Bell Aliant Regional Communications Inc

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					    Bell Aliant Regional Communications Inc.




Consolidated financial
statements and notes
                             December 31, 2012
Bell Aliant Regional Communications Inc.
Management’s report




Management’s report
TO THE SHAREHOLDERS
The accompanying financial statements are the responsibility of management. The financial statements
have been prepared according to International Financial Reporting Standards and include amounts based
on management’s best estimates and judgments.

Management has established and maintains accounting and internal control systems that include written
policies, procedures and a comprehensive internal audit program. These systems are designed to provide
reasonable assurance that our financial records are reliable and form a proper basis for the timely and
accurate preparation of financial statements, and that our assets are properly safeguarded.

The board of directors oversees management’s responsibilities for financial reporting primarily through
the audit committee. The financial statements have been reviewed and approved by the board of directors
on recommendation from the audit committee. The audit committee is also responsible for making
recommendation with respect to the appointment of the independent auditors and for approving their
remuneration and terms of engagement. Other responsibilities of the audit committee include meeting
periodically with the independent auditors, management and the internal auditors to review accounting,
auditing, internal controls, litigation, financial reporting and other matters. The internal auditors and the
external auditors have free access to the audit committee both with and without management present.

Our independent auditors, Deloitte LLP, have audited our financial statements. The accompanying auditor’s
report outlines the scope of their examination and their opinion.




Karen H. Sheriff                                       Glen LeBlanc
President and chief executive officer                  Chief financial officer
Bell Aliant Regional Communications Inc.               Bell Aliant Regional Communications Inc.

March 5, 2013




                                                                                 Bell Aliant 2012 annual report   1
                                                                                Bell Aliant Regional Communications Inc.
                                                                                             Independent auditor’s report




Independent auditor’s report
TO THE SHAREHOLDERS OF BELL ALIANT REGIONAL COMMUNICATIONS INC.
We have audited the accompanying consolidated financial statements of Bell Aliant Regional
Communications Inc., which comprise the consolidated statements of financial position as at December 31, 2012,
and December 31, 2011, and the consolidated statements of comprehensive income, changes in equity
and cash flows for the years then ended, and a summary of significant accounting policies and other
explanatory information.

Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide
a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Bell Aliant Regional Communications Inc. as at December 31, 2012, and December 31, 2011, and
its financial performance and its cash flows for the years then ended in accordance with International
Financial Reporting Standards.




Chartered Accountants
March 5, 2013
Halifax, Nova Scotia




                                                                                   Bell Aliant 2012 annual report      2
Bell Aliant Regional Communications Inc.
Consolidated financial statements




Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the year ended December 31
(in millions of Canadian dollars, except earnings per share)                                            Note             2012        2011

Operating revenues                                                                                          3           2,761.7    2,775.0
Expenses
   Operating expenses                                                                                      4            1,455.1    1,448.2
   Depreciation and amortization                                                                          11              645.3      633.0
   Severance and other charges                                                                             5               15.9       37.0
Operating income                                                                                                          645.4      656.8
Finance costs                                                                                              6              158.1      171.5
Other expense                                                                                             14                6.5         7.2
Earnings before income tax                                                                                                480.8      478.1
Income tax expense                                                                                          7             131.6      137.4
Net earnings from continuing operations                                                                                   349.2      340.7
Net loss from discontinued operations                                                                       8                —         (4.4)
Net earnings                                                                                                              349.2      336.3

Actuarial gains (losses) on post-employment benefit plans                                                   9            (162.2)     35.2
Reclassification of losses on derivatives to finance expense                                                9               2.8       3.0
Total other comprehensive income (loss), net of income taxes                                                             (159.4)     38.2
Comprehensive income                                                                                                      189.8     374.5

Net earnings attributable to:
Shareholders                                                                                                             330.0      324.9
Non-controlling interests
  Preferred shares issued by a subsidiary                                                                                 19.2       11.4
                                                                                                                         349.2      336.3

Comprehensive income attributable to:
Shareholders                                                                                                             170.6      363.1
Non-controlling interest
  Preferred shares issued by a subsidiary                                                                                 19.2       11.4
                                                                                                                         189.8      374.5

Earnings (loss) per share                                                                                 10
Basic and diluted from continuing operations                                                                              3.26        3.25
Basic and diluted from discontinued operations                                                                               —       (0.05)
Basic and diluted                                                                                                         3.26        3.20
                                                      See accompanying notes to the consolidated financial statements




3          Bell Aliant 2012 annual report
                                                                                                            Bell Aliant Regional Communications Inc.
                                                                                                                   Consolidated financial statements




CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
                                                                                                                      As at                  As at
(in millions of Canadian dollars)                                                            Note       December 31, 2012      December 31, 2011

Current assets
  Cash and cash equivalents                                                                     23                     28.9                     35.7
  Trade and other receivables                                                                8, 23                    369.6                    411.6
  Inventory                                                                                                            10.7                     13.7
  Prepayments                                                                                                           9.7                     17.3
  Income tax receivable                                                                                                19.4                     17.8
                                                                                                                      438.3                    496.1

Non-current assets
  Long-term receivables                                                                                                15.4                   17.8
  Other long-term assets                                                                                               10.3                   15.2
  Post-employment benefits                                                                         15                  85.7                     —
  Property, plant and equipment                                                                    11               3,441.7                3,401.6
  Finite-life intangible assets                                                                    11               1,061.9                1,115.7
  Goodwill and indefinite-life intangible assets                                                   12               2,885.2                2,885.2
                                                                                                                    7,500.2                7,435.5
Total assets                                                                                                        7,938.5                7,931.6

Current liabilities
  Short-term notes payable to related party                                                        23                    —                       5.7
  Trade and other payables                                                                                            374.1                    366.7
  Severance liability                                                                               5                  13.4                     20.5
  Short-term debt                                                                                  13                 356.0                    351.0
  Long-term debt due within one year                                                               13                  99.4                     31.3
                                                                                                                      842.9                    775.2
Non-current liabilities
  Long-term note payable to related party                                                       23                     52.3                     —
  Deferred income tax liability                                                                  7                     80.1                   29.8
  Long-term debt                                                                                13                  2,583.1                2,651.8
  Post-employment benefits                                                                      15                    802.1                  597.8
  Deferred revenue and other long-term liabilities                                           5, 14                     39.0                   38.2
                                                                                                                    3,556.6                3,317.6
Total liabilities                                                                                                   4,399.5                4,092.8

Equity attributable to shareholders
   Shareholders’ capital                                                                           16               3,651.6                3,651.6
   Contributed surplus                                                                                                263.9                  263.9
   Accumulated total comprehensive loss                                                                              (769.7)                (470.2)
Total equity attributable to shareholders                                                                           3,145.8                3,445.3
Non-controlling interest
   Preferred shares issued by a subsidiary                                                         18                 393.2                  393.5
Total equity                                                                                                        3,539.0                3,838.8
Total equity and liabilities                                                                                        7,938.5                7,931.6
                                          See accompanying notes to the consolidated financial statements


                                                    Approved on behalf of the board of directors




                                       Edward Reevey                                          Louis Tanguay
                                          Director                                               Director




                                                                                                              Bell Aliant 2012 annual report       4
Bell Aliant Regional Communications Inc.
Consolidated financial statements




CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31
(in millions of Canadian dollars)                                                             Note              2012        2011

Cash from (used in) operating activities
  Net earnings from continuing operations                                                                      349.2       340.7
  Adjustments to reconcile net earnings to cash from operating activities:
     Depreciation and amortization                                                                              645.3       633.0
     Income tax expense                                                                           7             131.6       137.4
     Income taxes paid, net                                                                                       (9.0)       (1.6)
     Current service costs of post-employment benefit plans                                   4, 15              57.3        60.4
     Funding of post-employment benefit plans                                                    15            (166.3)     (414.9)
     Finance costs                                                                                6             158.1       171.5
     Interest paid                                                                                             (156.4)     (160.1)
     Interest received                                                                                             1.2         1.3
     Other operating activities                                                                                   (3.0)       (0.3)
     Change in operating assets and liabilities                                                 19               32.4        50.1
                                                                                                              1,040.4       817.5

Cash from (used in) investing activities
  Purchase of property, plant and equipment and finite-life intangible assets                   11             (592.4)     (572.9)
  Other investing activities                                                                                      0.6         4.2
                                                                                                               (591.8)     (568.7)

Cash from (used in) financing activities
  Repayment of short-term notes payable to related parties                                      23                 (5.7)     (43.0)
  Proceeds of long-term note payable to related party                                           23                52.3           —
  Proceeds (repayments) of short-term debt                                                      13                  5.0      (26.2)
  Repayment of long-term debt                                                                   13                 (4.8)   (413.5)
  Proceeds on long-term debt                                                                    13                   —      300.0
  Debt issue costs                                                                              13                 (0.6)       (4.2)
  Repayment of finance lease obligations                                                        13               (31.9)      (25.3)
  Issuance of preferred shares by a subsidiary                                                                       —      402.5
  Preferred share issue costs, before taxes                                                                          —       (13.4)
  Dividends paid to Bell Aliant Inc. and BCE Inc. (BCE)                                         16             (470.5)     (436.5)
  Dividends paid to preferred shareholders                                                      18               (19.5)      (11.1)
  Distributions paid to unitholders                                                                                  —       (36.5)
  Distributions paid to holders of class B exchangeable partnership units
     issued by Bell Aliant Regional Communications, Limited Partnership                                             —        (17.4)
                                                                                                               (475.7)     (324.6)
Decrease in cash from continuing operations                                                                      (27.1)      (75.8)
Increase in cash from discontinued operations                                                     8               20.3        46.1
Cash and cash equivalents at beginning of year                                                                    35.7        65.4
Cash and cash equivalents at end of year                                                                          28.9        35.7

Supplementary disclosure
Cash                                                                                                             14.3        35.1
Cash equivalents                                                                                23               14.6         0.6
Cash and cash equivalents at end of year                                                                         28.9        35.7
                                            See accompanying notes to the consolidated financial statements




5          Bell Aliant 2012 annual report
                                                                                                                  Bell Aliant Regional Communications Inc.
                                                                                                                         Consolidated financial statements




CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
                                                                                                                               Non-
                                                                                                                        controlling
                                                                                    Equity attributable to shareholders    interest
                                                                                                     Accu-
                                                                                                   mulated               Preferred
                                                                                                     other                  shares
                                                                            Contri-     Accu-     compre-                    issued
For the year ended December 31, 2012                           Share         buted    mulated      hensive                     by a                   Total
(in millions of Canadian dollars)                Note         capital       surplus     deficit        loss       Total subsidiary                   equity

Balance at beginning of year                                3,651.6          263.9          (450.5)         (19.7)       3,445.3      393.5      3,838.8
Net earnings                                                     —              —            330.0             —           330.0        19.2       349.2
Other comprehensive income (loss)                   9            —              —           (162.2)           2.8         (159.4)         —       (159.4)
Dividends declared                             16, 18            —              —           (470.5)            —          (470.5)      (19.5)     (490.0)
Other                                                            —              —              0.4             —             0.4          —          0.4
Balance at end of year                                      3,651.6          263.9          (752.8)         (16.9)       3,145.8      393.2      3,539.0

                                                                                                                               Non-
                                                                                                                        controlling
                                                                                    Equity attributable to shareholders    interest
                                                                                                     Accu-
                                                                                                   mulated               Preferred
                                                                                                     other                  shares
                                                                            Contri-     Accu-     compre-                    issued
For the year ended December 31, 2011            Share      Partners’         buted    mulated      hensive                     by a                   Total
(in millions of Canadian dollars)      Note    capital       capital        surplus     deficit        loss       Total subsidiary                   equity

Balance at beginning of year                       —        2,061.5            0.4          (373.2)         (22.7)       1,666.0          —      1,666.0
Conversion to corporation        16           3,651.6      (2,061.5)         263.5             (0.9)           —         1,852.7          —      1,852.7
Net earnings                                       —             —              —            324.9             —           324.9        11.4       336.3
Other comprehensive income        9                —             —              —             35.2            3.0           38.2          —         38.2
Issuance of preferred shares                       —             —              —                —             —              —       393.2        393.2
Dividends declared           16, 18                —             —              —           (436.5)            —          (436.5)      (11.1)     (447.6)
Balance at end of year                        3,651.6            —           263.9          (450.5)         (19.7)       3,445.3      393.5      3,838.8
                                                See accompanying notes to the consolidated financial statements




                                                                                                                    Bell Aliant 2012 annual report        6
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




Notes
All amounts are in millions of Canadian dollars, except where noted.

NOTE 1
DESCRIPTION OF BUSINESS

Bell Aliant Regional Communications Inc. (Bell Aliant GP) is incorporated and domiciled in Canada. Our head
office is located at 1505 Barrington Street, Halifax, Nova Scotia, B3J 2W3. All references to “we”, “us”, or “our”
refer to Bell Aliant GP and its subsidiaries. We hold the principal operations of Bell Aliant Inc., which primarily
focus on regional telecommunications services in Atlantic Canada, Ontario and Quebec. We provide a wide
range of innovative and traditional voice and data communications services.

NOTE 2
SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation
These audited consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB) and interpretations
of the IFRS Interpretations Committee. They have been prepared on a historical cost basis except for certain
financial assets and liabilities, which are measured at their fair value, as discussed further under “Financial
instruments”. They are presented in our functional currency, Canadian dollars. These audited consolidated
financial statements were approved and authorized for issue by our board of directors on March 5, 2013.

Significant accounting policies
The following accounting policies have been applied consistently to all periods presented in these consolidated
financial statements.

Basis of consolidation and subsidiaries
We consolidate the financial statements of all the subsidiaries we control. Control of a subsidiary exists when
we have the power to govern the financial and operating policies of that entity to obtain benefits from its
activities. In assessing control, potential voting rights that are currently exercisable are taken into account.
The financial statements of our subsidiaries are included in our consolidated financial statements from the
date that control commences until the date that control ceases. The accounting policies of our subsidiaries
align with our accounting policies.

At December 31, 2012, our principal subsidiaries include Bell Aliant Regional Communications, Limited Partnership
(Bell Aliant LP), Télébec, Limited Partnership (Télébec), NorthernTel, Limited Partnership (NorthernTel) and
Bell Aliant Preferred Equity Inc. (Prefco). All transactions and balances between these entities have been
eliminated on consolidation.

Operating segment
We function as one operating segment. This represents the manner in which we are organized and managed
for planning and assessing performance and making resource allocation decisions. Our operations, including
all revenues from customers, capital investments and goodwill, are concentrated in Canada.

Revenue recognition
We recognize operating revenues when they are earned or, specifically, when services are provided or products
are delivered to customers, clear evidence of a sale arrangement exists, amounts of revenue and costs can be
reliably determined, and collectability is reasonably assured.




7       Bell Aliant 2012 annual report
                                                                                   Bell Aliant Regional Communications Inc.
                                                                             Notes to the consolidated financial statements




In particular, we recognize:
• Fees for local, long distance, data and Internet, wireless, and other services when we provide the services;
• Other fees, such as network access fees, license fees, hosting fees, and maintenance fees over the term of
   the contract;
• Revenues from the sale of equipment when all the significant risks and rewards of ownership are transferred
   to the buyer, normally when the equipment is delivered and accepted by customers; and
• Revenues on long-term contractual arrangements based on performance as services are provided or
   contract milestones are met.

Revenues exclude sales taxes and other taxes and amounts we collect from our customers on behalf of others.
We recognize rebates and allowances to customers as a reduction of revenue.

We defer revenue recognition for payments received in advance until we provide the service or deliver the
product to customers.

Multiple-element arrangements
For arrangements involving the sale of multiple products or services, we separately account for each product
or service if the product or service has value to our customer on a stand-alone basis.

We allocate the consideration from the revenue arrangement to each product or service based on its relative
fair value. When an amount allocated to a delivered item is contingent upon the delivery of additional items
or meeting specific performance conditions, the amount allocated to that delivered item is limited to the
non-contingent amount.

The revenue allocated to each product or service is then recognized in accordance with our revenue
recognition policies, as described above.

Long-term contractual agreements
We recognize revenue from long-term contractual agreements based on the percentage of completion method.
The stage of completion is estimated using an appropriate measure depending on the nature of the contract.
For long-term services contracts, revenue is recognized as services are provided, usually on an output or
consumption basis. For fixed price contracts, revenue is recognized by reference to the stage of completion, as
determined by the proportion of costs incurred relative to the estimated total contract costs, or other measures
of completion such as the achievement of contract milestones and customer acceptance.

Costs related to delivering services under long-term contractual agreements are expensed as incurred. If it is
determined during the performance of the contract that the actual and estimated costs to complete exceed the
estimated revenue for a contract, a provision for the estimated loss is immediately recognized in net earnings
for the period.

Subcontracted services
For arrangements where subcontractors perform services for our customers, we recognize revenue based on
the amount billed to customers when we act as the principal in the arrangement. When not acting as principal,
we recognize revenue based on the net amount we retain.

Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, balances with banks, investments in money market
instruments with a maturity of less than 90 days and notes receivable from related party, all of which are
readily convertible to cash and subject to an insignificant risk of change in fair value, liquidity and credit risk.




                                                                                      Bell Aliant 2012 annual report     8
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




Financial instruments
Financial assets and financial liabilities, including derivatives, are recognized when we enter into the contractual
provisions of a financial instrument or derivative contract. All financial instruments are measured at fair value
on initial recognition.

Fair value is the amount that willing parties dealing at arm’s length would accept to exchange a financial
instrument based on the current market for instruments with the same risk, principal and remaining maturity,
other than in a forced or liquidated sale. Fair value is determined using estimates that are affected by
assumptions we make about the amount and timing of estimated future cash flows and discount rates, which
all reflect varying degrees of risk. Potential income taxes and other expenses that would be incurred on
disposition of these financial instruments are not reflected in the fair values. As a result, the fair values are
not necessarily the amounts that would be realized if these instruments were actually settled.

Non-derivative financial instruments
We classify financial assets and financial liabilities according to their characteristics and management’s
intentions. Subsequent measurement of these financial assets and financial liabilities is based on either fair
value or amortized cost using the effective interest method, depending upon their classification.

Our non-derivative financial assets and liabilities are classified and measured as follows:
Statement of financial position account                                       Classification       Subsequent measurement

Cash equivalents                                         At fair value through profit or loss                     Fair value
Trade and other receivables                                          Loans and receivables                    Amortized cost
Long-term receivables                                                Loans and receivables                    Amortized cost
Notes payable to related party                                              Other liabilities                 Amortized cost
Trade and other payables                                                    Other liabilities                 Amortized cost
Severance liability                                                         Other liabilities                 Amortized cost
Short-term debt                                                             Other liabilities                 Amortized cost
Long-term debt, including amount due within one year                        Other liabilities                 Amortized cost


At fair value through profit or loss
Financial assets classified at fair value through profit or loss are typically acquired with the objective to
generate revenue from short-term fluctuations in price. Interest is recognized in finance income as earned.
Gains and losses realized on disposal and unrealized gains and losses from changes in fair value are recorded
in other expense (income) as incurred.

Loans and receivables
Loans and receivables are not traded in an active market and result from the delivery of cash, products
and services or other assets by us to counterparties in return for a promise to repay on demand or on a
specified date.

Trade and other receivables and notes receivable from related parties are assessed for impairment at each
statement of financial position date and a provision for doubtful accounts is recorded based on individual
account circumstances, aging of accounts receivable, historical trends and general economic conditions.
Long-term receivables are periodically assessed for impairment. Where there is objective evidence that an
impairment of these assets has occurred, the carrying amount of the asset is reduced with the loss being
recognized in operating expenses in the period of assessment. The impairment loss is measured as the
difference between the asset’s carrying value and the present value of the estimated future cash flows,
discounted at the original effective rate of interest of the asset.

Other liabilities
Other liabilities include all financial liabilities other than derivatives and financial liabilities classified at fair
value through profit or loss.


9       Bell Aliant 2012 annual report
                                                                                  Bell Aliant Regional Communications Inc.
                                                                            Notes to the consolidated financial statements




Derivative financial instruments
We may use derivative financial instruments in the management of financial exposures relating to our use
of foreign currencies, to mitigate the effect of changes in the market price of Bell Aliant Inc. common shares
on the value of our share-based compensation plans and to manage our interest rate exposure. We do not
use derivative financial instruments for trading or speculative purposes. For each derivative instrument, a
determination is made whether hedge accounting can apply. Derivatives that are economic hedges but do
not qualify for hedge accounting are classified as financial assets or financial liabilities held for trading. The
financial asset or financial liability is recorded at fair value, with subsequent changes in their fair value
recorded in net earnings in the period.

Transaction costs
Transaction costs that are incremental and directly attributable to the acquisition or issue of a financial asset
or financial liability are recorded as follows:
• At fair value through profit or loss – expensed as incurred; and
• Loans and receivables and other liabilities – included in the carrying value of the financial asset or financial
  liability and amortized over the expected life of the financial instrument, using the effective interest method.

As it is impracticable to use the effective interest method for transaction costs directly attributable to variable
rate revolving debt facilities, which are drawn on or repaid frequently, these transaction costs are deferred and
amortized on a straight-line basis over the period to maturity of the debt facilities.

Inventory
Inventory represents products or equipment purchased for resale. We measure inventory at the lower of cost
and net realizable value, with cost being determined by using the specific identification method for major
equipment or items that are not normally interchangeable, and the weighted average cost formula for all other
inventory items. Net realizable value represents the estimated selling price for inventory less all estimated costs
to sell. We estimate and record an allowance for obsolescence when inventory is slow moving, while inventory
that can no longer be sold is written off completely.

Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated depreciation and accumulated impairment
losses. Cost includes expenditures that are directly attributable to the acquisition or construction of assets, such
as contracted costs, direct labour, other costs directly attributable to bringing the assets to the location and
condition necessary for them to be capable of operating in the manner in which we intended, and the costs of
dismantling and removing the items and restoring the site on which they are located. Purchased software that
is integral to the functionality of the related equipment is capitalized as part of that equipment.

We recognize borrowing costs as finance expense in the period when incurred, with the exception of borrowing
costs that are directly attributable to qualifying assets that take more than 12 months to build or develop. The
borrowing costs on qualifying assets are capitalized as part of the cost of that asset and depreciated over its
estimated useful life. This capitalization ceases once the assets are in operating condition and ready for use.

Government assistance received towards the acquisition of property, plant and equipment is deducted from the
cost of the related asset, with depreciation calculated on the net amount.

When major components of property, plant and equipment have different useful lives, they are accounted for
as separate items of property, plant and equipment.

The cost of replacing a major component of property, plant and equipment is added to the carrying amount of
the item when incurred if it is probable that the future economic benefits embodied within the part will flow to
us and the cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs
of repairing and maintaining property, plant and equipment are recognized in operating expenses as incurred.


                                                                                     Bell Aliant 2012 annual report    10
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




Gains and losses on disposal of property, plant and equipment are determined by comparing the proceeds
from disposal with the carrying amount, and are recognized on a net basis in other expense (income) in the
period of disposal.

We test property, plant and equipment for impairment whenever events or changes in circumstances indicate
that an impairment may exist. An impairment is calculated as described under “Impairment of long-lived assets”.

Depreciation is recognized on a straight-line basis from the time the asset is available for use over its estimated
useful life. Property, plant and equipment acquired under finance leases are depreciated consistent with their
nature. Land is not depreciated.

The estimated useful lives of property, plant and equipment are as follows:
Buildings and towers                                                                                    10 – 50 years
Network infrastructure and equipment                                                                     3 – 50 years


Finite-life intangible assets
Finite-life intangible assets consist of computer software, customer relationships, a bilateral license agreement,
and roaming agreements. Computer software includes purchased software as well as internally developed
software, and is initially recorded at cost. Customer relationships represent the fair value of customers
acquired in business combinations. The bilateral license agreement with Bell Canada is for non-exclusive use
of certain Bell Canada brands within our operating regions. Roaming agreements represent acquired roaming
agreements whose rates are favorable to market rates.

We test finite-life intangible assets for impairment when events or changes in circumstances indicate that an
impairment may exist. An impairment is calculated as described under “Impairment of long-lived assets”.

Amortization is recognized on a straight-line basis over the estimated useful lives of each component of the
finite-life intangible assets. The estimated useful lives assigned to the major classes of finite-life intangible
assets are:
Computer software                                                                                         2 – 7 years
Customer relationships                                                                                   9 – 30 years
Bilateral license agreement                                                                                  40 years


Goodwill and indefinite-life intangible assets
Goodwill represents the excess of the fair value of the consideration transferred in a business combination at
the date of acquisition over the fair value of identifiable net assets. Goodwill is not amortized.

Indefinite-life intangible assets acquired in a business combination are recorded at fair value at the date
of acquisition. They consist of acquired brands and telecommunications and cable licenses. Indefinite-life
intangible assets are not amortized.

We test goodwill and indefinite-life intangible assets for impairment annually, during the fourth quarter, or
when events or changes in circumstances indicate that an impairment may exist. An impairment is calculated
as described under “Impairment of long-lived assets”.

Impairment of long-lived assets
An impairment charge is the amount by which the carrying amount of a long-lived asset or a cash-generating
unit (CGU) exceeds its estimated recoverable amount. A CGU is the smallest identifiable group of assets that
generates cash inflows that are largely independent from other assets or groups of assets. For the purpose of
goodwill impairment testing, we identified one CGU based on our operating segment.




11      Bell Aliant 2012 annual report
                                                                                 Bell Aliant Regional Communications Inc.
                                                                           Notes to the consolidated financial statements




The recoverable amount of a long-lived asset or CGU is the greater of its fair value less cost to sell (FVLCTS) or
its value in use. FVLCTS is the best estimate of the amount obtainable from the sale of an asset or CGU in an
arm’s length transaction between knowledgeable, willing parties, less the cost of disposal. In assessing value in
use, the estimated before tax future cash flows of the asset or CGU are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset or CGU. Cash flows are projected over the estimated useful life of the asset or CGU and
reflect management’s assumptions.

We recognize an impairment charge as an expense in the period incurred. We evaluate impairment charges,
other than for goodwill, for potential reversals in subsequent periods when events or changes in circumstances
warrant such consideration. An impairment charge amount is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortization, had no impairment charge been recognized. Goodwill impairment charges are not reversed
in subsequent periods.

Income taxes
Income tax expense includes both current and deferred income tax and is recognized in net earnings, except
when relating to items that are recognized in other comprehensive income or directly in equity.

Current income tax is recognized based on taxable earnings for the year, and any adjustment to current
income tax payable in respect of previous years. Taxable earnings differ from earnings before income tax
as reported in the consolidated statement of comprehensive income because of items of income or expense
that are taxable or deductible in years other than the current reporting period or items that are never taxable
or deductible.

Deferred income tax is recognized using the liability method and arises from temporary differences between
the carrying amounts of assets and liabilities recognized in the statements of financial position and their
corresponding tax basis, and any unused tax losses and credits. Deferred income tax liabilities are generally
recognized for all taxable temporary differences. Deferred income tax assets are generally recognized for
all deductible temporary differences and the benefit of losses, to the extent that it is probable that taxable
earnings will be available against which those deductible temporary differences or losses can be utilized.
Deferred income tax assets and liabilities are not recognized if the temporary difference arises from goodwill
or from the initial recognition (other than in a business combination) of other assets and liabilities in a
transaction that affects neither the taxable earnings nor loss or net earnings (loss). Deferred income tax is not
recognized for differences relating to investments in subsidiaries to the extent that we are able to control the
reversal of the temporary difference and it is probable that they will not reverse in the foreseeable future.

The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable earnings will be available to allow
all or part of the asset to be recovered.

Deferred income tax assets and liabilities are calculated at the tax rates that are expected to apply when the
asset or liability is expected to be recovered or settled. The measurement of deferred income tax liabilities
and assets reflects the tax consequences that would follow from the manner in which we expect, at the
reporting date, to recover or settle the carrying amount of its assets and liabilities. Both our current income
tax and deferred income tax assets and liabilities are calculated using tax rates that have been enacted or
substantively enacted at the end of the reporting period. Tax liabilities, where permitted, are offset against
tax assets within the same taxable entity and tax jurisdiction.




                                                                                    Bell Aliant 2012 annual report    12
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




Post-employment benefits
We provide pension and other post-employment benefits to qualified employees. These include defined
benefit (DB) pension plans, defined contribution (DC) pension plans, retirement savings plans and other
post-employment benefit (OPEB) plans, such as life insurance and health care plans.

DC pension and other retirement savings plans
For most member-employees, our DC pension plans and other retirement savings plans require employer
contributions and employee contributions of between nil and 6 per cent of pensionable earnings, depending
on the plan. For certain executives, there is a DC pension retirement savings plan that requires employer
contributions of up to 15 per cent of the executive’s eligible earnings. In a DC pension plan and other retirement
savings plan, the plan member bears the investment and other actuarial risks. Therefore, the total cost of our
DC pension plans is recognized in operating expenses and funded as employees provide services to us during
the year.

DB pension and OPEB plans
Our DB pension plans provide pensions to employees who retire after meeting certain age and service
conditions. Pensions are based on specified pension rates applied to the employee’s years of service and best
five-year average earnings. Our DB pension plans are partially contributory for certain members and fully
non-contributory for others, depending on the plan. Most DB pensions are integrated with the Canada Pension
Plan and include limited indexing to help protect the income of retired members from inflation. Some executives
accrue defined benefits under a supplemental executive retirement program (SERP). These benefits are outside
of the registered DB pension plans. SERP plans are funded as benefits are paid.

The OPEB plans we provide to eligible retiring employees include health care coverage, life insurance and
certain other benefits. As is common with non-registered plans of this nature, we do not maintain a trust fund
to pay for OPEBs, but fund only as benefits are paid.

Our net obligation under these plans is calculated separately for each plan by estimating the amount of future
benefit that employees have earned in return for their service in the current and prior periods. That benefit is
discounted to determine its present value, and the fair value of any plan assets is deducted to arrive at the net
benefit obligation or asset. A net benefit asset is only recognized to the extent of the present value of economic
benefits available to us and realizable during the life of the plan. This may result in an asset limitation being
placed on the recognized value of the net benefit asset and the changes in net benefit asset during the period.

Our actuaries perform annual valuations of our DB pension and OPEB plans to determine the actuarial present
value of the accrued benefits.

The costs of DB pensions and OPEBs earned by employees are actuarially determined using:
• The projected benefit method, prorated on years of service, which takes into account future salary levels;
• Management’s best estimate of expected salary increases, retirement age of employees, mortality rates
  and expected health care costs;
• Discount rates that are based on current yields on high quality Canadian corporate bonds that have maturity
  dates approximating the terms of our obligations; and
• The expected long-term rate of return on plan assets, which is a weighted average rate of management’s
  forward-looking view of long-term returns, net of fees, on each of the major plan asset categories held in
  our plans.

We value pension plan assets at fair value using current market values.

In Canada, pension regulation subjects us to required minimum funding of DB pension plan deficits. We assess
annually whether any additional minimum liability is required to be recognized related to minimum funding
obligations.


13      Bell Aliant 2012 annual report
                                                                               Bell Aliant Regional Communications Inc.
                                                                         Notes to the consolidated financial statements




We recognize the net cost of benefit plans in our statement of comprehensive income as follows:
• Operating expenses include the current service cost, which is spread systematically over employees’
  expected service periods, and vested past service costs;
• Finance expense includes the accretion of interest expense on the accrued liabilities of the benefit plans;
• Finance income includes income for the expected return on the DB pension plan assets, based on
  expectations that existed at the beginning of the year;
• Actuarial gains and losses arising from DB pension and OPEB plans, net of the related income tax, are
  recorded in other comprehensive income (loss) in the period in which they occur.

Actuarial gains and losses represent the difference between previous actuarial and asset return assumptions
and the actual outcome (experience), in addition to the effect of changes in actuarial assumptions and asset
limitations, including the change in any minimum funding liability.

Termination benefits
Termination benefits are recognized as severance charges when we are demonstrably committed, without
realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal
retirement date. Termination benefits to encourage voluntary departures are recognized as severance charges
if we have made an offer of voluntary departure, it is probable that the offer will be accepted, and the number
of acceptances can be reliably estimated.

Short-term incentive benefits
Short-term incentive benefits are measured on an undiscounted basis and are recognized as operating
expense when the related service is provided. We recognize a liability for the amount expected to be paid
under our short-term incentive plan if we have a present legal or constructive obligation to pay this amount
as a result of past service provided by the employee, and the obligation can be reliably estimated.

Leases
Obligations for leased assets are classified as finance leases when we assume substantially all the risks and
rewards of ownership. At the inception of the lease, an asset is capitalized at an amount equal to the lower
of its fair value and the present value of the minimum lease payments. Obligations under finance leases are
reduced by lease payments net of imputed interest, which is recognized in finance expense.

All other leases are classified as operating leases. Operating lease payments are expensed on a straight-line
basis over the period of the lease.

Provisions
General
We recognize a provision if we have a present legal or constructive obligation as a result of a past event that
can be reliably estimated, and it is probable that an outflow of economic benefits will be required to settle
the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money and risks specific to the liability. Provisions
are re-measured at each statement of financial position date using management’s best estimate of the amount
required to settle the liability and the current discount rate.

Onerous contracts
We recognize a provision for onerous contracts when the expected benefits of a contract are lower than the
unavoidable cost of meeting our obligations under the contract. The provision is measured at the present
value of the lower of the expected cost of terminating the contract and the expected net cost of completing
the contract. Before a provision is established, we recognize any impairment loss on the assets associated
with that contract.




                                                                                  Bell Aliant 2012 annual report    14
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




Decommissioning liability
We recognize a provision for decommissioning liabilities when we have an obligation to dismantle and remove
an item of property, plant and equipment and to restore the site on which it is located. Initially, the provision is
recognized at the present value of the best estimate of the amount eventually required to settle the obligation
in the period in which it is incurred. Upon initial recognition of the liability, the obligation is added to the
carrying amount of the related asset and the cost is amortized as depreciation expense over the estimated
useful life of the asset. Following the initial recognition, the carrying amount of the liability is increased for the
passage of time and adjusted through finance expense for changes to the current market-based discount rate,
or the amount or timing of the underlying cash flows needed to settle the obligation.

Share-based compensation plans
Certain employees are eligible to participate in employee stock savings plans and a deferred share plan.
Bell Aliant Inc. also has a deferred share unit plan for eligible members of our board of directors. Refer to note 17
for further information on our share-based compensation plans. Compensation expense is recorded for our
contributions to the employee stock savings plans and over the vesting period under our deferred share plan.
For the directors’ deferred share unit plan, we and Bell Aliant Inc. recognize compensation expense related
to the proportionate share of the directors’ services provided to us and Bell Aliant Inc. The fair value of the
deferred shares and deferred share units granted is determined based on the quoted market price of
Bell Aliant Inc.’s common shares at the grant date. At the end of each reporting period, we re-assess our
estimates of the number and fair value of awards that are expected to vest under the plans and recognize
the effect of the revisions in operating expenses.

Dividends
Dividends payable to our shareholders and non-controlling interests are recorded when declared.

Use of accounting estimates and key judgments
Management is required to make estimates and assumptions about the reported amounts of assets and
liabilities, as well as disclosures of contingent assets and liabilities, at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. We base our estimates on a
number of factors, including historical experience, current events and actions that we may undertake in the
future, and other factors that are considered to be relevant. By their nature, these estimates are subject to
measurement uncertainty, and actual results could differ. We use estimates for certain items such as operating
revenues, bad debt expense, useful life of property, plant and equipment and finite-life intangible assets,
impairment of assets, legal and tax contingencies, decommissioning liabilities, share-based compensation
plans, employee benefit plans, income taxes, severance charges and provisions.

The estimates involving a higher degree of judgment or complexity are described below.

Useful lives of property, plant and equipment and finite-life intangibles
Property, plant and equipment and finite-life intangibles represent a significant proportion of our total assets.
Changes in technology or our intended use of these assets may cause the estimated useful lives of these assets
to change. We review estimates of the useful lives of these assets on an annual basis and adjust depreciation
and amortization on a prospective basis, if necessary.

Impairment of long-lived assets
We identified one CGU for the purpose of goodwill impairment testing, based on management’s judgment
regarding the determination of our reporting segment. We also apply judgment for periodic assessment
of the presence of factors that could indicate the reversal of the impairment charge recognized in 2010 on
certain finite-life intangibles, as well as events or changes in circumstances indicating that an impairment
of long-lived assets may exist.

We make a number of estimates when calculating the fair value of long-lived assets using discounted future
cash flows including growth rates for future cash flows and the discount rate.

15      Bell Aliant 2012 annual report
                                                                                Bell Aliant Regional Communications Inc.
                                                                          Notes to the consolidated financial statements




Employee benefits
The amounts reported in the financial statements relating to DB pension and OPEB plans are determined
using actuarial calculations that are based on several assumptions. The actuarial valuation uses management’s
assumptions for the discount rate, expected long-term rate of return on pension plan assets, rate of
compensation increase, trends in health care costs and expected average remaining years of service of
employees. The two most significant assumptions used to calculate the net employee benefit costs are the
discount rate used to value the employee accrued benefit obligation and the expected long-term rate of
return on pension plan assets.

A discount rate is used to determine the present value of future cash flows that we expect will be needed to
settle employee accrued benefit obligations. It is based on the yield on long-term, high-quality corporate fixed
income investments, with maturities matching the estimated cash flows from the obligations. All else being
equal, a lower discount rate results in a higher accrued benefit obligation and higher current service costs.
A lower discount rate has a mixed effect on the amount of finance expense recognized as the net accrued
benefit obligation is higher but the rate is lower. The accrued benefit obligation is revalued using the appropriate
discount rates at the end of each quarter, while the current service costs and finance expense for the year are
based on the discount rates used to value the net accrued benefit obligation at the end of the previous year.

The expected long-term rate of return on pension plan assets is a weighted average of estimated future
long-term returns on each of the major asset categories in which our pension plan funds are invested. Lower
expected returns on pension plan assets lower the amount of finance income recognized in net earnings in
the period. The difference between actual returns in the period and the expected returns is recognized as
a component of actuarial gains and losses in other comprehensive income (loss). A lower actual return on
pension plan assets will result in a lower fair value of plan assets.

Income taxes
The calculation of income taxes requires judgment in interpreting tax rules and regulations. There are
transactions and calculations for which the ultimate tax determination is uncertain. Our tax filings are also
subject to audits, the outcome of which could change the amount of current and deferred tax assets and
liabilities.

We maintain provisions for uncertain tax positions that management believes appropriately reflect risk with
respect to tax matters under active discussion, audit, dispute or appeal with tax authorities, or which are
otherwise considered to involve uncertainty. These provisions for uncertain tax positions are made using the
best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. We
review the adequacy of these provisions at each statement of financial position date. However, it is possible
that at some future date an additional liability could result from audits by tax authorities. Where the final tax
outcome of these matters is different from the amounts that were initially recorded, such differences will affect
the tax provisions in the period in which such determination is made.

Deferred income tax assets and liabilities require management’s judgment in determining the amounts to be
recognized. In particular, judgment is required when assessing the timing of reversal of temporary differences
to which future income tax rates are applied. Further, the amount of deferred income tax assets, which is limited
to the amount that is probable to be realized, is estimated with consideration given to the timing, sources, and
amounts of future taxable income.

Legal contingencies
We may become involved in various litigation and regulatory matters in the normal course of our business.
Pending litigation, regulatory initiatives or regulatory proceedings could represent potential financial loss to
our business. We accrue a potential loss if we believe the loss is probable and can be reasonably estimated,
based on information that is available at the time. We estimate the amount of the loss by analyzing potential
outcomes and assessing various litigation and settlement strategies.


                                                                                   Bell Aliant 2012 annual report    16
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




Future changes in accounting policies
The IASB has issued several new standards, amendments to standards, and interpretations that are not
effective for the year ended December 31, 2012, and although early adoption is permitted, they have not been
applied in preparing these consolidated financial statements.

The amendments to IAS 19, Employee Benefits, effective for annual periods beginning on or after January 1, 2013,
eliminate the corridor approach for recognizing actuarial gains and losses, and change the finance income and
expense components of net benefit plan costs to a single net interest component calculated by applying the
discount rate to the net DB pension obligation, effectively reducing the current expected return on plan assets
to a return that is equal to the discount rate. Changes in the DB pension obligation and in the fair value of plan
assets will be segregated into three components: service costs, net interest on the net DB pension liability and
remeasurement of the net DB pension liability. The amendments also enhance disclosure surrounding the risks
arising from DB pension plans.

We estimate the amended standard, which we will apply retrospectively for the fiscal year commencing
January 1, 2013, will increase our net finance expense for the year ended December 31, 2012, by $25.1 million
(2011 – $24.6 million), and decrease our net earnings by $18.2 million (2011 – $17.8 million), with a corresponding
increase in other comprehensive income. We also estimate that these amendments will reduce basic and diluted
earnings per share for the year ended December 31, 2012, by $0.18 (2011 – $0.18). The amended standard is not
expected to affect our consolidated statements of financial position or our consolidated statements of cash flows.

For the effect this amended standard will have on the earnings per share of Bell Aliant Inc. refer to note 2 of its
audited financial statements for the year ended December 31, 2012.

We are currently evaluating the effect, if any, the following new standards and amendments will have on our
financial results:

The amendments to IFRS 7, Financial Instruments: Disclosures, effective for annual periods beginning on or after
January 1, 2013, require additional disclosure for offsetting arrangements in our statements of financial position.

IFRS 9, Financial Instruments, effective for annual periods beginning on or after January 1, 2015, is the first of the
IASB’s three-phase project to replace IAS 39, Financial Instruments: Recognition and Measurement. It requires
classification and measurement of financial assets and financial liabilities in either the amortized cost or the fair
value category.

IFRS 10, Consolidated Financial Statements, effective for annual periods beginning on or after January 1, 2013,
builds on existing principles by identifying the concept of control as the determining factor whether an entity
should be included within the consolidated financial statements of the parent company. It provides additional
guidance to assist in the determination of control where this is difficult to assess.

IFRS 12, Disclosure of Interests in Other Entities, effective for annual periods beginning on or after January 1, 2013,
requires disclosure on all forms of interests in other entities, including joint arrangements, associates, special
purpose vehicles, and other off-balance sheet vehicles.

IFRS 13, Fair Value Measurement, effective for annual periods beginning on or after January 1, 2013, sets out a
single framework for measuring fair value and introduces certain required disclosures. It is applicable when
another IFRS requires or permits fair value measurements or related disclosures, with certain exceptions for
items within the scope of other standards.

The amendments to IAS 32, Financial Instruments: Presentation, effective for annual periods beginning on or
after January 1, 2014, provide clarification for application of the offsetting requirements of financial assets and
financial liabilities.


17      Bell Aliant 2012 annual report
                                                                                             Bell Aliant Regional Communications Inc.
                                                                                       Notes to the consolidated financial statements




NOTE 3
OPERATING REVENUES

For the year ended December 31                                                                          2012                     2011

Local and access                                                                                      1,176.6                1,238.4
Data                                                                                                    953.4                  879.6
Long distance                                                                                           335.6                  378.3
Wireless                                                                                                111.4                   98.3
Other revenues                                                                                          184.7                  180.4
Total operating revenues                                                                              2,761.7                2,775.0


NOTE 4
OPERATING EXPENSES

For the year ended December 31                                                                          2012                     2011

Labour costs
   Wages, salaries and related taxes and benefits                                                       515.1                  526.5
   Current service costs less curtailment gain of post-employment benefit plans (note 15)                57.3                   60.4
   Share-based compensation plans (note 17)                                                              19.5                   18.8
   Contractor, outsourcing and other labour costs                                                        77.1                   64.6
   Capitalized labour                                                                                  (156.7)                (146.2)
Total labour costs                                                                                      512.3                  524.1
Cost of sales, content and payments to other carriers                                                   719.7                  696.9
Marketing and sales expenses                                                                             46.5                   39.6
Real estate expense                                                                                      39.6                   39.9
Operating taxes                                                                                          31.7                   37.7
Bad debt expense                                                                                         23.4                   25.3
Other operating expenses                                                                                 81.9                   84.7
Total operating expenses                                                                              1,455.1                1,448.2


During the year ended December 31, 2012, the cost of inventory recognized as an operating expense was
$37.5 million (2011 – $30.9 million), which includes an immaterial amount of inventory write-downs. There was
no material reversal of inventory write-downs in 2012 or 2011.

NOTE 5
SEVERANCE CHARGES

As part of our organizational productivity initiatives, we continued to streamline our management workforce.
As a result, during the year ended December 31, 2012, we estimated and recorded severance charges of
$15.7 million, (2011 – $36.9 million), which includes employee severance and benefit costs as well as real estate
rationalization costs. The final cost of the productivity initiatives could be materially different from our estimate
as departing employees will have options that could affect their severance.
For the year ended December 31                                                                                                   2012

Severance liability at beginning of year                                                                                          25.8
Employee severance and benefit costs                                                                                              12.4
Real estate rationalization costs                                                                                                  3.3
Severance charges                                                                                                                 15.7
Cash payments                                                                                                                    (25.5)
Severance liability at end of year                                                                                                16.0


As at December 31, 2012, $2.6 million of the severance liability was included in other non-current liabilities
(December 31, 2011 – $5.3 million).




                                                                                                Bell Aliant 2012 annual report       18
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




NOTE 6
FINANCE COSTS

For the year ended December 31                                                      2012              2011

Finance expense
   Interest expense on post-employment benefit plan liabilities (note 15)          188.2              188.1
   Interest on long-term debt                                                      147.4              149.2
   Amortization of debt issue costs (notes 9 and 13)                                 5.3                5.5
   Other interest expense                                                            8.3                8.4
                                                                                   349.2              351.2
Finance income
   Expected return on post-employment benefit plan assets (note 15)                (189.9)           (178.4)
   Other interest income                                                              (1.2)             (1.3)
                                                                                   (191.1)           (179.7)
Total finance costs                                                                 158.1             171.5



NOTE 7
INCOME TAXES

Income taxes relating to continuing operations
For the year ended December 31                                                      2012              2011

Current income tax expense (recovery)                                                14.5               (0.1)
Deferred income tax expense (recovery):
  Change in temporary differences                                                  111.6              140.0
  Change in rate and reversal pattern                                                5.5                (2.5)
                                                                                   117.1              137.5
Income tax expense                                                                 131.6              137.4


The following table reconciles the amount of reported income taxes in the statements of comprehensive income
with income taxes calculated using our applicable statutory tax rate:
For the year ended December 31                                                      2012              2011

Earnings from continuing operations before income tax                              480.8             478.1
Combined statutory income tax rate                                                 27.71%            29.36%
Notional income tax expense calculated at combined statutory income tax rate       133.2             140.4
Effects of:
   Enacted deferred tax rates on temporary differences                                5.5              (2.5)
   Deferred tax revaluation and adjustments                                          (6.1)               —
   Settlement of prior period audit issues                                           (1.5)               —
   Other permanent differences                                                        0.5              (0.5)
Income tax expense                                                                 131.6             137.4




19       Bell Aliant 2012 annual report
                                                                                         Bell Aliant Regional Communications Inc.
                                                                                   Notes to the consolidated financial statements




Deferred income tax liability
The income tax effects of temporary differences that give rise to significant portions of the deferred income tax
assets (liabilities) are listed below.
                                                                                                    As at                    As at
                                                                                      December 31, 2012        December 31, 2011

Deferred income tax items recognized in the statement of financial position:
  Property, plant and equipment                                                                       32.5                      35.2
  Goodwill and other intangible assets                                                             (282.0)                   (295.6)
  Pensions and other post-employment benefits                                                       134.7                     169.9
  Other long-term assets                                                                              14.0                      10.1
  Loss carryforwards                                                                                    7.0                   115.5
  Partnership income deferral                                                                        (88.1)                    (96.9)
  Debt issue costs                                                                                     (8.1)                     (9.8)
  Severance                                                                                             2.0                       3.8
  Other                                                                                                (4.5)                     (8.4)
                                                                                                   (192.5)                     (76.2)
Deferred income tax items recognized directly in accumulated other comprehensive income:
  Pension and other post-employment benefits                                                       105.0                       38.0
  Derivative liabilities                                                                              7.4                       8.4
                                                                                                   112.4                       46.4
Deferred income tax liability                                                                       (80.1)                    (29.8)


A portion of our income is earned through partnerships. Therefore, that portion of our income is not subject to
tax at the partnership level and the taxable income is allocated directly to the partners. These partnerships
have temporary differences between the carrying value and income tax basis of assets and liabilities, which
flow to the partners and would result in deferred tax assets and liabilities if the partnerships were subject to
income tax.

Our portion of these temporary differences is as follows:
                                                                                                    As at                    As at
                                                                                      December 31, 2012        December 31, 2011

Deductible temporary differences:
  Pension and other post-employment benefits                                                       337.1                     285.4
  Derivative liabilities and debt issue costs                                                        9.0                      19.7
  Severance                                                                                           —                       14.5
  Other                                                                                             59.2                      53.3
                                                                                                   405.3                     372.9
Taxable temporary differences:
  Property, plant and equipment                                                                    357.2                     577.6
  Other long-term assets                                                                             0.1                      31.6
                                                                                                   357.3                     609.2

Tax losses
At December 31, 2012, we had $57.6 million in non-capital tax losses available to reduce taxable income in
future years (December 31, 2011 – $441.3 million). The tax benefit associated with $24.4 million of these losses
has been recognized as part of the deferred income tax asset (2011 – $407.3 million). These losses expire in
2032. No tax benefit has been recognized for $33.2 million of these losses (2011 – $34.0 million). The losses for
which no tax benefit has been recognized expire in various amounts from 2016 to 2032.

At December 31, 2012 and 2011, we had no capital losses available to be carried forward to reduce capital gains
in future years.




                                                                                            Bell Aliant 2012 annual report         20
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




NOTE 8
DISCONTINUED OPERATIONS

The sale of our xwave business closed on January 1, 2011, with proceeds on sale of $38.4 million in cash and
$33.1 million in a receivable from Bell Canada related to post-closing statement of financial position adjustments.
During the year ended December 31, 2012, we collected $20.3 million of this receivable (2011 – collected
$12.4 million and paid $4.7 million to settle liabilities that we retained in connection with expenses incurred
by xwave in 2010). As at December 31, 2012, the amount of the receivable from Bell Canada outstanding was
$0.4 million (December 31, 2011 – $20.7 million). The net loss from discontinued operations in 2011 represents
the after-tax loss on the sale.

NOTE 9
OTHER COMPREHENSIVE INCOME (LOSS)

                                                                          2012                                         2011
                                                  Amount      Income                Amount         Income
For the year ended December 31                     arising        tax       Net      arising           tax               Net

Actuarial gains (losses) on DB pension
   and OPEB plans (note 15)                       (385.3)      106.5      (278.8)      32.5             (9.0)           23.5
Reversal or adjustment to asset limit (note 15)    156.0        (43.2)     112.8       23.7             (6.4)           17.3
Effect of enacted future tax rates
   on temporary differences                           —           3.8        3.8         —               (5.6)           (5.6)
                                                  (229.3)        67.1     (162.2)      56.2            (21.0)           35.2
Reclassification of losses on derivatives
  to finance expense (note 6)                        3.9          (1.1)      2.8        4.3              (1.3)           3.0
Other comprehensive income (loss)                 (225.4)        66.0     (159.4)      60.5            (22.3)           38.2



Actuarial gains (losses) on DB pension and OPEB plans and reversals or adjustments to the DB pension plans’
asset limit are reported net of tax in the statement of comprehensive income, without affecting net earnings.

We classify to net earnings the amortization of losses on forward fixed-floating interest rate swaps that were
settled in 2007. These interest rate swaps were designated to hedge the coupon payments of anticipated
long-term debt issuances, and the interest rate swaps were settled as the anticipated long-term debt issuances
occurred. As such, the losses are being amortized as interest expense in conjunction with the long-term debt
coupon payments in the year, in accordance with the application of hedge accounting, until the final maturity
of the associated long-term debt in 2037.

NOTE 10
EARNINGS PER SHARE

The following table shows the components used in the calculation of basic and diluted earnings per common
share for earnings attributable to shareholders.
For the year ended December 31                                                                 2012                    2011

Net earnings from continuing operations attributable to shareholders                           330.0                   329.3
Net loss from discontinued operations attributable to shareholders                                —                      (4.4)
Net earnings attributable to shareholders                                                      330.0                   324.9

Weighted average number of common shares outstanding                                  101,373,833                101,373,833

There were no potentially dilutive securities at December 31, 2012, or 2011.




21       Bell Aliant 2012 annual report
                                                                                    Bell Aliant Regional Communications Inc.
                                                                              Notes to the consolidated financial statements




NOTE 11
CAPITAL INVESTMENTS

Property, plant and equipment
                                                                             Network
                                                           Buildings    infrastructure          Plant under
For the year ended December 31, 2012            Land     and towers    and equipment           construction                Total

Cost at beginning of year                       24.2         638.8            8,409.9                147.0            9,219.9
Additions                                         —             4.0             125.6                494.2              623.8
Transfers                                         —           12.0              425.3               (513.1)              (75.8)
Retirements and disposals                         —            (2.8)           (152.4)                  —              (155.2)
Other                                             —              —                (1.1)                1.3                 0.2
Cost at end of year                             24.2         652.0            8,807.3                129.4            9,612.9

Accumulated depreciation at beginning of year      —         307.3            5,511.0                    —            5,818.3
Depreciation                                       —          18.6              484.7                    —              503.3
Retirements and disposals                          —           (2.5)           (146.7)                   —             (149.2)
Other                                              —             —                (1.2)                  —                (1.2)
Accumulated depreciation at end of year            —         323.4            5,847.8                    —            6,171.2

Carrying amount at end of year                  24.2         328.6            2,959.5                129.4            3,441.7

                                                                             Network
                                                           Buildings    infrastructure          Plant under
For the year ended December 31, 2011            Land     and towers    and equipment           construction                Total

Cost at beginning of year                       24.3         623.6            8,044.6                121.0            8,813.5
Additions                                          —            3.6              97.6                499.0              600.2
Transfers                                          —          14.1              402.1               (479.0)              (62.8)
Retirements and disposals                        (0.1)         (2.5)           (126.8)                  —              (129.4)
Other                                              —             —                (7.6)                6.0                 (1.6)
Cost at end of year                             24.2         638.8            8,409.9                147.0            9,219.9

Accumulated depreciation at beginning of year      —         291.5            5,162.5                    —            5,454.0
Depreciation                                       —          18.2              472.0                    —              490.2
Retirements and disposals                          —           (2.2)           (121.2)                   —             (123.4)
Other                                              —           (0.2)              (2.3)                  —                (2.5)
Accumulated depreciation at end of year            —         307.3            5,511.0                    —            5,818.3

Carrying amount at end of year                  24.2         331.5            2,898.9                147.0            3,401.6

In December 2012, we concluded asset studies that resulted in extending the estimated useful lives of certain
network infrastructure equipment. The changes will be applied prospectively effective January 1, 2013, and
are expected to result in a decrease in depreciation for the year ended December 31, 2013, of approximately
$19.0 million.

Government assistance
During the year ended December 31, 2012, we recognized $38.7 million in government assistance (2011 –
$45.7 million) as a deduction from the cost of related capital investments in connection with certain projects for
broadband network construction in Ontario and Nova Scotia. For the projects in Eastern Ontario, legal title of
certain capital assets having a value equal to 51 per cent of the non-labour cost of the project will remain with
the funding entity for the initial seven-year term of the funding agreement. We have the option to purchase the
assets for one dollar at the end of the term. For the projects in Northwestern Ontario, we require permission
from the funding entities to sell the constructed assets prior to December 31, 2016. The government assistance
we received for Northwestern Ontario projects may become repayable if we sell or dispose of the capital
investments related to an entire project.



                                                                                          Bell Aliant 2012 annual report      22
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




Finite-life intangible assets
                                                                             Bilateral
                                            Computer          Customer         license      Roaming
For the year ended December 31, 2012         software      relationships   agreement     agreements          Total

Cost at beginning of year                        413.3           637.3         464.5           12.4       1,527.5
Additions                                           4.7             —             —              —             4.7
Transfers                                          75.8             —             —              —            75.8
Retirements and disposals                         (60.1)            —             —           (12.4)         (72.5)
Cost at end of year                              433.7           637.3         464.5             —        1,535.5

Accumulated amortization at beginning of year    252.8            82.9           63.7          12.4        411.8
Amortization                                       65.9           56.8           11.6            —         134.3
Retirements and disposals                         (60.1)            —              —          (12.4)        (72.5)
Accumulated amortization at end of year          258.6           139.7           75.3            —         473.6

Carrying amount at end of year                   175.1           497.6         389.2             —        1,061.9

                                                                             Bilateral
                                            Computer          Customer         license      Roaming
For the year ended December 31, 2011         software      relationships   agreement     agreements          Total

Cost at beginning of year                        411.9           637.3         464.5           12.4       1,526.1
Additions                                           3.5             —             —              —             3.5
Transfers                                          62.8             —             —              —            62.8
Retirements and disposals                         (64.9)            —             —              —           (64.9)
Cost at end of year                              413.3           637.3         464.5           12.4       1,527.5

Accumulated amortization at beginning of year    250.5             26.2          52.1          12.3        341.1
Amortization                                       67.3            56.7          11.6           0.1        135.7
Retirements and disposals                         (65.0)             —             —             —          (65.0)
Accumulated amortization at end of year          252.8             82.9          63.7          12.4        411.8

Carrying amount at end of year                   160.5           554.4         400.8             —        1,115.7


For the year ended December 31, 2012, and 2011, we made no material changes to the useful lives of
finite-life intangibles.

During the year ended December 31, 2012, the cost of acquired finite-life intangibles was $76.3 million
(2011 – $55.8 million), and the cost of internally developed finite-life intangibles was $4.2 million
(2011 – $10.5 million).

Finance leases
At December 31, 2012, network infrastructure and equipment included assets under finance leases with
a carrying amount of $74.6 million (2011 – $82.8 million).




23        Bell Aliant 2012 annual report
                                                                              Bell Aliant Regional Communications Inc.
                                                                        Notes to the consolidated financial statements




NOTE 12
GOODWILL AND INDEFINITE-LIFE INTANGIBLES

                                                                                         As at                 As at
                                                                           December 31, 2012     December 31, 2011

Goodwill                                                                               2,760.0                2,760.0
Indefinite-life intangibles
   Télébec and NothernTel brands                                                          72.8                   72.8
   KMTS brand                                                                              1.2                    1.2
   Telecommunications licenses                                                            35.5                   35.5
   Cable licenses                                                                         15.7                   15.7
                                                                                         125.2                  125.2
Total goodwill and indefinite-life intangible assets                                   2,885.2                2,885.2


Impairment tests conducted effective October 31, 2012, and 2011, indicated no impairment. For the purpose
of impairment tests, the recoverable amount of our CGU was determined based on FVLCTS. FVLCTS was
determined using a combination of income and market approaches. In the income approach, we completed
a discounted cash flow analysis based on the four-year after-tax cash flow projections from business plans
approved by senior management and terminal growth rate assumptions. The cash flow projections reflect
management’s expectations of revenue; earnings before interest, taxes, depreciation and amortization (EBITDA);
capital expenditures; working capital and operating cash flows, based on past experience and future
expectations of operating performance. The after-tax discount rates, ranging from 6.0 per cent to 9.3 per cent
(2011 – 6.0 per cent to 6.2 per cent) were applied to the four-year after-tax cash flow projections and are
derived from a weighted average of our cost of debt and equity or the estimated cost of capital of the relevant
components of our business. Under the market approach, we used the guideline public company method and
guideline transaction method to determine market valuation multiples.

NOTE 13
DEBT

Short-term debt
We have the following operating credit facilities available to us:
                                                                                         As at                 As at
                                                                           December 31, 2012     December 31, 2011

Committed lines of credit:
   Revolving operating facility                                                         750.0                     750.0
   Dedicated letter of credit facilities                                                138.0                     126.5
Uncommitted operating lines of credit:
   Demand operating facilities                                                            18.0                   18.0
Revolving accounts receivable securitization program                                     150.0                  150.0
Total operating facilities                                                             1,056.0                1,044.5


During the second quarter of 2012, we amended and extended our $750.0 million bank credit facility with
a new term to expiry of June 6, 2016. There have been no other changes to the covenants and provisions
contained in our credit facilities.

Our committed revolving operating facility supports letters of credit issued for pension solvency funding and
provides funding for general corporate purposes.




                                                                                 Bell Aliant 2012 annual report      24
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




The status of our operating credit facilities is as follows:
                                                                                            As at                 As at
                                                                              December 31, 2012     December 31, 2011

Letters of credit issued                                                                   330.9                 302.7
Drawn amounts:
   Bank advances                                                                           221.0                    —
   Securitization of accounts receivable                                                   135.0                 150.0
   Commercial paper issued                                                                    —                  201.0
Short-term debt                                                                            356.0                 351.0
Unused available credit facilities                                                         369.1                 390.8
Total operating facilities                                                               1,056.0               1,044.5


Letters of credit
Included in the letters of credit issued at December 31, 2012, was $321.0 million related to our post-employment
benefit plans (December 31, 2011 – $285.1 million) (note 15).

Bank facilities
As at December 31, 2012, bank advances totalling $221.0 million (December 31, 2011 – nil) were issued under our
revolving bank operating facility carrying a weighted average interest rate of 2.75 per cent per annum with
maturity dates ranging from January 14, 2013, to January 31, 2013.

Securitization of accounts receivable
The proceeds received from the sale of our securitized trade receivables are recorded as floating rate revolving
loans secured by certain accounts receivable. At December 31, 2012, $180.6 million of our accounts receivable
was pledged as security for net cash proceeds of $135.0 million, resulting in net retained interest of $45.6 million
(December 31, 2011 – $188.0 million of accounts receivable pledged for $150.0 million in net cash proceeds and
$38.0 million in net retained interest). The average effective interest rate was 1.51 per cent per annum in 2012
(2011 – 1.58 per cent).

We continue to service these accounts receivable and collect the amounts owing. The trust’s interest in the
collection of these accounts receivable, including accounts receivable that make up the retained interest,
ranks ahead of our own, which means we are exposed to certain risks of default on the amounts securitized.
Accordingly, liabilities of the securitization trust are included in our short-term debt and the related accounts
receivable are included in our assets.

As part of the securitization agreement we are required to provide security, currently in the form of retained
interest in additional accounts receivable over and above the net cash proceeds received. This retained
interest is transferred back to us upon the expiry of the agreement on November 30, 2016, and is recorded in
trade and other receivables. The trust and its investors have no recourse to our other assets for failure of the
customer to pay the amounts when due.

Commercial paper program
In 2012, we repaid at maturity all outstanding short-term promissory notes issued under our commercial
paper program.




25      Bell Aliant 2012 annual report
                                                                                Bell Aliant Regional Communications Inc.
                                                                          Notes to the consolidated financial statements




Long-term debt
                                                                                            As at                   As at
                                            Interest rate          Maturity   December 31, 2012       December 31, 2011

Notes
   Bell Aliant LP                        4.37% to 6.29%       2014 – 2037                2,500.0                 2,500.0
Debentures
   Télébec                               5.34% to 5.75%       2013 – 2020                  100.0                   100.0
   NorthernTel                           6.00% to 9.21%       2013 – 2020                    30.8                    35.6
Total notes and debentures                                                               2,630.8                 2,635.6
Obligations under finance leases         3.49% to 5.71%       2013 – 2017                    58.3                    54.9
Fair market value allocations                                 2013 – 2020                      1.3                     2.0
Debt issue costs                                              2013 – 2037                     (7.9)                   (9.4)
Total long-term debt                                                                     2,682.5                 2,683.1
Long-term debt due within one year                                                          (99.4)                  (31.3)
                                                                                         2,583.1                 2,651.8


All notes are issued in series and are redeemable at our option prior to maturity at the prices, times and
conditions specified. The notes are issued under a trust indenture and are unsecured. The debentures are
issued in series and are redeemable at our option prior to maturity at the prices, times and conditions specified.
The debentures are issued under trust indentures of Télébec and NorthernTel. Télébec’s debentures are
partially secured by a mortgage on land and buildings located in Val D’Or, Quebec. The NorthernTel debentures
are unsecured.

During the year ended December 31, 2012, we:
• Entered into finance lease obligations totalling $35.3 million for telecommunications and other equipment,
  which bear interest at rates ranging from 3.49 per cent to 4.69 per cent per annum;
• Repaid $31.9 million of principal portion of finance lease obligations according to their terms; and
• Repaid $4.8 million of debentures according to their terms.

During the year ended December 31, 2011, we:
• Issued $300.0 million of unsecured medium-term notes, bearing interest at 4.88 per cent per annum,
  maturing on April 26, 2018, and resulting in debt issue costs of $1.6 million;
• Made a partial redemption of $300.0 million in May of 2011 of the 4.72 per cent medium-term notes maturing
  on September 26, 2011 (2011 notes) on a pro-rata basis at the price and under the conditions specified in the
  2011 notes, and recognized a $4.4 million loss on redemption, recorded in other expense (income);
• Paid at maturity, on September 26, 2011, the remaining $105.0 million outstanding principal portion of the
  2011 notes;
• Repaid $4.5 million of debentures and mortgage according to their terms;
• Repaid $25.3 million of principal portion of finance lease obligations according to their terms; and
• Entered into finance lease obligations totalling $30.3 million for telecommunications and other equipment,
  which bear interest at rates ranging from 3.76 per cent to 4.69 per cent per annum.

Fair market value allocations arose on Télébec and NorthernTel long-term debt as a result of our acquisition
of Télébec and NorthernTel in 2006 and 2007. The fair market value allocations are amortized over the terms
of the related long-term debt, and the income amounted to $0.7 million in 2012 (2011 – $1.0 million). Long-term
debt due within one year includes $0.7 million of fair market value allocations that will be amortized in the
coming year.




                                                                                   Bell Aliant 2012 annual report       26
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




We incurred debt issue costs of $0.6 million in 2012 (2011 – $4.2 million). Debt issue costs are amortized over the
terms of the related debt and amounted to $2.1 million in 2012 (2011 – $2.2 million). Long-term debt due within
one year is presented net of $1.6 million of debt issue costs that will be amortized in the coming year.

The aggregate amount of payments required in each of the next five years and thereafter to meet principal
repayments and maturities of our long-term debt and the payments under finance leases presently
outstanding are as follows:
                                                 2013          2014         2015           2016     2017      Thereafter      Total


Minimum lease payments                            31.1          19.3           8.2           0.6       4.0            —       63.2
Less: Future finance costs                         (2.6)         (1.3)        (0.5)         (0.2)     (0.3)           —        (4.9)
Finance lease obligations                         28.5          18.0         7.7             0.4      3.7            —        58.3
Long-term debt                                    71.8         409.5       351.6           509.7    351.8         936.4    2,630.8
Total                                            100.3         427.5       359.3           510.1    355.5         936.4    2,689.1



NOTE 14
FINANCIAL INSTRUMENTS

Derivative financial instruments
We entered into a series of foreign currency forward purchase and option contracts to hedge a portion of
our exposure to foreign currency risk on anticipated future purchases of property, plant and equipment and
finite-life intangible assets denominated in U.S. dollars. For the year ended December 31, 2012, we recognized
a loss of $0.8 million (2011 – gain of $0.7 million) in other expense. The notional value of the foreign currency
forward purchase and option contracts was $135.9 million at December 31, 2012 (December 31, 2011 – nil).

We entered into an economic hedge using equity total return swaps to mitigate a portion of our exposure to
changes in the market prices of Bell Aliant Inc. common shares on the value of our share-based compensation
plans (note 17). For the year ended December 31, 2012, we recognized a loss of $0.5 million in relation to our
outstanding equity total return swaps in share-based compensation expense (2011 – gain of $2.3 million), and a
financial liability in other long-term liabilities of $0.3 million at December 31, 2012 (December 31, 2011 – financial
asset of $2.5 million). The notional value of the equity total return swaps at December 31, 2012, was $36.2 million
(December 31, 2011 – $33.4 million).

The fair value of our foreign currency forward purchase and option contracts and equity total return swaps
as at December 31, 2012, was based on inputs of observable market data (Level 2 inputs).

Fair value
For cash and cash equivalents, trade and other receivables, notes receivable from related parties, notes
payable to related parties, trade and other payables, severance liability and short-term debt, the carrying
value approximates their fair value due to the short-term maturity of these instruments. The fair value of
the long-term receivables is not materially different from their carrying value.

The fair value of our long-term debt has been estimated based on the present value of future cash flows, using
the appropriate discount rates in effect at the statement of financial position dates for our long-term debt that
is not actively traded and quoted prices for our long-term debt that is actively traded.

The fair value of our long-term debt is estimated as follows:
                                                                As at December 31, 2012                    As at December 31, 2011
                                                         Fair value       Carrying value            Fair value       Carrying value

Long-term debt                                             2,860.6              2,682.5              2,834.2               2,683.1




27      Bell Aliant 2012 annual report
                                                                                           Bell Aliant Regional Communications Inc.
                                                                                     Notes to the consolidated financial statements




NOTE 15
POST-EMPLOYMENT BENEFITS

Net cost of DB pension, OPEB and DC pension plans
For the year ended December 31, 2012              DB pension plans         OPEB plans      DC pension plans                      Total

Recognized in operating expenses (note 4)
  Current service costs                                      47.1                 2.0                    8.2                     57.3
                                                             47.1                 2.0                    8.2                     57.3
Recognized in net finance expense (note 6)
  Expected return on plan assets                           (189.9)                 —                      —                    (189.9)
  Interest expense on plan liabilities                      175.2                13.0                     —                     188.2
                                                             (14.7)              13.0                     —                       (1.7)
Net cost of benefit plans                                     32.4               15.0                    8.2                     55.6

For the year ended December 31, 2011              DB pension plans         OPEB plans      DC pension plans                      Total

Recognized in operating expenses (note 4)
  Current service costs                                      52.5                  2.0                   7.7                     62.2
  Curtailment gain                                             —                  (1.8)                   —                       (1.8)
                                                             52.5                  0.2                   7.7                     60.4
Recognized in net finance expense (note 6)
  Expected return on plan assets                           (178.4)                 —                      —                    (178.4)
  Interest expense on plan liabilities                      175.2                12.9                     —                     188.1
                                                              (3.2)              12.9                     —                       9.7
Net cost of benefit plans                                    49.3                13.1                    7.7                     70.1

Components of net benefit obligation
The following tables show the status of and changes in the assets and obligations related to the DB pension and
OPEB plans for the year ended December 31:
                                                                      DB pension plans                                 OPEB plans
                                                            2012                2011                  2012                 2011

Plan assets:
Fair value of plan assets at beginning of year            3,217.9             2,780.4                     —                         —
   Expected return on plan assets (note 6)                  189.9               178.4                     —                         —
   Actual return in excess of expected return                88.6                19.1                     —                         —
   Employee current service contributions                     3.1                 3.6                     —                         —
   Employer cash contributions to the plans                 149.0               398.7                    9.1                       8.5
   Benefits paid out of the plan                           (171.2)             (162.3)                  (9.1)                     (8.5)
Fair value of plan assets at end of year                  3,477.3             3,217.9                     —                         —
Plan obligations:
Accrued benefit obligation at beginning of year           3,402.4             3,347.1                 257.3                     252.4
   Employee current service contributions                     3.1                  3.6                     —                        —
   Current service cost                                      47.1                 52.5                    2.0                      2.0
   Interest on the obligation (note 6)                      175.2               175.2                   13.0                     12.9
   Actuarial (gains) losses                                 487.1                (13.7)                (13.2)                      0.3
   Curtailment gain                                            —                    —                      —                      (1.8)
   Benefits paid out of the plan                           (171.2)             (162.3)                   (9.1)                    (8.5)
Accrued benefit obligation at end of year                 3,943.7             3,402.4                 250.0                     257.3
Effect of asset limit                                          —               (156.0)                     —                        —
Net benefit obligation at end of year                      (466.4)             (340.5)               (250.0)                   (257.3)

Accrued benefit asset                                        85.7                  —                     —                         —
Accrued benefit liability                                  (552.1)             (340.5)               (250.0)                   (257.3)
                                                           (466.4)             (340.5)               (250.0)                   (257.3)




                                                                                              Bell Aliant 2012 annual report        28
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




Included in the DB pension plans’ accrued benefit obligation at December 31, 2012, is $122.3 million
(December 31, 2011 – $111.6 million) of unfunded SERP obligations, which are supported by letters of credit held
in trust for the SERP beneficiaries. The remaining $344.1 million at December 31, 2012 (December 31, 2011 –
$228.9 million), is the net benefit obligation of our registered DB pension plans, which is also partially supported
by letters of credit held in trust for the plans. At December 31, 2012, a total of $321.0 million in letters of credit
were held in trust (December 31, 2011 – $285.1 million) to support SERP and registered DB pension obligations.
Refer to note 13 for further discussion on letters of credit issued under our short-term debt facilities.

Experience adjustments
The following table shows our DB pension and OPEB plan deficits and a further breakdown of the actuarial
experience in these plans for each of the last three years.
For the year ended December 31                                                     2012         2011            2010

Accrued benefit obligations                                                      (4,193.7)   (3,659.7)        (3,599.5)
Fair value of plan assets                                                         3,477.3     3,217.9          2,780.4
Plan deficits                                                                      (716.4)     (441.8)          (819.1)
Experience (gains) losses arising on accrued benefit obligation                       7.1        (50.0)           24.9
Losses from change in actuarial assumptions                                         466.8         36.6           412.2
Actuarial (gains) losses on accrued benefit obligation                              473.9        (13.4)          437.1
Actual return in excess of expected return on plan assets                            88.6         19.1           135.3


The amounts recognized in the statement of other comprehensive income relate to net actuarial gains (losses)
in the DB pension and OPEB plans and the reversal or adjustment to any DB pension plan’s asset limit
recognized in the year end are as follows:
For the year ended December 31                                                                  2012            2011

Cumulative actuarial losses at beginning of year                                              (269.3)           (301.8)
Actuarial gains (losses) for the year:
  Actuarial gains (losses) on accrued benefit obligation                                      (473.9)             13.4
  Actual return in excess of expected return on plan assets                                     88.6              19.1
Net actuarial gains (losses) recognized in other comprehensive income (note 9)                (385.3)             32.5
Cumulative actuarial losses at end of year                                                    (654.6)           (269.3)

Effect of asset limit at beginning of year                                                    (156.0)           (179.7)
Reversal or adjustment to asset limit recognized in the year (note 9)                          156.0              23.7
Effect of asset limit at end of year                                                              —             (156.0)



Assumptions
The measurement of the accrued benefit obligation and the annual net cost of benefit plans for the DB pension
plans and OPEB plans require actuarial calculations. We make several assumptions, which are used as inputs to
the actuarial calculations. The key assumptions are:
                                                                                                2012            2011

Discount rate, end of year                                                                       4.40%           5.20 %
Discount rate, end of preceding year                                                             5.20%           5.30 %
Expected rate of return on plan assets                                                           6.00%           6.00 %
Rate of compensation increase                                                                    3.00%           3.00 %
Growth rate of per capita health care costs, first five years                                    4.50%           8.00 %
Growth rate of per capita health care costs, thereafter                                          4.50%           4.50 %




29       Bell Aliant 2012 annual report
                                                                                      Bell Aliant Regional Communications Inc.
                                                                                Notes to the consolidated financial statements




The discount rate reflected above is a weighted average of the discount rates used to value the accrued benefit
obligations of our individual DB pension and OPEB plans. The discount rate for each plan is determined based on
current interest rates for the long-term debt of high quality corporate issuers with a duration that approximates
the duration of the plan. At December 31, 2012, our individual plans are discounted at rates that range from
4.2 per cent to 4.5 per cent (2011 – 5.0 per cent to 5.4 per cent).

For the year ended December 31, 2012, we used expected rates of return on individual DB pension plan asset
portfolios that ranged from 5.0 per cent to 6.75 per cent (2011 – 5.0 per cent to 7.0 per cent).

Sensitivity to changes in assumptions
The value of the accrued benefit obligation and the annual amount of net cost of benefit plans for the DB pension
and OPEB plans are sensitive to the assumptions we make and utilize in the actuarial calculations. The following
table outlines the estimated effect on the value of the accrued benefit obligation and the annual net cost of
benefit plans for a 0.25 percentage point change in the discount rate, and the expected rate of return on plan
assets. The table also shows the sensitivity of a 1.0 percentage point change in the assumed growth in per
capita health care costs.
                                                                          DB pension plans                         OPEB plans
                            Assumption     Rate change       Obligation               Cost       Obligation              Cost

Discount rate                4.2% – 4.5%       +/-0.25%          137.0                (1.1)             8.4                 0.2
Expected rate of return
   on plan assets           5.0% – 6.75%       +/-0.25%              —                8.7                 —                   —
Growth rate of per capita
   health care costs         4.5% – 5.0%         +1.00%              —                  —              23.0                  0.2
                                                 -1.00%              —                  —             (20.0)                (0.2)


Investment of DB pension plan assets
Our investment policy for the assets of our registered DB pension plans is to maintain a diversified portfolio of
assets, invested in a manner that aims to balance the security of the benefits to be paid out of the plans with a
long-term growth objective for the assets. We strive to maximize long-term returns while maintaining a desired
range of surplus and funding volatility. We have different asset mix policies for each DB pension plan. The asset
mix policies result in the following overall targets and actual allocations:
                                                                                                  Percentage of plan assets
                                                                                                 As at                As at
                                                                 Target weight     December 31, 2012 December 31, 2011

Asset category:
Debt securities                                                   53.0% – 63.0%                  56.0%                     62.0%
Equity securities                                                 37.0% – 47.0%                  44.0%                     38.0%
Total                                                                                           100.0%                    100.0%


The rate of return on plan assets for 2012 was 9.1 per cent (2011 – 7.1 per cent).

The asset mix policies are established through consideration of many factors, including plan funded ratios, plan
demographics, duration of plan liabilities, tolerance for fluctuations in market value, portfolio diversification
and the targeted long-term rate of return for the assets. Foreign exchange risk is inherent in the asset mix
policies and foreign currency fluctuations may significantly affect the Canadian dollar returns on the portfolios,
especially over short time periods. Our policy is to hedge a portion of the risk of foreign currency fluctuations
within the asset portfolios.

Over the 10 year period ended December 31, 2012, our weighted average rate of return for our DB pension plan
assets was 8.1 per cent per annum (2011 – 6.5 per cent).




                                                                                         Bell Aliant 2012 annual report       30
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




Our portfolios are not permitted to directly hold securities of Bell Aliant Inc., Bell Aliant Preferred Equity Inc. or
Bell Aliant LP. Our portfolios do hold units of index funds that may hold such securities by virtue of the fact that
these securities are included in the indices.
                                                             As at December 31, 2012                As at December 31, 2011
                                                                          Approximate                           Approximate
                                                    Approximate        per cent of total   Approximate       per cent of total
                                                           value            plan assets           value           plan assets

Plan assets held:
   Common shares of BCE                                      3.0                   0.09%            3.6                  0.11%
   Debentures of BCE and Bell Canada                         5.5                   0.16%            5.6                  0.17%
   Securities of Bell Aliant Inc.,
      Bell Aliant Preferred Equity Inc.,
      or Bell Aliant LP, held indirectly                     0.1                      —              —                      —
Total                                                        8.6                   0.25%            9.2                  0.28%



Benefit plan contributions
We are responsible for adequately funding our DB pension plans and paying DC pension plan, SERP and OPEB
benefits as incurred. The contributions, either in the form of cash or letters of credit, to the registered DB pension
plans are made to a trust fund that is used to pay benefits under the plans. These contributions are determined
by actuarial funding calculations and reflect actuarial assumptions about future investment returns, salary
projections and future service benefits. We are funding the registered DB pension plans through contributions
that meet or exceed the applicable statutory funding rules and regulations governing the particular plans.

Benefit plan funding
For the year ended December 31                                                                    2012                  2011

DB pension plans contributions – current service                                                  46.5                   49.7
DB pension plans contributions – special payments                                                102.5                  349.0
OPEB plans contributions                                                                           9.1                    8.5
Funding of DB pension and OPEB plans                                                             158.1                  407.2
DC pension plans contributions                                                                     8.2                    7.7
Funding of post-employment benefit plans                                                         166.3                  414.9


In 2012, we made voluntary lump sum contributions totalling $100.0 million (2011 – $315.0 million) to our
DB pension plans. We expect to use these contributions to offset future required deficit funding contributions,
and therefore, our planned total cash contributions in 2013 are expected to be approximately $60.0 million –
$80.0 million.

NOTE 16
SHAREHOLDERS’ CAPITAL

Authorized
Our shareholders’ capital is authorized to include an unlimited number of voting and non-voting common
shares. Holders of voting common shares (common shares) are entitled to one vote per share at meetings
of our shareholders. Holders of voting and non-voting common shares receive dividends on a pro-rata basis
when declared by our board and the remaining property of Bell Aliant GP upon our liquidation, dissolution
or winding up.




31       Bell Aliant 2012 annual report
                                                                                   Bell Aliant Regional Communications Inc.
                                                                             Notes to the consolidated financial statements




Issued and outstanding
                                                                        2012                                            2011
                                                         Number        Issued              Number                      Issued
For the year ended December 31                          of shares      capital            of shares                    capital

Common shares outstanding at beginning of year 101,373,833            3,651.6                     —                         —
Effect of the conversion to a corporation:
   Common shares established through share
      consolidation of Bell Aliant Holdings GP                   —          —                     6                         —
   Common shares issued in exchange
      for interest in Bell Aliant Holdings LP                    —          —          28,168,803                      732.1
   Common shares issued in exchange
      for interest in Bell Aliant LP                             —          —          72,205,024                  1,876.6
   Common shares issued in exchange
      for one unit in each of Télébec and
      NorthernTel and transfer of
      Bell Aliant Holdings LP's assets and liabilities           —          —            1,000,000                 1,044.4
   Conversion costs related to common
      share issue, net of tax                                    —         —                    —                      (1.5)
Common shares outstanding at end of year               101,373,833    3,651.6         101,373,833                  3,651.6


There were no non-voting common shares issued and outstanding at December 31, 2012, or 2011.

Conversion to a corporation
On January 1, 2011, Bell Aliant Regional Communications Income Fund (the Fund) was converted from an income
trust structure to a corporate structure (the Conversion) and was succeeded by Bell Aliant Inc. In addition,
through a series of steps, Bell Aliant Regional Communications Holdings, Limited Partnership (Bell Aliant
Holdings LP) distributed its assets to us, and we in turn assumed its liabilities, dissolving Bell Aliant Holdings LP.
We then amalgamated with Bell Aliant Regional Communications Holdings Inc. (Bell Aliant Holdings GP)
and became the successor company of Bell Aliant Holdings LP and Bell Aliant Holdings GP. As the original
unitholders of the Fund and Bell Aliant Holdings LP, who became shareholders of Bell Aliant Inc., had an interest
in essentially the same underlying assets and liabilities, but through different legal structures of Bell Aliant Inc.
and ourselves, the Conversion was accounted for on a continuity of interests basis.

As part of the Conversion, BCE and Bell Canada exchanged 100 per cent of their interests in Bell Aliant LP and in
Bell Aliant Holdings LP, 100 per cent of the special voting units issued by the Fund, and all but one of their voting
common shares of Bell Aliant Holdings GP for Bell Aliant Inc. common shares. As a result of the Conversion, on
January 1, 2011, BCE and Bell Canada owned 44.07 per cent of Bell Aliant Inc.’s common shares and one of our
common shares, with our remaining common shares owned by Bell Aliant Inc.

On December 31, 2010, Bell Aliant Holdings GP had 152,292,479 common shares outstanding. During the
Conversion, its shares were consolidated on a one-for-28,168,803 basis, leaving six shares outstanding.
These became the common shares of Bell Aliant GP as part of the amalgamation of Bell Aliant Holdings GP
and Bell Aliant GP.

Prior to the Conversion, the Fund held a nominal one unit ownership interest in each of Télébec and NorthernTel.
This interest was transferred to Bell Aliant Inc. as part of the Conversion along with the assets and liabilities of
Bell Aliant Holdings LP, which in turn exchanged them for 1,000,000 common shares of Bell Aliant GP.

We recognized $1.5 million in share issue costs, net of tax of $0.2 million, as a reduction in issued capital when
the common shares were issued on conversion.




                                                                                      Bell Aliant 2012 annual report        32
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




As part of the Conversion, we recorded a $285.0 million increase to contributed surplus related to the
difference between the carrying value of our common shares and the class 1 units before the Conversion. We
also recorded a $21.5 million decrease to contributed surplus related to temporary income tax differences that
were expected to reverse after January 1, 2011, in connection with the transfer to Bell Aliant GP of the investment
in Bell Aliant LP from BCE and Bell Canada and the transfer to Bell Aliant GP of the investment in Télébec and
NorthernTel LP from the Fund, with a corresponding increase in the deferred income tax liability balance.

Dividends declared
For the year ended December 31, 2012, we declared and paid dividends on our common shares of
$4.641 per share (2011 – $4.306 per share), totalling $470.5 million (2011 – $436.5 million), which includes a
$52.3 million special dividend (note 23).

NOTE 17
SHARE-BASED COMPENSATION PLANS

Employee stock savings plans
We have two employee stock savings plans (ESSPs) for eligible employees of certain of our subsidiaries. Under
the terms of the plans, each year employees can choose to have a portion of their annual base earnings
withheld to purchase Bell Aliant Inc. common shares. We also contribute to the plan on behalf of participants
based upon employee contributions. The purchase price of the Bell Aliant Inc. common shares is the average
cost of the common shares purchased on the Toronto Stock Exchange (TSX) for credit to participants’ accounts
on the investment date. Participants in the plans receive additional Bell Aliant Inc. common shares in lieu of
receiving cash dividends from Bell Aliant Inc. To satisfy employee purchases of Bell Aliant Inc. common shares
under these plans, Bell Aliant Inc. may issue up to 2,079,527 additional Bell Aliant Inc. common shares out of
treasury or we purchase the required shares on the open market.

The total number of Bell Aliant Inc. common shares bought on the open market for the year ended
December 31, 2012, was 1,652,176 (2011 – 1,720,548 common shares). We recorded compensation expense of
$9.0 million equal to the contributions we made on behalf of participants of the ESSPs for the year ended
December 31, 2012 (2011 – $9.5 million).

Deferred share plan
We have a deferred share plan (DSP), which is intended to further align the long-term incentive compensation
of certain of our executives and senior management with the drivers of long-term shareholder value. Under
the DSP, Bell Aliant Inc. may grant deferred shares to eligible plan members in such number and at such times
as is determined by the board of directors as a bonus or in respect of services rendered by the plan member
or otherwise as compensation. On the grant date, plan members are credited with the deferred shares granted
to them. Grantees are also entitled to receive additional deferred shares based on dividends that would have
been received had the deferred shares been converted to actual Bell Aliant Inc. common shares.

Each deferred share grant has a vesting period of three years, and vesting is subject to attaining certain
financial performance criteria and continued employment or departure under qualifying terms of the plan
that permits unvested grants to continue to vest. Plan members have the option to receive either one of
Bell Aliant Inc.’s common shares or its cash equivalent for each vested deferred share upon qualifying for
payout under the terms of the grant. There is no exercise price paid by the grantee for deferred shares.
Bell Aliant Inc. may issue up to 3,093,712 additional common shares out of treasury to satisfy awards under
the DSP. Any deferred shares that do not vest due to failure to achieve prescribed performance targets are
forfeited, and any unvested deferred shares of a plan member are forfeited upon their departure except in
certain circumstances of departure, in which either a portion of the unvested deferred shares may vest on a
pro-rated basis to the end of the employment date, or a portion of the unvested deferred shares may remain
eligible to become vested deferred shares as if employment terminated on the last day of the vesting period,
subject to actual performance results on the financial performance criteria.



33      Bell Aliant 2012 annual report
                                                                                  Bell Aliant Regional Communications Inc.
                                                                            Notes to the consolidated financial statements




For the year ended December 31                                                               2012                     2011

Deferred shares outstanding at beginning of year                                        1,608,882              1,380,568
Granted or credited on reinvestment of notional dividends                                 433,467                438,579
Forfeited                                                                                  (23,352)               (98,644)
Exercised                                                                                (215,198)              (111,621)
Deferred shares outstanding at end of year                                              1,803,799              1,608,882
Deferred shares vested at end of year                                                   1,377,248              1,271,080


The fair value of the 433,467 deferred shares granted or credited on reinvestment of notional dividends for the
year ended December 31, 2012 (2011 – 438,579 deferred shares) was $11.8 million (2011 – $11.7 million). For the
year ended December 31, 2012, we recorded compensation expense of $10.4 million (2011 – $9.3 million), related
to the fair value of the deferred shares granted, recognized over the vesting period, the change in the quoted
market price of Bell Aliant Inc.’s common shares between the grant date and the reporting period date and the
hedge loss of $0.5 million (2011 – the hedge gain of $2.3 million) (note 14).

Directors’ deferred share unit plan
Bell Aliant Inc. has a directors’ deferred share unit plan (DDSUP), established in 2011, which is a cash-settled plan
for our eligible directors who are not employees of Bell Aliant Inc., its subsidiaries, BCE or Bell Canada, under
which a portion of annual directors’ fees are credited in notional share units. Director fees are received in the
form of deferred share units under the DDSUP until the minimum ownership requirements are met, after which
point the directors can elect to receive up to 100 per cent of their annual director fees in deferred share units.
Deferred share units vest immediately upon granting. Directors are only eligible to redeem the deferred share
units upon termination of their duties as directors of Bell Aliant Inc. The redemption payment amount is equal to
the value of the deferred share units, calculated as the average closing price of Bell Aliant Inc. common shares
traded on the TSX for the last five days preceding the redemption date, net of applicable taxes.

For the year ended December 31, 2012, Bell Aliant Inc. granted 15,590 deferred share units under the DDSUP
and 1,518 deferred share units were credited on reinvestment of notional dividends (2011 – 15,460 deferred
share units granted and 391 deferred share units credited on reinvestment of notional dividends). The fair value
of the deferred share units granted and credited in 2012, was $0.5 million, or $26.62 per deferred share unit
(2011 – $0.5 million, or $28.59 per deferred share unit). No deferred share units were redeemed during the year
ended 2012, or 2011. We recognized an immaterial amount of expense related to the DDSUP for the years ended
December 31, 2012, and 2011.

NOTE 18
NON-CONTROLLING INTERESTS

Preferred shares
On January 1, 2011, Bell Aliant Preferred Equity Inc. (Prefco) was incorporated under the Canada Business
Corporations Act for the sole purpose of being the issuer of preferred shares. We own 100 per cent of Prefco’s
common shares.

In March 2011, Prefco issued cumulative rate reset preferred shares, series A (series A preferred shares) and in
December 2011, Prefco issued cumulative rate reset preferred shares, series C (series C preferred shares).
Preferred shares issued and outstanding                                                    Series A              Series C

Number of shares                                                                      11,500,000               4,600,000
Par value (dollars)                                                                        25.00                   25.00

Issued capital:
   Gross proceeds                                                                           287.5                     115.0
   Commission and share issue costs                                                           (9.7)                     (3.7)
   Income tax associated with commission and share issue costs                                 3.0                       1.1
Total issued capital as at December 31, 2012, and 2011                                      280.8                     112.4



                                                                                     Bell Aliant 2012 annual report       34
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




At the discretion of Prefco’s board, the series A preferred shares pay cumulative dividends of $1.2125 per share
per annum, payable quarterly for an initial five year period ending March 31, 2016, and the series C preferred
shares pay dividends of $1.1375 per share per annum, payable quarterly for an initial period ending
March 31, 2017.

Holders of the series A preferred shares have the right, subject to certain conditions, to convert their shares
into cumulative floating rate preferred shares, series B (series B preferred shares), on March 31, 2016, and
on March 31 every five years thereafter. Holders of the series B preferred shares will be entitled to receive
cumulative quarterly floating dividends, when and if declared, at a rate equal to the three-month Government
of Canada Treasury Bill yield plus 2.09 per cent.

Holders of the series C preferred shares will have the right, subject to certain conditions, to convert their shares
into cumulative floating rate preferred shares, series D (series D preferred shares), on March 31, 2017, and
on March 31 every five years thereafter. Holders of the series D preferred shares will be entitled to receive
cumulative quarterly floating dividends, when and if declared, at a rate equal to the three-month Government
of Canada Treasury Bill yield plus 3.09 per cent.

For the year ended December 31, 2012, we declared and paid dividends of $1.2125 per series A preferred share
and $1.211525 per series C preferred share, totalling $19.5 million. For the year ended December 31, 2011, we
declared and paid dividends of $0.9617 per series A preferred share, totalling $11.1 million. No dividends were
declared on the series C preferred shares in 2011.

NOTE 19
CHANGES IN OPERATING ASSETS AND LIABILITIES

For the year ended December 31                                                            2012                2011

Trade and other receivables                                                                21.5                 (8.0)
Inventory                                                                                    2.9                 4.3
Prepayments                                                                                  7.6                (2.7)
Long-term receivables                                                                        2.4                 2.7
Other long-term assets                                                                       4.7                (3.1)
Trade and other payables                                                                    (0.3)              45.2
Severance liability                                                                         (7.1)                6.4
Deferred revenue and other long-term liabilities                                             0.7                 5.3
                                                                                           32.4                50.1


NOTE 20
COMMITMENTS

The estimated future annual minimum payments under our contractual obligations as at December 31, 2012,
are as follows:
                                                   2013    2014    2015     2016        2017   Thereafter      Total


Operating leases                                    24.6    23.0    21.9     17.8        9.0         40.2     136.5
Operating purchase commitments                     345.5   316.6   286.2    266.4      255.9        926.9   2,397.5
Capital purchase commitments                        51.8    11.5     0.3       —          —            —       63.6
                                                   421.9   351.1   308.4    284.2      264.9        967.1   2,597.6



Operating purchase commitments primarily relate to various information systems and technology agreements
and obligations under service agreements, including a series of long-term commercial agreements with
Bell Canada (note 23). Capital purchase commitments primarily relate to certain projects for broadband
network construction in Ontario.




35       Bell Aliant 2012 annual report
                                                                               Bell Aliant Regional Communications Inc.
                                                                         Notes to the consolidated financial statements




NOTE 21
CONTINGENCIES

Outstanding material litigation matters as at December 31, 2012, include the following:

(a) On August 9, 2004, a lawsuit was filed in the Saskatchewan Court of Queen’s Bench against several
    Canadian wireless service providers, including one of our predecessor companies, Aliant Telecom Inc., by
    several alleged customers or former customers of the defendants. The plaintiffs alleged, among other things,
    breach of contract, misrepresentation, negligence, collusion and breach of statutory obligations under the
    Competition Act (Canada) in relation to the system access fees that the defendants charge to their customers,
    and sought unspecified damages. On September 17, 2007, the court granted class action certification.

   On March 15, 2010, the Court of Appeal granted all parties leave to appeal the certification order.
   On November 15, 2011, the Saskatchewan Court of Appeal released its decision denying all defendants’
   appeals. On January 13, 2012, we, along with the other defendants, filed an application for leave to appeal
   the Saskatchewan Court of Appeal decision to the Supreme Court of Canada, which was denied on
   June 28, 2012.

   We have defences to this claim, but the outcome is not determinable at this time.

(b) On November 28, 2005, a lawsuit was filed against us in the Supreme Court of Nova Scotia by Ellph.com
    Solutions Inc. and Ellph.com Technologies Inc. (collectively “Ellph”) seeking approximately $9.0 million for
    alleged breach of a software license contract. The contract had been terminated by one of our predecessor
    companies, Aliant Telecom Inc., due to perceived technical defects in the software.

   On September 22, 2011, the plaintiffs filed an amended statement of claim increasing the damages claimed
   to $21.0 million. The trial for this case has been tentatively set to commence in September 2013.

   We have defences to this claim, but the outcome is not determinable at this time.

(c) On June 26, 2008, a proposed class action was filed in the Saskatchewan Court of Queen’s Bench against
    various Canadian telephone companies, including Bell Aliant LP, in relation to the charging of 911 fees. The
    suit alleges, among other things, breach of contract, negligence, collusion, and breach of fiduciary duty,
    and generally claims that the defendants have misrepresented the nature of 911 fees, and that the charges
    levied on customers are excessive. The plaintiffs claim unspecified damages. This matter involves many of
    the same parties and legal issues as presented in the system access fee matter previously referred to in
    paragraph (a). The parties have tentatively agreed to hold this matter in abeyance pending disposition of
    the appeal of the certification order in the system access fee matter.

   We have defences to this claim, but the outcome is not determinable at this time.

(d) On January 27, 2010, Nightingale Informatix Corporation (Nightingale) commenced a court action in the
    Ontario Superior Court of Justice against xwave Healthcare, formerly a division of Bell Aliant LP, and
    five physicians who are stated to be xwave Healthcare agents or consultants. Nightingale alleges that
    xwave Healthcare published defamatory statements about Nightingale’s products and services, and
    claims damages of $30.0 million, plus punitive damages of $1.0 million.

   We have defences to this claim, but the outcome is not determinable at this time.

We become involved in various other claims and litigations as a regular part of our business. While we cannot
predict the final outcome of claims and litigation that were pending at December 31, 2012, management believes
that the resolution of these claims and litigation will not have a material effect on our consolidated financial
position or results of operations.


                                                                                  Bell Aliant 2012 annual report    36
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




Guarantees
As a regular part of our business, we enter into agreements that provide for indemnifications and guarantees
to counterparties that may require us to pay for costs and losses incurred by the counterparties as a result
of intellectual property infringement, misrepresentations, and losses of or damages to property. We cannot
reasonably estimate the maximum potential exposure. The amount also depends on the outcome of future
events and conditions that cannot be predicted reliably. In the past, we have not made any significant payments
under these guarantees. At December 31, 2012, and 2011, there were no accruals related to the guarantees.

NOTE 22
FINANCIAL AND CAPITAL MANAGEMENT

Our operating, investing and financing activities create exposure to a variety of financial risks. These risks
include liquidity risk, interest rate risk, credit risk, foreign currency risk, and other market risks.

Liquidity risk
We generate enough cash from our operating activities to fund our operations and fulfill our obligations as they
become due. We have sufficient committed financing facilities in place should our cash requirements exceed
cash generated from our operations. We anticipate being able to issue new long-term debt to refinance large
maturing issues and we address the liquidity risk inherent in refinancing by staggering maturity dates of our
long-term debt, conducting long-term cash flow planning, maintaining access to various credit facilities,
including bank facilities (note 13), and following capital management objectives aimed at maintaining investment
grade credit ratings, which provide us with good access to capital markets. A portion of short-term and
long-term debt is subject to covenants that would require its immediate repayment, prior to maturity, if we
were subject to a change in control in ownership and our credit ratings were consequently lowered below
investment grade.

The following are the contractual maturities of our financial liabilities. The amounts presented represent the
future undiscounted principal and interest cash flows and therefore do not equate to the carrying amount.
Carrying values and cash flows associated with payables and accruals exclude accrued interest on debt, which
is presented in cash flows for the associated debt, advanced billing, which represents cash received in advance
for services not yet rendered but no future contractual cash flow, and other non-cash accruals.
                                     Carrying amounts                                          Contractual cash flows
                             As at December 31, 2012    2013     2014       2015       2016       2017 Thereafter


Notes payable to related party                  52.3      3.8     3.8         3.8        3.8        3.8         52.3
Trade and other payables                       302.9    302.9      —           —          —          —            —
Severance liability                             16.0     13.4     1.6         0.5        0.5         —            —
Short-term debt                                356.0    356.7      —           —          —          —            —
Long-term debt                               2,682.5    248.9   558.9       467.0      598.7      423.5      1,334.3
Total                                        3,409.7    925.7   564.3       471.3      603.0      427.3      1,386.6

Interest rate risk
Interest rate risk can be either price risk, which is the risk that the fair value of a financial asset or financial
liability will change when interest rates change, or interest rate cash flow risk, which is the risk that the cash
flows of the financial assets or financial liability will change when interest rates change. Our interest bearing
financial assets are comprised of cash equivalents and notes receivable from related party, which carry interest
at a fixed rate. These assets are subject to interest rate price risk; however, this risk is minimized because all
instruments have terms less than 90 days and they are intended to be held to maturity. Our interest bearing
financial liabilities are composed of notes payable to related party, and short-term and long-term debt. These
liabilities are also intended to be outstanding and repaid only at maturity. We manage the interest rate cash
flow risk inherent in our debt portfolio by balancing this mix of fixed and floating rate debt, as well as managing
the term to maturity of our debt portfolio. At certain times, we may utilize derivative instruments such as
interest rate swaps to adjust the balance of fixed and floating rate debt to appropriately determined levels.



37      Bell Aliant 2012 annual report
                                                                                       Bell Aliant Regional Communications Inc.
                                                                                 Notes to the consolidated financial statements




Credit risk
We are exposed to credit risk from operating activities and certain financing activities, the maximum exposure
of which is represented by the carrying amounts of our financial assets reported on the balance sheet. We
hold highly liquid money market instruments as cash equivalent investments. We follow a policy for making
these investments that ensures they are diversified by the issuer and face minimal credit exposure, as they
are required to be placed with issuers that have strong short-term credit ratings. The credit risk on derivative
financial instruments is limited because the counterparties are banks with strong credit ratings. We have
policies on the maximum exposure to any one bank counterparty. We are exposed to credit risk from customer
accounts receivable, but the concentration of the risk is minimized because we have a large and diverse
customer base. We have credit evaluation, approval and monitoring processes intended to mitigate potential
credit risks, and maintain provisions for potential credit losses that are assessed on an ongoing basis.

Foreign currency risk
Our exposure to foreign currency risk arises in our operations where we make certain capital and operating
expenditures denominated in U.S. dollars. We utilize foreign currency forward contracts to manage a portion
of our exposure to foreign currency risk originating from U.S. dollar denominated purchases (note 14).

Other market risks
Other market risks arise from changes in the quoted Bell Aliant Inc. common share price and the effect it has
on the expense that is recognized related to our DSP and DDSUP. The outstanding deferred shares and deferred
share units are classified as liabilities that are marked-to-market each period based on the current quoted
Bell Aliant Inc. common share price. The compensation expense is calculated using the market price of
Bell Aliant Inc. common shares at the grant date, adjusted for subsequent changes in the quoted market price.
We have in place a series of equity total return swaps to mitigate a portion of our exposure to changes in the
share price of Bell Aliant Inc. common shares (note 14).

Capital management
Our capital structure includes all components of shareholders’ equity, non-controlling interest and net debt,
which we define as long-term and short-term debt net of cash and cash equivalents.

Our objectives in managing our capital structure are to:
• Maintain financial flexibility to preserve our ability to meet existing commitments and invest as necessary
  in the future development of the business;
• Provide access to sufficient cash flow to operate the business;
• Mitigate the effect of volatility in financing costs on the cash flows of the business; and
• Optimize the return to shareholders by utilizing an appropriate mix of debt and equity in the capital structure
  given our level of business risk.

When managing our capital structure we consider changes in economic conditions or the level of business
risk and, from time to time, we consider and may adjust our dividend policy, enter into hedging transactions,
issue or redeem debt, issue or repurchase common or preferred shares or raise cash through our accounts
receivable securitization program.
                                                                                                  As at                   As at
                                                                                    December 31, 2012       December 31, 2011

Short-term debt                                                                                   356.0                  351.0
Long-term debt, including amount due within one year                                            2,682.5                2,683.1
Less: Cash and cash equivalents                                                                    (28.9)                 (35.7)
Add: Notes receivable from related party included in cash and cash equivalents                      10.0                     —
Net debt                                                                                        3,019.6                2,998.4
Shareholders' equity                                                                            3,145.8                3,445.3
Non-controlling interest                                                                          393.2                  393.5
Total capital structure                                                                         6,558.6                6,837.2




                                                                                          Bell Aliant 2012 annual report     38
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




The non-IFRS financial metric we use to monitor our capital structure is the net debt to adjusted EBITDA ratio.
Our capital management objective is to maintain this ratio at approximately its current level. It is calculated
using a trailing 12-month period for adjusted EBITDA, which represents operating income before depreciation
and amortization expense and severance and other charges. Adjusted EBITDA does not have any standardized
meaning prescribed by IFRS and is unlikely to be comparable to similar measures presented by other companies.
Adjusted EBITDA is presented on a consistent basis from period to period.
                                                                                              As at                 As at
                                                                                December 31, 2012     December 31, 2011

Net debt                                                                                   3,019.6                2,998.4
Operating revenues                                                                         2,761.7                2,775.0
Less: Operating expenses                                                                  (1,455.1)              (1,448.2)
Adjusted EBITDA                                                                            1,306.6                1,326.8
Net debt to adjusted EBITDA ratio                                                           2.31:1                 2.26:1


We are subject to certain covenants in our bank credit facilities, including maintenance of a ratio of total debt
to EBITDA (as defined in our credit facilities) of no more than 3.25:1. Under a securityholders’ agreement with
BCE and Bell Canada, we require their prior approval to increase our debt to EBITDA ratio above 2.5:1. In
addition, we are subject to a new issuance test under our note trust indenture whereby new long-term debt
can only be issued if it would result in a ratio of long-term debt to total capital (as defined in the trust indenture)
of 75 per cent or less. We are in compliance with all these debt covenants and are not subject to any other
externally imposed capital requirements.

NOTE 23
RELATED PARTY TRANSACTIONS

BCE and Bell Canada own one of our common shares, with our remaining issued common shares being
owned by Bell Aliant Inc. At December 31, 2012, BCE and Bell Canada owned and controlled 44.06 per cent of
Bell Aliant Inc.’s common shares (December 31, 2011 – 44.06 per cent). Under the securityholders’ agreement,
BCE has certain rights in respect of our board of directors, including the right to appoint up to a majority
of directors for so long as BCE and Bell Canada, directly or indirectly, holds not less than 30 per cent of
Bell Aliant Inc. common shares and certain commercial agreements are in place. As a result of these rights,
BCE controls us. Bell Aliant Inc. exercises significant influence over our operating, investing and financial
policies, but does not control us. The written consent of BCE is also required, along with the majority vote from
the board of directors, prior to undertaking certain matters or transactions for so long as BCE and Bell Canada,
directly or indirectly, holds not less than 20 per cent of Bell Aliant Inc.’s common shares.

In 1999, we entered into a memorandum of agreement (MOA) with BCE and Bell Canada. This long-term
strategic alliance agreement describes the understanding among BCE, Bell Canada and ourselves with respect
to the offering, marketing and provisioning of certain telecommunications services on a cooperative basis.
Through this MOA, we have access to Bell Canada’s technology, the exclusive right to use specified Bell Canada
trade-marks in our territory and a license to use Bell Canada’s promotional materials. Bell Canada agreed to
promote the use and sale of technology and intellectual property developed by us. We each agreed to provide
support services, including operations, technical, marketing, training and other support services.

In 2006, we entered into a series of long-term commercial agreements with Bell Canada, which provide us with
a broad range of technical, operational and human resource support services required for us to operate the
wireline and Internet access operations in the Ontario and Quebec regional territories. These agreements
also permit us to continue to receive the commercial and telecommunications services that Bell Canada was
providing to us in Atlantic Canada prior to 2006. Any pre-existing commercial agreements between Bell Canada
and us, which were not amended or replaced by the commercial agreements entered into in 2006, continue to
apply. The commercial agreements also provide Bell Canada with the telecommunications and support services
required to operate its wireless operation throughout our territory.



39      Bell Aliant 2012 annual report
                                                                                    Bell Aliant Regional Communications Inc.
                                                                              Notes to the consolidated financial statements




In 2006, we also entered into a commercial relationship management agreement (CRMA) with Bell Canada,
which governs our general commercial relationship and addresses matters such as marketing co-operation,
customer primeship and non-competition and branding. The CRMA, together with certain agreements it refers
to, also amends certain provisions of the MOA and extends the term of the MOA to that of the CRMA.

The CRMA will automatically terminate upon termination or expiration of the connecting and operating
agreement, which we entered into with Bell Canada in 2006. Pursuant to the connecting and operating
agreement, we and Bell Canada have agreed to interconnect our respective telecommunications systems for
the exchange of telecommunications traffic. This agreement has an original term of 15 years, with automatic
renewals for consecutive five year periods, unless four years prior notice of non-renewal is provided by one
of the parties. The connecting and operating agreement may be terminated for material breach at any time
by a party, if (a) the parties mutually agree that the breach has occurred and has not been cured, or (b) a court
or arbitrator makes a final and unappealable determination that the other party has materially breached the
agreement and has not cured the breach within the appropriate contractual timeframe.

The CRMA and the other commercial agreements may also be terminated by Bell Canada in the event that,
without Bell Canada’s prior consent, a competitor of Bell Canada acquires, directly or indirectly, more than
30 per cent of Bell Aliant LP or de facto control of it or its business. In addition, Bell Canada is entitled to
terminate, at its sole discretion, its provision of services to us in circumstances where Bell Canada is ceasing to
offer the corresponding services to its customers. Further, Bell Canada is entitled to terminate at its discretion
many of the commercial agreements by giving two years prior notice of its intention to terminate the relevant
commercial agreement. Generally, we are permitted to terminate and repatriate services provided to us by
Bell Canada upon two years notice.

We also have an agreement with Bell Canada that provides access to certain of each other’s intellectual
property, in addition to providing us with access to Bell Canada’s engineering and network intellectual property.
In 2006, we entered into trade-mark license agreements with Bell Canada whereby each party and its affiliates
are permitted to use the trade-marks of the other party in accordance with the terms of the license for
30 years (subject to an additional 10-year renewal on request by the licensee, at the licensor’s discretion).

In 2006, we entered into a distribution agreement with Bell Distribution Inc. (BDI), a subsidiary of
Bell Canada, under which BDI acts as our agent for sales and distribution of our wireline and Internet
access telecommunications services and related products. We also entered into a corresponding distribution
agreement with BDI under which we act as BDI’s agent for the distribution of Bell Canada’s wireless and
satellite telecommunications services and related products and services in our territory.

We also have an agreement with Bell Canada under which Bell Canada provides information technology (IT)
services to us to allow us to serve our customers in Ontario and Quebec. A part of this agreement requires
the parties to jointly fund a plan to develop further IT services for us. The total capital anticipated to be
expended on this plan is $90.0 million, of which Bell Canada will fund the first $32.0 million with the remaining
$58.0 million being equally funded by Bell Canada and us.

In the normal course of business, we enter into agreements with Bell Canada and its controlled investees to
provide and purchase telecommunications and other support services, and purchase capital investments.
All related party transactions are measured at the exchange amounts as follows:
For the year ended December 31                                                                 2012                     2011

Operating revenues                                                                            234.3                     232.3
Percentage of the total operating revenues                                                     8.48%                     8.37%
Operating expenses                                                                            449.6                     446.6
Loss on sale of xwave to Bell (note 8)                                                            —                       (4.4)
Purchase of property, plant and equipment and finite-life intangible assets                    40.6                      43.8




                                                                                       Bell Aliant 2012 annual report       40
Bell Aliant Regional Communications Inc.
Notes to the consolidated financial statements




Balances with Bell Canada and its controlled investees are as follows:
As at December 31                                                                             2012               2011

Trade and other receivables                                                                   98.9               109.8
Receivable from Bell Canada for sale of xwave (note 8)                                         0.4                20.7
Prepayments                                                                                    1.8                 2.5
Long-term receivables, including current portion in trade and other receivables               14.4                15.0
Trade and other payables                                                                      90.5                95.8
Deferred revenue and other long-term liabilities                                               8.4                 9.3


The trade and other receivables from, and trade and other payables to, Bell Canada and its controlled
investees are non-interest bearing and under normal credit terms, and have arisen from the sale of products
and provision of services referred to previously. They also include amounts arising from sales to customers
and purchases from suppliers in our Ontario and Quebec regional territory that Bell Canada collects or pays
on our behalf. We, in turn, settle the net payments with Bell Canada.

The long-term receivable from Bell Canada includes the capital funding commitment by Bell Canada in relation
to the IT services plan, as previously discussed, of $14.2 million (December 31, 2011 – $15.0 million).

Estimated future annual minimum payments under our contractual obligations with Bell Canada, which are
included in commitments in note 20, at December 31, 2012, are as follows:
                                                              2013         2014    2015    2016      2017    Thereafter


Operating purchase commitments                                284.2        272.8   264.8   254.5     244.9       803.0


Bell Aliant Inc.
Bell Aliant Inc. is entirely dependent on the dividends we pay to them to make their dividend payments. For
the year ended December 31, 2012, we declared and paid dividends to them totalling $470.5 million (2011 –
$436.5 million), which includes a $52.3 million special cash dividend.

On May 14, 2012, we declared and paid a special cash dividend of $52.3 million to Bell Aliant Inc. (note 16),
which was immediately loaned to one of our wholly owned subsidiaries through an unsecured subordinated
promissory note, which carries an interest rate of 7.5 per cent. For the year ended December 31, 2012, we
recorded $2.5 million of interest expense in relation to this note.

Bell Aliant Inc. loans us their excess cash or borrows our cash through a series of promissory notes and requests
or makes repayments as required for operating purposes. The $5.7 million in promissory notes that were
payable to Bell Aliant Inc. at December 31, 2011, were repaid on maturity dates up to January 30, 2012.
Subsequently issued promissory notes carried rates of interest from 1.30 per cent to 2.77 per cent per annum,
resulting in an immaterial amount of interest expense being incurred during the years ended December 31, 2012,
and 2011. At December 31, 2012, there were no promissory notes payable to Bell Aliant Inc.

At December 31, 2012, a $10.0 million promissory note was receivable from Bell Aliant Inc., carrying interest
at 2.77 per cent per annum and maturing on January 28, 2013. This note is included in cash and cash
equivalents. We recognized an immaterial amount of interest income for the year ended December 31, 2012,
related to this note.

In the normal course of business, we have an agreement with Bell Aliant Inc. for the provision of administrative
and support services, such as corporate reporting, investor relations, communications, treasury and all other
services as may be necessary or requested by the board of directors, for the administration of Bell Aliant Inc.
The agreement commenced in July 2006, has an initial term of 10 years, and will be automatically extended for
additional five year periods unless notice of termination is given. These services are measured and recorded
at their exchange amount of $3.9 million for the year ended December 31, 2012 (2011 – $3.3 million).


41       Bell Aliant 2012 annual report
                                                                                Bell Aliant Regional Communications Inc.
                                                                          Notes to the consolidated financial statements




Our share-based compensation plans, as discussed in note 17, are based on Bell Aliant Inc. common shares.
Compensation expenses for the ESSPs and the DSP are recorded by us. We also record our proportionate share
of the expense for the DDSUP.

Included in trade and other payables at December 31, 2012, is an amount due to Bell Aliant Inc. of $37.5 million
(December 31, 2011 – $33.8 million), which includes amounts relating to the share-based compensation plans
and is net of administrative expenses.

Compensation of the board of directors and key management personnel
The following table includes compensation of the board of directors and key management personnel for the
years ended December 31, 2012, and 2011. Key management personnel include our chief executive officer (CEO),
and the executives who report directly to the CEO.
For the year ended December 31                                                             2012                     2011

Base salary                                                                                  2.7                     2.6
Short-term benefits                                                                          2.7                     2.8
Post-employment benefits                                                                     1.0                     0.9
Share-based compensation plans                                                               5.0                     4.3
                                                                                            11.4                    10.6

Costs associated with the share-based compensation plans will fluctuate in any given period due to a
combination of the number of deferred shares granted, credited or forfeited under the plans during the period,
and the change in the quoted market price of Bell Aliant Inc.’s common shares. Refer to note 17 for additional
information on our share-based compensation plans.

NOTE 24
SUBSEQUENT EVENTS

On January 1, 2013, we finalized our purchase of the wireline and Internet assets of Dryden Municipal
Telephone System for $4.5 million.

On February 4, 2013, we declared quarterly dividends on our common shares totalling $110.6 million, which
are payable on March 28, 2013.

Also on February 4, 2013, Prefco declared quarterly dividends totalling $4.8 million, which are payable on
March 28, 2013.

On February 14, 2013, Prefco issued 8,000,000 cumulative rate reset preferred shares, series E (series E
preferred shares), at a price of $25.00 per share, and on February 20, 2013, a further 1,200,000 series E
preferred shares were issued following the exercise by the underwriters of an over-allotment option
for total gross proceeds of $230.0 million. When and if declared by the board of directors of Prefco, the
series E preferred shares will pay cumulative dividends of $1.0625 per share per annum, payable quarterly
(with the first quarterly dividends to be paid on June 30, 2013), for an initial five and a half year period
ending September 30, 2018.

Holders of the series E preferred shares will have the right, at their option, to convert their shares into
cumulative floating rate preferred shares, series F (series F preferred shares) subject to certain conditions,
on September 30, 2018, and on September 30 every five years thereafter. Holders of the series F preferred
shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the three-month
Government of Canada Treasury Bill yield plus 2.64 per cent, if, as and when declared by Prefco.




                                                                                   Bell Aliant 2012 annual report     42

				
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