BCE Emergis Reports Third Quarter Financial Results.- Q3 core revenue at $48.3 M, up 9% from Q2 2004 and 11% from Q3 2003 - Q3 EBITDA(1) at $4.3 M ($5.5 M excluding restructuring and other charges) - Q3 net income from continuing operations at $1.3 M ($2.5 M excluding restructuring and other charges) - Restructuring initiative planned for Q4 BCE BCE abbr. 1. Bachelor of Chemical Engineering 2. Bachelor of Civil Engineering BCE Abbreviation for before the Common Era. Emergis Emergis Incorporated (TSX: EME) is a Canadian e-Business company dealing with interactions between companies and electronic commerce. The company is linked to the merger of Bell Canada's Electronic Business Solutions and MPACT Immedia Inc. (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :IFM IFM Institut Français de la Mode (French Fashion Institute) IfM Institute for Micromanufacturing (Louisiana Tech University) IFM Interface Module IFM Instantaneous Frequency Measurement ) today announced its financial results for the three-month period ended September September: see month. 30, 2004. Revenue for the quarter was $48.3 million compared to $69.6 million ($43.6 million excluding non-core revenue) in the third quarter of 2003. Non-core operations, which consisted principally of the Bell legacy contract, ceased as of June June: see month. 30, 2004. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become , excluding restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and other charges, was $5.5 million compared to $4.3 million last year, and net income from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the was $1.3 million (fully diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. of $0.01) compared to a net loss of $(1.9) million (fully diluted LPS LPS - Sets with restricted universal quantifiers. ["Logic Programming with Sets", G. Kuper, J Computer Sys Sci 41:44-64 (1990)]. of $(0.02)) last year. Total net loss for the quarter was $(1.5) million (fully diluted LPS of $(0.01)) compared to net income of $6.2 million (fully diluted EPS of $0.06) in 2003. "Our third quarter results demonstrate continued progress in this year of transition for the company," said John Valentini, Chief Financial Officer of Emergis. "Core revenue is up 9% from the second quarter and up 11% year-over-year. On a year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. basis, eHealth eHealth (also written e-health) is a relatively recent term for healthcare practice which is supported by electronic processes and communication. The term is inconsistently used: some would argue it is interchangeable with health care informatics, while others use it in the has shown particular strength, growing 22% from acquisitions completed earlier this year and from 15% growth in the volume of claims processed. The Company has strengthened its involvement with the provider side of the health care market through the recent acquisition of 300 additional pharmacy pharmacy, art of compounding and dispensing drugs and medication. The term is also applied to an establishment used for such purposes. Until modern times medication was prepared and dispensed by the physician himself. In the 18th cent. back-office customers. We now offer pharmacy back-office services to more than 1,900 pharmacies This article is a list of major pharmacies (also known as chemists and drugstores) by country. Australia Pharmacies in Australia are mostly independently-owned by pharmacists, often operated as franchises of retail brands offered by the three major in Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of , an increase of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 16% since we expanded into this business sector in the second quarter of this year." "We have also made progress in driving costs out of the business, reducing operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. by some $20 million on an annual basis compared to the cost base for our core operations last year at this time," Valentini added. "However, in response to an expected decline in revenue in certain areas of eFinance next year and in order to continue to align align (  līn),v to move the teeth into their proper positions to conform to the line of occlusion. our cost structure with our revenue going forward, we are undertaking a new streamlining initiative to allow us to sustain during 2005 the third quarter 2004 run rate for EBITDA (before restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. )," said Valentini. "Excluding the additional restructuring charge to be taken with this action in the fourth quarter, we remain on track to deliver our current 2004 financial targets." The presentation of the Company's financial results, including both the current and historical periods, reflects the sale of the following operations: U.S. Health in March 2004, eSecurity practice in June 2004 and webdoxs electronic bill presentment See EBPP. operations in July July: see month. 2004. As a result, these operations have been reported as discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. and their total contribution to Emergis' consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: results has been included as a single line item above net income, and both revenue and EBITDA exclude their contribution. Revenue summary for the quarter Three-month periods ended September 30, 2004, June 30, 2004, and September 30, 2003 in millions of Canadian dollars Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents :
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Q3 2004 Q2 2004 Q3 2003
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eFinance 29.5 26.5 30.5
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eHealth 18.8 17.7 13.1
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Total core revenue 48.3 44.2 43.6
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Non-core - 18.3 26.0
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Total revenue 48.3 62.5 69.6
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- eFinance revenue decreased on a year-over-year basis mainly due to
the expiry of certain contracts, including a point-of-sale contract
and a reseller agreement, both with Bell Canada, and an eInvoicing
agreement with another Canadian customer. These decreases were
partly offset by transition service revenue associated with the
sale of eSecurity and webdoxs operations and professional service
fees from the Visa Commerce initiative. Compared to the second
quarter of 2004, revenue increased mainly as result of the
transition and professional services mentioned above.
- eHealth revenue increased 44% on a year-over-year basis and 6%
sequentially mainly as a result of growth in the pharmacy back-
office area.
- Recurring revenue represented 82% of core revenue compared to 79%
in the third quarter of 2003 and 84% in the second quarter of 2004.
EBITDA summary for the quarter
Three-month periods ended September 30, 2004, June 30, 2004, and
September 30, 2003 in millions of Canadian dollars:
---------------------------------------------------------------------
Q3 2004 Q2 2004 Q3 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
eFinance 3.0 9.8 (1.4)
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eHealth 2.5 3.1 1.5
---------------------------------------------------------------------
Non-core - 7.0 4.2
---------------------------------------------------------------------
Restructuring and other (1.2) (2.4) -
---------------------------------------------------------------------
---------------------------------------------------------------------
Total EBITDA 4.3 17.5 4.3
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---------------------------------------------------------------------
- eFinance EBITDA contributed $3.0 million in the quarter compared to
$9.8 million ($0.7 million before a one-time contract settlement of
$9.1 million) in the second quarter of 2004 and to an EBITDA loss
of $(1.4) million in the third quarter last year. The sequential
quarterly and year-over-year improvements excluding the contract
settlement reflect the Company's continued focus on improving the
profitability of eFinance.
- eHealth EBITDA was $2.5 million (13% of eHealth revenue) compared
to $3.0 million (18%) in the second quarter and $1.5 million (11%)
in the third quarter of 2003. The decrease in contribution from the
second quarter of 2004 was due to a higher allocation of overhead
costs as a result of the sale of eSecurity and webdoxs.
- During the first quarter of 2004, $6.3 million of a provision taken
in 2003 for restructuring and other charges were reversed due to
the postponement of certain restructuring activities beyond the end
of the first quarter. Of this amount, some $2.4 million of
restructuring and other charges were taken in the second quarter of
2004 and $1.2 million in the current quarter. Charges representing
the remaining balance of the reversal will be taken in the last
quarter of 2004.
Financial highlights for the nine months
Nine-month periods ended September 30, 2004 and 2003 in millions of
Canadian dollars:
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Revenue EBITDA
---------------------------------------------------------------------
9 months 9 months 9 months 9 months
2004 2003 2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
eFinance 82.4 90.4 7.0 (9.5)
---------------------------------------------------------------------
eHealth 50.9 41.8 7.2 4.5
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Total core 133.3 132.2 14.2 (5.0)
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Non-core 39.6 83.8 11.4 13.4
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Restructuring and other - - 2.7 -
---------------------------------------------------------------------
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Total 172.9 216.0 28.3 8.4
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- eFinance revenue decreased mainly for the same reasons mentioned in
the quarterly revenue summary above. EBITDA has increased by $16.5
million due to a contract settlement of $9.1 million received in
the second quarter of 2004 and to the $7.4 million impact of
continuing cost reductions.
- eHealth revenue has grown by 22% as a result of acquisitions and
growth in claims processing, and the EBITDA margin has improved
from 11% to 14%.
- Total revenue has decreased due to a lower contribution from non-
core operations, which ceased as of June 30, 2004. EBITDA has
increased due to the $20 million annualized impact of cost
reductions, contract settlements of $13.8 million, and the net
reversal of restructuring and other charges.
- Total net loss was $(38.8) million (fully diluted LPS of $(0.38))
compared to net income of $16.9 million (fully diluted EPS of
$0.17) last year. The net loss in 2004 related principally to the
write-down in the second quarter of $56.0 million in future tax
assets.
Financial position at September 30, 2004 Cash on hand at quarter-end was $238.5 million ($2.31 per share on a fully diluted basis), down marginally mar·gin·al adj. 1. Of, relating to, located at, or constituting a margin, a border, or an edge: the marginal strip of beach; a marginal issue that had no bearing on the election results. 2. from $242.4 million at June 30, 2004. Significant cash flows during the third quarter included the receipt of the proceeds of sale of the webdoxs bill presentment operation ($8.0 million). Total long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. at quarter-end was $9.3 million. Subsequent to quarter-end, the Company repaid $30.1 million in promissory notes promissory note, unconditional written promise to pay a certain sum of money at a definite time to bearer or to a specified person on his order. Promissory notes are generally used as evidence of debt. issued to Bell Canada Bell Canada Enterprises (TSX: BCE, NYSE: BCE), legally BCE Inc., is a major Canadian telecommunications company. Through its subsidiaries including Bell Canada, Bell Aliant, Northwestel, Télébec, and NorthernTel, it is the incumbent local exchange carrier for . Restructuring charge to be taken in the fourth quarter of 2004 The Company is planning a new restructuring initiative to be executed executed 1) adj. to have been completed. (Example: "it is an executed contract") 2) v. to have completed or fully performed. (Example: "he executed all the promises made in the contract") 3) v. prior to year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. . This initiative is designed to continue the streamlining of the Company's organizational structure  This article has no lead section.To comply with Wikipedia's lead section guidelines, one should be written. to ensure that costs remain in line with revenue going forward and is in response to an anticipated decline in eFinance revenue in 2005. Growth in certain lines of business in eFinance expected next year, which was to have mitigated mit·i·gate v. mit·i·gat·ed, mit·i·gat·ing, mit·i·gates v.tr. To moderate (a quality or condition) in force or intensity; alleviate. See Synonyms at relieve. v.intr. To become milder. the termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. of certain contracts, is now lower than anticipated. The expected decline in revenue results mainly from the absence of non-core revenue associated with the termination of the Bell legacy contract, the non-renewal of certain contracts with Bell for messaging and collaboration Working together on a project. See collaborative software. services and of a point-of-sale point of sale n. pl. points of sale A business or place where a product or service can be purchased. Also called point of purchase. point contract with another client, as well as a decrease in revenue from its eLending business in the U.S. as this service moves from the development phase funded by Freddie Mac Freddie Mac: see Federal Home Loan Mortgage Corporation. into full commercial operation. A charge in the range of $17 million to $22 million will be taken in the fourth quarter, about three quarters of which should consist of cash charges. The charge consists principally of a reduction of headcount head count or head·count n. 1. The act of counting people in a particular group. 2. The number of people counted in this way. Noun 1. and the rationalization rationalization, in psychology: see defense mechanism. of facilities. The initiative is designed to allow the Company to sustain during 2005 the third quarter 2004 run rate for EBITDA before restructuring and other charges. Current 2004 financial targets for both EBITDA and EPS will be impacted by the new charge on a dollar-for-dollar basis. Excluding this charge, the Company remains on track to meet the current targets. Financial targets for 2005 will be issued on December December: see month. 1, 2004. Cote appointed ap·point tr.v. ap·point·ed, ap·point·ing, ap·points 1. To select or designate to fill an office or a position: appointed her the chief operating officer of the company. 2. President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. Effective November November: see month. 1, Francois Cote was appointed a Director of the Company and President and Chief Executive Officer, replacing Tony Gaffney Gaffney, city (1990 pop. 13,145), seat of Cherokee co., NW S.C., near the N.C. line, in a cotton, grain, and peach region; settled in the early 1800s, inc. 1873. in these three capacities. His appointment is consistent with a key strategic objective of the Company - to accelerate its momentum in electronic solutions for the health sector. Mr. Cote is also very familiar with the Company's eFinance activities where Emergis will continue to seek to rationalize ra·tion·al·ize v. 1. To make rational. 2. To devise self-satisfying but false or inconsistent reasons for one's behavior, especially as an unconscious defense mechanism through which irrational acts or feelings are made to appear its diverse portfolio with a view of enhancing the value and capabilities of these lines of business. Prior to the sale of Emergis' U.S. health operations earlier this year, Francois Cote was President of BCE Emergis eHealth Solutions Group (North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. ). He had been with Emergis since its inception INCEPTION. The commencement; the beginning. In making a will, for example, the writing is its inception. 3 Co. 31 b; Plowd. 343. Vide Consummation; Progression. in 1998, first in a senior corporate role and then as President of eHealth Solutions Group (Canada). Conference call, webcast and supplemental financial information The Company will hold a conference call and live webcast today at 8:30 a.m. ET to discuss its financial results for the third quarter of 2004. To participate, interested stakeholders Stakeholders All parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government. can dial toll-free 1 800 273-9672, and in Toronto Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing (416) 695-5806. The third quarter 2004 news release, management's discussion and analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial , and supplemental information package are posted on http://www.emergis.com/en/newsroom/newsreleases/2004/nov2.asp An instant replay of the conference call will be available for a week starting at 10:30 a.m. today. To listen, interested participants should dial toll-free 1 800 408-3053, and from Toronto (416) 695-5800. The access code is 1522711#. An archive (1) A file that contains one or more compressed files. Most archive formats are also capable of storing folders in order to reconstruct the file/folder relationship when decompressed. See archive formats. version of the webcast will also be available starting at 10:30 a.m. today at www.emergis.com. About BCE Emergis BCE Emergis Inc. is a leading North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. eBusiness See e-business. company. Its operations consist of supplying eBusiness solutions to the North American financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. and Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. health care industries, automating transactions between companies and allowing them to interact Interact can refer to:
Fall of Interact While the Game Boy device was first released, Interact acquired the rights to sell Datel's Action Replay and transact An earlier e-commerce system for the Web from Open Market that included order capture and secure order fulfillment using credit cards, ecash and other payment systems. It included customer service and subscription administration capabilities as well as an integrated database for reporting electronically. Its leading solutions are centred on claims, loans and payments processing. BCE Emergis customers include leading Canadian health insurers, top U.S. banks, the top six Canadian banks and a number of North America's largest enterprises. The Company's shares (TSX:IFM) are included in the S&P/TSX Composite Index Composite Index A grouping of equities, indexes or other factors combined in a standardized way, providing a useful statistical measure of overall market or sector performance over time. Also known simply as a "composite". . Certain statements made in this press release are forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. and are subject to important risks, uncertainties and assumptions. The results or events predicted in these forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. may differ materially from actual results or events. These statements do not reflect the potential impact of any non-recurring items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after the date hereof here·of adv. Of this. hereof Adverb Formal or law of or concerning this Adv. 1. hereof - of or concerning this; "the twigs hereof are physic" . Other factors that could cause results or events to differ materially from current expectations include, among other things: general economic factors, adoption of eBusiness, adoption rate of our solutions by customers, response to industry's rapid pace of change, competition, operating results, success of U.S.-based operations, the impact of change of control following the sale by BCE Inc. of its interest in the Company, integration of past acquisitions, failure or material change in our strategic relationships including our relationship with Bell Canada, exposure under contract indemnities, defects in software or failures in the processing of transactions, security and privacy breaches, loss of key personnel, the ability to protect intellectual property, infringement The encroachment, breach, or violation of a right, law, regulation, or contract. The term is most frequently used in reference to the invasion of rights secured by Copyright, patent, or trademark. claims on intellectual property, integrity of public key cryptography An encryption method that uses a two-part key: a public key and a private key. To send an encrypted message to someone, you use the recipient's public key, which can be sent to you via regular e-mail or made available on any public Web site or venue. technology, and industry and government regulation. For additional information with respect to certain of these and other factors, refer to BCE Emergis Inc.'s Annual Report (Management Discussion and Analysis) and the BCE Emergis Inc. Annual Information Form (Risks and Uncertainties) filed with the Canadian securities commissions. THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PRESS RELEASE REPRESENT THE EXPECTATIONS OF BCE EMERGIS INC. AND ITS SUBSIDIARIES AS AT NOVEMBER 2, 2004 AND, ACCORDINGLY, ARE SUBJECT TO CHANGE AFTER SUCH DATE. HOWEVER, BCE EMERGIS INC. AND ITS SUBSIDIARIES DISCLAIM dis·claim v. dis·claimed, dis·claim·ing, dis·claims v.tr. 1. To deny or renounce any claim to or connection with; disown. 2. To deny the validity of; repudiate. 3. ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. (1) EBITDA used in this news release does not have a meaning under Canadian Generally Accepted Accounting Principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting and therefore may not be comparable to similar measures presented by other publicly traded companies publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. . It is defined as earnings before depreciation, amortization of intangibles Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. , interest, loss or gain on foreign exchange, other expenses or income and income taxes. No reconciliation is provided in the Interim Consolidated Statement of Earnings. EBITDA is presented on a basis that is consistent from period to period and agrees, on a consolidated basis, with the amount disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). as "Earnings before under-noted items" in the financial statements.
Consolidated Statements of Earnings
(millions of
Canadian dollars,
except For the three For the three For the nine For the nine
income month period month period month period month period
(loss) per share ended ended ended ended
and number September September September September
of shares) 30, 2004 30, 2003 30, 2004 30, 2003
---------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 48.3 69.6 172.9 216.0
Direct costs 11.7 20.4 43.7 62.8
---------------------------------------------------------------------
Gross margin 36.6 49.2 129.2 153.2
---------------------------------------------------------------------
Contract
settlements
(note 9) - - 13.8 -
Expenses
Operations 11.4 19.2 51.9 66.6
Sales and
marketing 5.4 6.6 18.5 24.7
Research and
development,
net (note 18) 8.0 8.7 27.2 25.9
General and
administrative 6.3 10.4 19.8 27.6
Restructuring
and other charges
(note 13) 1.2 - (2.7) -
---------------------------------------------------------------------
32.3 44.9 114.7 144.8
Earnings before
under noted items 4.3 4.3 28.3 8.4
Depreciation 3.5 3.8 9.4 10.8
Amortization of
intangible assets 3.6 5.1 12.3 16.2
Interest income (1.0) (4.8) (9.8) (13.2)
Interest on long-
term debt 0.9 0.9 2.1 3.1
Gain on sale of
assets (notes 6
and 7) (0.1) - (12.2) -
(Gain) loss on
foreign exchange (4.4) 0.2 (0.9) 0.9
Other (0.1) (0.1) (0.1) (0.1)
---------------------------------------------------------------------
Income (loss) from
continuing
operations
before income
taxes 1.9 (0.8) 27.5 (9.3)
Income taxes
Current 0.6 1.5 1.6 2.2
Future - (0.4) 71.6 2.7
---------------------------------------------------------------------
0.6 1.1 73.2 4.9
Net income (loss)
from continuing
operations 1.3 (1.9) (45.7) (14.2)
Net (loss) income
from discontinued
operations -net of
income taxes
(note 11) (2.8) 8.1 6.9 31.1
---------------------------------------------------------------------
Net (loss)
income (1.5) 6.2 (38.8) 16.9
---------------------------------------------------------------------
---------------------------------------------------------------------
Basic income (loss)
per share ($)
from continuing
operations 0.01 (0.02) (0.44) (0.14)
Basic (loss) income
per share ($)
from discontinued
operations (0.03) 0.08 0.07 0.30
Basic (loss) income
per share ($) (0.01) 0.06 (0.38) 0.17
Diluted income (loss)
per share ($)
from continuing
operations 0.01 (0.02) (0.44) (0.14)
Diluted (loss) income
per share ($)
from discontinued
operations (0.03) 0.08 0.07 0.30
Diluted (loss)
income per
share ($) (0.01) 0.06 (0.38) 0.17
Weighted average
number of shares
outstanding used
in computing
basic and diluted
net (loss) income
per share 103,391,219 102,752,341 103,311,015 102,239,248
Weighted average
number of shares
outstanding used
in computing
diluted income
from continuing
operations per
share 103,395,204 102,752,341 103,311,015 102,239,248
The accompanying notes are an integral part of the Interim
Consolidated Statements of Deficit
For the nine For the nine
month period month period
ended ended
September 30, 2004 September 30, 2003
---------------------------------------------------------------------
(millions of Canadian dollars) (unaudited) (unaudited)
Deficit - beginning of period (1,176.9) (1,080.1)
Net (loss) income (38.8) 16.9
---------------------------------------------------------------------
Deficit - end of period (1,215.7) (1,063.2)
---------------------------------------------------------------------
The accompanying notes are an integral part of the Interim
Consolidated Balance Sheets
As at As at
September 30, December 31,
(millions of Canadian dollars) 2004 2003
---------------------------------------------------------------------
(unaudited) (audited)
ASSETS
Current
Cash and cash equivalents 238.5 128.6
Accounts receivable 21.8 25.4
Future income taxes 0.2 -
Other current assets (note 18 and 19) 23.4 31.1
Current assets held for sale (note 11) - 272.7
---------------------------------------------------------------------
283.9 457.8
Fixed assets 27.1 26.1
Intangible assets 33.2 24.2
Goodwill 47.5 38.6
Future income taxes - 77.3
Other long-term assets 7.6 3.6
Long-term assets held for sale
(note 11) - 13.1
---------------------------------------------------------------------
399.3 640.7
---------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued
liabilities 84.0 144.9
Deferred revenue 6.9 27.9
Deferred credits 5.3 8.9
Current portion of long-term debt
(note 10) 38.8 17.4
Current liabilities related to assets
held for sale (note 11) - 7.7
---------------------------------------------------------------------
135.0 206.8
Deferred credits and other 6.1 6.9
Future income taxes 3.8 -
Long-term debt 9.3 11.7
---------------------------------------------------------------------
154.2 225.4
---------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital stock (note 14) 175.6 1,546.7
Contributed surplus (note 14) 1,289.2 76.8
Deficit (1,215.7) (1,176.9)
Foreign currency translation adjustment (4.0) (31.3)
---------------------------------------------------------------------
245.1 415.3
---------------------------------------------------------------------
399.3 640.7
---------------------------------------------------------------------
The accompanying notes are an integral part of the Interim
Consolidated Statements of Cash Flows
For the three For the three For the nine For the nine
month period month period month period month period
(millions of ended ended ended ended
Canadian September September September September
dollars) 30, 2004 30, 2003 30, 2004 30, 2003
---------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Operating
activities
Net income
(loss) from
continuing
operations 1.3 (1.9) (45.7) (14.2)
Depreciation and
amortization 7.1 8.9 21.7 27.0
Gain on sale
of assets (0.1) - (12.2) -
Future income
taxes - (0.4) 71.6 2.7
Non-cash foreign
exchange (gain)
loss on
derivative
financial
instruments (4.0) - 1.0 -
Non-cash
portion of
restructuring
and other
charges - - - 0.4
Non-cash stock
based
compensation
(note 2) - - 0.4 -
Other (0.1) (1.4) 0.2 (2.7)
Changes in
working capital 1.4 43.9 (61.7) 22.5
Cash flows from
(used for)
operating
activities 5.6 49.1 (24.7) 35.7
Investing
activities
Additions to
fixed and
intangible
assets (2.5) (2.1) (10.7) (6.1)
Acquisitions
(note 12) (0.6) (2.6) (22.6) (2.6)
Cash acquired
on acquisition
of businesses - - 0.3 -
Proceeds on
sale of
businesses 6.4 - 326.6 -
Cash flows
from (used
for) investing
activities 3.3 (4.7) 293.6 (8.7)
Financing
activities
Repayment of
long-term debt (3.7) (23.4) (16.3) (34.5)
Issue of long
term debt 1.1 - 1.1 -
Issue (reduction)
of common shares 0.3 - (148.9) -
Cash flows used
for financing
activities (2.3) (23.4) (164.1) (34.5)
Foreign exchange
loss on cash held
in foreign
currencies (10.5) (0.4) (6.4) (3.7)
Cash flows (used
for) from continuing
operations (3.9) 20.6 98.4 (11.2)
Cash flows from
discontinued
operations (note 11) - 3.4 2.7 31.1
Cash and cash
equivalents
(Decrease)
increase (3.9) 24.0 101.1 19.9
Balance, beginning
of period 242.4 102.9 137.4 107.0
Balance, end
of period (1) 238.5 126.9 238.5 126.9
Supplemental
disclosure of
cash flow
information
Interest paid 1.3 0.8 2.3 2.6
Income taxes paid 0.6 - 1.7 0.9
(1) Includes the following:
Cash and cash
equivalents
related to:
Continuing
operations 238.5 124.3 238.5 124.3
Discontinued
operations
(note 11) - 2.6 - 2.6
238.5 126.9 238.5 126.9
Non-cash investing
and financing
activities
Additions to
fixed and
intangible
assets financed 0.3 1.0 5.0 9.3
The accompanying notes are an integral part of the Interim
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at September 30, 2004
(In millions of Canadian dollars except share data) (unaudited)
These interim consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge have been prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with Canadian generally accepted accounting principles, using the same accounting policies as were used for the consolidated financial statements for the year ended December 31, 2003, except as discussed below. These interim consolidated financial statements should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the consolidated financial statements for the year ended December 31, 2003 and the notes thereto there·to adv. 1. To that, this, or it. 2. Archaic In addition to that; furthermore. thereto Adverb Formal 1. to that or it 2. in the 2003 Annual Report. 1. Summary of significant accounting policies Basis of presentation The consolidated financial statements of BCE Emergis have been prepared in accordance with Canadian generally accepted accounting principles and include the accounts of all its subsidiaries. Certain prior period figures have been reclassified to conform with the current period's presentation as well as presenting the US Health, eSecurity and webdoxs operations as discontinued operations. Impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of long-lived long-lived adj. 1. Having a long life: a long-lived aunt. 2. Lasting a long time; persistent: a long-lived rumor. 3. assets The Canadian Institute of Chartered Accountants The Canadian Institute of Chartered Accountants (CICA) is the umbrella body for the Chartered Accountant profession in Canada and Bermuda. Membership of the CICA totals 70,000 Chartered Accountants and 8,500 students. (CICA CICA Competition In Contracting Act of 1984 (USA) CICA Canadian Institute of Chartered Accountants CICA Competition In Contracting Act CICA Criminal Injuries Compensation Authority (UK) ) issued new Handbook
This article is about reference works. For the subnotebook computer, see .
Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. provisions in Section 3061, Property, plant and equipment. Effective January January: see month. 1, 2004, the Company adopted the standard requiring the recognition of an impairment loss for a long-lived asset to be held and used when events or changes in circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or cause its carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. to exceed the total undiscounted cash flows expected from its use and eventual disposition Act of disposing; transferring to the care or possession of another. The parting with, alienation of, or giving up of property. The final settlement of a matter and, with reference to decisions announced by a court, a judge's ruling is commonly referred to as disposition, regardless of . The impairment loss is calculated by deducting the fair value of the asset from its carrying value. The adoption of this new standard did not have an impact on the consolidated financial statements. Asset retirement obligations Asset Retirement Obligations provide for future disposal of assets as required by SFAS 143 [1]. Firms must recognize the ARO liability in the period it was acquired, generally acquisition. Effective January 1, 2004 the Company adopted new Handbook section 3110, Asset retirement obligations. This section provides guidance on recognizing and measuring liabilities related to the legal obligations of retiring property, plant and equipment. These obligations are initially measured at fair value and are adjusted for any changes resulting from the passage of time and any changes to the timing or the amount of the original estimate of undiscounted cash flows. The asset retirement cost is capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. as part of the related asset and is amortized into income over time. This section is effective for fiscal years beginning on or after January 1, 2004 and the adoption of this new standard did not have an impact on the consolidated financial statements. Hedging hedging, in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market. relationships Effective January 1, 2004 the Company adopted Accounting Guideline guideline Medtalk A series of recommendations by a body of experts in a particular discipline. See Cancer screening guidelines, Cardiac profile guidelines, Gatekeeper guidelines, Harvard guidelines, Transfusion guidelines. 13 (AcG-13), Hedging relationships. This guideline establishes the following criteria criteria (krītēr´ē  ),n. for the application of hedge accounting Why is hedge accounting necessary? Many financial institutions and corporate businesses (entities) use derivative financial instruments to hedge their exposure to different risks (eg interest rate risk, foreign exchange risk, commodity risk, etc). in a hedging transaction: --the nature of the specific risk exposures being hedged hedge n. 1. A row of closely planted shrubs or low-growing trees forming a fence or boundary. 2. A line of people or objects forming a barrier: a hedge of spectators along the sidewalk. in accordance with the risk management objective and strategy must be identified at the inception of the hedging relationship --application of hedge accounting to the hedging relationship must be designated at the inception of the hedging relationship --formal documentation must be in place at the inception of the hedging relationship identifying the risk management objective and strategy for establishing the relationship, the specific asset or liability being hedged, the risk that is being hedged, the intended term of the hedging relationship, the type of derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. used, the method for assessing effectiveness and the related accounting treatment --the derivative must meet certain effectiveness criteria in offsetting either changes in the fair value or cash flows attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to the risk being hedged, both at the inception and throughout the term of the hedging relationship. Disclosure required by this new accounting guideline has been provided in note 19 to the consolidated financial statements. New accounting change The CICA also recently made revisions ReVisions is a 2004 anthology of alternate history short-stories. It is edited by Julie E. Czerneda and Isaac Szpindel. Contents Title Author The Resonance of Light James Alan Gardner Out of China Julie E. to Handbook Section 3860 of the CICA Handbook, Financial Instruments - Disclosure and Presentation. This section now clarifies how to account for certain financial instruments that have liability characteristics and equity characteristics. It requires instruments that meet specific criteria to be classified as liabilities in the balance sheet. Many of these financial instruments were previously classified as equities. These revisions come into effect for fiscal years beginning on or after November 1, 2004. Management is currently evaluating the impact of these revisions on the consolidated financial statements. 2. Stock-based compensation Effective January 1, 2002, the Company adopted the recommendations of CICA Handbook Section 3870, Stock-based compensation and other stock-based payments. This Section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. and applies to transactions, including non-reciprocal transactions, in which an enterprise grants shares of common stock, stock options, or other equity instruments, or incurs liabilities based on the price of common stock or other equity instruments. This Section sets out a fair value based method of accounting and is required for certain stock-based transactions and applies to awards granted on or after January 1, 2002. In 2003, and in accordance with Handbook Section 3870, the Company elected e·lect v. e·lect·ed, e·lect·ing, e·lects v.tr. 1. To select by vote for an office or for membership. 2. To pick out; select: elect an art course. to adopt the prospective application of the fair value based method for measuring the compensation cost of employee stock options granted in 2003 and beyond. As a result the Company recorded an expense of nil and $0.4 million for the three and nine-month periods ended September 30, 2004. The Company has also elected to continue to account for employee stock options granted in 2002 by measuring the compensation cost for these options as the excess, if any, of the quoted market price of the Company's common shares at the date of grant over the amount an employee must pay to acquire the common shares. The total number of outstanding stock options granted to employees and included in note 14 was 3,352,912 as at September 30, 2004. On July 2, 2004, following the $1.45 special cash distribution on June 30, 2004, the Company reduced the exercise price for all outstanding options by $1.47. The following outlines the assumptions used in the Black-Scholes option-pricing model Black-Scholes option-pricing model A model for pricing call options based on arbitrage arguments. Uses the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the expected standard deviation of the stock return. for awards granted during the period:
For the three-month period For the nine-month period
ended September 30 ended September 30
2004 2003 2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Dividend yield 0.0% 0.0% 0.0% 0.0%
Expected volatility 60.0% 75.0% 60.0% 75.0%
Risk-free interest rate 3.85% 3.53% 3.42% 3.88%
Expected life (years) 4 4 4 4
Weighted-average grant
date fair value ($)
(1) $1.84 $3.67 $3.03 $4.16
(1): Unadjusted for the reduction of $1.47 in the exercise price as of July 2, 2004, except for the current period. The weighted-average fair value of the reduction of $1.47 amounted to $0.27 for the 1,009,265 options granted since January 1, 2003 and still outstanding as of July 2, 2004. The following pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma disclosure outlines the impact had the Company used the fair value based method of accounting for awards granted in 2002 to determine the compensation cost for the Company's stock-based employee compensation plans:
For the three-month period For the nine-month period
ended September 30 ended September 30
2004 2003 2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Net (loss) income,
as reported
($ millions) (1.5) 6.2 (38.8) 16.9
Adjustment to net income
(loss) ($ millions) 4.0 (1.9) 1.4 (5.5)
Pro forma net income
(loss) ($ millions) 2.5 4.3 (37.4) 11.4
Pro forma basic and
diluted income (loss)
per share ($) 0.02 0.04 (0.36) 0.11
3. Net income per share The reconciliation of diluted income (loss) from continuing operations per share for the three and nine-month periods ended September 30, 2004 is presented below:
For the three-month period
ended September 30, 2004
Net loss Number of
($ millions) shares Per share
(numerator) (denominator) amount ($)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income (loss) from
continuing operations
attributable to common
shareholders 1.3 103,391,219 0.01
Dilutive options 3,985
---------------------------------------------------------------------
Net income (loss) from
continuing operations
attributable to common
shareholders and assumed
conversions 1.3 103,395,204 0.01
For the nine-month period
ended September 30, 2004
Net loss Number of
($ millions) shares Per share
(numerator) (denominator) amount ($)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income (loss) from
continuing operations
attributable to common
shareholders (45.7) 103,311,015 (0.44)
Dilutive options (a)
---------------------------------------------------------------------
Net income (loss) from
continuing operations
attributable to common
shareholders and assumed
conversions (45.7) 103,311,015 (0.44)
(a): No dilutive effect Dilutive effect Result of a transaction that decreases earnings per common share (EPS). on loss from continuing operations The following securities were excluded from the calculation of diluted net earnings per share since the Company has a net loss or a loss from continuing operations for all the periods shown below and the average market value of the underlying shares were less than the exercise price of the securities:
For the three-month For the three-month
period ended period ended
(number of shares) September 30, 2004 September 30, 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Non-dilutive options 3,348,927 6,028,505
Dilutive options - 21,713
Common shares to be issued
related to acquisitions - 1,921,822
Warrants 9,248 650,000
For the nine-month For the nine-month
period ended period ended
(number of shares) September 30, 2004 September 30, 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Non-dilutive options 3,340,793 5,993,354
Dilutive options 12,119 56,864
Common shares to be issued
related to acquisitions - 1,921,822
Warrants 9,248 650,000
4. Sale of US Health operations In December 2003, as a result of the Board of Director's approval of the Company's plan to sell its US Health operations, the Company wrote down the value of long-term assets Long-Term Assets 1. Reported on the balance sheet, it's the value of a company's property, equipment and other capital assets, less depreciation. 2. A stock, bond or other asset that you plan on holding in your portfolio for a lengthy period of time. associated with these operations by $77.3 million. For the three-months ended March 31, 2004, the Company recorded a gain on the sale of the US Health operations of $1.7 million, which was included in the net income from discontinued operations. For the three-months ended June 30, 2004, this gain was reduced by $6.5 million as a result of working capital and disposal cost adjustments related to the sale. As a final adjustment to the working capital calculation, the Company recorded in the current period an additional loss on sale of $2.8 million, for a total loss on sale of US Health operations of $7.6 million. The details of the sale are as follows: (a) Sale of care management segment of US Health On March 2, 2004, the Company completed the sale of 100% of the issued and outstanding shares of National Health Services health services Managed care The benefits covered under a health contract (NHS NHS abbr. National Health Service NHS (in Britain) National Health Service ), a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of the Company, for a total cash consideration of US$10 million. (b) Sale of preferred provider organization pre·ferred provider organization n. Abbr. PPO A medical insurance plan in which members receive more coverage if they choose health care providers approved by or affiliated with the plan. (PPO PPO abbr. preferred provider organization PPO Managed care Preferred provider organization, see there Infectious disease Pleuropneumonia-like organism, see there ) segment of US Health On December 31, 2003, the Company reached an agreement to sell the PPO operations component of its US Health operations for a total consideration of US$213 million, subject to certain closing adjustments. The sale of the PPO operations was completed on March 4, 2004 and involved the sale of the issued and outstanding shares of BCE Emergis Corporation, a wholly owned subsidiary of the Company. BCE Emergis Corporation carried on the PPO operations of the Company and also held options to purchase shares of a publicly traded company. These options remained in BCE Emergis Corporation at closing, but the sale agreement includes a price adjustment associated with the exercise of the options or the purchase of these options by a third party. These options are currently the subject of a dispute between BCE Emergis Corporation and the grantors of these options. The purchase price is subject to adjustments following the calculation, within 120 days from the closing date, of the amount of the working capital of the PPO operations as of the closing date: any shortfall Shortfall The amount by which the capital required to fulfill a financial obligation exceeds available capital. Notes: Shortfall risk is often combated with an efficient hedging strategy created by a fund, group, institution, or individual. from or excess from US$19.0 million will be paid by the Company or received by the Company on a dollar-for-dollar basis. In the three-month period ended June 30, 2004, the Company recorded working capital and disposal cost adjustments of $6.5 million and a final working capital adjustment of $2.8 million in the current period, which have been included in the income statement from discontinued operations. The Company has provided an indemnification Indemnification Used in insurance policy agreements as to compensation for damage or loss. In the context of corporate governance, Director Indemnification uses the bylaws and/or charter to indemnify officers and directors from certain legal expenses and judgements resulting from to the buyer in the stock purchase agreement regarding the business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets of BCE Emergis Corporation which covers principally any breach of representations and warranties warranties, n.pl the details of a contract; considered less important than the conditions. Whereas the penalty for breach of conditions is the termination of the contract, the penalty for breach of warranties is payment of damages to the innocent party. and any covenants in excess of US$2.0 million to a maximum of US$53.3 million, except for tax liabilities and certain other representations for which there is no deductible That which may be taken away or subtracted. In taxation, an item that may be subtracted from gross income or adjusted gross income in determining taxable income (e.g., interest expenses, charitable contributions, certain taxes). and no maximum amount. The Company's representations and warranties exist for a period of no later than 18 months or 30 days after the issuance of the audited financial statements of BCE Emergis Corporation for the year ending December 31, 2004, except for tax and certain other representations which are in force until the expiry of the applicable statute of limitations A type of federal or state law that restricts the time within which legal proceedings may be brought. Statutes of limitations, which date back to early Roman Law, are a fundamental part of European and U.S. law. . This indemnification has been reflected in Note 20 to the consolidated financial statements. Following the completion of the sale, a subsidiary of the Company became the primary lessee One who rents real property or Personal Property from another. A lessee of land is a tenant. Cross-references Landlord and Tenant. lessee n. the person renting property under a written lease from the owner (lessor). under a lease which represents an obligation of US$18.3 million over the lease term. The Company has sublet sub·let tr.v. sub·let, sub·let·ting, sub·lets 1. To rent (property one holds by lease) to another. 2. To subcontract (work). n. , to third parties, a portion of this lease for periods up to 60 months. The remaining portion is currently being used for continuing operations. 5. Sale of eSecurity operations On June 30, 2004, the Company sold its eSecurity operations for proceeds of $30.3 million, subject to certain closing adjustments. During the three-month period ended June 30, 2004, the Company recorded a gain on sale of the eSecurity operations of $15.4 million, which is included in income from discontinued operations. 6. Sale of intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. On June 30, 2004, in conjunction with the early termination of the extended exclusive distribution agreement signed in 2001 with Bell Canada, the Company sold the intangible assets used to service this product for proceeds of $10.3 million. During the three-month period ended June 30, 2004, the Company recorded a gain on the sale of these assets in the amount of $10.3 million which is included in income from continuing operations. 7. Sale of BCE Emergis Systems Inc. On May 28, 2004, the Company completed the sale of 100% of the issued and outstanding shares of BCE Emergis Systems Inc., a wholly owned US subsidiary of the Company, which carried on the legacy messaging and translation services as part of the messaging and collaboration operations, for a total cash consideration of US$0.8 million ($1.3 million). During the three-month period ended June 30, 2004, the Company recorded a gain on sale of $1.3 million which is included in income from continuing operations. 8. Sale of webdoxs operations On July 7, 2004 the Company sold its webdoxs operations for a total consideration of $14.5 million, resulting in a nil gain on sale. The Company received $8.0 million at closing. The remaining amounts are receivable in three instalments: $1.5 million on December 31, 2004, $2.5 million respectively in December 2007 and 2008. These remaining balances included in short and long term other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. , bear interest at prime plus 1%. 9. Contract settlements On April 13, 2004 the Company received US$8.8 million ($11.5 million) in settlement of a dispute relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc a distribution agreement with a technology provider in connection with a product that the Company no longer markets. An amount of $9.1 million related to the settlement of the contract, with the balance related to outstanding commissions receivable and repayment Repayment The act of paying back a debt. Notes: Everyone has to repay their debts eventually. See also: Debt, Defeasance, Loan of 2004 legal costs incurred by the Company, was recorded in the three-month period ended June 30, 2004. On May 6, 2004 the Company entered into an agreement with Bell Canada for the early termination of the extended exclusive distribution agreement signed in 2001. An amount of $4.7 million related to the settlement of the contract was recorded in the three-month period ended June 30, 2004. 10. Promissory note On June 30, 2004, in conjunction with the early termination of the extended exclusive distribution agreement signed in 2001 with Bell Canada, the Company had issued a promissory note to Bell Canada in the amount of $25.0 million. On July 31, 2004, an agreed amount of $5.1 million was added to the promissory note to reflect the transfer of the remaining accounts payable balance as at June 30, 2004 that related to this termination. These amounts were previously included in accounts payable and accrued liabilities Accrued liabilities are liabilities which have occurred, but have not been paid or logged under accounts payable during an accounting period; in other words, obligations for goods and services provided to a company for which invoices have not yet been received. . This promissory note did not bear any interest until maturity, which was October October: see month. 1, 2004. The promissory note was paid on October 1, 2004. 11. Discontinued operations and assets held for sale On December 31, 2003, the Board of Directors approved the Company's plan to sell its US Health operations. The US Health operations included the preferred provider organization (PPO) segment and the care management segment which were part of the eHealth Solutions customer segment. The Company completed the sale of the PPO segment and the care management segment of its US Health operations in March 2004. Additionally, on June 30, 2004, the Company completed the sale of its eSecurity operations and on July 7, 2004 the Company completed the sale of the webdoxs operations. The eSecurity and webdoxs operations were originally part of the eFinance customer segment. Accordingly, the results of operations, cash flows and financial position of the US Health, eSecurity, and webdoxs operations have been segregated in the accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. interim consolidated financial statements, and are reported as discontinued operations as a single line item in the interim consolidated financial statements. The results of discontinued operations presented in the accompanying interim consolidated statements of earnings, were as follows:
For the three-month period ended
September 30, 2004
US Health eSecurity webdoxs TOTAL
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue - - - -
Direct costs - - - -
---------------------------------------------------------------------
Gross margin - - - -
---------------------------------------------------------------------
Expenses
Operations - - - -
Sales and marketing - - - -
Research and development, net - - - -
General and administrative - - - -
---------------------------------------------------------------------
- - - -
---------------------------------------------------------------------
Earnings (loss) before under
noted items - - - -
Depreciation - - - -
Amortization of intangible assets - - - -
Interest income - - - -
Interest on long-term debt - - - -
Gain on sale of other assets - - - -
Loss (gain) on sale of assets
held for sale 2.8 - - 2.8
Other - - - -
---------------------------------------------------------------------
(Loss) income before income taxes (2.8) - - (2.8)
Income taxes
Current - - - -
Future - - - -
---------------------------------------------------------------------
- - - -
(Loss) income from
discontinued operations (2.8) - - (2.8)
For the three-month period ended
September 30, 2003
US Health eSecurity webdoxs TOTAL
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue 39.2 7.7 0.7 47.6
Direct costs 4.3 0.4 0.4 5.1
---------------------------------------------------------------------
Gross margin 34.9 7.3 0.3 42.5
---------------------------------------------------------------------
Expenses
Operations 15.2 2.1 0.4 17.7
Sales and marketing 1.9 0.6 0.5 3.0
Research and development, net 1.6 1.6 0.4 3.6
General and administrative 2.3 - - 2.3
---------------------------------------------------------------------
21.0 4.3 1.3 26.6
---------------------------------------------------------------------
Earnings (loss) before under
noted items 13.9 3.0 (1.0) 15.9
Depreciation 0.7 0.9 - 1.6
Amortization of intangible assets 0.5 0.3 1.6 2.4
Interest income - - - -
Interest on long-term debt (0.1) - - (0.1)
Gain on sale of other assets - - - -
Loss (gain) on sale of assets
held for sale - - - -
Other 0.1 - - 0.1
---------------------------------------------------------------------
(Loss) income before income taxes 12.7 1.8 (2.6) 11.9
Income taxes
Current 2.9 - - 2.9
Future 0.3 0.6 - 0.9
---------------------------------------------------------------------
3.2 0.6 - 3.8
(Loss) income from discontinued
operations 9.5 1.2 (2.6) 8.1
For the nine-month period ended
September 30, 2004
US Health eSecurity webdoxs TOTAL
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue 25.4 16.1 1.4 42.9
Direct costs 3.0 2.0 0.9 5.9
---------------------------------------------------------------------
Gross margin 22.4 14.1 0.5 37.0
---------------------------------------------------------------------
Expenses
Operations 10.8 4.5 0.9 16.2
Sales and marketing 1.5 1.4 0.6 3.5
Research and development, net 1.3 3.0 (0.2) 4.1
General and administrative 3.6 0.1 - 3.7
---------------------------------------------------------------------
17.2 9.0 1.3 27.5
---------------------------------------------------------------------
Earnings (loss) before under
noted items 5.2 5.1 (0.8) 9.5
Depreciation 0.4 1.9 0.2 2.5
Amortization of intangible assets 0.3 0.7 1.1 2.1
Interest income - - - -
Interest on long-term debt 0.1 - - 0.1
Gain on sale of other assets - - - -
Loss (gain) on sale of assets
held for sale 7.6 (15.4) - (7.8)
Other - - - -
---------------------------------------------------------------------
(Loss) income before income taxes (3.2) 17.9 (2.1) 12.6
Income taxes (recovery)
Current 0.1 - - 0.1
Future (0.5) 6.1 - 5.6
---------------------------------------------------------------------
(0.4) 6.1 - 5.7
Income (loss) from discontinued
operations (2.8) 11.8 (2.1) 6.9
For the nine-month period ended
September 30, 2003
US Health eSecurity webdoxs TOTAL
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue 126.1 21.2 2.0 149.3
Direct costs 12.5 1.9 1.0 15.4
---------------------------------------------------------------------
Gross margin 113.6 19.3 1.0 133.9
---------------------------------------------------------------------
Expenses
Operations 48.2 5.0 1.4 54.6
Sales and marketing 6.1 1.2 1.6 8.9
Research and development, net 5.2 3.8 1.4 10.4
General and administrative 10.0 - - 10.0
---------------------------------------------------------------------
69.5 10.0 4.4 83.9
---------------------------------------------------------------------
Earnings (loss) before under
noted items 44.1 9.3 (3.4) 50.0
Depreciation 3.1 2.5 0.1 5.7
Amortization of intangible assets 1.7 0.9 4.7 7.3
Interest income (0.1) - - (0.1)
Interest on long-term debt - - - -
Gain on sale of other assets (1.2) - - (1.2)
Loss (gain) on sale of assets
held for sale - - - -
Other (0.1) - - (0.1)
---------------------------------------------------------------------
(Loss) income before income
taxes 40.7 5.9 (8.2) 38.4
Income taxes (recovery)
Current 3.8 - - 3.8
Future 1.5 2.0 - 3.5
---------------------------------------------------------------------
5.3 2.0 - 7.3
Income (loss) from discontinued
operations 35.4 3.9 (8.2) 31.1
The cash flows from discontinued operations presented in the accompanying interim consolidated statements of cash flows, were as follows:
For the three- For the nine-
month period month period
ended September 30 ended September 30
2004 2003 2004 2003
---------------------------------------------------------------------
Operating activities - 6.4 6.1 38.1
Investing activities - (2.5) (1.8) (2.7)
Financing activities - (0.7) (1.7) (2.3)
Foreign exchange gain (loss)
on cash held in foreign
currencies - 0.2 0.1 (2.0)
---------------------------------------------------------------------
Cash flows from discontinued
operations - 3.4 2.7 31.1
---------------------------------------------------------------------
The assets and liabilities have been segregated in the accompanying interim consolidated balance sheets consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. and are reported as current and long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. "Assets held for sale" and current and long-term "Liabilities related to assets held for sale". The assets and related liabilities held for sale were as follows:
As at As at
September 30 December 31
2004 2003
---------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents - 8.8
Accounts receivable - 28.5
Future income taxes - 36.6
Fixed assets - 14.0
Intangible assets - 4.8
Goodwill - 154.7
Other current assets - 52.1
Less: write-down related to assets
held for sale - (26.8)
---------------------------------------------------------------------
272.7
---------------------------------------------------------------------
Intangible assets 13.1
---------------------------------------------------------------------
- 285.8
---------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued liabilities - 6.4
Deferred revenue - 0.8
Current portion of long-term debt - 0.5
---------------------------------------------------------------------
- 7.7
---------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital Stock (a) - 10.1
---------------------------------------------------------------------
- 10.1
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(a) As a result of the Company's sale of its US Health Operations, the final instalment INSTALMENT, contracts. A part of a debt due by contract, and agreed to be paid at a time different from that fixed for the, payment of the other part. For example, if I engage to pay you one thousand dollars, in two payments, one on the first clay of January, and the other on the first of $10.1 million payable in June 2004 relating to its acquisition of Associates for HealthCare in June 2001 was no longer an obligation of the Company. 12.Acquisitions WARE Solutions Corporation On January 15, 2004, the Company acquired all the issued and outstanding shares of WARE Solutions Corporation for cash consideration of $5.0 million. The Company also incurred transaction costs Transaction Costs Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). in the amount of $0.3 million in connection with the acquisition, relating mostly to professional fees. WARE Solutions Corporation offers web-based practice management software to health care providers, as well as claims processing and adjudication The legal process of resolving a dispute. The formal giving or pronouncing of a judgment or decree in a court proceeding; also the judgment or decision given. The entry of a decree by a court in respect to the parties in a case. systems to payor payor (payer) n. The one who must make payment on a promissory note. organizations. The transaction was accounted for using the purchase method. The results of operations of WARE Solutions Corporation have been included in the Company's results since January 15, 2004, the date of acquisition. The total purchase price of the acquisition was $5.3 million and was preliminarily allocated as follows: Purchase price allocation $ --------------------------------------------------------------------- --------------------------------------------------------------------- Current assets 0.7 Fixed assets 0.1 Current liabilities (0.3) Deferred revenues (0.3) Long-term liabilities (1.7) Allocation of excess of purchase price: Acquired technologies 6.8 --------------------------------------------------------------------- --------------------------------------------------------------------- Cost of acquisition 5.3 The Company expects to finalize fi·nal·ize tr.v. fi·nal·ized, fi·nal·iz·ing, fi·nal·iz·es To put into final form; complete or conclude: "They have jointly agreed ... the purchase price allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as during 2004. Gestion InfoPharm Inc. On March 19, 2004, the Company acquired all the issued and outstanding shares of Gestion InfoPharm Inc. for cash consideration of $12.4 million and a holdback hold·back n. 1. a. The act of holding back. b. Something held back. 2. A device that retains or restrains. 3. of $1.5 million payable in March 2005. The Company also incurred transaction costs in the amount of $0.5 million in connection with the acquisition, relating mostly to professional fees. Gestion InfoPharm specializes in the design, development and marketing of dispensary dispensary: see clinic. and point-of-sales software solutions customized for pharmacies. The transaction was accounted for using the purchase method. The results of operations of Gestion InfoPharm have been included in the Company's results since March 19, 2004, the date of acquisition. The total purchase price of the acquisition was $14.4 million and was preliminarily allocated as follows: Purchase price allocation $ --------------------------------------------------------------------- --------------------------------------------------------------------- Current assets 3.0 Fixed assets 1.8 Intangible assets 0.3 Current liabilities (0.8) Deferred revenue (1.7) Long-term liabilities (1.1) Allocation of excess of purchase price: Customer relationship 6.5 Goodwill 6.4 --------------------------------------------------------------------- --------------------------------------------------------------------- Cost of acquisition 14.4 The Company expects to finalize the purchase price allocation during 2004. Tri-Comp Systems Ltd. On March 22, 2004, the Company acquired all the issued and outstanding shares of Tri-Comp Systems Ltd. for cash consideration of $4.5 million. The Company also incurred transaction costs in the amount of $0.4 million in connection with the acquisition, relating mostly to professional fees. Tri-Comp Systems provides management software and point of sale systems to pharmacies. The transaction was accounted for using the purchase method. The results of operations of Tri-Comp Systems have been included in the Company's results since March 1, 2004, the effective date of the acquisition. The total purchase price of the acquisition was $4.9 million and was preliminarily allocated as follows: Purchase price allocation $ --------------------------------------------------------------------- --------------------------------------------------------------------- Current assets 1.2 Fixed assets 0.1 Intangible assets 0.6 Current liabilities (0.6) Deferred revenue (0.5) Long-term liabilities (0.3) Allocation of excess of purchase price Customer relationship 1.6 Goodwill 2.8 --------------------------------------------------------------------- --------------------------------------------------------------------- Cost of acquisition 4.9 The Company expects to finalize the purchase price allocation during 2004. 13.Restructuring and other charges In December 2003, the Board of Directors approved the Company's plan to sell its US Health operations. As a result of this approval, the Company developed a restructuring program to streamline streamline, path of a fluid flowing steadily and without appreciable turbulence. A body is said to be streamlined if its shape offers the least possible resistance to a current of air, water, or other fluid. its organizational structure and rationalize its overhead in order to align its cost structure with core revenue going forward. This resulted in a pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta charge of $38.2 million for the year ended December 31, 2003. The charge included cash restructuring charges totalling $22.1 million for employee severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when and other employee costs, and asset write-downs totalling $16.1 million. During the three-month period ended March 31, 2004 the Company completed the sale of its US Health operations and consequently experienced delays in executing the restructuring program developed in 2003. As a result, the Company reduced the restructuring charge relating to employee severance and other employee related costs by $6.3 million for the three-month period ended March 31, 2004. The Company continued the execution of its restructuring program and recorded $2.4 million and $1.2 million during the three-month periods ended June and September 30, 2004, respectively, related to employee severance and other related costs. The balance of the restructuring provision as at December 31, 2003 was $20.8 million. During the first quarter of 2004 the Company reduced the restructuring charge by $6.3 million and disbursed $3.6 million relating to employee severance and other employee costs. During the second quarter and third quarter of 2004, the Company increased the restructuring charges by $2.4 million and $1.2 million, respectively, and disbursed $5.8 million and $4.6 million, respectively, relating to employee severance and other employee costs. As at September 30, 2004, the unpaid restructuring payable balance was $4.1 million and is included in accounts payable and accrued liabilities. 14. Equity components The stated capital stated capital See legal capital. stock as at September 30, 2004 is detailed as follows:
Not issued Options issued
Number of Issued and and not as part of
shares fully paid fully paid acquisition TOTAL
$ $ $ $
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance at
January 1,
2004 103,216,870 1,533.0 11.6 2.1 1,546.7
Issue of
common shares
(a) 19,067 - - - -
Issue of
common shares
(b) 199,692 1.0 - - 1.0
Issue of
common shares
(c) - - (11.6) - (11.6)
---------------------------------------------------------------------
Special cash
distribution (d) - (150.0) - - (150.0)
---------------------------------------------------------------------
Reduction of
stated capital
(e) - (1,210.0) - - (1,210.0)
---------------------------------------------------------------------
Impact of the
exercise of options
issued as part of
the acquisition of
BCE Emergis
Technologies - 1.6 - (2.1) (0.5)
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance at
September 30,
2004 103,435,629 175.6 - - 175.6
Contributed surplus $
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance at January 1, 2004 76.8
Amount related to the AHC acquisition (c) 1.5
Reduction of stated capital (e) 1,210.0
Amount related to stock based compensation (f) 0.4
Impact of the exercise of options issued as part
of the acquisition of BCE Emergis Technologies 0.5
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance at September 30, 2004 1,289.2
(a) 19,067 stock options were exercised to purchase 19,067 common shares for cash consideration of $14 thousand. (b) 199,692 treasury common shares were issued to the Company's employees as part of an employee share purchase plan. (c) In the first quarter the Company paid US$0.8 million ($1.1 million) representing the final payment of the third instalment and extinguished ex·tin·guish tr.v. ex·tin·guished, ex·tin·guish·ing, ex·tin·guish·es 1. To put out (a fire, for example); quench. 2. To put an end to (hopes, for example); destroy. See Synonyms at abolish. 3. the remaining amount payable of $10.1 million under the fourth instalment of the purchase price for the acquisition of Associates for HealthCare of June 2001 as this was no longer an obligation of the Company following the sale of the US Health operations. An amount of $1.5 million representing the differential between the share value in the first quarter and the estimated share value at June 28, 2001 was attributed to contributed surplus. (d) On June 30, 2004 the Company paid special cash distribution of $150 million, representing a reduction in the stated capital of common shares, to shareholders of record on June 25, 2004. (e) On June 30, 2004, the Company also completed a second reduction of the stated capital of common shares in the amount of 1.21 billion. This amount was attributed to contributed surplus. (f) During the year the Company expensed $0.4 million relating to stock options (note 2). This amount was attributed to contributed surplus. Stock option plans Options --------------------------------------------------------------------- --------------------------------------------------------------------- Stock option plans for common shares at prices ranging from $0.44 to $115.53 per share and expiry dates up to 2011 3,352,912 Warrants: From time to time, the Company enters into formal business arrangements for the use and distribution of certain technology solutions with strategic partners. Under the terms of such arrangements, the partners may acquire warrants to purchase shares of the Company. The following table summarizes warrant activity:
Number of Number of Exercise price of
warrants warrants warrants
outstanding(1) exercisable(1) exercisable
($)
---------------------------------------------------------------------
---------------------------------------------------------------------
Outstanding
- January 1, 2004 650,000 300,000 47.24
Expired (300,000) (47.24)
Outstanding
- September 30, 2004 350,000 9,248 5.78
(1) Warrants are convertible into common shares of the Company on a 1:1 basis. The warrants expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. on December 31, 2006. No amount has been recorded in the financial statements as a result of these arrangements. 15. Operating segment information In December 2003, the Board of Directors approved the Company's plan to sell its US Health operations. Additionally, in June 2004 and July 2004, the Company completed the sale of its eSecurity and webdoxs operations, respectively. Accordingly, the Company has classified the US Health, eSecurity, and webdoxs operations as discontinued operations. The US Health operations were originally part of the eHealth segment and the eSecurity and webdoxs operations were originally part of the eFinance segment. Additionally, as of January 1, 2004 the Company modified mod·i·fy v. mod·i·fied, mod·i·fy·ing, mod·i·fies v.tr. 1. To change in form or character; alter. 2. its corporate structure to separately disclose non-core operations which were originally included in the eFinance and eHealth segments. The non-core operations include the three-year distribution agreement with Bell Canada for legacy products extended in September 2001 and subsequently terminated ter·mi·nate v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates v.tr. 1. To bring to an end or halt: in June 2004, as well as other non-core and exited products. The Company has restated comparative results to reflect this change. The following table shows the activities of each of the segments excluding the US Health, eSecurity, and webdoxs operations:
For the three-month period ended September 30 ($)
Non- Other
eFinance eHealth core non- Total
segment segment segment allocated
2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
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Revenues 29.5 30.5 18.8 13.1 - 26.0 - - 48.3 69.6
Direct
costs 6.7 6.3 5.0 3.7 - 10.4 - - 11.7 20.4
---------------------------------------------------------------------
Gross
margin 22.8 24.2 13.8 9.4 - 15.6 - - 36.6 49.2
---------------------------------------------------------------------
EBITDA(1) 3.0 (1.4) 2.5 1.5 - 4.2 (1.2) - 4.3 4.3
---------------------------------------------------------------------
---------------------------------------------------------------------
Goodwill
as at
September
30 14.6 15.5 32.9 23.7 - - - - 47.5 39.2
For the nine-month period ended September 30 ($)
Non- Other
eFinance eHealth core non- Total
segment segment segment allocated
2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
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Revenues 82.4 90.4 50.9 41.8 39.6 83.8 - - 172.9 216.0
Direct
costs 15.5 18.8 12.3 11.2 15.9 32.8 - - 43.7 62.8
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Gross
margin 66.9 71.6 38.6 30.6 23.7 51.0 - - 129.2 153.2
---------------------------------------------------------------------
EBITDA(1) 7.0 (9.5) 7.2 4.5 11.4 13.4 2.7 - 28.3 8.4
---------------------------------------------------------------------
---------------------------------------------------------------------
Goodwill
as at
September
30 14.6 15.5 32.9 23.7 - - - - 47.5 39.2
(1) The term EBITDA (earnings before interest, taxes, depreciation and amortization Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability.
pertaining to data that have been submitted to standardization procedures. standardized morbidity rate see morbidity rate. standardized mortality rate see mortality rate. meaning prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). by Canadian GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). and therefore may not be comparable to similar measures presented by other companies. The Company defines it as earnings before depreciation, amortization of intangible assets, interest, loss or gain on foreign exchange, other income and expenses, and income taxes. EBITDA is presented on a basis that is consistent from period to period and agrees, on a consolidated basis, with the amount disclosed as "Earnings before under noted items" in the financial statements. There are no inter-segment transactions or significant differences between segment and corporate accounting policies. All of the Company's business units share in the use of its capital asset infrastructure. As a result, the Company does not disclose a measure of total assets by business unit. In addition, the asset allocation Asset Allocation The process of dividing a portfolio among major asset categories such as bonds, stocks or cash. The purpose of asset allocation is to reduce risk by diversifying the portfolio. is not used by the Company in its management reporting for decision-making decision-making, n the process of coming to a conclusion or making a judgment. decision-making, evidence-based, n a type of informal decision-making that combines clinical expertise, patient concerns, and evidence gathered from purposes. Geographic geographic /geo·graph·ic/ (je?o-graf´ik) in pathology, of or referring to a pattern that is well demarcated, resembling outlines on a map. geographic pertaining to geography. information The following table sets out certain geographical ge·o·graph·ic also ge·o·graph·i·cal adj. 1. Of or relating to geography. 2. Concerning the topography of a specific region. ge information relative to the Company excluding the US Health, eSecurity, and webdoxs operations:
For the three-month For the nine-month
period ended period ended
September 30 September 30
Revenue ($) 2004 2003 2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Canada 38.4 57.3 141.1 178.2
United States 9.9 12.3 31.8 37.8
---------------------------------------------------------------------
---------------------------------------------------------------------
Total 48.3 69.6 172.9 216.0
16. Related party information On June 16, 2004 BCE Inc. completed the sale of its ownership interest in the Company. As a result, BCE Inc. and its subsidiaries are no longer related parties to the Company. The following transactions occurred in the normal course of operations with BCE Inc., the former parent company, and other companies in the BCE group subject to common control during the respective periods and were measured at the exchange value, which is the amount established and agreed to by the related parties:
For the three-month For the nine-month
period ended period ended
September 30 September 30
2004 2003 2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue (a) - 19.5 25.9 69.5
---------------------------------------------------------------------
---------------------------------------------------------------------
Direct costs - 15.9 22.4 49.2
Expenses - 12.9 18.3 41.2
Interest income - 4.6 6.4 11.9
(a) Includes services for resale resale n. selling again, particularly at retail. In many states a "resale license" or "resale number" is required so that the state can monitor the collection of sales tax on retail sales. RESALE. to third parties and for internal use. As part of the extended exclusive distribution agreement signed in 2001 with Bell Canada and subsequently terminated in June 2004, the Company derives revenue from Bell Canada (included in the related party amount) and directly from other customers with Bell Canada acting as a distribution agent (excluded from the related party amount). Included in related party revenue is the amount derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. directly from Bell Canada in the amount of nil ($6.8 million) and $7.6 million ($31.2 million) for the three and nine-month periods ended September 30, 2004 (2003), respectively. Under the distribution agreement the amount derived from other customers with Bell Canada acting as a distribution agent is nil ($17.4 million) and $24.3 million ($43.9 million) for the three and nine-month periods ended September 30, 2004 (2003) and are excluded from the related party amount. Included in direct costs and expenses is nil ($20.2 million) and $26.4 million ($62.7 million) for the three and nine-month periods ended September 30, 2004 (2003) related to the extended service agreement signed with BCE Nexxia in 2001 and subsequently terminated in June 2004, which includes costs related to the agency revenue. The balance sheet includes the following balances with BCE Inc. and other companies in the BCE group subject to common control until June 16, 2004: As at September 30, 2004 As at December 31, 2003 --------------------------------------------------------------------- --------------------------------------------------------------------- Accounts receivable - 10.1 Other current assets - 16.0 Accounts payable and accrued liabilities - 58.5 Deferred revenue - 5.0 Tax loss monetization Monetization The securitization of the gross revenues of a contract. structure As part of a tax loss consolidation arrangement, which was terminated on May 31, 2004, the Company recorded interest income of nil ($14.0 million) and $21.7 million ($38.1 million) for the three and nine-month periods ended September 30, 2004 (2003). The Company also incurred interest expense of nil ($9.7 million) and $15.3 million ($26.5 million) for the three and nine-month periods ended September 30, 2004 (2003). For income tax purposes, the nil ($14.0 million) and $21.7 million ($38.1 million) in interest income for the three and nine-month periods ended September 30, 2004 (2003) increase the taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. of the Company and accelerate the use of the Company's tax attributes resulting in nil ($4.4 million) and $7.5 million ($12.0 million) reductions in future income tax assets in Canada for the three and nine-month periods ended September 30, 2004 (2003), respectively. The net interest amounts of nil ($4.3 million) and $6.4 million ($11.6 million) for the three and nine-month periods ended September 30, 2004 (2003) have been recorded as interest income. The capital arrangements associated with the tax structure were initiated by the Company with a temporary loan of $1.0 billion from its banker BANKER, com. law. A banker is one engaged in the business of receiving other persons money in deposit, to be returned on demand discounting other persons' notes, and issuing his own for circulation. One who performs the business usually transacted by a bank. . The funds were then advanced to Bell Canada through a subordinated Subordinated A claim ranked lower in priority than other claims. Common stock claims are always subordinated to debt. demand loan bearing interest at a rate of 5.235% since January 1, 2004. The loan was unsecured Unsecured A loan or equity interest that is given without any guarantee of payment, performance, satisfaction or opportunity for return from the recipient. No property, interest or security is used as collateral in either a guarantee or a pledge. and subordinated, was payable on demand and was repayable re·pay v. re·paid , re·pay·ing, re·pays v.tr. 1. To pay back: repaid a debt. 2. at any time. A wholly owned subsidiary of the Company had issued preferred shares Preferred shares Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders. See: Preferred stock. to Bell Canada in exchange for $1.0 billion in cash. The preferred shares were non-voting non-voting adj non-voting shares → azioni fpl senza diritto di voto , cumulative, redeemable Redeemable Eligible for redemption under the terms of an indenture. and retractable re·tract v. re·tract·ed, re·tract·ing, re·tracts v.tr. 1. To take back; disavow: refused to retract the statement. 2. at any time. The dividend rate was 3.697% per annum Per annum Yearly. since January 1, 2004. The interest rate on the loan to Bell Canada and the dividend rate on the preferred shares were reset at the beginning of each year. The wholly owned subsidiary had loaned the preferred share issue proceeds of $1.0 billion to its parent company, on an interest-free interest-free adj → libre de interés interest-free adj → sans intérêt interest-free interest adj, adv → basis. This loan was payable on demand and was repayable at any time. The Company then repaid the temporary loan of $1.0 billion to its banker. Either party was entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to terminate Terminate (terminat.exe) was a shareware modem terminal and host program for MS-DOS and compatible operating systems developed from the early to the late 1990s by the Dane Bo Bendtsen. The last release (5. these agreements at any time. In addition, the arrangement was to be terminated in the event BCE was no longer the controlling shareholder of the Company. This arrangement was, therefore, terminated on May 31, 2004 as a result of BCE's decision to sell its ownership interest in the Company. The Company had the legal right to offset the demand loan receivable from Bell Canada against the preferred shares issued to Bell Canada. This arrangement was terminated through the exercise of legal rights of offset on May 31, 2004. As a result, these items, as well as the related interest income and interest expense representing the dividend payable on the preferred shares have been presented on a net basis. 17. Income taxes During the three-month period ended June 30, 2004 the Company recorded a valuation allowance of $56.0 million against the future income tax assets of its continuing Canadian operations. This valuation allowance was required due to the Company's assessment that the future income tax assets are no longer "more likely than not" to be realized given the uncertainty surrounding sur·round tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. the Company's ability to generate sufficient taxable income after the termination of the tax loss monetization arrangement between the Company and Bell Canada on May 31, 2004. 18. Government assistance During the three-month period ended June 30, 2004 the Company became eligible to receive a retroactive Having reference to things that happened in the past, prior to the occurrence of the act in question. A retroactive or retrospective law is one that takes away or impairs vested rights acquired under existing laws, creates new obligations, imposes new duties, or attaches a tax credit in the amount of $1.8 million from Investissement Quebec Quebec, city, Canada Quebec, Fr. Québec, city (1991 pop. 167,517), provincial capital, S Que., Canada, at the confluence of the St. Lawrence and St. Charles rivers. relating to the period from June 23, 2003 to June 30, 2004. During the current period, the Company recorded $0.4 million related to this investment tax credit. This credit is with respect to the relocation RELOCATION, Scotch law, contracts. To let again to renew a lease, is called a relocation. 2. When a tenant holds over after the expiration of his lease, with the consent of his landlord, this will amount to a relocation. of the Company's corporate head office to the Carrefour de la Nouvelle Technologie in Longueuil, Quebec This article is about the central municipality of Longueuil. For the agglomeration city, see Urban agglomeration of Longueuil. Longueuil (English pronunciation [lɑŋˈgɔɪ] . This credit reduces salaries for full-time full-time adj. Employed for or involving a standard number of hours of working time: a full-time administrative assistant. full employees performing specified spec·i·fy tr.v. spec·i·fied, spec·i·fy·ing, spec·i·fies 1. To state explicitly or in detail: specified the amount needed. 2. To include in a specification. 3. , qualifying activities. This amount has been recorded as a reduction of research and development expenses in the statement of earnings and has been classified under other current assets Other Current Assets A balance sheet item that includes the value of non-cash assets due within one year. Notes: Examples are things like prepaid expenses and accounts receivable. on the balance sheet. This amount is to be received by June 2005. 19. Derivative financial instruments The Company periodically uses derivative instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. to manage its exposure to foreign currency risk. The Company does not use derivative instruments for speculative Speculative Securities that involve a high level of risk. speculative Of or relating to an asset or a group of assets with uncertain returns. The greater the degree of uncertainty the more speculative the asset. purposes. The Company does not trade actively in derivative instruments, and therefore, is not exposed to any significant liquidity risks relating to them. The following derivative instruments were outstanding at September 30, 2004 --currency forward contracts relating mainly to a net investment in a foreign subsidiary At September 30, 2004, principal amounts to be received under currency contracts are $32.9 million, whereas principal amounts to be paid under these contracts are US$25.0 million. The carrying value of all financial instruments approximates fair value other than the financial instrument related to the options currently held in a public company by our former U.S. Health subsidiary, which are carried at a cost of approximately $10.0 million and for which the fair market currently is non-determinable. These options are currently the subject of a dispute between BCE Emergis Corporation and the grantors of these options. 20. Guarantees In the normal course of business, the Company enters into numerous agreements that may contain features that meet the AcG-14 definition of an indemnification and guarantees to counterparties Counterparties The parties on either side of an interest rate swap or a currency, equity or commodity swap, or to an options or futures position. in transactions such as business dispositions, the sale of assets, the sale of services and licenses. These indemnification undertakings and guarantees may require the Company to compensate the counterparties for costs and losses incurred as a result of various events, including breaches of representations and warranties, intellectual property rights infringement, valuation differences, claims that may arise while providing services, or as a result of third party claims that may be suffered by the counterparties. In the context of business dispositions or the sale of assets, the Company may from time to time agree to compensate the purchaser for the resolution of contingent liabilities Contingent Liability 1. The possibility of an obligation to pay certain sums dependent on future events. 2. Defined obligations by a company that must be met, but the probability of payment is minimal. Notes: 1. of the disposed dis·pose v. dis·posed, dis·pos·ing, dis·pos·es v.tr. 1. To place or set in a particular order; arrange. 2. businesses or assets or the reassessment Reassessment The process of re-determining the value of property or land for tax purposes. Notes: Property is usually reassessed on an annual basis. You may request a "reassessment" if you disagree with your assessment. of prior tax filings of the corporations carrying on the business. The term and amount of such indemnifications will generally be limited by the agreement. The maximum potential exposure, under these guarantees represented a cumulative amount of approximately $162.3 million as at September 30, 2004, except for guarantees relating to tax liabilities and certain other representations for which there is no maximum amount. However, based on the Company's current risk assessment, the Company believes that any potential payment should not be significant. In the context of the sale of services and licenses, the Company typically agrees to compensate the counterparty Counterparty The other participant, including intermediaries, in a swap or contract. for costs incurred as a result of third party claims or damages that may be suffered by the counterparty as a consequence of breach of the agreement. The term of these indemnification agreements vary depending upon the agreement. The nature of such indemnification agreements prevent the Company from making a reasonable estimate of the maximum potential amounts that the Company could be required to pay to the counterparties. The amounts are dependent upon the outcome of future contingent Fortuitous; dependent upon the possible occurrence of a future event, the existence of which is not assured. The word contingent denotes that there is no present interest or right but only a conditional one which will become effective upon the happening of the events, the nature and likelihood of which cannot be determined at this time. Historically, the Company has not made any significant payments under such indemnification agreements. 21. Subsequent event On November 1, 2004 our Board of Directors authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: the Company to proceed with a restructuring plan involving principally a reduction of headcount and rationalization of facilities, which is designed to continue the streamlining of the Company's organizational structure to ensure that costs remain in line with revenue. The plan should be substantially complete by the end of 2004. A restructuring charge of between $17.0 million and $22.0 million, approximately three quarters of which should consist of cash charges, is expected to be taken in the fourth quarter of 2004. |
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