these series of First Preferred Shares on the applicable redemption date and every five years after that date. |
(3) | If Series AL, AN, AP or AR First Preferred Shares are issued on December 31, 2016, March 31, 2016, March 31, 2017 and September 30, 2018, respectively, BCE may redeem such shares at $25.00 per share on December 31, 2021, March 31, 2021, March 31, 2022 and September 30, 2023, respectively, and every five years thereafter (collectively, a Series conversion date). Alternatively, BCE may redeem Series AL, AN, AP or AR First Preferred Shares at $25.50 per share on any date after December 31, 2016, March 31, 2016, March 31, 2017 and September 30, 2018, respectively, which is not a Series conversion date. |
VOTING RIGHTS
All of the issued and outstanding First Preferred Shares at December 31, 2015 are non-voting, except under special circumstances, when the holders are entitled to one vote per share.
PRIORITY AND ENTITLEMENT TO DIVIDENDS
The First Preferred Shares of all series rank on a parity with each other and in priority to all other shares of BCE with respect to payment of dividends and with respect to distribution of assets in the event of liquidation, dissolution or winding up of BCE.
Holders of Series R, T, Z, AA, AC, AF, AG, AI, AK, AM, AO and AQ First Preferred Shares are entitled to fixed cumulative quarterly dividends. The dividend rate on these shares is reset every five years, as set out in BCEs articles of amalgamation, as amended.
Holders of Series S, Y, AB, AD, AE, AH and AJ First Preferred Shares are entitled to floating adjustable cumulative monthly dividends. The floating dividend rate on these shares is calculated every month, as set out in BCEs articles of amalgamation, as amended.
Dividends on all series of First Preferred Shares are paid as and when declared by the board of directors of BCE.
BCE Inc. 2015 ANNUAL REPORT 151 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
CONVERSION FEATURES
All of the issued and outstanding First Preferred Shares at December 31, 2015 are convertible at the holders option into another associated series of First Preferred Shares on a one-for-one basis according to the terms set out in BCEs articles of amalgamation, as amended.
CONVERSION OF FIRST PREFERRED SHARES
On February 1, 2015, 7,904,105 of BCEs 14,577,100 Cumulative Redeemable First Preferred Shares, Series AF (Series AF Preferred Shares) were converted, on a one-for-one basis, into Cumulative Redeemable First Preferred Shares, Series AE (Series AE Preferred Shares). In addition, on February 1, 2015, 34,872 of BCEs 1,422,900 Series AE Preferred Shares were converted, on a one-for-one basis, into Series AF Preferred Shares. As a result, 6,707,867 Series AF Preferred Shares and 9,292,133 Series AE Preferred Shares remain outstanding.
ISSUE OF BCE FIRST PREFERRED SHARES IN EXCHANGE FOR PREFCO PREFERRED SHARES
In 2014, BCE issued Series AM, AO and AQ First Preferred Shares in exchange for the issued and outstanding preferred shares of Prefco, as described in Note 24, Privatization of Bell Aliant.
Common shares and Class B shares |
BCEs articles of amalgamation provide for an unlimited number of voting common shares and non-voting Class B shares, all without par value. The common shares and the Class B shares rank equally in the payment of dividends and in the distribution of assets if BCE is liquidated, dissolved or wound up, after payments due to the holders of preferred shares. No Class B shares were outstanding at December 31, 2015 and 2014.
The following table provides details about the outstanding common shares of BCE.
2015 | 2014 | |||||||||
NOTE |
NUMBER OF SHARES |
STATED CAPITAL |
NUMBER OF SHARES |
STATED CAPITAL |
||||||
Outstanding, January 1 | 840,330,353 | 16,717 | 775,892,556 | 13,629 | ||||||
Shares issued under bought deal offering | 15,111,000 | 863 | | | ||||||
Shares issued for the privatization of Bell Aliant | 24 | | | 60,879,365 | 2,928 | |||||
Shares issued for the acquisition of Glentel | 3 | 5,548,908 | 296 | | | |||||
Shares issued under employee stock option plan | 26 | 2,289,677 | 96 | 1,372,006 | 53 | |||||
Shares issued under ESP | 2,334,250 | 128 | 2,186,426 | 107 | ||||||
Outstanding, December 31 | 865,614,188 | 18,100 | 840,330,353 | 16,717 |
On December 11, 2015, BCE issued 15,111,000 common shares to a syndicate of underwriters at a price of $57.10 per common share, representing a discount of $0.90 or 1.6% to the November 23, 2015 announcement date closing price. We incurred $35 million ($26 million net of tax) of issuance costs which were charged to the deficit.
CONTRIBUTED SURPLUS
Contributed surplus in 2015 and 2014 include premiums in excess of par value upon the issuance of BCE common shares.
As a result of the privatization of Bell Aliant, contributed surplus decreased in 2014 by $1,499 million, which represents primarily the amount originally recorded to contributed surplus from the distribution of fund units to the holders of BCE common shares by way of return of capital when Bell Aliant converted from a corporate structure to an income fund in 2006. Refer to Note 24, Privatization of Bell Aliant.
Note 26 Share-based payments |
The following share-based payment amounts are included in the income statements as operating costs.
FOR THE YEAR ENDED DECEMBER 31 | 2015 | 2014 | ||
ESP |
(28 | ) | (30 | ) |
RSUs/PSUs |
(51 | ) | (49 | ) |
Other(1) |
(15 | ) | (20 | ) |
Total share-based payments |
(94 | ) | (99 | ) |
(1) | Includes DSP, DSUs and stock options. |
152 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Description of the plans |
ESP
The ESP is designed to encourage employees of BCE and its participating subsidiaries to own shares of BCE. Each year, employees can choose to have a certain percentage of their eligible annual earnings withheld through regular payroll deductions for the purchase of BCE common shares. In some cases, the employer also will contribute a percentage of the employees eligible annual earnings to the plan, up to a specified maximum. Dividends are credited to the participants account on each dividend payment date and are equivalent in value to the dividends paid on BCE common shares.
The BCE ESP allows employees to contribute up to 12% of their annual earnings, with a maximum employer contribution of 2%.
Employer contributions to the BCE plan are subject to employees holding their shares for a two-year vesting period. Dividends related to employer contributions are also subject to the two-year vesting period.
The trustee of the ESP buys BCE common shares for the participants on the open market, by private purchase or from treasury. BCE determines the method the trustee uses to buy the shares.
At December 31, 2015, 7,829,983 common shares were authorized for issuance from treasury under the BCE ESP.
The following table summarizes the status of unvested employer contributions at December 31, 2015 and 2014.
NUMBER OF ESP SHARES | 2015 | 2014 | ||
Unvested contributions, January 1 |
1,153,653 | 1,230,265 | ||
Contributions(1) |
645,633 | 631,038 | ||
Dividends credited |
53,283 | 60,621 | ||
Vested |
(600,815 | ) | (645,141 | ) |
Forfeited |
(105,708 | ) | (123,130 | ) |
Unvested contributions, December 31 |
1,146,046 | 1,153,653 |
(1) | The weighted average fair value of the shares contributed was $55 and $49 in 2015 and 2014, respectively. |
RSUs/PSUs
RSUs/PSUs are granted to executives and other key employees. The value of an RSU/PSU at the grant date is equal to the value of one BCE common share. Dividends in the form of additional RSUs/PSUs are credited to the participants account on each dividend payment date and are equivalent in value to the dividend paid on BCE common shares. Executives and other key employees are granted a specific number of RSUs/PSUs for a given performance period based on their position and level of contribution. RSUs/PSUs vest fully after three years of continuous employment from the date of grant and, in certain cases, if performance objectives are met, as determined by the board of directors.
The following table summarizes outstanding RSUs/PSUs at December 31, 2015 and 2014.
NUMBER OF RSUs/PSUs | 2015 | 2014 | ||
Outstanding, January 1 |
3,616,967 | 3,733,830 | ||
Granted(1) |
1,005,062 | 1,058,031 | ||
Dividends credited |
157,485 | 184,590 | ||
Settled |
(1,342,514 | ) | (1,259,067 | ) |
Forfeited |
(103,417 | ) | (100,417 | ) |
Outstanding, December 31 |
3,333,583 | 3,616,967 | ||
Vested, December 31(2) |
1,138,861 | 1,307,824 |
(1) | The weighted average fair value of the RSUs/PSUs granted was $55 and $48 in 2015 and 2014, respectively. |
(2) | The RSUs/PSUs vested on December 31, 2015 were fully settled in February 2016 with BCE common shares and/or DSUs. |
DSP
The value of a deferred share is equal to the value of one BCE common share. Dividends in the form of additional deferred shares are credited to the participants account on each dividend payment date and are equivalent in value to the dividend paid on BCE common shares. Deferred shares vest fully after three years of continuous employment from the date of grant. The liability recorded in the statements of financial position and related to the deferred share plan was $38 million and $52 million at December 31, 2015 and December 31, 2014, respectively.
STOCK OPTIONS
Under BCEs long-term incentive plans, BCE may grant options to executives to buy BCE common shares. The subscription price of a grant is based on the higher of:
BCE Inc. 2015 ANNUAL REPORT 153 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
At December 31, 2015, 20,202,782 common shares were authorized for issuance under these plans. Options vest fully after three years of continuous employment from the date of grant. All options become exercisable when they vest and can be exercised for a period of seven years from the date of grant. Special vesting provisions may apply if:
The following table summarizes BCEs outstanding stock options at December 31, 2015 and 2014.
2015 | 2014 | |||||||||
WEIGHTED AVERAGE |
NUMBER OF OPTIONS |
WEIGHTED AVERAGE | ||||||||
NOTE | NUMBER OF OPTIONS | EXERCISE PRICE ($) | EXERCISE PRICE ($) | |||||||
Outstanding, January 1 |
9,278,190 | $43 | 7,870,231 | $40 | ||||||
Granted |
2,835,667 | $56 | 2,915,361 | $48 | ||||||
Exercised(1) |
25 | (2,289,677 | ) | $39 | (1,372,006 | ) | $36 | |||
Forfeited |
(157,276 | ) | $49 | (135,396 | ) | $44 | ||||
Outstanding, December 31 |
9,666,904 | $48 | 9,278,190 | $43 | ||||||
Exercisable, December 31 |
1,174,191 | $38 | 865,600 | $36 |
(1) | The weighted average share price for options exercised was $56 and $49 in 2015 and 2014, respectively. |
The following table provides additional information about BCEs stock option plans at December 31, 2015.
STOCK OPTIONS OUTSTANDING |
||||||
NUMBER |
WEIGHTED AVERAGE REMAINING LIFE |
WEIGHTED AVERAGE EXERCISE PRICE ($) |
||||
RANGE OF EXERCISE PRICES | ||||||
$30$39 | 426,880 | 2.14 | $36 | |||
$40$49 | 6,460,725 | 4.47 | $45 | |||
$50 or more | 2,779,299 | 6.15 | $56 | |||
9,666,904 | 4.85 | $48 |
ASSUMPTIONS USED IN STOCK OPTION PRICING MODEL
The fair value of options granted was determined using a variation of a binomial option pricing model that takes into account factors specific to the share incentive plans, such as the vesting period. The following table shows the principal assumptions used in the valuation.
2015 | ||
Weighted average fair value per option granted |
$2.25 | |
Weighted average share price |
$55 | |
Weighted average exercise price |
$56 | |
Dividend yield |
4.6 | % |
Expected volatility |
15 | % |
Risk-free interest rate |
0.7 | % |
Expected life (years) |
4.5 |
Expected volatilities are based on the historical volatility of BCEs share price. The risk-free rate used is equal to the yield available on Government of Canada bonds at the date of grant with a term equal to the expected life of the options.
DSUS
Eligible bonuses and RSUs/PSUs may be paid in the form of DSUs when executives or other key employees elect to or are required to participate in the plan. The value of a DSU at the issuance date is equal to the value of one BCE common share. For non-management directors, compensation is paid in DSUs until the minimum share ownership requirement is met or as elected by the directors thereafter. There are no vesting requirements relating to DSUs. Dividends in the form of additional DSUs are credited to the participants account on each dividend payment date and are equivalent in value to the dividends paid on BCE common shares. DSUs are settled when the holder leaves the company.
154 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table summarizes the status of outstanding DSUs at December 31, 2015 and 2014.
NUMBER OF DSUs | 2015 | 2014 | ||
Outstanding, January 1 |
4,116,527 | 3,625,053 | ||
Issued(1) |
174,672 | 142,231 | ||
Settlement of RSUs/PSUs |
216,500 | 415,091 | ||
Dividends credited |
201,721 | 202,885 | ||
Settled |
(913,369 | ) | (268,733 | ) |
Outstanding, December 31 |
3,796,051 | 4,116,527 |
(1) | The weighted average fair value of the DSUs issued was $55 and $48 in 2015 and 2014, respectively. |
Note 27 Commitments and contingencies |
Commitments
The following table is a summary of our contractual obligations at December 31, 2015 that are due in each of the next five years and thereafter.
NOTE | 2016 | 2017 | 2018 | 2019 | 2020 |
THERE- AFTER |
TOTAL | |||||||||
Operating leases |
287 | 257 | 206 | 178 | 154 | 814 | 1,896 | |||||||||
Commitments for property, plant and equipment and intangible assets |
946 | 650 | 570 | 497 | 448 | 1,373 | 4,484 | |||||||||
Purchase obligations |
1,140 | 578 | 541 | 525 | 452 | 1,645 | 4,881 | |||||||||
National expansion of TMN(1) |
3 | 190 | | | | | | 190 | ||||||||
Total |
2,563 | 1,485 | 1,317 | 1,200 | 1,054 | 3,832 | 11,451 |
(1) | This commitment was settled in the first quarter of 2016. |
BCEs significant operating leases are for office premises, cellular tower sites and retail outlets with lease terms ranging from one to 42 years. These leases are non-cancellable and are renewable at the end of the lease period. Rental expense relating to operating leases was $340 million in 2015 and $335 million in 2014.
Our commitments for property, plant and equipment and intangible assets include program and feature film rights and investments to expand and update our networks to meet customer demand.
Purchase obligations consist of contractual obligations under service and product contracts for operating expenditures.
Contingencies |
We become involved in various legal proceedings as a part of our business. While we cannot predict the final outcome or timing of the legal proceedings pending at December 31, 2015, based on the information currently available and managements assessment of the merits of such legal proceedings, management believes that the resolution of these legal proceedings will not have a material and negative effect on our financial statements. We believe that we have strong defences and we intend to vigorously defend our positions.
BCE Inc. 2015 ANNUAL REPORT 155 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Note 28 Related party transactions |
Subsidiaries
The following table shows BCEs significant subsidiaries at December 31, 2015. BCE has other subsidiaries which have not been included in the table as each represents less than 10% individually, and less than 20% in aggregate, of total consolidated revenues.
All of these subsidiaries are incorporated in Canada and provide services to each other in the normal course of operations. The value of these transactions is eliminated on consolidation.
|
OWNERSHIP PERCENTAGE |
|||
SUBSIDIARY |
2015 | 2014 | ||
Bell Canada |
100 | % | 100 | % |
Bell Mobility |
100 | % | 100 | % |
Bell Aliant(1) |
N/A | 100 | % | |
Bell Media |
100 | % | 100 | % |
(1) | On July 1, 2015, Bell Aliant was wound up into Bell Canada. |
Transactions with joint arrangements and associates |
During 2015 and 2014, BCE provided telecommunication services and received programming content and other services in the normal course of business on an arms length basis to and from its joint arrangements and associates. Our joint arrangements are comprised of MLSE, Glentel, Inukshuk, Enstream Inc., Cirque du Soleil Media Limited Partnership, Dome Productions Partnership and Argonauts Holdings Limited Partnership. Our associates are comprised of Summerhill Ventures LLP, Q9 Networks Inc., The NHL Network Inc. and Suretap Wallet Inc. From time to time, BCE may be required to make capital contributions in its investments.
BCE recognized revenues and incurred expenses with our associates and joint arrangements of $8 million (2014$6 million) and $104 million (2014$56 million), respectively.
BCE Master Trust Fund |
Bimcor Inc. (Bimcor), a wholly-owned subsidiary of Bell Canada, is the administrator of the Master Trust. Bimcor recognized management fees of $13 million from the Master Trust for 2015 and $12 million for 2014. The details of BCEs post-employment benefit plans are set out in Note 21, Post-employment benefit plans.
Compensation of key management personnel and board of directors |
The following table includes compensation of the key management personnel and board of directors for the years ended December 31, 2015 and 2014 included in our income statements. Key management personnel include the companys Chief Executive Officer (CEO), Group President and the executives who report directly to them.
FOR THE YEAR ENDED DECEMBER 31 | 2015 | 2014 | ||
Wages, salaries, fees and related taxes and benefits |
(32 | ) | (24 | ) |
Post-employment benefit plans and OPEBs cost |
(3 | ) | (4 | ) |
Share-based compensation |
(27 | ) | (26 | ) |
Key management personnel and board of directors compensation expense |
(62 | ) | (54 | ) |
156 BCE Inc. 2015 ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Note 29 Significant partly-owned subsidiaries |
The following tables show summarized financial information for our subsidiaries with significant NCI.
Summarized statements of financial position |
CTV SPECIALTY(1) |
||||
FOR THE YEAR ENDED DECEMBER 31 | 2015 | 2014 | ||
Current assets |
272 | 255 | ||
Non-current assets |
1,030 | 999 | ||
Total assets |
1,302 | 1,254 | ||
Current liabilities |
142 | 152 | ||
Non-current liabilities |
200 | 185 | ||
Total liabilities |
342 | 337 | ||
Total equity attributable to BCE shareholders |
673 | 643 | ||
NCI |
287 | 274 |
(1) | At December 31, 2015 and 2014, the ownership interest held by NCI in CTV Specialty was 29.9%. CTV Specialty was incorporated and operated in Canada as at such dates. |
Selected income and cash flow information |
CTV SPECIALTY(1) |
BELL ALIANT(2)(3) | |||||
FOR THE YEAR ENDED DECEMBER 31 | 2015 | 2014 | 2014 | |||
Operating revenues |
805 | 807 | 2,757 | |||
Net earnings |
166 | 174 | 328 | |||
Net earnings attributable to NCI |
52 | 53 | 165 | |||
Total comprehensive income |
174 | 175 | 171 | |||
Total comprehensive income attributable to NCI |
54 | 54 | 72 | |||
Cash dividends paid to NCI |
41 | 2 | 143 |
(1) | CTV Specialty net earnings and total comprehensive income includes $3 million and $2 million, respectively, directly attributable to NCI for 2015 and 2014. |
(2) | In 2014, BCE acquired all the issued and outstanding shares of Bell Aliant that it did not already own, therefore eliminating the 55.9% ownership interest held by NCI. Refer to Note 24, Privatization of Bell Aliant. |
(3) | Bell Aliant net earnings and total comprehensive income include $22 million of dividends declared on preferred shares for 2014. |
BCE Inc. 2015 ANNUAL REPORT 157 |
Exhibit 99.3
Reports on internal control
Managements report on internal control over financial reporting
The management of BCE Inc. (BCE) is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of the President and Chief Executive Officer and the Executive Vice-President and Chief Financial Officer of BCE to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management evaluated, under the supervision of and with the participation of the President and Chief Executive Officer and the Executive Vice-President and Chief Financial Officer, the effectiveness of our internal control over financial reporting as at December 31, 2015, based on the criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on that evaluation, the President and Chief Executive Officer and the Executive Vice-President and Chief Financial Officer concluded that our internal control over financial reporting was effective as at December 31, 2015. There were no material weaknesses that have been identified by BCEs management in internal control over financial reporting as at December 31, 2015.
Our internal control over financial reporting as at December 31, 2015 has been audited by Deloitte LLP, Independent Registered Public Accounting Firm, who also audited our consolidated financial statements for the year ended December 31, 2015. Deloitte LLP issued an unqualified opinion on the effectiveness of our internal control over financial reporting as at December 31, 2015.
(signed) George A. Cope
President and Chief Executive
Officer
(signed) Glen LeBlanc
Executive Vice-President and
Chief Financial Officer
(signed) Thierry Chaumont
Senior Vice-President and
Controller
March 3, 2016
112 BCE Inc. 2015 ANNUAL REPORT | |
REPORTS ON INTERNAL CONTROL |
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of BCE Inc.
We have audited the internal control over financial reporting of BCE Inc. and subsidiaries (the Company) as of December 31, 2015, based on the criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2015 of the Company and our report dated March 3, 2016 expressed an unmodified/unqualified opinion on those financial statements.
/s/ Deloitte LLP[1]
Montréal, Canada
March 3, 2016
(1) CPA auditor, CA, public accountancy permit No. A104630
BCE Inc. 2015 ANNUAL REPORT 113 |
Exhibit 99.4
Code of Business Conduct
What we do is who we are
Our Moral Compass
Policy Contact: corporate.secretariat@bell.ca
© Bell Canada 2015. All Rights Reserved. | |
Code of Business Conduct |
Whats Inside
1 | INTRODUCTION | 1 | |
1.1 | Scope: Who Does the Code Apply To? | 1 | |
1.2 | Objectives | 1 | |
1.3 | Reporting a Misconduct or Violation of the Code The Business Conduct Help Line |
1 |
|
1.4 | Responsibilities of Managers & Executives | 2 | |
1.5 | Penalties for Violations | 2 | |
1.6 | Annual Review and Sign Off | 2 | |
2 | OUR PRINCIPLES OF ETHICAL CONDUCT | 3 | |
2.1 | Personal Integrity | 3 | |
2.2 | Conflicts of Interest | 3 | |
2.3 | Loans, Gifts and Entertainment | 7 | |
2.4 | Political Activities | 8 | |
2.5 | Improper Influence on the Conduct of Audits | 8 | |
2.6 | Trading in Securities | 8 | |
2.7 | Public Disclosure of Material Information | 10 | |
2.8 | Confidentiality of Customer and Employee Information | 10 | |
2.9 | Information Classification and Records Management | 12 | |
2.10 | Dealing with Customers and Suppliers | 13 | |
2.11 | Dealing with Competitors | 14 | |
2.12 | Safeguarding Bell Assets | 16 | |
2.13 | Social Media | 19 | |
2.14 | Work Environment | 20 | |
2.15 | Journalistic Independence | 24 | |
2.16 | Protecting the Environment | 26 | |
3 | ROLES AND RESPONSIBILITIES | 27 | |
3.1 | Business Unit Responsibility | 27 | |
3.2 | Board of Directors, Corporate Governance Committee and Audit Committee | 27 | |
3.3 | Corporate Secretarys Office | 27 | |
APPENDICES | 28 | ||
Supporting Procedures | 28 | ||
Attachments | 28 | ||
POLICY OR PRACTICE DETAILS | 33 |
Our goal:
To be recognized by customers as Canadas leading communications company.
Our 6 strategic imperatives:
Accelerate Wireless
Leverage Wireline Momentum
Expand Media Leadership
Invest In Broadband Networks And Services
Achieve A Competitive Cost Structure
Improve Customer Service
If you have any question regarding this Code of Business Conduct, please e-mail corporate.secretariat@bell.ca or contact the Business Conduct Help Line available at clearviewconnects.com on a 24/7 basis or by calling 1 866 298 2942 (toll free). |
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A Message from our President and Chief Executive Officer
As we work together to achieve Bells goal to be recognized by customers as Canadas leading communications company everyone on the team has a responsibility to meet the highest standards of ethical conduct.
In 135 years of serving Canadians, Bell has built a reputation for adhering to the most rigorous standards of business conduct. We value that reputation and understand the importance of earning it every day in interactions with our customers, shareholders, suppliers, the broader public and our fellow team members.
That is why we are all required to renew a personal commitment to reading and understanding the Bell Code of Conduct each year. The Code clearly explains the values and standards of behaviour expected from every team member in all aspects of our business.
Please take the time to read the Bell Code of Conduct, and to incorporate the principles into your work at Bell every day. Thank you for your support.
George Cope
President and Chief Executive Officer
BCE Inc. and Bell Canada
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Code of Business Conduct |
1 INTRODUCTION
The Bell Canada Code of Business Conduct explains the fundamental values and standards of behaviour that are expected from us in all aspects of our business.
In our daily activities, we have a fundamental responsibility to address a broad spectrum of issues. These include: preventing conflicts of interest, protecting company assets, safeguarding privacy and confidentiality, treating customers, business partners, team members and competitors with respect and honesty, fostering a diverse, safe and healthy workplace and protecting the environment.
Acting responsibly is central to achieving sustainable business success and essential to the pursuit of our corporate goal: to be recognized by customers as Canadas leading communications company.
The Code provides various rules and guidelines for ethical behaviour based on Bell values, as well as applicable laws and regulations.
These values and standards reinforce our commitment to the highest levels of customer service, a working environment in which performance is recognized and people are respected and sensitivity to the needs of the community that Bell serves.
1.1 Scope: Who Does the Code Apply To?
The Code applies to everyone at Bell, including all directors, executives and employees of BCE Inc., Bell Canada and their subsidiaries that are not public companies. Throughout the Code, we will refer to these companies as Bell.
1.2 Objectives
Collectively, we undertake to:
1.3 Reporting a Misconduct or Violation of the Code The Business Conduct Help Line
Individual responsibility does not mean you are on your own when facing an ethical issue. Dont be reluctant to ask any questions you might have on the Code or raise issues.
As part of Bells commitment to the highest standards of ethics, employees are encouraged to promptly report any actual or potential misconduct, Code or other company policy violations, malpractice, fraud, misappropriation of business property or any other illegal or unethical act or behaviour, including accounting, internal accounting controls or auditing matters by an employee of Bell or by any business unit of Bell.
Any submission made by an employee regarding an unethical behaviour will be treated on a confidential and anonymous basis, unless specifically permitted to be disclosed by the employee or unless required by law. Submissions will only be disclosed to those persons who have a need to know in order to properly carry out an investigation of the potential unethical behaviour.
Any employee who in good faith reports an unethical behaviour will be protected from threats of retaliation, discharge or other
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types of sanctions that are directly related to the disclosure of such unethical behaviour.
No employee will be penalized for inquiring, in good faith, about apparently unethical behaviour or for obtaining guidance on how to handle suspected illegal acts or policy violations. Further, Bell will not allow retaliation for reports made in good faith.
An unethical behaviour may be reported to your immediate manager. If this wont meet your needs, is inappropriate, does not provide the necessary level of confidentiality or if you otherwise prefer, you can contact our confidential and anonymous Business Conduct Help Line at clearviewconnects.com on a 24/7 basis or by calling 1 866 298 2942 (toll free). You may also contact the Chief Legal Officer or the Chair of the Audit Committee. |
You can also consult the Complaint Procedures for Accounting and Auditing Matters on the Corporate Policies & Ethics Program intranet site.
1.4 Responsibilities of Managers & Executives
We are all expected to perform our jobs with integrity and in a dynamic, straightforward, honest and fair manner. However, managers and executives have an enhanced role. This means:
1.5 Penalties for Violations
Disciplinary action up to and including dismissal will be taken should an employee, manager or executive:
1.6 Annual Review and Sign Off
To demonstrate our commitment to the shared values and standards described in the Code, all employees, managers, executives and members of the Board of Directors must certify annually that they have reviewed and follow the Code. A copy of these certifications can be found at Attachments 1A and 2A. All employees must also take the on-line course on the Code at least every two years.
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2 OUR PRINCIPLES OF ETHICAL CONDUCT
2.1 Personal Integrity
Ethical behaviour is an essential part of our job and is a personal responsibility we all share. It means performing our job fully and competently. It also means being accountable for our behaviour and for supporting the values, principles and standards upon which our reputation rests.
Many aspects of our business are governed by laws and regulations and compliance with such laws and regulations is basic to ethical conduct. Bell and its directors, executives, managers and other employees are expected to comply with the laws, rules and regulations of all countries in which we operate, as well as the expectations and requirements of our various regulators. These laws include, but are not limited to, telecommunications laws, securities laws, laws prohibiting the corruption of government officials, in Canada and abroad, as well as lobbying, environmental, health and safety and employment legislation.
Ethical behaviour, however, goes beyond mere compliance with the law. It involves thinking through the possible impact of our decisions on all interested parties - customers, employees, unions, business partners, suppliers, investors, government as well as the communities and environment in which we live and work.
Although the Code lays out the fundamental principles of ethical and legal conduct, it cannot anticipate every ethical dilemma or situation we may encounter as we perform our jobs. This would be impossible given the rapid evolution of the communications industry.
Consequently, we may often find ourselves caught in a situation or facing an ethical problem not explicitly covered in the Code. In this case, we must rely on our internal sense of what is right our moral compass to guide us in making the right decision.
When faced with a difficult or unclear situation, it may help to ask questions such as:
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Assuming personal responsibility for our actions means we cant blame someone else for our behaviour. Conversely, no one - not even a manager - can force us to commit an illegal or unethical act that may damage Bells reputation, or our own.
We have a duty to report illegal acts or violations of the Code or Bell policies. Turning a blind eye to wrongdoing - in effect condoning such behaviour - is itself unethical. See section 1.3 for ways that are available to you to report unethical conducts. |
Any breach of the Code or Bell policies or evidence of illegal behaviour will be taken very seriously. Depending on the nature and severity of the case, employees who breach the Code, violate Bell policy or commit an illegal act will face immediate discipline, up to and including dismissal, as well as possible civil or criminal prosecution.
2.2 Conflicts of Interest
As employees, managers and executives, our business loyalty rests in placing Bells interests including those of its customers and shareholders before our personal interests.
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A conflict of interest arises whenever we allow, or appear to allow, personal interests or relationships to impair our judgment and ability to make decisions with integrity and honesty. By thinking of ourselves first, we may act in a way that is damaging, or potentially damaging, to Bell. We may also harm our personal reputation.
We must not use our position to influence or bypass Bell procedures for personal gain nor for the benefit of our family, friends, colleagues or anyone else.
How Can I Tell If I Am In a Conflict of Interest? If you are not sure about a particular situation obtain the guidance you need. Start by asking yourself the following questions:
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If you have any doubts about a possible conflict, raise the matter with your manager or contact the Business Conduct Help Line at www.clearviewconnects.com or by calling 1-866-298-2942 (toll free).
If there is an actual or potential conflict of interest, the employee must complete form BC3684A Disclosure of a Conflict of Interest or Potential Conflict of Interest and provide a copy signed by his/her manager to the Corporate Secretarys Office (see Attachment 2B).
2.2.1 Conflicts of Interest Relating to Family and Personal Relationships
Each of us has a variety of personal relationships involving family and friends and sometimes our work and personal lives intersect.
We must disclose this relationship if it compromises, or threatens to compromise, our ability to act in Bells best interest. Speak to your manager or contact the Business Conduct Help Line for further guidance. We should also be aware that bridging our personal and business lives may cause our competitors or suppliers as well as colleagues within Bell to believe we are in a conflict of interest. To avoid a conflict of interest, or prevent a situation from developing into a conflict of interest, you must inform your manager if, for example:
If you are concerned that you may be in a conflict of interest, speak to your manager who may ask you to complete form BC3684A, Disclosure of a Conflict of Interest or Potential Conflict of Interest. This form must be signed by you and your manager and sent to the Corporate Secretarys Office.
My partner has just become an executive sales manager for a company that services the computers in my department. Do I need to tell anyone about this?
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2.2.2 Conflicts of Interest Relating to Supplier-Funded Incentive Programs
Supplier-funded incentive programs, often offered to sales employees by suppliers seeking to sell their products, may only be arranged through an authorized program administrator who does not work with the eligible employees.
Its up to the program administrator to ensure there is no conflict between Bells marketing strategy and the suppliers incentive program. For further information, please refer to the Compensation & Recognition Policy on the Human Resources Policies intranet site.
2.2.3 Conflicts of Interest Arising from Outside Employment and Similar Activities
We all have a right to do what we want during our non-working hours. This could include holding another job in which we use the skills and experience acquired through our work at Bell. However, we must ensure that our outside employment or other activities do not conflict, or appear to conflict, with Bells business or with our ability to fulfill our duties as employees.
To avoid a conflict of interest, or even the appearance of such a conflict, you should discuss any planned outside business activities with your manager. As a general guideline, you may not:
I am a Bell technician who installs circuitry for small and medium-sized business customers. With the growth of the Internet and other communications services, demand for my expertise is booming. Can I take advantage of this opportunity and start up an installation business on my own time?
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As a customer service representative I happen to respond to my brothers telephone call inquiring about a charge on his account for TV services. Can I respond to this call and make adjustments, if any, to his account?
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2.2.4 Conflict of Interest Guidelines for Executives and External Directorships
In addition to the conflict of interest guidelines and procedures noted above, in respect to all persons who are executives (i.e. Vice-President and above), a conflict of interest may also arise:
Executives are required to disclose any actual or potential conflicts of interest by providing written notice to the Corporate Secretary at corporate.secretariat@bell.ca. The Corporate Secretary is responsible for administering the Code and the Conflict of Interest Guidelines. If the Corporate Secretary is unable to resolve an existing or potential conflict of interest with the person involved, the matter will be discussed with the Executive Vice-President and Chief Legal & Regulatory Officer.
External Directorships
As a general rule, executives are allowed to be appointed to the board of directors of a company other than a Bell company provided that such election:
Provided the above criteria are met, before accepting an external directorship appointment, an executive shall, through his/her superior, seek and obtain clearance from the President and Chief Executive Officer. If appointed, the executive must then disclose such fact to the Corporate Secretarys Office promptly.
Executives should however understand that the BCE group companies D&O Insurance policy will not be applicable unless the executives appointment is made at the request of Bell.
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2.3 Loans, Gifts and Entertainment
2.3.1 Loans from Bell
We do not accept, whether directly or indirectly, any loan or guarantee of obligations from Bell that are for our personal benefit.
2.3.2 Business Gifts & Entertainment
Do not solicit, accept or give gifts, gratuities, favours or unusual hospitality from or to suppliers or customers, which may compromise - or appear to compromise - our ability to make fair, objective, business decisions or may unfairly influence a business interaction.
Do not solicit or encourage gifts, hospitality, entertainment or any other thing for personal use.
Do not accept gifts having a monetary value; for example, gift certificates, cash, services, discounts or loans.
These guidelines do not change during traditional gift giving season.
We recognize, however, that building relationships with customers and suppliers is an integral part of doing business.
You may offer and accept reasonable hospitality in certain cases. You should consult your manager or contact the Business Conduct Help Line when in doubt about the appropriateness of a particular situation.
You may participate in unsolicited business entertainment depending on the function or services you perform for Bell and if the entertainment is clearly intended to facilitate business goals. If for example, tickets to a sporting or cultural event are offered, then the person offering the tickets should plan to attend the event as well.
You may sponsor events/activities for customers or potential customers where the purpose is to strengthen business relationships; however it is your responsibility to know and be sensitive to the customers own code of conduct on these issues. Solicitation of modest gifts or prizes for Bell sponsored events which provide clear benefits to the sponsor and/or charitable organization is permitted upon approval by your manager.
You may accept unsolicited, nominal value hospitality, gifts or mementos that are customary or business related.
You may accept business entertainment in the form of meals as long as it is modest, infrequent, and as far as possible on a reciprocal basis.
Factors which you and your manager should consider when assessing the proper course of action include:
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2.4 Political Activities
2.4.1 Political Contributions
Political Contributions refer to any payment or donation, including provision of services at favourable rates, irrespective of format or location, made on behalf of Bell to a recipient involved in federal, provincial, territorial or municipal political process, such as a political party, an election or leadership candidate, a riding association or an elected official. Bells corporate policy prohibits political contributions without the express prior consent of the Executive Vice-President and Chief Legal & Regulatory Officer. This policy does not apply to political contributions made by individuals within Bell on their own behalf. However, funds or assets being contributed must originate with or belong to the individual making the contribution, and individuals making political contributions should be prepared to demonstrate ownership.
For further information, consult the Political Contributions Policy available from the Corporate Policies & Ethics intranet site.
Beyond standard penalties for non-compliance with the Code which were previously outlined, Bell may refer the matter to the appropriate regulatory and legal authorities, which could lead to penalties, fines or imprisonment.
2.4.2 Lobbying on behalf of Bell
Broadly speaking, lobbying involves reaching out to a public office holder (like an MP, a Minister or in some cases a mayor) in order to further Bells objectives. It does not, however, include formal legal or regulatory submissions, communications in a public forum or responses to government Request for Proposals.
Lobbying public office holders is a legitimate activity but the law sets certain boundaries around lobbying, as well as establishes some disclosure requirements, to ensure that lobbying activities are transparent and ethical. The Regulatory/Law Department must be consulted before making representations to public office holders.
Beyond standard penalties for non-compliance with the Code which were previously outlined, Bell may refer the matter to the appropriate regulatory and legal authorities, which could lead to penalties, fines or imprisonment.
2.5 Improper Influence on the Conduct of Audits
Employees are prohibited from coercing, manipulating, misleading or fraudulently influencing Bells internal or external auditors at any time and especially when the employee knows or should know that his/her action, if successful, could result in rendering Bells financial statements misleading in any way.
2.6 Trading in Securities
2.6.1 Insider Trading
As a director or employee, you may become aware of undisclosed material information about Bell or any other company. Unless you are certain that this information has been officially publicly disclosed, it is illegal for you to:
Undisclosed material information refers to information that, if disclosed, could affect the market price of a companys securities or is likely to be considered important by investors in determining whether to buy, sell or otherwise trade in such securities. Some examples of what could constitute undisclosed material information are financial results,
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significant acquisitions or dispositions, business information such as business plans and new products and services.
At law, severe penalties may be imposed against you personally as a result of unlawful trading and tipping.
Assuming you are not otherwise aware of undisclosed material information, the recommended time to purchase or sell BCE Inc. and Bell Canada securities is during the period beginning on the second business day following the day of announcement of BCE Inc.s and Bell Canadas quarterly financial results and ending on the last day of the quarter during which the announcement is made. This will help minimize the risk of an unintentional violation of these prohibitions, and the appearance of a violation (intentional or not). All employees are required to keep accurate records of their securities transactions and may be asked to report to Bell their holdings and investment transactions.
Even after Bell has officially publicly released material information, it is important to be sure that sufficient time has elapsed to enable the information to be disseminated to investors. As a rule of thumb, you should not trade BCE Inc. or Bell Canada securities until the second business day following the public announcement. An employee must not attempt to beat the market by trading simultaneously with, or shortly after, the official release of public information.
Members of the board of directors and executives should consult the BCE Inc. and Bell Canada Insider Trading and Reporting Guidelines for additional information. A copy of these guidelines can be obtained from the Corporate Secretarys Office.
Can I use information I obtain by accident or overheard?
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2.6.2 Short Sales, Calls and Puts
As a director or employee of Bell, you may not engage in the following activities with respect to BCE Inc.s securities or the securities of any of its affiliates (such as Bell Canada): (a) short sale; (b) sale of a call option and (c) purchase of a put option.
Short selling means selling shares you do not currently own and borrowing a third partys shares in order to make delivery, the whole in expectation that the shares will decrease in value when you will buy back the shares and return them to the owner. Such process may lead to undue speculation and abuse and is therefore prohibited.
Puts and calls may also lead to the same abuse and therefore similar restrictions apply to the sales of call options and purchases of put options in respect of securities of BCE Inc. and its affiliates. For the purposes hereof, a call can be defined as an option to demand delivery of a specified number or amount of securities at a fixed price within a specified time but does not include an option or right to acquire securities of BCE Inc. or its affiliates where such were granted by BCE Inc. or its affiliates (such as pursuant to BCE Inc.s Long-Term Incentive (stock option) Programs). A put can be defined as an option to deliver a specified number or amount of securities at a fixed price within a specified time.
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In summary, you cannot sell short securities of BCE Inc. or its affiliates, and you may not sell call options or buy put options over the same securities. You must exercise great caution in your trading in order to avoid inadvertent breaches of these restrictions.
2.7 Public Disclosure of Material Information
Only authorized executives can decide the timing and content of public disclosures regarding Bell. Examples include public filings with securities regulatory authorities or the issuance of news releases.
If you are not an authorized spokesperson, you must not respond under any circumstances (including on a no-name or off the record basis) to inquiries from, or voluntarily provide information to, the investment community or the media, unless specifically asked to do so by an authorized spokesperson.
Any inquiries need to be immediately referred to Bells Communications Department or Investor Relations Department. Contact information for spokespersons can be found in Bells Disclosure Policy available on the Corporate Policies & Ethics intranet site.
2.8 Confidentiality of Customer and Employee Information
2.8.1 Customer Privacy
Bell has long been committed to maintaining the accuracy, confidentiality, security and privacy of customer information. It is essential that we protect the confidentiality of all non-public information entrusted to us by Bell or its customers, except when disclosure is authorized or legally mandated. Even seemingly mundane information might be of use to competitors, or harmful to Bell or its customers, if disclosed. Even unintentional disclosure can lead to identity theft or financial gain by third parties. Therefore, the best way to protect customer information is to limit access on a need-to-know basis. In addition, we must comply with the laws and regulations related to privacy that apply to Bell, including the Personal Information Protection and Electronic Documents Act and restrictions imposed by the CRTC.
Unless a customer provides explicit consent or disclosure is pursuant to a legal power such as a search warrant, all information kept by Bell about its customers with the exception of listed name, address and telephone number, is confidential and cannot be disclosed or used, directly or indirectly, except for business purposes. We may only use this information for the purposes for which it was collected and that the customer would reasonably expect.
Recording, releasing or disclosing private customer information for personal gain or the benefit of another will result in immediate discipline up to and including dismissal, and may include civil or criminal prosecution. This may also expose Bell to substantive reputational harm and financial liability.
Interception of Private Communications
Communications between Bell and a customer may be monitored for quality assurance purposes, with an appropriate advisory to the customer.
The unlawful interception of a private communication is prohibited under the Criminal Code. The content of a customers transmissions (including telephone and email) may not be monitored, nor may the content, nature and existence of telephone calls and data transmissions be released to third parties except as explicitly authorized by law.
Unintentional interceptions of a call may occur when providing service, doing repairs or when conducting quality control checks. In these instances, the employee must advise the persons on the call of the unintended interruption and immediately disconnect from that call.
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Business Customer or Supplier Information
Maintaining customer and supplier privacy is also crucial when dealing with contracts, proposals and quotations. We must be vigilant to not share business customer or supplier information - such as business plans, names of representatives or information of a sensitive nature - with other employees servicing a similar market segment (for example, the banking industry). By doing so, we may inadvertently divulge information about a business customer or supplier to that customers or supplier competitor. Also, unless a business customer or supplier provides explicit consent, we do not share information about business customers or supplier with other affiliates or partners, agents or subsidiaries of our group, except with those affiliate or partners or agents or subsidiaries of a group, who are directly involved in the specific contract, proposals or quotations.
I am a customer service representative for the residential market. A caller identifying himself as the spouse of a wireless customer requests billing details for the spouses account, indicating that he looks after bill payments for the family. Should I provide the information?
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2.8.2 Employee Privacy
Bell has also long been committed to protecting the personal information of its employees which is collected only for purposes relevant to managing the employment relationship. The obligations described in the Personal Information Protection and Electronic Documents Act also apply to the collection, use, disclosure and protection of personal employee information.
Personal information means information, in any format, about an identifiable individual, but does not include the name, title or business address or telephone number of an employee. Employee personal information refers to those records like the personnel files and other documents collected and used to provide services or support such as pay or benefits information. Personal health information is held separately by the Disability Management Group.
All personal information is protected by security safeguards appropriate to the sensitivity of the information and may only be used for reasonable purposes relating to the management of the employment relationship or for other purposes as may be required by law. All employees holding personal employee information must handle it in accordance with privacy principles. Aside from applying normal safeguards (i.e. locked cabinets and desks), employees should avoid discussing personal employee information in public areas.
Notwithstanding the notion of employee personal information, there shall be no expectation of privacy for communications made through the use of Bell equipment or using Bell paid services or products (for example, e-mail, internet/intranet activities, voice mail, computer files, network), as well as workspaces (for example, desks, lockers, and vehicles).
Bell reserves the right to monitor or search any and all Bell property at any time, where it determines on reasonable grounds that this is required; for example:
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Additional information is available through the Employee Privacy section of the Human Resources intranet site as well as in the Acceptable Use of Information Technology Resources Policy.
2.8.3 The Bell Privacy Policy
To support our commitment to privacy we have developed policies and a formal privacy code -the Bell Privacy Policy - which spell out the commitments of Bell, its employees and agents and the rights of customers and employees regarding personal information.
The Bell Privacy Ombudsman oversees compliance with these privacy policies and may be contacted at privacy@bell.ca.
The Bell Privacy Policy and other privacy-related documents are available by following the privacy link on www.bell.ca or on the Bellnet policies page Corporate Policies & Ethics.
2.9 Information Classification and Records Management
The purpose of the Information Classification and Records Management Policy and of the Records Retention Schedule is to ensure that Bells information is properly classified so records are adequately protected and managed to comply with legal requirements and business needs and to establish a framework for the management, preservation, security, accessibility, storage and destruction of records created or received. The policy applies to all forms of records irrespective of who has prepared them, whether they are in paper, electronic or other media format no matter whether they reside on Bells premises, servers and infrastructure or not.
Employees are responsible for:
Confidential information is information about our business that is not and should not be publicly available and includes any information classified as Internal Use or Confidential, as well as any information that has not been classified. Some examples of information which must be safeguarded from disclosure include:
Specific to confidential information, employees must also:
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friends or with business colleagues when conversations might be overheard
Bells business and operational units are responsible for identifying records produced by their departments and attributing a retention period to such records based on the Record Retention Schedule.
The unauthorized disclosure of, or known failures in safeguards which protect, confidential information is to be reported to Bells National Incident Centre (NIC) at 1-866-714-0911 or cni-nic@bell.ca.
Post Employment Obligations
Your obligation to protect Bells confidential information continues after the employment relationship ends. Upon termination of employment or contract, or reassignment, all employees must:
Preservation of Records under Legal Hold
Records subject to preservation under a legal hold must not be disposed of until the hold is lifted. Where a legal hold is in place, all owners of records that are subject to it must take positive steps to ensure the preservation of such records. Those record owners must also, prior to taking any steps that might affect the disposal of such records, such as re-imaging their computers or being evergreened to a new device, contact the Legal Department (ediscovery.legal@bell.ca) to verify whether they can dispose of the records. Any employee unsure whether records are subject to a legal hold or unsure of the holds scope should contact the legal team at ediscovery.legal@bell.ca.
When an employee, who owns records that are subject to a legal hold leaves Bell, the employees manager and Human Resources Consultant must ensure that these records are preserved.
How do I tell if a document (paper or electronic) is confidential if it is not marked as such?
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2.10 Dealing with Customers and Suppliers
We achieve an ongoing competitive advantage by ensuring that our reputation for quality, service and integrity remains intact. Compete fairly but vigorously while complying with our legal and ethical obligations.
2.10.1 Customer Relations
Customers and customer service are at the core of our business. To succeed, we have to be honest, courteous, and respectful when dealing with our customers and their property whether visiting their home or place of business.
Our customers expect us to provide quality products and services, and be truthful when discussing our advantages and benefits. To maintain that trust we should:
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2.10.2 Supplier Relations - Reciprocity
Like many corporations, we purchase goods and services from thousands of suppliers, many of whom are also our customers.
While we quite naturally want to do business with our customers, and will take advantage of every opportunity to do so, we must keep in mind that this should not be done at the expense of price, quality and service. These criteria, rather than the simple fact a supplier is or is not our customer, should guide our purchasing decisions.
Reciprocity is an arrangement where a purchaser gives business to a supplier because that supplier is its customer for other products, in preference to another supplier. Reciprocity, whether it originates with the buyer or the seller, should be handled with utmost care for a number of financial, ethical and legal reasons.
For example, we may lose the opportunity to save money on our purchases if we choose suppliers solely because they are Bell customers and we may be accused of anticompetitive behaviour.
Under certain circumstances, we may, for strategic marketing reasons, develop and contract services exclusively with a given supplier. The Law Department must be consulted before such arrangements are established.
Our department is organizing a meeting at a hotel. Due to the large size of our group, and the fact we dont want to travel far, weve chosen a nearby hotel serviced by a competitors long distance network. Is this okay, or should we find a hotel that uses Bell long distance?
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2.11 Dealing with Competitors
2.11.1 Treating Competitors with Respect
We welcome and encourage fair and open competition and we are committed to treating competitors with due respect. By doing so, we honour the competitive spirit that motivates us to perform at our best.
Behaving competitively means that we:
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management, reliability or foreign ownership
2.11.2 Obtaining Information about our Competitors
We have every right to gather information about the marketplace in which we operate through legal and ethical means. This includes information about our competitors, their products and services, technology, prices, advertising, and so on.
However, we do not engage in industrial espionage, buy proprietary information or induce employees or former employees of our competitors to disclose proprietary or confidential information of his/her current or former employer.
If you become aware that confidential or proprietary information about a competitor is circulating through Bell, you must not use such information and must immediately report it as indicated below.
Our business unit recently hired someone who was employed with a competing radio station. This person has confidential information which would be very valuable to us. Can we ask him to disclose this confidential information?
If I become aware that this person is disclosing a competitors confidential information to Bell employees, should I report it?
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2.11.3 Agreements with Competitors
In many cases, agreements between competitors that restrict i) the price at which competitors can sell their products or services to customers, ii) the customers to whom competitors can sell, or iii) quantities that competitors will produce or market, are criminal offences and thus prohibited. To be clear, this prohibition does not address cases where two competitors are simply entering into an agreement as buyer and seller of each other, as is for instance common in our wholesale division.
The law provides certain exceptions and we may, for strategic reasons, sometimes take advantage of these exceptions and enter into specific agreements with competitors. For instance, the rules allow, under certain conditions, the submission of joint bids with competitors in response to requests for proposal, something which otherwise would appear to be a prohibited agreement on price. The Regulatory/Law Department must be consulted before arrangements with competitors are established.
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2.11.4 When a Competitor is a Customer
When providing competitors with network facilities, broadcasting, access or other services, we cannot use information obtained as a result of that process in any manner which would give us an undue competitive advantage. This includes ensuring that this information is not made available to those within Bell or its affiliates who develop competitive service strategies. It also means that we must not disclose a customers choice of competitive carrier to anyone who does not clearly require the information to provide service to the customer.
2.12 Safeguarding Bell Assets
We all have a responsibility to be accountable for and safeguard Bell assets from loss, damage, theft, fraud, vandalism, sabotage or unauthorized use, copying, disclosure or disposal. The improper use and/or reporting of assets could seriously undermine Bells integrity, adversely affect our business strategies and decisions and weaken investor confidence. It is considered a severe misconduct that may lead to termination of employment for cause. It could also constitute a criminal offence.
Bells assets include but are not limited to, offices and office equipment, inventory, computers, art, telephone and video equipment, vehicles, tools, materials, buildings, people, property, information, funds, communication networks, information systems, and intellectual property. The vehicle related policy and practice can be found on the Corporate Services intranet site and covers both the use of Bell-owned vehicles and the use of employees vehicle for Bell purposes.
Access to and use of these assets must be authorized, adequately controlled and based on business needs. We should not use Bell assets for personal purposes, except where this use has been authorized by your leader. Each of us must also take appropriate measures to prevent losses due to willful action by others, both outside and within Bell, which may result in personal injury, property damage, theft, fraud, loss, abuse or unauthorized access to physical or logical assets, and intellectual property (including data).
Employees are expected to safeguard Bell assets and comply with Bell policies, including the Policy on Authorizations.
Bell policies, including the Policy on Authorizations, are available in the Corporate Policies & Ethics intranet site.
To best safeguard the tools and equipment used as part of their functions, employees must consult the Bell Corporate Security policies, available on the Corporate Policies & Ethics intranet site.
Loss or theft of Bell assets, property damage and malfunctioning doors and locks are to be reported to Bells National Incident Centre (NIC) at 1-866-714-0911 or at cni-nic@bell.ca.
2.12.1 Prevention of Fraud
What is Fraud?
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Successfully preventing fraud requires an ongoing commitment from all of us. This includes actively participating in the prevention, detection, and reporting of suspected fraud, whether committed by an internal or external party. As employees we will not engage, directly or indirectly, in bribery, kick-backs, account falsification, false claims, or any other fraudulent or corrupt business practices.
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Fraudulent actions are not only unethical, but may also be a violation of law, Bell has a zero tolerance stance with regards to all confirmed fraud situations. If you are approached by anyone with an opportunity to engage in fraudulent activities, you must report the incident to your manager and Corporate Security or through the confidential Employee Help Line available at clearviewconnects.com or by calling 1 866 298 2942 (toll free).
2.12.2 Corporate Credit Cards and Bell Funds
We are personally responsible for funds, cash, cheques, postage, etc., over which we have control. Corporate credit cards are not to be used for personal cash withdrawals or purchases and other charge cards are to be used only for business purposes. We must also ensure that all expense vouchers, benefit claims and invoices are accurate and properly authorized.
Corporate policy regarding the use of corporate credit cards and corporate travel is detailed on the Travel and Expenses Management intranet site. We should, unless unavailable, use the services of suppliers with whom Bell has negotiated agreements (e.g. travel agents, airlines, car-rental agencies, taxi companies, hotels).
2.12.3 Hiring Consultants or Contractors
Hiring of contractors or consultants must follow the rules as outlined on the Contractors and Consultants Procurement intranet site and hiring of external resources must also comply with Personnel Security Policy available on the Corporate Policies & Ethics intranet site.
2.12.4 Electronic Procurement and Electronic Processing of Expense Reports
Bell electronically processes much of its procurement needs including employee expense reports and accounting for corporate credit card payments. All employee expense reports and credit card payments must be approved by a leader one level above the employee submitting the reports.
2.12.5 Business Books and Records
Bells books and records contain information essential to effective and efficient operations. They form the basis upon which key decisions about Bell are made by our executives, financial analysts, shareholders, investors, and regulators.
Because they are so crucial to Bell meeting its legal, regulatory and financial obligations, we must ensure that all documents, reports, plans and records falling under our responsibility are accurate and complete. We must also ensure that all transactions are properly authorized.
In preparing and maintaining our books and records, we must:
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2.12.6 Standard Contracts and Agreements
Contracts and agreements represent some of the greatest exposures faced by Bell. If you are in a position to develop or sign contracts you must take necessary steps to protect the interests of Bell by ensuring that only Bell standard form template contracts are used and, in the case of purchase agreements, the Procurement Policy is followed. All contracts must be reviewed by appropriate departments such as, Legal, Regulatory, Procurement, Corporate Security, Corporate Responsibility & Environment, Health, Safety and Workplace, Risk Advisory Services and Insurance. Standard contracts must not be modified without prior Law Department approval.
2.12.7 Information Technology Security
Computers and computer networks form the backbone of business and operations infrastructure. For this reason, every effort must be made to protect Bells computer systems and associated software from the various threats to their security, such as accidental or deliberate destruction of data and equipment, interruption of service, disclosure of confidential information, theft and corruption.
To maintain security:
For further information on information security, malicious software, and other policies and directives relevant to securing your computers, contact Corporate Security or visit the Corporate Security intranet site.
Computer security incidents, Virus, worms, spam or phishing using Bells name, any other computer or data network attacks, weaknesses in security systems, and unexplained systems changes are to be reported to Bell Canada intranet site helpdesk or the Bell Customer Service Desk at 1-888-920-8888.
2.12.8 Intellectual Property
Intellectual property such as patents, inventions, copyrights, trade-marks, domain names, industrial designs and trade secrets are strategic assets of Bell and must not be disclosed to or used by others without first ensuring that appropriate legal safeguards are in place. Failure to do so could result in Bell losing rights in its intellectual property.
Intellectual property rights also reside in and protect know-how, business methods and processes, computer software, written materials (including paper or electronic form), graphics, photographs and audiovisual works, whether developed internally within Bell or obtained from others.
Every employee has a responsibility to preserve, protect and enhance the value of these assets.
Trade-marks, including Bells logo and its various trade names, are among Bells most valuable assets. When using them, employees must follow the Brand guidelines, and must immediately report any infringement or misuse of such trade-marks or trade names to the Branding and Identity Hot Line by sending an email to info.branding@bell.ca. In addition to protecting Bells intellectual property, we also have a responsibility to avoid infringing intellectual property rights of others, as detailed in the Intellectual Property Policy referred to below.
All intellectual property conceived or made in the course of our employment with Bell or which are within the scope of Bells business interests, are rightly the exclusive property of Bell. Each employee assigns to Bell the ownership of all intellectual property created
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in the course of their employment, and also waives in favour of Bell any moral rights they may have in such intellectual property. Employees are prohibited from applying for patents or other intellectual property registrations in regards to intellectual property that belongs to Bell, nor can Bells intellectual property be used for personal purposes or gain.
For additional information, please consult the Intellectual Property Policy.
2.12.9 Proper Use of Bell-Provided Internet Access and Other IT Resources
Access to the Internet is primarily provided for business purposes. However, accommodating employees development and awareness through personal use of Bell-provided Internet access is also encouraged.
Personal use of the Internet and e-mail must be reasonable, i.e. it must not impede or reduce an employees ability to perform his/her duties, diminish productivity or effectiveness at work or negatively impact Bell in any way. Abuse of Bell-provided Internet or e-mail may result in disciplinary action up to and including termination. The use of Internet and e-mail to conduct illegal activities is strictly prohibited and will lead to termination of employment for cause.
The law strictly prohibits the unlicensed use of software on computers (including tablets and smart phones). You must purchase software through sources approved by Bell and retain the proof of license for software you install. You can obtain more details in the Discretionary Expense Policy or from your manager. You must also verify and respect the manufacturers conditions of license or agreement under which the software was acquired. Copying software onto your Bell or personal computer may be a violation of the software companys licensing agreement as well as copyright laws, and placing Bell at risk of prosecution for copyright infringement. When software becomes unnecessary or no longer used, you should uninstall it to make it available for redeployment.
Any evidence of child pornography is to be immediately reported on the Internet child pornography reporting form.
Im attending an important sales meeting next week and I have to prepare a presentation using slides and fairly complicated charts. My colleague has the software I need to put the presentation together, and hes offered to lend me his CDs so I can install the program on my computer. Can I go ahead?
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For further details, the Acceptable Use of Information Technology Resources Policy is available on the Corporate Policies & Ethics intranet site.
2.12.10 Visible ID
All employees, consultants and contractors must wear a valid, designated ID card at all times while on Bell premises. Visitors must wear a valid, designated visitors card while on Bell premises and employees should challenge anyone on Bell premises not wearing one.
2.13 Social Media
Social networking sites like Facebook, LinkedIn, Twitter and YouTube have all become increasingly effective channels for Bell to strengthen our brand and our connection with customers and the public. All team members are required to follow Bells Social Media
Guidelines (available from the Corporate Policies and Ethics intranet site) to ensure we can maximize the value of social media while protecting and enhancing the reputation of Bell and our team. We expect our team members to respect the principles and values
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outlined in the Code while navigating the social media world.
As a general rule, always remember that you are responsible for what you say or post online. Never assume that anything you say or post is private on social media and other public websites. Any statement you make online may be perceived as representative of Bell company policy and may create unnecessary liability for you and the company.
No Bell team member is authorized to speak on behalf of Bell and its related subsidiaries without prior approval. If you believe it is necessary for you to engage in social media on behalf of Bell, please contact the Social Media team (social.info@bell.ca), which will coordinate all requests for approval with Bells executive leadership team. For individuals authorized to participate in social media on behalf of Bell, any business records created by this activity will be managed in accordance with the Information Classification and Records Management Policy.
As with any company policy, violations may be serious and require a disciplinary action, up to and including termination of employment.
A complete copy of the Bells Social Media Guidelines is available from the Corporate Policies and Ethics intranet site. Additional related corporate policies, such as Bells Acceptable Use of Information Technology Resources Policy and Bell Medias Social Media Policy for CTV News and on-air talent are available from the Corporate Policies and Ethics intranet site.
2.14 Work Environment
2.14.1 Mental Health
At Bell, we believe that the mental health of our team members is essential to achieving personal and organizational success and we are committed to leading by example in our own workplace by promoting mental health
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and supporting team members with a mental illness.
We expect every member of the Bell organization to take primary responsibility for their own health. Every employee also has a responsibility to contribute towards a workplace that promotes mental wellbeing.
Bell is committed to:
To view the full policy statement, consult the Corporate Ethics and Policy intranet site at the following link: Corporate Policies and Ethics.
2.14.2 Trust and Respect
Nothing is more basic to ethical behaviour than trust and respect. Upholding these values enables us to build and cultivate more meaningful, richer relationships with fellow employees, customers, suppliers and shareholders.
We are committed to fostering a workplace which encourages open and honest communication, recognizes the intrinsic dignity and worth of all employees and values the diversity of employees, customers, suppliers and shareholders.
2.14.3 Diversity and Employment Equity
Diversity is an unwavering respect for each others uniqueness, including, but not limited to: culture, ethnicity, gender, gender identity/expression, age, religion, disability, sexual orientation, education and experiences. By valuing our differences, we can create an inclusive work environment based on merit and fairness where all employees achieve their full potential.
Our Diversity, Human Rights and Accommodation policies provide the framework for supporting a diverse and inclusive workplace.
Employment equity is an important aspect of our diversity strategy. While diversity encompasses many different factors that make each of us unique, legislated employment equity programs focus on four designated groups: women, visible minorities, Aboriginal peoples and persons with disabilities. Bell is required to comply with the Employment Equity Act through workforce practices free of barriers to recruiting, retaining and promoting members of these designated groups. Ensuring equality in the workplace is not about hiring unqualified individuals but rather to ensure that the qualified members of the designated groups are given equal employment opportunities.
Employment equity and diversity programs also makes business sense. A diverse workforce brings Bell closer to its customers. By becoming the supplier of choice to a diverse customer base and the employer of choice to our current and future employees, we further improve Bells chances of success.
Promotion of self identification through our online employment equity and diversity questionnaire, available in the Employment equity section of the Diversity intranet site, allows Bell to have an accurate assessment of representation within the four groups and allows for appropriate strategies and action plans to be developed in order to address any gaps. The information collected in the employment equity and diversity questionnaire is confidential.
In addition, Diversity training (Career Zone course L744) and Respect in the Workplace (also in Career Zone) training are available to
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help support a diverse and inclusive work environment. Information is available at the following link: Diversity and Human Rights.
Bell has long enjoyed a distinct advantage thanks to the presence of both English and French in its organization. The Language Diversity Program provides training, tools and a language pairing program to help support diversity in communications in the workplace.
2.14.4 Discrimination and Harassment
We provide a workplace free of any type of personal harassment, including sexual harassment, intimidation and violence and are committed to an environment in which all workers can work safely.
We prohibit all types of unlawful discrimination, including harassment, whether directed against an individual or group, including employees, customers, suppliers and shareholders. This specifically includes discrimination based on race, national or ethnic origin, aboriginal or indigenous status, language spoken, religion, age, sex (including pregnancy or childbirth), gender identity/expression, sexual orientation, marital status, family status, veteran status, physical or mental disability and conviction for which a pardon has been granted.
Harassment is defined as vexatious behaviour that is repetitive and hostile or unwanted that degrades, humiliates, embarrasses, affects or insults an employees dignity or integrity and that results in a harmful work environment for the employee. It may include:
Sexual harassment includes offensive or humiliating behaviour that is related to a persons sex, as well as behaviour of a sexual nature that creates an intimidating, unwelcome, hostile or offensive work environment, or that could reasonably be thought to put sexual conditions on a persons job or employment opportunities. A few examples are:
An employee who believes that he or she is being unlawfully discriminated against should tell the person to stop immediately. If there is imminent danger the matter should be reported to the police and/or emergency services as appropriate (dial 911) and then to Corporate Security (dial 1-866 -714 -0911): If the behaviour or action persists, the employee should report the matter to his or her manager or to a more senior manager in the organization. Unionized employees may elect to contact their union representative; management employees may consult with their Human Resources representative.
2.14.5 Workplace Violence Prevention
We all have a right to work in an environment free from violence and threats. Bell prohibits all acts of physical, verbal or written aggression or violence. This applies whether the aggression is committed by one employee against another, or against anyone else an employee comes in contact with when carrying out his or her responsibilities.
Its up to each employee to report any act, or threatened act, of violence to a manager or to Corporate Security. In situations of imminent danger call the police or local emergency services and then Corporate Security. If the danger seems less imminent, take note of the facts: Who was involved? Where and when did the incident take place? Were there any witnesses? Then report the incident to Corporate Security. Corrective action will ensue as required.
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Bell promotes a zero tolerance approach under which violence of any kind is not tolerated and may result in disciplinary measures up to and including termination of employment.
Bells policy Preventing Violence in the Workplace is available on the Human Resources intranet site. In addition, mandatory violence prevention training (Career Zone course L1027) must be taken every three years.
2.14.6 Health and Safety
At Bell, the health and safety of our team members and external stakeholders, including contractors, customers, and the general public, is an absolute priority. We also believe that a safe and healthy workplace is essential to achieving organization success, in all areas of our business. To support our commitment to team members, Bell will:
In support of our commitment to external partners and stakeholders, Bell will:
Each team member of the organization is expected to take primary responsibility for their own health and safety, to contribute to a safe and healthy workplace and to comply with our legal and responsibility requirements.
Reflecting our commitment to health and safety, additional information such as policies, programs, procedures, etc. are available on the Human Resources intranet site at the following link: Health, safety and wellness.
You can also contact the Health, Safety and Workplace Corporate Group for more information at Info.ss-hs@bell.ca or (514) 870-5848.
2.14.7 Reasonable Accommodation
Accommodation is part of a broader principle - that our society should be structured and designed for inclusiveness.
An accommodation is considered reasonable if it does not result in undue hardship, such as: significant impact on business operations, or risk to the health and safety of the employee concerned or any other person. Examples of accommodation can include physical or technical alterations to an employees workspace (work station height, non-standard computer monitor, telephone with amplifier or headset) and modification of work duties or conditions.
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2.14.8 Corporate Security - Emergency Management
Employees may encounter various emergency situations that can directly affect them or Bell. To this end, Bell is committed to a level of preparedness and planning that is designed to protect life and property and to ensure a rapid return to providing service to our customers. Through the development and implementation of emergency response procedures and the Be Ready training modules, employees and business units will be ready to respond during emergencies. All employees must follow the Be Ready on line training on a yearly basis.
In the event of a life-threatening emergency begin by calling 911 (or local emergency service). All emergencies and emergency conditions including unplanned evacuations, or situations significantly impairing or potentially impacting service (such as but not limited to floods, major fires, power outages, health and safety emergencies) occurring on or in proximity to Bell facilities are to be reported to Bells National Incident Centre (NIC) at 1-866-714-0911 or cni-nic@bell.ca. For information on Bells Emergency Management Directive, and procedures, consult the Corporate Security intranet site.
Evidence of serious criminal activity such as terrorism, found on Bell or customer premises or systems, are to be reported to Bells National Incident Centre (NIC) at 1-866-714-0911, unless involving an imminent threat where 911 must be called.
Significant facility or utility interruptions, surveillance, control systems or any service failures that impact our network are to be reported to 1-888-570-1091.
2.14.9 Business Continuity
Bell recognizes the importance of its infrastructure and services for its employees and customers. To that end, all business unit leaders and team members must ensure they have appropriate business continuity plans and disaster recovery plans in order to be ready to react to any type of events that may impair our activities.
2.14.10 Alcohol, Drugs and Other Substances
We are required to be fit at all times to perform all assigned duties. While at work, we must not be impaired by the use of alcohol, medication, or illicit drugs.
The use, sale, unlawful possession, manufacture or distribution of alcohol and illicit drugs or non-prescribed medications for which a prescription is legally required, whether on Bell work premises or other work locations, is strictly prohibited.
Employees have the responsibility to determine any potential adverse effects when using prescribed or over-the-counter medications with the assistance of their doctor or pharmacist. Intentional misuse of prescribed or over-the-counter medications is strictly prohibited.
For further information consult the Alcohol and Drug Policy on the Human Resources intranet site.
2.14.11 Involvement in a Legal Matter
If you are involved in a legal matter or police case you must immediately inform your manager if this involvement has the potential to affect your ability to perform your job fully and competently. Loss of a drivers license, for example, must be reported immediately if the affected employee is required to drive a Bell vehicle.
2.15 Journalistic Independence
Bell is committed to upholding principles of journalistic independence. The Journalistic Independence Policy governs CTV News editorial decision making. CTV News refers
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to all applicable news divisions owned by Bell, including radio. CTV News is solely responsible for all news reporting decisions and for ensuring the integrity of its news operations. Compliance with the Journalistic Independence Policy is mandatory for all Bell employees. Failure to comply with the policy will be considered a breach of the Code of Conduct and may result in disciplinary action up to and including termination of employment.
An appropriate framework of independence between CTV News and Bell is a fundamental safeguard to ensure that news is covered in a fair, accurate, balanced and unbiased manner. Any interference, whether direct or indirect, actual or perceived, undermines the principles of news independence and can erode the credibility of CTV News which is critical to maintaining the trust of viewers.
Bell fully endorses the independence of CTV News and requires that all employees execute their day-to-day job responsibilities in a manner that respects this core value.
From time to time, news stories directly or indirectly concerning Bell, or of commercial interest to Bell, will be reported by CTV News. The appropriate CTV News editorial team is solely responsible for determining how to cover any such story, with full discretion and control, and without interference. No Bell employee will take any action that will impact the standards of fairness, accuracy, balance and independence that must be applied to any such news story.
In the normal course of business, representatives of Bell may offer ideas for news coverage to the CTV News team, as they would with any other news organization. In any such instances, Bell representatives must recognize that the material offered must be considered newsworthy and relevant to the viewing audience by the applicable CTV News divisions editorial team before receiving coverage. The news team will decide whether to proceed with a story, how it will be covered, and the extent of any coverage, with full and absolute discretion and control, and without direct or indirect interference in the decision making process.
You are a member of the CTV News team and you receive a request from the Bell Residential Services team to profile an item they believe is newsworthy on CP24. What should you do?
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All news editorial decision making resides with the CTV News team with absolute and final privilege belonging to the President, CTV News. The CTV News teams will be responsible for the development of applicable editorial and reporting policies, including news policies on attribution, sources, and disclosure of conflicts.
If at any time the President, CTV News has any concerns about journalistic independence or compliance with the Policy that cannot be resolved through normal functional reporting channels in line with the principles of the Policy, the President, CTV News can address said matters with BCEs Chief Executive Officer and/or the Chair of the BCE Audit Committee.
If you have any concerns regarding compliance with the Journalistic Independence Policy, such concerns shall be communicated to your immediate manager and/or the President, CTV News. However, if such reporting is either inappropriate, does not provide the necessary level of confidentiality, or as you otherwise prefer,
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the reportable activity should be reported to the Business Conduct Help Line or to the BCE Chief Legal Officer or equivalent position.
To view the full Journalistic Independence Policy, consult the Corporate Ethics and Policy intranet site at the following link: Corporate Policies and Ethics.
The Business Conduct Help Line may be reached 24/7 by calling 1 866 298 2942 or by visiting clearviewconnects.com. Members of the public should call Bell Canadas Complaint and Concerns Line at 1-866-317-3382 with any concerns about Bell activities. |
2.16 Protecting the Environment
Bell believes that environmental protection is an integral part of doing business and is committed to minimizing, through a continuous improvement process, the impact that some of its activities, products or services may have on the environment. It is also every employees responsibility to comply with our policies.
In support of this commitment, we will:
The Corporate Responsibility & Environment (CR&E) group has developed a series of policies, programs, procedures and guidelines to support employees in their environmental duties. These documents are available through your Enviro-web intranet site.
Environmental training is mandatory for all employees directly involved in managing one of the following environmental issues: incidents, manhole effluents, network impacts, residual materials (hazardous and non hazardous), treated wood poles, petroleum products or ozone depleting substances. Training must be completed before the employee is assigned to its operational duties.
Whether it is a small spill or leak, a fire in a hazardous material recovery warehouse or a customer complaint such as relating to noise, contaminated property resulting from Bell operations etc., employees must report all environmental incidents no matter what type, cause or seriousness.
The Corporate Responsibility and Environment group must be immediately notified of all environmental incidents involving Bell, whether or not they are an emergency and regardless of where they occur.
To report an environmental incident, for inquiries, support, to raise concerns with environmental issues or to inquire about environmental training, please contact your CR&E group via Enviro-Line at 1-877-235-5368, available on a 24/7 basis, or at enviroline@bell.ca.
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3 ROLES AND RESPONSIBILITIES
3.1 Business Unit Responsibility
Managers are required to ensure that all employees have access to the Code either on-line or in a paper format if required, and that they know, understand and comply with its provisions. To this end, they should ensure that all employees review the Code annually and comply with the annual review process outlined in this Code.
3.2 Board of Directors, Corporate Governance Committee and Audit Committee
The Board of Directors, with the recommendation of the Corporate Governance Committee, has the authority to approve this policy. In addition, the Corporate Secretarys Office in conjunction with Internal Audit, report quarterly to the Audit Committee on the number and scope of issues brought via the Business Conduct Help Line.
3.3 Corporate Secretarys Office
The Corporate Secretarys Office has the responsibility of administering the Code and managing the Business Conduct Help Line, securing annual certification of all executives and members of the Board of Directors under the Code, addressing conflict of interest issues and ensuring compliance by all Business Units.
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APPENDICES
Supporting Procedures
The Code of Business Conduct annual review is included in the annual performance process. These procedures are located in the Career Zone intranet site under Objective Performance.
Attachments
Attachment 1A | Certification of Directors and Executives under the Code of Business Conduct |
Attachment 2A | Form BC 3684 Employee Annual Record of Review |
Attachment 2B | Form BC 3684A Disclosure of Conflict of Interest or Potential Conflict of Interest |
Attachment 3 | Additional Resources |
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Attachment 1A
CERTIFICATION OF DIRECTORS AND EXECUTIVES
UNDER THE CODE OF BUSINESS CONDUCT
The Boards of Directors of BCE Inc. and Bell Canada (in each case, the Company) and our shareholders, expect all Directors and executives of the Company to follow the highest possible standards of honest and ethical conduct and to encourage and promote a culture in which ethical business conduct is recognized, valued and exemplified.
Certification
I certify that I have reviewed, understand and follow the Bell Canada Code of Business Conduct (the Code).
In addition, I support the setting of standards needed to discourage wrongdoing and to promote:
To the best of my knowledge and ability, I will act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing my independent judgment to be compromised.
I acknowledge that I am accountable for following the Code and the responsibilities I have under it. I also acknowledge that complying with the Code is a condition of my employment. If I do not comply with it or applicable laws, rules or regulations, I may be subject to disciplinary measures, which could include dismissal from the Company.
© Bell Canada 2015. All Rights Reserved. |
Page | 29 |
Code of Business Conduct |
Attachment 2A |
Form BC 3684 |
EMPLOYEE ANNUAL RECORD OF REVIEW |
Employee
|
||
Family name |
Given names |
Employee number |
Policy on conflict of interest
Employees owe their first business allegiance to Bell, and therefore they must remain free of interests or relationships which are harmful or detrimental to Bells best interests. Employees should avoid not only a real conflict of interest, but also the appearance of one which could tarnish their own or Bells image. Even though it is not always possible to avoid relationships that could place you in a position of potential conflict, it is important to inform your manager and avoid actions or decisions that would conflict with Bells interests.
Conflict of interest can lead to disciplinary action, even to dismissal and/or prosecution. If you are in doubt, you should discuss your specific situation with your manager, who will then advise you as to the position of Bell with respect to the matter.
Annual certification
I have reviewed, fully understand and follow Bell Canadas Code of Business Conduct including the section on Conflict of Interest. I have reported to my manager any relationship or other circumstances that do or could place me in conflict with the interests of Bell. Any new situations will be reported as they occur. I hereby certify that I have no real or potential conflict of interest, except what is noted on Form BC 3684A (available as Attachment 2B to the Code).
Employee Signature |
Date |
|
|
Immediate Manager Name |
Signature |
Note to immediate Manager: this form is to be completed and signed each year and retained in employees personnel file.
© Bell Canada 2015. All Rights Reserved. |
Page | 30 |
Code of Business Conduct |
Attachment 2B |
Form BC 3684A |
DISCLOSURE OF CONFLICT OF INTEREST OR POTENTIAL CONFLICT OF INTEREST |
Note to immediate manager: Please file original in employees personnel file. A copy should also be sent to the Corporate Secretarys Office at corporate.secretariat@bell.ca.
Employee
|
||
Family name |
Given names |
Employee number |
I am directly or indirectly involved in other business or employment, which may give rise to or is at present in conflict with, or potential conflict with, the best interests of Bell:
I have direct or indirect investment, business involvements or relationships, which may give rise to or is at present in conflict with, or potential conflict with, the best interests of Bell:
I have, in the past 2 years, been employed or otherwise commercially involved in endeavours or companies which are in competition with Bell Canada and its affiliated companies (e.g.: Rogers, Telus, Videotron, Cogeco, etc.):
I am currently or was recently bound by restrictive covenants such as non-competition or non-solicitation restrictions:
Other:
I understand that in my previous employment or commercial involvement with a competitor of Bell Canada and its affiliated companies I may have become aware of or given access to undisclosed confidential or proprietary information of my previous employer. As such, unless this information has been publicly disclosed or otherwise available in the marketplace, I am not to share such information. I also acknowledge that I have returned to my previous employer all property belonging to my previous employer including any confidential or proprietary information and documents provided to me including any third party information that was entrusted to me.
Signature: | Managers signature: | |||
Title: | Title: | |||
Organization code: | Organization code: | |||
Phone number: | Phone number: | |||
Date: | Date: |
© Bell Canada 2015. All Rights Reserved. |
Page | 31 |
Code of Business Conduct |
Attachment 3
ADDITIONAL RESOURCES
If you have any questions regarding the issues raised in this document or any questions on the Code, speak to your manager or use the Business Conduct Help Line at clearviewconnects.com or by calling 1-866-298-2942 (toll free).
If you wish to report any unethical or illegal behaviour such as corporate fraud, or to raise any concerns regarding Bells accounting, internal accounting controls or auditing matters, you may report the matter to your manager or use the Business Conduct Help Line at clearviewconnects.com or by calling 1-866-298-2942 (toll free).
You may also use the following resources:
© Bell Canada 2015. All Rights Reserved. |
Page | 32 |
Code of Business Conduct |
POLICY OR PRACTICE DETAILS
Issuing BU | Law & Regulatory Department |
Policy sponsor | Executive Vice-President and Chief Legal & Regulatory Officer |
Policy owner | Corporate Secretarys Office |
Primary contact | Corporate Secretarys Office |
Required approvals | Board of Directors, Corporate Governance Committee, Corporate Secretary |
FIRST RELEASE | 1995 |
Review cycle | Annually |
Required Policy or Practice management elements checklist
Monitoring compliance processes defined | Yes |
Communication plan complete | Yes |
Communication materials complete | Yes |
Training plan complete | Yes |
Revision history
Date | Change owner | Changed by | Description |
2010 | Alain Dussault | Alain Dussault | Annual update |
Feb. 2011 | Alain Dussault | Alain Dussault | Update |
August 2011 | Alain Dussault | Alain Dussault | Annual update |
August 2012 | Alain Dussault | Alain Dussault | Annual update |
August 2013 | Alain Dussault | Alain Dussault | Annual update |
August 2014 | Michel Lalande | Michel Lalande | Annual update |
June 2015 | Mirko Bibic | Mirko Bibic | Update |
August 2015 | Michel Lalande | Michel Lalande | Annual update |
#9580744
© Bell Canada 2015. All Rights Reserved. |
Page | 33 |
Exhibit 99.5
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No. 333-12130 on Form F-3, No. 333-12780 and 333-12802 on Form S-8 and No. 333-199993 on Form F-10 and to the use of our reports dated March 3, 2016, relating to the consolidated financial statements of BCE Inc. and subsidiaries (the Company) and the effectiveness of the Companys internal control over financial reporting, and appearing in this Annual Report on Form 40-F of BCE Inc. for the year ended December 31, 2015.
/s/ Deloitte LLP[1]
March 9, 2016
Montréal, Canada
______________________________
1 CPA auditor, CA, public accountancy permit No. A104630
Exhibit 99.6
NOTICE OF RELIANCE
SECTION 13.4 OF NATIONAL INSTRUMENT 51-102
CONTINUOUS DISCLOSURE OBLIGATIONS
To: | Alberta Securities Commission British Columbia Securities Commission Manitoba Securities Commission Financial and Consumer Services Commission, New Brunswick Office of the Superintendent of Securities, Newfoundland and Labrador Nova Scotia Securities Commission Ontario Securities Commission Office of the Superintendent of Securities, Prince Edward Island Autorite des marches financiers Financial and Consumer Affairs Authority of Saskatchewan Toronto Stock Exchange |
Notice is hereby given that Bell Canada relies on the continuous disclosure documents filed by BCE Inc. pursuant to the exemption from the requirements of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) provided in Section 13.4 of NI 51-102.
The continuous disclosure documents of BCE Inc. can be found for viewing in electronic format at www.sedar.com.
Attached to this notice and forming part thereof is the consolidating summary financial information for BCE Inc. as required by Section 13.4 of NI 51-102.
Dated: March 9, 2016
BELL CANADA
|
|
By: | (signed) Thierry Chaumont |
Name: | Thierry Chaumont |
Title: | Senior Vice-President and Controller |
Bell Canada |
UNAUDITED SELECTED SUMMARY FINANCIAL INFORMATION(1)
For the periods ended December 31, 2015 and 2014
(in millions of Canadian dollars)
BCE Inc. fully and unconditionally guarantees the payment obligations of its 100% owned subsidiary Bell Canada under the public debt issued by Bell Canada. Accordingly, the following summary financial information is provided by Bell Canada in compliance with the requirements of section 13.4 of National Instrument 51 -102 (Continuous Disclosure Obligations) providing for an exemption for certain credit support issuers. The tables below contain selected summary financial information for (i) BCE Inc. (as credit supporter), (ii) Bell Canada (as credit support issuer) on a consolidated basis, (iii) BCE Inc. s subsidiaries, other than Bell Canada, on a combined basis, (iv) consolidating adjustments, and (v) BCE Inc. and all of its subsidiaries on a consolidated basis, in each case for the periods indicated. Such summary financial information for BCE Inc. and Bell Canada and all other subsidiaries is intended to provide investors with meaningful and comparable financial information about BCE Inc. and its subsidiaries. This summary financial information should be read in conjunction with BCE Inc. s audited consolidated financial statements for the year ended December 31, 2015.
For the periods ended December 31:
|
BCE INC. (CREDIT SUPPORTER)(2) |
BELL CANADA CONSOLIDATED (CREDIT SUPPORT ISSUER) |
SUBSIDIARIES OF BCE INC. OTHER THAN BELL CANADA(3) |
CONSOLIDATING ADJUSTMENTS(4) |
BCE CONSOLIDATED |
|||||
|
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 |
Operating revenues |
| | 21,516 | 21,044 | | | (2) | (2) | 21,514 | 21,042 |
Net earnings from continuing operations attributable to owners |
2,678 | 2,500 | 2,683 | 2,020 | | | (2,683) | (2,020) | 2,678 | 2,500 |
Net earnings attributable to owners |
2,678 | 2,500 | 2,683 | 2,020 | | | (2,683) | (2,020) | 2,678 | 2,500 |
As at December 31, 2015 and 2014, respectively:
|
BCE INC. (CREDIT SUPPORTER)(2) |
BELL CANADA CONSOLIDATED (CREDIT SUPPORT ISSUER) |
SUBSIDIARIES OF BCE INC. OTHER THAN BELL CANADA(3) |
CONSOLIDATING ADJUSTMENTS(4) |
BCE CONSOLIDATED |
|||||
|
Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, |
|
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 |
Total Current Assets |
597 | 1,850 | 4,954 | 5,370 | 53 | 53 | (796) | (2,725) | 4,808 | 4,548 |
Total Non-current Assets |
17,578 | 15,018 | 36,043 | 35,236 | 21 | 21 | (10,457) | (8,526) | 43,185 | 41,749 |
Total Current Liabilities |
867 | 1,640 | 9,920 | 10,172 | | | (795) | (2,723) | 9,992 | 9,089 |
Total Non-current Liabilities |
285 | 281 | 19,743 | 21,043 | | | 644 | 645 | 20,672 | 21,969 |
(1) | The summary financial information is prepared in accordance with International Financial reporting Standards and is in accordance with generally accepted accounting principles issued by the Canadian Accounting Standards Board for publicly-accountable enterprises. |
(2) | This column accounts for investments in all subsidiaries of BCE Inc. under the equity method. |
(3) | This column accounts for investments in all subsidiaries of BCE Inc. (other than Bell Canada) on a consolidated basis. |
(4) | This column includes the necessary amounts to eliminate the intercompany balances between BCE Inc., Bell Canada and other subsidiaries and other adjustments to arrive at the information for BCE Inc. on a consolidated basis. |
Exhibit 99.7
BCE Inc.
EXHIBIT TO 2015 ANNUAL FINANCIAL STATEMENTS
EARNINGS COVERAGE
The following consolidated financial ratios are calculated for the twelve months ended December 31, 2015 and give effect to the issuance and redemption of all long-term debt since January 1, 2015 as if these transactions occurred on January 1, 2015 and are based on unaudited financial information of BCE Inc.
December 31, 2015 |
|
Earnings coverage of interest on debt requirements based on net earnings attributable to owners of BCE Inc. before interest expense and income tax: |
4.7 times |
Earnings coverage of interest on debt requirements based on net earnings attributable to owners of BCE Inc. before interest expense, income tax and non-controlling interest: |
4.8 times |
Exhibit 99.31
CERTIFICATIONS
I, George A. Cope, certify that: |
||
1. |
I have reviewed this annual report on Form 40-F of BCE Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report; |
|
4. |
The issuers other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have: |
|
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the issuers disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the issuers internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuers internal control over financial reporting; and |
5. |
The issuers other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuers auditors and the audit committee of the issuers board of directors (or persons performing the equivalent functions): |
|
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuers ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuers internal control over financial reporting. |
Date: March 9, 2016
(signed) George A. Cope
George A. Cope
President and Chief Executive Officer
BCE Inc.
CERTIFICATIONS
I, Glen LeBlanc, certify that: |
||
1. |
I have reviewed this annual report on Form 40-F of BCE Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report; |
|
4. |
The issuers other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have: |
|
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the issuers disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the issuers internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuers internal control over financial reporting; and |
5. | The issuers other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuers auditors and the audit committee of the issuers board of directors (or persons performing the equivalent functions): | |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuers ability to record, process, summarize and report financial information; and | |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuers internal control over financial reporting. |
Date: March 9, 2016
(signed) Glen LeBlanc
Glen LeBlanc
Executive Vice-President and Chief Financial Officer
BCE Inc.
Exhibit 99.32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of BCE Inc. (the Company), does hereby certify that:
the annual report on Form 40-F for the year ended December 31, 2015 of the Company (the Form 40-F) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Form 40-F fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 9, 2016 |
(signed) George A. Cope George A. Cope President and Chief Executive Officer BCE Inc.
|
Date: March 9, 2016 |
(signed) Glen LeBlanc GlenLeBlanc Executive Vice-President and Chief Financial Officer BCE Inc.
|
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