BCI Announces Fourth Quarter Results.Business Editors/High-Tech Writers MONTREAL--(BUSINESS WIRE)--Jan. 30, 2004 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 International Inc. (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :BI): -- Canbras completes the sale of all of its operations in Brazil Brazil (brəzĭl`), Port. Brasil, officially Federative Republic of Brazil, republic (2005 est. pop. 186,113,000), 3,286,470 sq mi (8,511,965 sq km), E South America. -- Prepayment Prepayment 1. The payment of a debt obligation prior to its due date. 2. The excess payment over a scheduled debt repayment amount. Notes: 1. Examples include deferred expenses such as rent and early loan repayments. 2. of Axtel Axtel S.A.B. de C.V. (BMV: AXTEL), is a Mexican telecommunications company, headquartered in Monterrey, that provides telecommunication products and services in Mexico. It is the main competitor of Telmex, who was a monopoly until very recently. Notes -- Vesper loan guarantees settled -- Shareholders class action lawsuits class action lawsuit A lawsuit in which one party or a limited number of parties sue on behalf of a larger group to which the parties belong. For example, investors may bring a class action lawsuit against a brokerage firm that has actively promoted a tax dismissed dis·miss tr.v. dis·missed, dis·miss·ing, dis·miss·es 1. To end the employment or service of; discharge. 2. As a result of the adoption on July July: see month. 17, 2002 of BCI's Plan of Arrangement, BCI's 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 for the fourth quarter of 2003 reflect only the activities of BCI BCI Bat Conservation International BCI Brain-Computer Interface BCI Business Continuity Institute BCI Business Cycle Indicators BCI Banco de Credito e Inversiones (Chilean bank) BCI Bell Canada International as a holding company. BCI's 75.6% interest in Canbras Communications Corp. ("Canbras") is recorded under Investments on the balance sheet at $15 million, being the lower of 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. and estimated net realizable value Net realizable value (NRV) is a commonly used method of evaluating an asset's worth in the field of inventory accounting. NRV is part of GAAP rules that apply to valuing inventory, so as to not overstate or understate the value of inventory goods. . Canbras' operating results are not reflected on BCI's 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: statements of earnings. Fourth Quarter Results As at December December: see month. 31, 2003, BCI's shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. was $225.7 million, up by $16.5 million from the third quarter of 2003. This increase was mainly as a result of a gain of $ 10.4 million on the Vesper loan guarantees settlement, a gain of $9.8 million on collection of the Axtel S.A de C.V. ("Axtel") long term note and interest income of $2.8 million partially offset by interest expense of $4.6 million on the BCI's 11% senior 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. notes and administrative expenses of $2.0 million. In the second quarter of 2003, BCI recorded a provision for the Vesper loan guarantees of $27.3 million (US$ 20.2 million). Pursuant to an agreement concluded on December 2, 2003, BCI paid US$ 12 million in consideration for the absolute release of its obligation under such guarantees and as a result BCI recorded a gain of $10.4 million in the fourth quarter of 2003. Also during the quarter, BCI received US$ 8.6 million in connection with the prepayment by Axtel of two 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. held by BCI: a US$ 1.2 million face value note due December 31, 2003 (the "Short-Term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. Note"), and a US$ 9.4 million face value note due in the second quarter of 2006 (the "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. Note"). These notes were originally issued pursuant to the Axtel transaction announced on March 27, 2003. At that time, the Short-Term Note was recorded at its face value while the Long-Term Note was recorded at zero fair value. As a result of these prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. , BCI recorded in the fourth quarter a gain of $ 9.8 million. BCI's cash and temporary investments as at December 31, 2003 were $384.6 million representing approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 94% of the company's total assets. The yield on the average investment portfolio in the quarter was approximately 2.9%. Total liabilities of $182.4 million include BCI's 11% senior unsecured notes due September September: see month. 2004 in the amount of $160 million. 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. were $22.4 million at the end of the fourth quarter of 2003, up $4.7 million from the third quarter of 2003 mainly as a result of accrued interest Accrued Interest The interest that has accumulated on a bond since the last interest payment up to but not including the settlement date. There are two methods for calculating accrued interest: 1) 360-day year method, used for corporate and municipal bonds. on BCI's 11% notes. The estimated future net assets Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. of BCI at December 31, 2004 are $217.1 million. The only difference between shareholders equity on the consolidated balance sheet 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. at December 31, 2003 and the estimated future net assets at December 31, 2004 is the deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. of future net costs from January January: see month. 1, 2004 to December 31, 2004. Such future net costs are estimated at approximately $8.6 million comprising interest expense to September 29, 2004 on the 11% senior unsecured notes of approximately $13.8 million, interest income of approximately $8.4 million, operating costs operating costs npl → gastos mpl operacionales of approximately $9.2 million and an amount of approximately $6.0 million in excess of current carrying value that BCI expects to receive on its investment in Canbras. These future net costs exclude any amounts that may be required to settle 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. such as lawsuits. To the extent BCI has not completed its Plan of Arrangement by the end of 2004, interest income in 2005 may not be sufficient to cover 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. estimated at approximately $2 million per quarter. The extent of 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. would be dependent on a number of factors, including the level of interest rates and BCI's cash balances at the time. The estimated future net assets of BCI at December 31, 2004 of $217.1 million are up $23.0 million from the estimates prepared at September 30, 2003. The increase is mainly the result of gains in the fourth quarter of 2003 on the Vesper loan guarantees settlement and the collection of the Axtel Long-Term Note and, in 2004, the expected gain The expected gain (or expected return) is the weighted-average most likely outcome in gambling, probability theory, economics or finance. Discrete scenarios In gambling and probability theory, there is usually a discrete set of possible outcomes. on Canbras partially offset by increased administrative expenses and lower interest income than previously expected. Earnings for the fourth quarter were $16.5 million, or $0.41 per share. Update on Remaining Investments On December 24, 2003, Canbras announced the completion of the sale of all of its broadband broadband Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). communications operations in Brazil to Horizon Cablevision For the unrelated Canadian company, see . Cablevision Systems Corporation is an American cable television company. It is the 5th largest cable provider in the USA, with most customers residing in New York, New Jersey, Connecticut, and Pennsylvania. do Brasil S.A., pursuant to the agreement entered into by the parties in October October: see month. 2003. Canbras received gross proceeds of $32.6 million, comprised of $22.168 million in cash and a one year promissory note bearing interest at 10% in the original principal amount of $10.432 million (subject to reduction in the event 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 obligations of Canbras arise under the terms of the sale transaction). BCI expects to receive in 2004 its proportionate pro·por·tion·ate adj. Being in due proportion; proportional. tr.v. pro·por·tion·at·ed, pro·por·tion·at·ing, pro·por·tion·ates To make proportionate. share of the net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). to be distributed by Canbras, currently estimated to be approximately $21 million assuming the full repayment Repayment The act of paying back a debt. Notes: Everyone has to repay their debts eventually. See also: Debt, Defeasance, Loan of the one-year adj. 1. completing its life cycle within a year. Adj. 1. one-year - completing its life cycle within a year; "a border of annual flowering plants" annual phytology, botany - the branch of biology that studies plants note. Plan of Arrangement Update On January 5, 2004, the Ontario Superior Court of Justice The Superior Court of Justice for Ontario, Canada is the successor to the former Ontario Court of Justice (General Division), and was created on April 19 1999. Its predecessor, the Ontario Court (General Division) was the result of the 1990 merger and discontinuance of the previous (the "Court") granted motions brought by BCI and BCE BCE abbr. 1. Bachelor of Chemical Engineering 2. Bachelor of Civil Engineering BCE Abbreviation for before the Common Era. Inc. to dismiss dismiss v. the ruling by a judge that all or a portion (one or more of the causes of action) of the plaintiff's lawsuit is terminated (thrown out) at that point without further evidence or testimony. each of the $1 billion lawsuits filed respectively by Mr. Wilfred Wilfred, Wilfrid, or Wilford can refer to:
A peak, 4,342.6 m (14,238 ft) high, in the Rocky Mountains of central Colorado. Gillespie Gil·les·pie , John Birks Known as "Dizzy." 1917-1993. American jazz trumpeter, bandleader, and composer who was a key leader in the bop movement. Noun 1. , both common shareholders of BCI, against BCI and BCE Inc. The Court dismissed both lawsuits on the grounds that the actions abused the process of the Court and 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). no reasonable cause of action, and ordered that neither plaintiff may amend his statement of claim to again bring these suits before the Court. The Court's decision is subject to appeal by the plaintiffs to the Ontario Court of Appeal The Court of Appeal for Ontario (frequently referred to as Ontario Court of Appeal) is headquartered in downtown Toronto, in historic Osgoode Hall. The Court is composed of 22 judges who hear over 1 500 appeals each year, on issues of private law, constitutional . On January 8, 2004, BCI filed the necessary documentation with the Securities Exchange Commission to cease being, with immediate effect, a reporting issuer in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . This follows the Corporation's de-listing of its common shares from the NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on National Market on December 31, 2003. On January 27, 2004, the Court approved a claims determination procedure for BCI setting out a process for the 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. of the claims filed against BCI in connection with the claims identification process completed on September 30, 2003. BCI is operating under a court supervised su·per·vise tr.v. su·per·vised, su·per·vis·ing, su·per·vis·es To have the charge and direction of; superintend. [Middle English *supervisen, from Medieval Latin Plan of Arrangement, pursuant to which BCI intends to monetize Monetize 1. To convert into money. 2. To convert from securities into currency that can be used to purchase goods and services. Notes: For example, you'll often hear Internet marketers talk about "monetizing website visitors. its assets in an orderly orderly /or·der·ly/ (or´der-le) an attendant in a hospital who works under the direction of a nurse. or·der·ly n. An attendant in a hospital. fashion and resolve outstanding claims against it in an expeditious ex·pe·di·tious adj. Acting or done with speed and efficiency. See Synonyms at fast1. ex manner with the ultimate objective of distributing the net proceeds to its shareholders and dissolving dis·solve v. dis·solved, dis·solv·ing, dis·solves v.tr. 1. To cause to pass into solution: dissolve salt in water. 2. the company. BCI is listed on the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. under the symbol BI. Visit our Web site at www.bci.ca. Certain statements made in this press release describing BCI's intentions, expectations or predictions 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 and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. For additional information with respect to risk factors relevant to BCI, see the Annual Information Form filed with 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. securities commissions. BCI disclaims any intention or obligation to update or revise any 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. , whether as a result of new information, future events or otherwise.
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Consolidated Balance Sheets (Unaudited)
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(In thousands of Canadian dollars)
As at As at
December 31, December 31,
2003 2002
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Current assets
Cash and cash equivalents $1,408 $2,617
Temporary investments (Note 3) 383,143 146,488
Investment in Canbras (Note 5) 15,000 -
Interest receivable on cash equivalents
and temporary investments 5,809 1,429
Notes receivable (Note 4) - 268,532
Prepaid expenses and other current assets 2,713 1,448
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408,073 420,514
Investments (Note 5) - 25,000
Deferred charges and fixed assets, net - 1,718
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$408,073 $447,232
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Current liabilities
Accounts payable and accrued liabilities $22,422 23,304
Long-term debt due within one year 160,000 -
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182,422 23,304
Long-term debt - 160,000
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182,422 183,304
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Commitments and contingencies (Note 9)
Shareholders' equity
Stated capital (Note 6) 10,000 10,000
Contributed surplus (Note 6) 1,941,560 1,941,560
Deficit (1,725,909) (1,687,632)
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225,651 263,928
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$408,073 $447,232
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Consolidated Statements of Earnings (Unaudited)
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(In thousands of Canadian dollars, except per share amounts)
Three months ended Twelve months ended
December 31, December 31,
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2003 2002 2003 2002
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Revenues $- $- $- $231,639
Cost of sales - - - 101,472
Selling, general
and administrative
expenses 2,011 3,026 9,870 77,993
Depreciation and
amortization 12 42 73 72,885
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Operating loss from
continuing operations (2,023) (3,068) (9,943) (20,711)
Interest expense (4,622) (4,622) (18,486) (121,900)
Interest income 2,835 955 10,421 18,629
Loss on investments
(Note 5) - (71,627) (1,442) (412,226)
Gain (loss) on
settlement of
Vesper loan
guarantees (Note 8) 10,389 - (16,947) -
Gain on collection of
Axtel long-term note
(Note 4) 9,778 - 9,778 -
Foreign exchange
gain (loss) 39 (1,814) (11,823) (64,504)
Other 119 299 165 (16,915)
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Earnings (loss) from
continuing operations
before non-controlling
interest 16,515 (79,877) (38,277) (617,627)
Non-controlling
interest - - - 5,274
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Net earnings (loss)
from continuing
operations 16,515 (79,877) (38,277) (612,353)
Discontinued
operations (Note 10) - 8,752 - 652,374
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Net earnings (loss) 16,515 (71,125) (38,277) 40,021
Interest on
convertible
debentures - - - (3,233)
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Net earnings (loss)
applicable to
common shares $16,515 $(71,125) $(38,277) $36,788
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Earnings (loss)
per common share
- basic and diluted
(Note 6) $0.41 $(1.78) $(0.96) $1.05
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Consolidated Statements of Deficit (Unaudited)
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(In thousands of Canadian dollars)
Three months ended Twelve months ended
December 31, December 31,
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2003 2002 2003 2002
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Deficit, beginning
of period,
as previously
reported $(1,742,424) $(1,616,507) $(1,687,632) $(870,241)
Cumulative effect
on prior years
of change in
accounting policy
for foreign
currency
translation - - - (112,748)
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Deficit, beginning
of period, as
restated (1,742,424) (1,616,507) (1,687,632) (982,989)
Transitional
goodwill
impairment - - - (732,431)
Net earnings (loss) 16,515 (71,125) (38,277) 40,021
Interest on
convertible
debentures - - - (3,233)
Share issue costs - - - (9,000)
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Deficit,
end of period $(1,725,909) $(1,687,632) $(1,725,909) $(1,687,632)
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Consolidated Statements of Cash Flows (Unaudited)
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(In thousands of Canadian dollars)
Three months ended Twelve months ended
December 31, December 31,
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2003 2002 2003 2002
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Operations
Net earnings (loss)
from continuing
operations $16,515 $(79,877) $(38,277) $(612,353)
Items not
affecting cash
(Gain) loss on
settlement of
Vesper loan
guarantees
(Note 8) (10,389) - 16,947 -
Gain on collection
of Axtel long-term
note (Note 4) (9,778) - (9,778) -
Loss on investments - 71,627 1,442 412,226
Depreciation and
amortization 12 42 73 72,885
Non-controlling
interest - - - (5,274)
(Gains) losses on
foreign exchange (3) 1,781 11,823 67,184
Accreted interest
on long-term debt - - - 31,615
Amortization of
long-term debt
expenses 222 221 886 885
Amortization of
premium on
temporary
investments 82 328 867 328
Amortization of
discount on notes - - - 7,039
Changes in working
capital items 137 1,987 (7,445) (48,942)
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Cash used for
continuing operations (3,202) (3,891) (23,462) (74,407)
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Investing activities
Notes receivable,
including exercise
of foreign currency
option 11,336 - 278,428 110,071
Capital expenditures 46 - 68 (41,189)
Other long-term assets - - - (2,440)
Proceeds from sale of
investment in
Telecom Americas Ltd. - - - 226,187
Temporary investments (22,560) (80,229) (239,511) (146,480)
Proceeds from
Axtel disposition - - 3,821 -
Reduction in cash
and cash equivalents
due to deconsolidation
of Telecom Americas Ltd. - - - (488,867)
Acquisition of
subsidiaries and
joint venture investees
(net of cash) - - - (20,869)
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Cash (used for)
provided by
continuing investing
activities (11,178) (80,229) 42,806 (363,587)
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Financing activities
Short-term loan
facilities - - - (348,503)
Increase in
notes payable - - - 121,351
Addition of
long-term debt - - - 177,452
Reduction of
long-term debt - - - (220,887)
Issuance of
common shares - - - 440,242
Share issue costs - - - (9,000)
Interest paid on
convertible debentures - - - (40,060)
Payment of Vesper
loan guarantees (15,628) - (15,628) 6,516
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Cash (used for)
provided by
continuing financing
activities (15,628) - (15,628) 127,111
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Foreign exchange
loss on cash held
in foreign currencies (942) - (4,925) (27,567)
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Cash used for
discontinued
operations (Note 11) - - - (37,137)
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Net (decrease)
increase in cash
and cash equivalents (30,950) (84,120) (1,209) (375,587)
Cash and cash
equivalents,
beginning of period 32,358 86,737 2,617 378,204
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Cash and cash
equivalents,
end of period $1,408 $2,617 $1,408 $2,617
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See Note 11 for supplementary cash flow information
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Notes to the Consolidated Financial Statements (unaudited)
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(All tabular amounts are in thousands of Canadian dollars,
except share and per share information)
1. Description of business and basis of presentation
The unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements
for the year ended December 31, 2002 as set out on pages 17 to 62
of Bell Canada International Inc.'s ("BCI" or the "Corporation")
2002 Annual Report, prepared in accordance with generally
accepted accounting principles in Canada ("GAAP").
Capitalized terms used herein, and not otherwise defined, have
the meanings defined in the 2002 Annual Report.
Bell Canada International Inc. ("BCI" or the "Corporation") is
operating under a Plan of Arrangement (the "Plan of Arrangement")
approved by the Ontario Superior Court of Justice (the "Court"),
pursuant to which BCI intends to monetize its assets in an
orderly fashion and resolve outstanding claims against it in an
expeditious manner with the ultimate objective of distributing
the net proceeds to its shareholders and dissolving the
Corporation. Accordingly, these financial statements have been
prepared on a basis which in the opinion of management provides
useful and relevant information to users of BCI's financial
statements. The consolidated balance sheet at December 31, 2003
reflects BCI's 75.6% interest in Canbras Communications Corp.
("Canbras") as a long-term investment recorded at the lower of
carrying value and net realizable value. BCI's 49.9% interest in
Genesis Telecom C.A. ("Genesis") has been previously written off.
BCI's remaining 1.5% interest in Axtel S.A. de C.V. ("Axtel") was
written off in the second quarter of 2003 in connection with the
restructuring of Axtel's debt (see note 5). Since July 1, 2002,
the consolidated statements of earnings and cash flows have
reflected only the activities of BCI as a holding company.
PLAN OF ARRANGEMENT
On July 12, 2002 the shareholders and noteholders of BCI approved
a Plan of Arrangement under the Canada Business Corporations Act.
Court approval for the Plan of Arrangement was received on July
17, 2002.
The principal elements of the Plan of Arrangement are as follows:
- Performance by BCI of all its obligations pursuant to the
share purchase agreement to effect the Telecom Americas
disposition;
- A share consolidation such that following the consolidation,
BCI would have 40 million shares outstanding;
- With the assistance of a court-appointed monitor, Ernst &
Young Inc., (the "Monitor") and under the supervision of the
Court, BCI's continued management of its remaining assets
for purposes of disposing of such assets in an orderly
manner;
- BCI's development, with the assistance of the Monitor, of
recommendations to the Court with respect to the
identification of claims against BCI and a process for
adjudicating and determining such claims;
- Following the disposition of all the assets of BCI and the
determination and adjudication of all claims against BCI,
the liquidation of BCI and the final distribution to BCI's
shareholders with the assistance of the monitor and the
approval of the Court; and
- Following the liquidation of BCI and the final distribution
to BCI's shareholders, the dissolution of BCI.
BCI has now discharged all of its obligations in connection with
the share purchase agreement to effect the Telecom Americas
disposition and has received and monetized the entire
consideration received in such disposition.
BCI's shares were consolidated in July 2002, on a basis of
approximately 1 share for every 120 held, resulting in 40 million
shares outstanding at that date.
BCI is continuing to manage, with the assistance of the Monitor,
its remaining assets for the purposes of disposing of such assets
in an orderly manner (see Note 5).
On December 2, 2002, the Court approved a claims identification
process for BCI. The claims identification process established a
procedure by which all claims against BCI would be identified
within a specified period. This period began on May 31, 2003 and
concluded on August 31, 2003 (September 30, 2003 for taxation
authorities) (the "Claims Bar Date"). A creditor that did not
submit a proof of claim by the Claims Bar Date is not entitled to
receive any payment in respect of that claim and is barred from
making that claim in the future against BCI (see Note 9 a)).
The following parties (the "Exempt Creditors") were not required
to submit proofs of claim, and their claims are not barred:
- Members of the class action lawsuit (the "6.75% Debenture
Class Action") filed a claim seeking damages of $250 million
against BCI, BCI's directors and BCE Inc. ("BCE") on behalf
of all persons that owned 6.75% Debentures on December 3,
2001, which action was certified as a class proceeding under
the Class Proceedings Act by order of the Court dated
December 2, 2002, with respect to their claims in the 6.75%
Debenture Class Action;
- The holders of BCI's $160-million 11% senior unsecured notes
due September 29, 2004;
- Parties with claims relating to the supply of goods or
services to BCI in the ordinary course, whether before or
after May 31, 2003;
- The holders of the Vesper Guarantees (see note 8); and
- Current or former employees of BCI in respect of
employment-related claims, whether before or after May 31,
2003, other than employment-related claims in respect of
which the current or former employee has initiated
litigation against BCI.
Following the conclusion of the claims identification process,
the following claims against the Corporation were filed by
non-exempt creditors:
Claims filed
------------
Shareholder Class Action (Shaw) (see Note 9 c)) $1,000,000
Shareholder Class Action (Gillespie) (see Note 9 c)) 1,000,000
Caisse de depot et placement ("CDP") (see Note 9 d)) 110,000
Other 19,000
In addition to the claims listed above, claims were filed by
certain parties indemnified by BCI in connection with any
liability they incur as a result of the 6.75% Debenture Class
Action or the action filed by CDP. These claims were filed by
BCI's directors, on the basis of standard indemnification
arrangements in place with all of BCI's directors, and by BCI's
financial advisor in the Recapitalization Plan, on the basis of
an indemnity granted to such advisor at the time of the
Recapitalization Plan. These indemnity claims do not increase
BCI's overall exposure to the underlying litigation.
With the exception of the indemnity claims, all of the claims
listed above, with the exception of those under the category
"Other", relate to liabilities and contingent liabilities that
had been previously disclosed by BCI in its financial statements
or other public disclosure documents.
Of the $19 million in claims listed above under the heading
"Other", approximately $4.5 million were filed by former holders
of BCI's convertible debentures who either filed a claim but
neglected to opt out of the 6.75% Debenture Class Action, in
which case they still form part of the Class Action and cannot
advance a separate claim, or who opted out but subsequently
changed their mind. All of these claimants will be bound by the
resolution or settlement of the 6.75% Debenture Class Action and
cannot maintain separate claims against BCI. In addition,
approximately $9 million relate to litigation that has been
dismissed or settled for the payment of a nominal amount. For
the balance of the claims under the heading "Other", BCI has
established adequate provisions.
On January 16, 2004, the Monitor issued a report to the Court
analyzing the claims that were filed in connection with the
claims identification process, and recommending the process by
which the claims filed will be adjudicated.
The Monitor in its report has also recommended a process for the
resolution of the claims against BCI. For all non-litigated
claims, the Monitor will make a determination as to the validity
of the claim. If a claimant wishes to contest the Monitor's
finding, then the claims will be referred to a Court-appointed
claims officer. The claims officer will also be empowered to
make certain recommendations with respect to litigated claims
against BCI other than the 6.75% Debenture Class Action, the
Shaw/Gillespie Class Action (if applicable), and the action filed
by the CDP. These latter actions will all remain subject to the
case management of the Court.
The claims resolution process recommended by the Monitor was
approved by the Court on January 27, 2004.
2. Significant accounting policies
In the opinion of the management of BCI, the unaudited
consolidated financial statements have been prepared on a basis
consistent with the annual audited consolidated financial
statements. The unaudited consolidated financial statements
contain all adjustments necessary for a fair presentation of the
financial position as at December 31, 2003 and the results of
operations and cash flows for the three and twelve months ended
December 31, 2003 and 2002, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with
Canadian GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and the disclosure of contingent
assets and liabilities. Actual results could differ from those
estimates.
The following is a summary of the Corporation's accounting
policies for Cash and Cash Equivalents and Temporary Investments.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash and highly-liquid
short-term debt investments with an initial maturity of three
months or less at the date of acquisition.
TEMPORARY INVESTMENTS
Temporary investments consist of debt investments with an initial
maturity greater than three months but less than twelve months at
the date of acquisition which the Corporation intends to hold to
maturity. The temporary investments are carried at cost with
discounts or premiums arising on purchase amortized to maturity.
For a complete description of the Corporation's significant
accounting policies, refer to BCI's financial statements for the
year ended December 31, 2002.
3. Temporary Investments
As at December 31, 2003, the Corporation held investment grade
corporate debentures and medium term notes in the amount of
$7,035,000 including an unamortized premium of $35,000 being
amortized over the remaining term to maturity. The debentures and
medium term notes mature on February 9, 2004, and bear interest
semi-annually at rates ranging from 7.3% to 7.45%. The
effective yields on the debentures and medium term notes range
from 2.66% to 2.77%. At December 31, 2003 the estimated fair
value of the debentures and medium term notes amounted to
$7,241,000. In addition, the Corporation also held investment
grade commercial paper in the amount of $376,108,000. The
commercial paper matures at varying dates from January 5, 2004 to
May 7, 2004. The effective yields on the commercial paper range
from 2.35% to 3.60%. At December 31, 2003 the estimated fair
value of the commercial paper amounted to $381,736,000.
4. Notes Receivable
a) In connection with the Axtel restructuring (see Note 5), BCI
received two non-interest bearing notes from Axtel. One in
the amount of $4,737,000 (US$3,456,000) (the "Short-Term
Note"), payable in installments on June 30, September 20, and
December 31, 2003. The other note, in the amount of
US$9,395,000 (recorded at zero fair value) (the "Long-Term
Note") was payable in the second quarter of 2006.
On December 17, 2003 BCI received US$8,555,000 in connection
with the prepayment by Axtel of two promissory notes held by
BCI: US$1,172,000 in respect of the final installment on the
Short-Term Note, and US$7,383,000 in respect of the Long-Term
Note. These prepayment amounts were provided for in the
agreement governing the notes. As a result of these
prepayments, BCI recorded a net gain of approximately
$9,778,000 (US$7,380,000).
b) On March 3, 2003, BCI received the payment of the remaining
balance of US$170 million (the "AMX Note") due from America
Movil. These proceeds represented the final payment on the
sale of BCI's interest in Telecom Americas on July 24, 2002.
Upon the exercise of a foreign currency option ("FX Option")
on March 4, 2003, the Corporation received net proceeds of
approximately $264,010,000.
5. Investments
Investments consist of the Corporation's 75.6% economic interest
in Canbras recorded at the lower of carrying value and net
realizable value. Investments exclude the previously written off
investment in Genesis (49.9%) as well as in Axtel (1.5%) which
was written off in connection with the restructuring of Axtel's
debt.
On October 8, 2003, Canbras announced that it had entered into
definitive agreements to sell all of its broadband communications
operations in Brazil which sale was completed on December 24,
2003. Canbras received gross proceeds of $32,600,000, comprised
of $22,168,000 in cash and a one year promissory note bearing
interest at 10% in the original principal amount of $10,432,000
(subject to reduction in the event indemnification obligations of
Canbras arise under the terms of the sale transaction). Based on
Canbras' announced estimate of the net amount (after payment of
transaction expenses and winding-up costs) that it expects to
distribute to its shareholders of approximately $28,000,000
($0.51 per share), which assumes full payment of the one-year
note and no unforeseen claims against it, BCI expects to receive
approximately $21,000,000 as its pro rata share of such net
proceeds.
On March 27, 2003, BCI announced that Axtel was proceeding with a
series of transactions pursuant to which Axtel's debt was reduced
by US$400 million. These restructuring transactions, which were
concluded in the second quarter of 2003, included a capital call
on shareholders, in which BCI did not participate, which resulted
in a reduction of BCI's equity interest in Axtel to 1.5%.
In connection with the restructuring, which also included a
settlement of all obligations under a BCI service agreement with
Axtel, on May 30, 2003, BCI received $3,820,000 (US$2,787,000) in
cash and two non-interest bearing notes. One note, in the amount
of $4,737,000 (US$3,456,000), was payable in installments on June
30, September 20 and December 31, 2003, and was recorded at a
fair value equal to face value. The other note, in the amount of
US$9,395,000, was payable in the second quarter of 2006, and was
recorded at zero fair value. BCI's residual equity interest in
Axtel was also recorded at zero fair value. As a result of the
Corporation having carried its investment in Axtel at
$10,000,000, a loss of $1,442,000 was recorded in the second
quarter of 2003.
6. Stated capital
A) COMMON SHARES, AS AT DECEMBER 31, 2003 ARE AS FOLLOWS:
On July 12, 2002, the Shareholders and Noteholders of BCI
approved the Plan of Arrangement which resulted in, among
other things, a share consolidation of 1 share for every
approximately 120 held, such that immediately following the
consolidation, BCI had 40,000,000 shares outstanding. The
number and exercise price of all stock options issued under
its stock option plans for senior executives and key
employees have also been adjusted to reflect the
consolidation. In addition, all share and per share amounts
have been adjusted to reflect the share consolidation. plans
for senior executives and key employees have also been
adjusted to reflect the consolidation. In addition, all share
and per share amounts have been adjusted to reflect the share
consolidation.
Number of Stated
Shares capital
---------------------------------------------------------------------
Balance, December 31, 2002 40,000,000 $10,000
---------------------------------------------------------------------
Balance, December 31, 2003 40,000,000 $10,000
---------------------------------------------------------------------
---------------------------------------------------------------------
B) STOCK OPTIONS
At December 31, 2003, 6,955 stock options were outstanding
of which 6,846 were exercisable. The stock options are
exercisable on a one-for-one basis for common shares of the
Corporation. The total stock options outstanding have
exercise prices ranging from $1,978 to $5,037 per share over
a remaining contract life of between 1.8 to 6.4 years.
C) EARNINGS (LOSS) PER SHARE FROM CONTINUING OPERATIONS
The following table sets forth the computation of basic and
diluted earnings (loss) per share from continuing operations
as if the share consolidation described in Note 1, took
place as of January 1, 2002:
Three months ended Twelve months ended
December 31, December 31,
---------------------------------------------------------------------
2003 2002 2003 2002
---------------------------------------------------------------------
Numerator:
Net earnings (loss)
from continuing
operations $16,515 $(79,877) $(38,277) $(612,353)
Interest on
convertible
debentures - - - (3,233)
---------------------------------------------------------------------
Net earnings (loss)
from continuing
operations applicable
to common shares -
basic and diluted $16,515 $(79,877) $(38,277) $(615,586)
---------------------------------------------------------------------
Denominator:
Weighted-average
number of shares
- basic and diluted 40,000 40,000 40,000 35,150
---------------------------------------------------------------------
Basic and diluted
earnings (loss) per
share from continuing
operations $0.41 $(2.00) $(0.96) $(17.51)
---------------------------------------------------------------------
---------------------------------------------------------------------
The Corporation excluded potential common share equivalents
from the computation of diluted earnings (loss) per share
from continuing operations computed above, as they were
anti-dilutive.
D) EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and
diluted earnings (loss) per share as if the Share
Consolidation described in Note 1, took place as of January
1, 2002:
Three months ended Twelve months ended
December 31, December 31,
---------------------------------------------------------------------
2003 2002 2003 2002
---------------------------------------------------------------------
Numerator:
Net earnings (loss) $16,515 $(71,125) $(38,277) $40,021
Interest on
convertible
debentures - - - (3,233)
---------------------------------------------------------------------
Net earnings (loss)
applicable to
common shares
- basic and diluted $16,515 $(71,125) $(38,277) $36,788
---------------------------------------------------------------------
Denominator:
Weighted-average
number of common
shares - basic
and diluted 40,000 40,000 40,000 35,150
---------------------------------------------------------------------
Basic and diluted
earnings (loss)
per share $0.41 $(1.78) $(0.96) $1.05
---------------------------------------------------------------------
---------------------------------------------------------------------
Potential common share equivalents were excluded from the
computation of diluted earnings (loss) per share as they were
anti-dilutive in the computation of diluted earnings (loss)
per share from continuing operations.
7. Income taxes
At December 31, 2002, the Corporation had Canadian non-capital
tax losses from operations carried forward amounting to
approximately $450,222,000, expiring at various dates to the year
2009. In addition, the Corporation had Canadian capital losses
from operations amounting to approximately $53,653,000 that can
be carried forward indefinitely. The expected future statutory
tax rate for non-capital losses is 31.02% and for the capital
losses is 38.37%. The benefit of these losses has not been
reflected in the consolidated financial statements.
8. Vesper loan guarantees
As part of the Vesper financial restructuring, which was
concluded in November 2001, the Corporation entered into
agreements (the "Vesper Guarantees") with certain Brazilian banks
the ("Vespers' Banks") to guarantee 31.4% of the US dollar
equivalent of the Vespers' debt outstanding with such banks. At
the time BCI entered into the Vesper Guarantees, the aggregate
debt outstanding with the Vespers' Banks, which was principally
denominated in Brazilian reais, represented the equivalent of
approximately US$102.9 million. BCI's exposure under the Vesper
Guarantees was capped at a maximum amount of US$32.3 million.
Following certain prepayment transactions in January 2003, BCI's
exposure as at June 30, 2003, under the Vesper Guarantees was
approximately US$20.2 million.
On December 2, 2003, pursuant to the agreement announced on
September 23, 2003 among BCI, the Vespers, the Vespers' majority
shareholder QUALCOMM, and a syndicate of the Vespers' Banks, BCI
paid US$12,000,000 as consideration for the absolute release of
its obligation under the Vesper Guarantees. At the same time, BCI
disposed of its remaining 1.5% indirect equity interest in the
Vespers for nominal consideration, and BCI and QUALCOMM provided
each other with full releases with respect to all matters related
to the Vespers. As a result of these transactions, BCI recorded a
gain of $10,389,000 in the fourth quarter of 2003 reducing the
year-to-date Vesper loan guarantees expense to $16,947,000 from
$27,336,000 previously recorded in the second quarter of 2003.
9. Contingencies
The Corporation has not accrued any amounts with respect to the
following contingencies:
a) Comcel is currently involved in litigation whereby plaintiffs
are claiming damages of approximately US$70 million relating
to the provision by Comcel of long-distance services through
voice-over internet protocol ("VOIP") between December 1998
and September 1999. During the fourth quarter of 2003,
Comcel's appeal of the initial finding that it improperly
provided services was dismissed and the action has returned
to the damages determination phase. Comcel's Colombian
counsel believes that the damage allegations will be subject
to defenses on the merits and that substantially all of the
claims lack a sufficient evidentiary basis.
BCI had agreed to indemnify Comcel and its affiliates for the
initial US$5 million of damages and for any damages Comcel
may suffer in excess of US$7.5 million. Comcel is responsible
for any damages incurred in excess of US$5 million and up to
US$7.5 million. However, in connection with BCI's recently
completed claims identification process (established as part
of BCI's Plan of Arrangement), Comcel did not file a claim
with BCI's court-appointed Monitor with respect to the Comcel
VOIP indemnity. As a result, pursuant to the order of the
Court approving the claims identification process, Comcel is
now barred from asserting any claim against BCI in connection
with this lawsuit. However, BCI understands that Comcel may
dispute that its claim is so barred.
b) On April 29, 2002, BCI announced that a lawsuit had been
filed with the Court by certain former holders of BCI's $250
million 6.75% convertible unsecured subordinated debentures
(the "6.75 Debenture Class Action"). The plaintiffs seek
damages from BCI, BCE and certain current and former members
of BCI's Board of Directors, for up to an amount of $250
million in connection with the settlement, on February 15,
2002, of the debentures through the issuance of common
shares, in accordance with BCI's recapitalization plan (the
"Recapitalization Plan") completed on February 15, 2002. In
accordance with an agreement reached among the parties to
this lawsuit, the Court has ordered that this lawsuit be
certified as a class action within the meaning of applicable
legislation. The certification order does not constitute a
decision on the merits of the class action, and BCI continues
to be of the view that the allegations contained in the
lawsuit are without merit and intends to vigorously defend
its position. As part of the agreement among the parties, the
plaintiffs in the class action have abandoned their claim for
punitive damages (the statement of claim originating the
lawsuit sought $30 million in punitive damages). The
plaintiffs have also agreed to the dismissal of the class
action against BMO Nesbitt Burns Inc., one of the original
defendants in the proceeding.
c) BCI is also involved in litigation with Mr. Wilfred Shaw and
Mr. Cameron Gillespie, each of whom has filed actions seeking
the Court's approval to proceed by way of class action on
behalf of all persons who owned BCI common shares on December
3, 2001. The lawsuits each seek $1 billion in damages from
BCI and BCE, in connection with the issuance of BCI common
shares on February 15, 2002 pursuant to the Recapitalization
Plan and the implementation of the Plan of Arrangement
approved by the Court on July 17, 2002.
On January 5, 2004, the Court issued an order dismissing
each of these lawsuits against BCI and BCE on the grounds
that the actions abused the process of the Court and
disclosed no reasonable cause of action, and ordered that
neither plaintiff may amend his statement of claim to again
bring these suits before the Court. The Court's decision is
subject to appeal by the plaintiffs to the Ontario Court of
Appeal.
The Shaw action was originally filed on September 27, 2002.
After Mr. Shaw's original action was dismissed by the Court
on May 9, 2003, Mr. Shaw filed an amended statement of claim
on June 27, 2003. On August 30, 2003, Mr. Gillespie filed a
lawsuit that was, except with respect to the name of the
plaintiff, substantially identical to Shaw's amended
statement of claim. As such, BCI is of the view that the
filing of the Gillespie action does not increase BCI's
potential liability beyond that relating to the initial
filing of the Shaw action in September 2002. It is these two
actions which were dismissed by the Court's order issued
January 5, 2004.
BCI is of the view that the allegations are without merit
and, in the event the Court's decision is appealed, intends
to continue taking all appropriate actions in order to
vigorously defend its position.
d) CDP filed a proof of claim with the Monitor and a Notice of
Action in the Court in connection with CDP's former holdings
of a portion of BCI's 6.5% convertible unsecured subordinated
debentures (the "CDP Action"). CDP is seeking up to $110
million in damages, together with interest and costs, against
BCI, BCE and certain current and former members of BCI's
board of directors. CDP's claim contains allegations that are
substantially similar to those contained in the 6.75%
Debenture Class Action.
On September 9, 2003, BCI, BCE and the other defendants in
the CDP Action entered into an agreement (modified November
28, 2003) with CDP with respect to the procedure to be
followed in connection with the CDP action. Pursuant to the
agreement, the defendants agreed with CDP, after limited
examinations of CDP in October 2003 to determine whether the
CDP Action raises factual or legal issues or defences
different from those in the 6.75% Debenture Class Action,
that (subject to the approval of the Court) the prosecution
of the CDP Action should be stayed pending a final
adjudication or settlement of the 6.75% Debenture Class
Action, and the resolution of the 6.75% Debenture Class.
Action shall form the basis for the final resolution of the
CDP Action. CDP has also agreed not to advance any claims as
a holder of 6.75% debentures outside of the 6.75% Debenture
Class Action, nor any claims as a common shareholder of BCI
outside of any certified common shareholder class action of
which it may be found to be a member.
By order dated December 19, 2003, this agreement was approved
by the Court and the action was stayed until final
disposition of the 6.75% Debenture Class Action.
BCI is of the view that the allegations are without merit and
intends to take all appropriate actions in order to
vigorously defend its position.
10. Discontinued operations
Spanish Americas Mobile, Spanish Americas Broadband and Brazil
Broadband
Effective December 31, 2001, the Corporation adopted a formal
plan of disposal for all its operations in the Spanish Americas
Mobile (Comcel), Spanish Americas Broadband (Techtel and Genesis)
and Brazil Broadband (Canbras) business segments. Effective
February 8, 2002, as part of a reorganization of Telecom Americas
(the "Reorganization") Comcel was disposed of at management's
best estimate of fair value and Genesis and Techtel were
written-down to fair value. Regulatory approval for the
distribution of Techtel was received during May, 2002,
accordingly it was distributed as provided for in the
Reorganization.
Three months ended Twelve months ended
December 31, December 31,
---------------------------------------------------------------------
2003 2002 2003 2002
---------------------------------------------------------------------
Net gain on
Reorganization - 8,752 - 692,212
Loss on write-down
of investments - - - (108,601)
Loss on write-off
of put option - - - (15,898)
Reversal of future
income tax liabilities - - - 79,733
Other - - - 4,928
---------------------------------------------------------------------
Net earnings from
discontinued
operations $- $8,752 $- $652,374
---------------------------------------------------------------------
Basic and diluted
earnings per share
from discontinued
operations (a) $- $0.22 $- $18.56
---------------------------------------------------------------------
---------------------------------------------------------------------
(a) Potential common share equivalents were excluded from the
computation of diluted earnings per share from discontinued
operations as they were anti-dilutive in the computation of
diluted earnings (loss) per share from continuing operations
(see Note 6 d)).
Cash flows from discontinued operations are as follows:
Three months ended Twelve months ended
December 31, December 31,
---------------------------------------------------------------------
2003 2002 2003 2002
---------------------------------------------------------------------
Operating activities $- $- $- $7,357
Investing activities - - - (61,567)
Financing activities - - - 18,062
Foreign exchange gain
(loss) on cash held in
foreign currencies - - - (989)
---------------------------------------------------------------------
Cash flows used for
discontinued operations $- $- $- $(37,137)
---------------------------------------------------------------------
11. Supplementary cash flow information
Three months ended Twelve months ended
December 31, December 31,
---------------------------------------------------------------------
2003 2002 2003 2002
---------------------------------------------------------------------
Interest paid $- $- $17,600 $100,526
---------------------------------------------------------------------
---------------------------------------------------------------------
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