Call Net Enterpris (NASDAQ:CNEZF)
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Call-Net Reports Fourth Quarter and Year-End Results for 2004
- Revenue $211 million for fourth quarter, $819 million for year, a 2% increase
over 2003 - EBITDA $32 million for fourth quarter, $105 million for year, a 9%
increase over 2003 - 99,600 local service lines added in fourth quarter, total
of 203,300 for year, a 111% increase over 2003 - 5,000 business accounts added
in fourth quarter, total of 20,000 for year, an 82% increase over 2003
TORONTO, Feb. 23 /PRNewswire-FirstCall/ -- Call-Net Enterprises Inc. a
national facilities- based provider of competitive voice, enhanced voice, data
and IP solutions to households and businesses across Canada, today reported
financial results for the fourth quarter and the year ended December 31, 2004.
"During 2004, our consumer revenue grew by 10 per cent and our business service
by six per cent, accelerated by a strategic acquisition," said Bill Linton,
president and chief executive officer. "Continued growth and productivity gains
resulted in improved profitability of the Company. In the fourth quarter, local
service, data, and wireless revenues provided 52 per cent of our total revenue
and exceeding the total of long distance."
Q4 2004 Highlights
Consolidated revenue for the fourth quarter of 2004 was $211 million, a three
per cent increase from the same period last year. Revenue included the impact
of slightly more than one month's revenue from the acquisition of a significant
portion of 360networks business customers based in eastern Canada from Bell
Canada in November 2004. Fourth quarter earnings before interest, taxes,
depreciation and amortization (EBITDA) were $32 million, a $7 million increase
from the fourth quarter of 2003. During the quarter the Company generated free
cash flow (EBITDA less interest, cash taxes and capital expenditures) of $8
million.
Consistent with previous quarters, year-over-year growth in the consumer and
business services divisions was partially offset by declines in carrier
services. The Company continued to make progress selling bundled services to
households and small and medium sized businesses, selling IP Enabled Solutions
and enhanced voice services to businesses, and winning several multi-national
accounts in partnership with Sprint in the United States. During the fourth
quarter, Call-Net added 99,600 net local equivalent lines of which 25,500 were
consumer lines and 67,900 were attributed to the Bell/360 acquisition. Call-Net
also finished the quarter with 30,600 wireless lines.
Consumer services revenue improved compared with the same quarter in 2003 as
increases in local and wireless service revenue more than offset declines in
dial-up Internet and long distance services. Revenue from bundled products
continued to grow relative to revenue from stand-alone products. At the same
time churn on home phone service declined from 2.8 per cent in 2003 to 2.5 per
cent in 2004. Business revenue improved in the fourth quarter relative to the
same period in 2003, fueled by the acquisition of Bell/360 customers in Eastern
Canada and growth in local and data sales.
"During the quarter we finalized the acquisition of the business customer base
and specific network facilities of 360networks in Ontario, Quebec and Atlantic
Canada. Revenue from this new customer base accounted for approximately $8
million of our consolidated revenue for the fourth quarter and contributed
approximately $1 million of EBITDA. We expect to finalize the assets to be
acquired and related costs during the second quarter," added Linton.
Carrier charges continued to be less than 50 per cent of revenue. Network
optimization, favourable changes in the product mix, dispute wins, regulated
price changes and aggressive contract negotiations led to an improvement in
gross profit, which totaled $109 million in the fourth quarter, a $2 million
increase from the same period in 2003.
Operating costs for the quarter fell, reflecting productivity improvements
brought about by an organizational realignment. Total operating costs for the
fourth quarter were $77 million, a six per cent decrease over the same period
last year.
The most significant regulatory decision during the quarter was Telecom
Decision CRTC 2004-72 which reduced primary inter-exchange carrier (PIC)
processing charges by up to 90 per cent in some cases. PIC processing charges
are rates we pay to the local exchange carrier to set up the automatic routing
of long distance calls to our network. The decision had a retroactive component
of $2 million which was credited against fourth quarter carrier charges.
Telecom Decision CRTC 2005-6 with respect to competitor digital network
services (CDN services) was released on February 3, 2005. The impact of this
decision has not been reflected in the quarterly results.
2004 Highlights
For the year ended December 31, 2004, Call-Net reported total revenue of $819
million, a two per cent increase from the previous year. The consumer business
grew by 10 per cent and business services by six per cent fueled by the sale of
new products and services and the acquisition of Bell/360 customer base in
Eastern Canada. This growth more than offsets continuing declines in carrier
services. Call-Net made significant inroads in the local services market adding
104,800 net consumer lines and 98,500 net equivalent business lines ending 2004
with 470,900 net equivalent lines. Profitability continued to improve with
EBITDA at $105 million compared to $96 million in 2003.
"Our 2004 operating and financial results mark another turning point in the
evolution of our business as we continued to grow both revenue and EBITDA,"
said Roy Graydon, executive vice president and chief financial officer. "The
effects of our product diversification strategy have resulted in a stronger
more viable company."
2005 Outlook
In 2005, Call-Net expects to continue to grow its consumer and business
divisions offset somewhat by continued decline in carrier services revenue. Top
line revenue is expected to be $870 million to $885 million, up six to eight
per cent from 2004. On a consolidated basis, the Company's total revenue mix is
expected to be approximately 33 per cent local and other services, 24 per cent
data and IP services and 43 per cent long distance.
In the consumer market, Call-Net intends to launch a high-speed Internet access
product using next generation digital subscriber line (DSL) technology during
the third quarter. The focus will remain on attracting home phone service
customers and home phone service revenue is expected to comprise more than 55
per cent of total consumer revenue.
The business market will remain highly competitive, particularly in the large
corporate and mid-sized market segments. Growth will come from the full
integration of the Bell/360 business and the Company's local service,
IP-enabled and enhanced voice solutions. This growth is expected to offset
declining long distance revenue. Call-Net is committed to maintaining a
profitable carrier service operation with anticipated revenue declines in per
unit pricing throughout 2005, offset by declining costs.
Carrier charges should remain at less than 50 per cent of revenue in 2005. On
February 3, 2005, the Canadian Radio-television and Telecommunications
Commission issued a decision regarding CDN services provided to competitive
local exchange carriers. The decision is expected to result in annualized
savings in carrier charges of at least $25 million.
EBITDA is expected to be in the range of $125 to $135 million up 19 to 29 per
cent over 2004. After deducting cash interest and taxes, and capital
expenditures, the Company expects free cash flow of between $16 to $21 million
in the year.
Capital expenditures are expected to be in the range of seven to eight per cent
of revenue for 2004, 60 per cent of which will be invested in growth including
the deployment of residential high-speed access and 40 per cent on maintaining
current operations and improving operational efficiency.
Conference call
Call-Net will host a conference call to discuss its fourth quarter results
later today, Wednesday, February 23, 2005 at 1:00 p.m. ET. To participate, dial
416-695-5259 or 1-877-888-7019. The call will be audio webcast live at
http://www.callnet.ca/ or by entering http://www.newswire.ca/webcast. The call
will also be available on replay until March 2, 2005 at 416-695-5275 or
1-888-509-0081.
About Call-Net Enterprises Inc.
Call-Net Enterprises Inc., (TSX: FON, FON.NV.B) primarily through its wholly
owned subsidiary Sprint Canada Inc., is a leading Canadian integrated
communications solutions provider of home phone, wireless, long distance and IP
services to households, and local, long distance, toll free, enhanced voice,
data and IP services to businesses across Canada. Call-Net, headquartered in
Toronto, owns and operates an extensive national fibre network, has over 151
co-locations in five major urban areas including 33 municipalities and
maintains network facilities in the United States and the United Kingdom. For
more information, visit http://www.callnet.ca/ and http://www.sprint.ca/.
Note for Investors:
This news release may include statements about expected future events
and/or financial results that are forward-looking in nature and subject
to risks and uncertainties. For those statements, we claim the protection
of the safe harbour for forward-looking statements provisions contained
in the Private Securities Litigation Reform Act of 1995. The Company
cautions that actual performance will be affected by a number of factors,
many of which are beyond its control. Future events and results may vary
substantially from what the company currently foresees. Discussion of the
various factors that may affect future results is contained in the
Company's recent filings with the Securities and Exchange Commission, the
Ontario Securities Commission and SEDAR.
Non GAAP Financial Measures
Certain financial measures used in this news release do not have any
standardized meaning under Canadian generally accepted accounting
principles (GAAP). Below is a definition of each of the non-GAAP
financial measures used in this news release.
EBITDA
Earnings before interest, taxes, depreciation and amortization
(EBITDA) is a financial metric used to analyze operating results. The
Company defines EBITDA as revenue less carrier charges and operating
costs. EBITDA is used as a benchmark of operating performance and as
a performance threshold in the management incentive plan. EBITDA as
calculated by the Company may not be comparable to similarly titled
amounts reported by other companies.
Free Cash Flow
The Company defines free cash flow as EBITDA less financing costs
(including interest expense on long-term debt, servicing fees, bank
charges and any late payment charges), cash income taxes paid, net
capital expenditures and the cash component of changes in deferred
costs. The Company uses free cash flow as a measure of our ability to
maintain operations and service debt.
Call-Net Enterprises Inc.
CONSOLIDATED BALANCE SHEETS
As at December 31 (millions of Canadian dollars) 2004 2003
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Restated
ASSETS
Cash and cash equivalents 38.9 56.5
Short-term investments 34.8 93.6
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Cash, cash equivalents and short-term investments 73.7 150.1
Accounts receivable 22.8 42.7
Other current assets 30.2 48.9
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Total current assets 126.7 241.7
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Capital assets 458.3 516.7
Intangible assets 52.2 68.1
Other assets 11.7 12.6
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Total assets 648.9 839.1
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LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities 149.7 149.4
Long-term debt 268.5 387.1
Other long-term liabilities 53.3 49.1
Shareholders' equity
Capital stock
Common shares, unlimited authorized 49.7 49.8
Class B non-voting shares, unlimited authorized 298.5 297.6
Preferred shares, unlimited authorized - -
Contributed surplus 4.4 2.9
Deficit (175.2) (96.8)
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Total shareholders' equity 177.4 253.5
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Total liabilities and shareholders' equity 648.9 839.1
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Call-Net Enterprises Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Unaudited)
(millions of Canadian dollars, Three Months
except per share amounts) Ended
Dec 31, Dec 31,
2004 2003
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Restated
Revenue 211.1 204.1
Carrier charges 101.9 96.8
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Gross profit 109.2 107.3
Operating costs 77.3 82.4
Realignment, restructuring and other charges 6.5 -
Depreciation and amortization 36.9 38.6
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Operating loss (11.5) (13.7)
Interest on long-term debt (7.3) (8.9)
Interest and other expense (4.7) (2.7)
Foreign exchange gain 13.9 12.8
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Loss before taxes (9.6) (12.5)
Income tax expense (4.2) (4.4)
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Net loss for the period (13.8) (16.9)
Deficit, beginning of period (161.4) (76.8)
Adjustment for stock-based compensation - (2.4)
Adjustment for asset retirement obligation - (0.7)
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Deficit, beginning of period as adjusted (161.4) (79.9)
Deficit, end of period (175.2) (96.8)
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Basic earnings (loss) per share (0.39) (0.48)
Fully diluted earnings (loss) per share (0.39) (0.48)
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Call-Net Enterprises Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(millions of Canadian dollars) Three Months Ended
Dec 31, Dec 31,
2004 2003
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Restated
OPERATING ACTIVITIES
Net loss for the period (13.8) (16.9)
Add (deduct) operating items not requiring cash:
Depreciation and amortization 36.9 38.6
Foreign exchange gain on long-term debt (13.4) (17.4)
Realignment, restructuring and other charges 6.5 -
Income taxes 3.9 4.3
Other non-cash operating expenses 1.0 0.6
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Cash provided by operations before changes
in non-cash working capital 21.1 9.2
Net change in non-cash working capital balances
related to operations (5.3) (0.8)
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Cash provided by operating activities 15.8 8.4
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INVESTING ACTIVITIES
(Increase) decrease in short-term investments 11.3 (0.1)
Acquisition of capital assets (14.9) (13.3)
Acquisitions (0.5) 0.3
(Increase)/decrease in deferred costs 0.1 (1.0)
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Cash used in investing activities (4.0) (14.1)
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FINANCING ACTIVITIES
Decrease in right-of-way liability (0.8) (0.3)
Issuance of common shares - 5.4
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Cash provided by (used in) financing activities (0.8) 5.1
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Net increase (decrease) in cash and cash
equivalents during the period 11.0 (0.6)
Cash and cash equivalents, beginning of period 27.9 57.1
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Cash and cash equivalents, end of period 38.9 56.5
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Call-Net Enterprises Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
Years ended December 31
(millions of Canadian dollars,
except per share amount or otherwise indicated)
---------
Pre-
recapita-
lization
Nine Three
Months Months
Ended Ended
Dec 31, Mar 31,
2004 2003 2002 2002
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Restated Restated
Revenue 818.6 805.3 598.9 201.8
Carrier charges 400.6 409.9 335.7 116.8
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Gross profit 418.0 395.4 263.2 85.0
Operating costs 313.1 299.3 228.5 73.1
Realignment, restructuring
and other charges 1.2 7.0 30.5 -
Depreciation and amortization 146.6 157.3 120.7 41.8
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Operating loss (42.9) (68.2) (116.5) (29.9)
Net gain (loss) on sale of
capital assets and rights (0.9) - 9.4 -
Gain (loss) on repurchase of
long-term debt (4.0) - 93.1 -
Reversal of change in control
provision 4.7 - - -
Interest on long-term debt (32.7) (43.2) (43.9) (60.3)
Interest and other expense (13.4) (5.7) (2.9) (0.8)
Foreign exchange gain (loss) 17.1 85.9 4.1 (1.8)
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Loss before taxes (72.1) (31.2) (56.7) (92.8)
Income tax benefit (expense) (6.3) (6.3) (2.6) 1.0
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Net loss for the period (78.4) (37.5) (59.3) (91.8)
Deficit, beginning of period,
as previously reported (93.0) (57.7) - (2,759.4)
Adjustment for stock-based
compensation (2.9) (1.2) - -
Adjustment for asset retirement
obligations (0.9) (0.4) - -
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Deficit, beginning of period,
as restated (96.8) (59.3) - (2,759.4)
Deficit, end of period (175.2) (96.8) (59.3) (2,851.2)
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Basic and diluted loss
per share (2.20) (1.36) (2.49) (20.26)
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Call-Net Enterprises Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
(millions of Canadian dollars)
---------
Pre-
recapita-
lization
Nine Three
Months Months
Ended Ended
Dec 31, Mar 31,
2004 2003 2002 2002
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Restated Restated
OPERATING ACTIVITIES
Net loss for the period (78.4) (37.5) (59.3) (91.8)
Add (deduct) operating items
not requiring cash:
Depreciation and
amortization 146.6 157.3 120.7 41.8
Unrealized foreign exchange
(gain) loss on long-term
debt (17.8) (85.9) (4.8) 1.8
Reversal of change in
control provision (4.7) - - -
Loss (gain) on repurchase
of long-term debt 4.0 - (93.1) -
Income taxes 3.9 4.3 - (2.4)
Other non-cash operating
expenses 2.7 3.0 4.4 (0.2)
Net losses on disposals and
writedowns of capital assets 0.9 - 1.3 -
Realignment, restructuring
and other charges 1.2 - - -
Interest accretion on
long-term debt - - - 35.7
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Cash provided by (used in)
operations before changes in
non-cash working capital 58.4 41.2 (30.8) (15.1)
Net change in non-cash working
capital balances related to
operations 28.4 2.5 60.3 (8.3)
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Cash provided by (used in)
operating activities 86.8 43.7 29.5 (23.4)
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INVESTING ACTIVITIES
(Increase) decrease in
short-term investments 58.8 (2.7) 12.3 217.2
Acquisition of capital assets (55.4) (44.1) (62.4) (16.0)
Increase in long-term
investment (0.2) - - -
Net proceeds on disposal of
capital assets and rights 0.4 7.8 6.7 -
Acquisitions (0.5) (19.7) (1.0) -
Increase in deferred costs (0.3) (1.0) - (2.6)
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Cash provided by (used in)
investing activities 2.8 (59.7) (44.4) 198.6
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FINANCING ACTIVITIES
Decrease in right-of-way
liability (2.4) (2.2) (0.1) (0.1)
Issuance of common shares - 40.6 - -
Repurchase of long-term debt (104.8) - (29.7) -
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Cash provided by (used in)
financing activities (107.2) 38.4 (29.8) (0.1)
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Net increase (decrease) in
cash and cash equivalents
during the period (17.6) 22.4 (44.7) 175.1
Cash and cash equivalents,
beginning of period 56.5 34.1 78.8 15.5
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Cash and cash equivalents,
end of period 38.9 56.5 34.1 190.6
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Call-Net Enterprises Inc.
RECONCILIATION OF NON-GAAP MEASURES (Unaudited)
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EBITDA (millions of Canadian dollars)
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For the year ended
December 31
2004 2003
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Operating loss (42.9) (68.2)
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Depreciation & amortization 146.6 157.3
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Realignment & other charges 1.2 7.0
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EBITDA 104.9 96.1
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For the quarter ended
Dec 31, Dec 31,
2004 2003
----------------------
Operating loss (11.5) (13.7)
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Depreciation & amortization 36.9 38.6
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Realignment & other charges 6.5 -
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EBITDA 31.9 24.9
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FREE CASH FLOW
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For the year ended
December 31
2004 2003
----------------------
Free cash flow 10.8 12.0
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Change in non-cash working capital & other 20.7 (5.6)
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Acquisitions (0.5) (19.7)
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Increase in long-term investments (0.2) -
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Change in right-of-way liability (2.4) (2.2)
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Repurchase of long-term debt (104.8) -
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Issuance of equity - 40.6
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Change in cash, cash equivalents & short-term
investments (76.4) 25.1
Increase (decrease) in short-term investments 58.8 (2.7)
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Change in cash & cash equivalents (17.6) 22.4
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For the quarter ended
Dec 31, Dec 31,
2004 2003
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Free cash flow 8.4 0.9
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Change in non-cash working capital & other (7.4) (6.8)
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Acquisitions (0.5) 0.3
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Change in right-of-way liability (0.8) (0.3)
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Issuance of equity - 5.4
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Change in cash, cash equivalents & short-term
investments (0.3) (0.5)
Increase (decrease) in short-term investments 11.3 (0.1)
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Change in cash & cash equivalents 11.0 (0.6)
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DATASOURCE: Call-Net Enterprises Inc.
CONTACT: Media Contact: Karen O'Leary, Corporate Communications,
(416) 718-6445,