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## (e) Income Taxes 

The income tax adjustment represents the impact the United States GAAP adjustments that we describe above have on income taxes. The accounting for income taxes under Canadian GAAP and United States GAAP is essentially the same, except that: 

• income tax rates of enacted or substantively enacted tax law are used to calculate future income tax assets and liabilities under Canadian GAAP 

• only enacted income tax rates are used under United States GAAP. 

## (f) Non-Controlling Interest 

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

## (g) Discontinued Operations 

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

## (h) Change in Unrealized Gain (Loss) on Investments 

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

## (i) Accounting for Stock-Based Compensation 

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

We adopted the fair value-based method of account- ing on a prospective basis, effective January 1, 2002. 

Under SFAS No. 123, however, we are required to make pro forma disclosures of net earnings, and basic and diluted earnings per share, assuming that the fair value-based method of accounting had been applied from the date that SFAS No. 123 was adopted. 

The table below shows stock-based compensation expense and pro forma net earnings using the Black- Scholes pricing model. 

<img src='content_image/115850.jpg'>

## (j) Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133) 

On January 1, 2001, we adopted SFAS 133, Accounting for Derivative Instruments and Hedging Activities , as amended by SFAS 138. Under this standard, all deriva- tives must be recorded on the balance sheet at fair value under United States GAAP. In addition, certain economic hedging strategies, such as using dividend rate swaps to hedge preferred share dividends and hedging SCPs, no longer qualify for hedge accounting under United States GAAP. 

The change in the fair value of derivative contracts that no longer qualify for hedge accounting under United States GAAP is reported in net earnings. 

We elected to settle the dividend rate swaps used to hedge $510 million of BCE Inc. Series AA preferred shares and $510 million of BCE Inc. Series AC preferred shares in the third quarter of 2003. These dividend rate swaps in effect converted the fixed-rate dividends on these preferred shares to floating-rate dividends. They were to mature in 2007. As a result of the early settlement, we received total proceeds of $83 million in cash. Since the settlement, all of our derivative contracts qualify for hedge accounting. 

