Aboriginal Peoples Television Network Incorporated. Financial Statements August 31, 2008

Transcription

1 Aboriginal Peoples Television Network Incorporated Financial Statements

2 PricewaterhouseCoopers LLP Chartered Accountants One Lombard Place, Suite 2300 Winnipeg, Manitoba Canada R3B 0X6 Telephone +1 (204) Facsimile +1 (204) November 17, 2008 Auditors Report To the Directors of Aboriginal Peoples Television Network Incorporated We have audited the statement of net assets of Aboriginal Peoples Television Network Incorporated as at and the statements of operations, changes in net assets and cash flows for the year then ended. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. Chartered Accountants PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.

3 Statement of Net Assets As at Assets Current assets Cash and cash equivalents 3,974,531 3,174,787 Short-term investment 4,594,354 3,730,941 Accounts receivable (note 5) 4,306,291 5,513,509 Current portion of film and television program rights (note 6) 7,408,518 5,900,171 Prepaid expenses and other assets 237,727 97, ,521,421 18,416,645 Film and television program rights (note 6) 14,381,242 11,279,355 Capital assets (note 8) 7,242,575 5,209,361 Liabilities 42,145,238 34,905,361 Current liabilities Accounts payable and accrued liabilities (note 10) 2,591,000 1,620,566 Film and television program accounts payable 2,003,365 1,354,795 Net Assets 4,594,365 2,975,361 Net assets invested in capital assets 7,242,575 5,209,361 Unrestricted net assets 30,308,298 26,720,639 37,550,873 31,930,000 42,145,238 34,905,361 Commitments, contingencies and guarantees (note 12) Approved by the Board of Directors Director Director

4 Statement of Operations For the year ended Revenue Subscriber fees 30,269,072 29,678,816 Advertising 2,589,170 1,923,159 Contributions (note 13) Government of Canada - Department of Canadian Heritage 2,100,000 2,100,000 Canadian Satellite Communications Inc. 1,500,000 1,500,000 Other contributions - 282,824 Interest revenue 223, ,359 Other revenue 93,357 79,820 36,775,284 35,767,978 Expenses Network operations Amortization of capital assets 1,378, ,527 Facility rent 1,127,219 1,070,509 Insurance 125, ,502 Low Power Rebroadcast transmitter repair and maintenance 786, ,284 Transponder and uplink rental (note 13) 2,637,172 2,524,473 Uplink utilities 154, ,478 Vehicle lease 146, ,023 6,354,936 5,480,796 Network programming Communications and marketing 2,874,771 2,423,880 Consultants 145,111 32,263 Equipment and office supplies 71,543 65,320 Production expense 363,834 1,022,331 Amortization of film and television programs 9,772,089 7,254,997 Program development contributions 622, ,046 Socan fees 309, ,213 Salaries 4,894,176 4,129,651 Travel 372, ,448 Website development 20, ,144 19,446,557 16,450,293 General and administration Bad debt 6,844 2,637 Board meetings 333, ,433 Entertainment 43,719 28,063 General office 291, ,705 Interest on term loan - 4,644 Memberships 53,042 33,575 Professional development 290, ,058 Professional fees 743, ,437 Recruitment and relocation 31,803 85,923 Salaries and benefits 3,093,620 2,759,935 Staff travel 286, ,738 Telephone 178, , ,352,918 4,408,220 31,154,411 26,339,309 Net income for the year 5,620,873 9,428,669

5 Statement of Changes in Net Assets For the year ended Balance - Beginning of year Net income for the year Balance - End of year Net assets invested in capital assets 5,209,361 2,033,214 7,242,575 Unrestricted net assets 26,720,639 3,587,659 30,308,298 31,930,000 5,620,873 37,550,873

6 Statement of Cash Flows For the year ended Cash flows from (used in) Operating activities Net income for the year 5,620,873 9,428,669 Items not affecting cash Amortization of film and television program rights 9,772,089 7,254,997 Amortization of capital assets 1,378, ,527 Investment in film and television program rights (14,382,323) (11,786,944) 2,389,102 5,877,249 Net change in other non-cash working capital items Accounts receivable 1,207,218 (1,458,984) Prepaid expenses and other assets (140,490) (45,456) Accounts payable and accrued liabilities 970, ,720 Film and television program accounts payable 648, ,771 5,074,834 5,154,300 Investing activities Purchase of short-term investment - net (863,413) (1,530,700) Purchase of capital assets (3,411,677) (2,487,726) (4,275,090) (4,018,426) Financing activities Payments of obligations under capital leases - (4,556) Repayment of term loan - (277,764) - (282,320) Increase in cash and cash equivalents 799, ,554 Cash and cash equivalents - Beginning of year 3,174,787 2,321,233 Cash and cash equivalents - End of year 3,974,531 3,174,787 Included in operating activities are interest payments of - 4,644

7 1 Nature of the operations The Aboriginal Peoples Television Network Incorporated (the Company ) was incorporated on June 12, 1989 without share capital under Part II of the Canada Corporations Act as Television Northern Canada. Following its successful national licence application in 1999, it was renamed Aboriginal Peoples Television Network and amended its Letters Patent accordingly. The Company is a non-profit corporation and registered charity established to distribute broadcast services to aboriginal and northern audiences. The Company is a registered charity under the Income Tax Act (Canada) and as such is not subject to income taxes. Effective August 31, 2005, the Company was granted a seven year license by the Canadian Radio-television and Telecommunications Commissions ( CRTC ) to distribute programming through cable systems across Canada and earn subscriber fees. Class 1 and 2 distribution undertakings licensed by the CRTC are required to distribute the Company s programming as part of their basic services. 2 Changes in accounting polices During the year, the Company adopted the following recommendations of the CICA Handbook: a) Section Financial Instruments - Recognition and Measurement Describes the standards for recognizing and measuring financial instruments in the balance sheet and the standards for reporting gains and losses in the financial statements. Under the new standard, financial assets and liabilities are initially recorded at fair value. Subsequently, financial instruments classified as financial assets or liabilities held for trading, financial assets available for sale, and derivative financial instruments, part of a hedging relationship or not, have to be measured at fair value on the balance sheet at each reporting date, whereas other financial instruments are measured at amortized cost using the effective interest method. b) Section Financial instruments - Disclosure and Presentation This section establishes standards for the presentation of financial instruments and non-financial derivatives, and identifies the information that should be disclosed about them. c) Section Equity This section establishes standards for the presentation of equity and changes in equity during the reporting period. These new standards were applied retroactively as of September 1, 2007 without restatement of prior years figures. The adoption of these new standards had little impact on the financial statement balances. (1)

8 3 Proposed accounting changes The Company will be required to adopt the following recommendations of the CICA Handbook in the 2009 fiscal year and beyond: a) Section Capital Disclosures The AcSB issued CICA 1535, Capital Disclosures, which the Company must apply for its fiscal year beginning September 1, CICA 1535 requires the Company to disclose the nature of externally imposed capital requirements and how the Company manages its capital to meet them. Furthermore, the Company will be required to disclose compliance with the requirements and if it has not complied, the consequences of such non-compliance. b) Section Goodwill and Intangibles The AcSB issued CICA 3064, Goodwill and Intangible Assets, which the Company must apply for its fiscal year beginning September 1, CICA 3064 establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. CICA 3064 expands on the criteria when intangible assets can be recognized. CICA 3064 also applies to internally-generated intangible assets such as research and development activities and rights under licensing agreements. The section further indicates that expenditures not meeting the recognition criteria are expensed as incurred. 4 Significant accounting policies Revenue recognition Subscriber fees are recognized monthly on the basis of the number of subscribers reported by distributing cable and Direct to Home satellite companies at rates prescribed by the CRTC. Revenue derived from advertising consists primarily of the sale of air time which is recognized at the time commercials or related programs are broadcast. Contributions from the Government of Canada - Department of Canadian Heritage and Canadian Satellite Communications Inc. are recognized in the period the contributions relate to. Contributions that do not meet this criteria are deferred. Other contributions are recognized as revenue when received or receivable if the amount to be received can be reasonably estimated and collection is reasonably assured. (2)

9 Film and television broadcast rights The Company has entered into various agreements for the rights to broadcast certain feature films and television programs. The Company records a liability for film and program rights and the corresponding asset when the films or programs are available for telecast. Funds paid prior to the films and programs being available for broadcast are treated as deposits. Film and television program rights are recorded at cost and are charged to operations over the number of expected or permitted plays under the related licensing agreements or on a straight-line basis over the term of the licensing agreements for unlimited play programs. Film and television program rights are carried at the lower of unamortized cost and net realizable value based on undiscounted future cash flows. Program development contributions The Company provides early development contributions to organizations that develop programming suitable to the Company. These contributions do not provide the Company with specific rights to acquire future benefits and are therefore expensed as incurred. Capital assets Capital assets are recorded at cost and are amortized as follows: Satellite and broadcasting equipment Office equipment Digital equipment Computer software Leasehold improvements 10 years straight-line 20% declining balance 20% declining balance 35% declining balance life of lease Cash and cash equivalents Cash and cash equivalents are composed of non-restricted cash and short-term, highly liquid investments with an original maturity of 90 days or less. Interest is earned on cash equivalents at an interest rate of 3.25% per annum. Short-term investment Short-term investment is composed of a guaranteed investment certificate with an original maturity in excess of 90 days. Interest is earned at a variable rate. License License renewal costs are expensed as incurred. (3)

10 Use of estimates The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Financial instruments Classification Short-term investments Accounts receivable Other receivables Accounts payable and accrued liabilities Held-for-trading Loans and receivables Loans and receivables Other liabilities Held-for-trading Held-for-trading financial assets are typically acquired for resale prior to maturity or are designated as held-for-trading. They are measured at fair value at the balance sheet date. Fair value fluctuations including interest earned, interest accrued, gains and losses realized on disposal and unrealized gains and losses are included in investment income. Loans and receivables Financial assets designated as loans and receivables are recorded at amortized cost using the effective interest method. Given the short-term nature of grants and other receivables, their carrying value approximates fair value. Other liabilities Other liabilities are recorded at amortized cost using the effective interest method and include all financial liabilities. Given the short-term nature of accounts payable and accrued liabilities, their carrying value approximates fair value. (4)

11 5 Accounts receivable Subscriber fees 3,541,081 3,892,420 Advertising 493, ,234 Investment in and advances to subsidiary (note 7) 153,489 - Goods and services tax 110, ,640 Government of Canada - Department of Canadian Heritage ,358 Other 7,131 63,857 4,306,291 5,513,509 6 Film and television program rights Deposits paid on programs in process 2,240,207 2,410,317 Broadcast rights - net of accumulated amortization of 25,725,414 ( ,783,750) 19,549,553 14,769,209 21,789,760 17,179,526 Less: Current portion (7,408,518) (5,900,171) Long-term portion 14,381,242 11,279,355 The Company has entered into various agreements to acquire additional film and television program rights amounting to approximately 13,000,000 ( ,000,000). (5)

12 7 Investment in subsidiary and basis of presentation In 2008, Animiki See Digital Productions Inc. ( AnP ), a 100% owned subsidiary of the Company, was incorporated. AnP is an agent for the production and acquisition of film and television broadcast rights for the Company. Included in accounts receivable of the Company are the following: Investment in subsidiary - at cost 100 Advances to subsidiary 153,389 Deposits paid on programs in process (note 6) include 450,000 paid to AnP. 153,489 During the year, the Company purchased film and television broadcast rights from AnP amounting to 262,060. These amounts are measured at the exchange amount, which is the amount of consideration established and agreed to by the Company and AnP. The Company exercises control over AnP by virtue of its abilities to appoint all of AnP s Board of Directors. AnP s financial results have not been consolidated in the Company s financial statements. Financial statements for AnP are prepared separately. A financial summary of AnP s financial position as at and the results of operations for the year then ended are as follows: Financial position: Assets 722,876 Liabilities 861,497 Deficit (138,621) 722,876 Results of operations: Revenue 262,060 Expenses (400,781) Net loss (138,721) Cash flow from: Operating activities 315,664 Investing activities (6,625) Financing activities 100 Net change in cash 309,139 (6)

13 8 Capital assets Cost Accumulated amortization Net Net Satellite and broadcasting equipment 5,740,855 5,740, Office equipment 1,602, , , ,073 Digital equipment 11,921,860 6,608,449 5,313,411 3,479,667 Computer software 967, , , ,556 Leasehold improvements 1,072, , , ,065 21,305,013 14,062,438 7,242,575 5,209,361 9 Bank overdraft and term debt The Company has a 2,500,000 (2007-2,500,000) revolving bank loan facility. Advances under this facility bear interest at prime plus 1.00% and are repayable on demand. As at, the Company s indebtedness under this facility was nil. The revolving bank loan facility is collateralized by a general security agreement over all assets of the Company. 10 Related party balances and transactions During the year, the following amounts were charged to the Company by member organizations: Office rent and maintenance 54,882 52,246 Film and television program rights 1,127, ,164 Other 8,966 8,171 These transactions are in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. (7)

14 Amounts due to member organizations, which are included in accounts payable, consist of: Inuit Broadcasting Corporation 52,408 77,400 Inuvialuit Communications Society 20,800 4,800 Native Communications Society - 17,000 Northern Native Broadcasting 15,600 37,700 OKalaKatiget Society - 10,400 Taqramiut Nipingat Incorporated - 10,400 Wawatay Native Communications ,500 88, ,200 Deposits paid on programs in process (note 6) include amounts paid to member organizations of: Taqramiut Nipingat Incorporated 35,500 - Wawatay Native Communications 20,800 10,400 Northern Native Broadcasting 23,400 - Inuvialuit Communications Society 1,300-81,000 10,400 The Company has entered into three professional services agreements with companies whose employees fill senior management positions. Payments related to these contracts during the year ended amounted to 405,458. The oldest such contract expired on. 11 Non-monetary transactions In the normal course of business, the Company enters into non-monetary transactions to exchange advertising for various products and services. These transactions are recorded at the fair value of the goods or services received and no gains or losses have been reported on these transactions. Advertising revenue and communications and marketing expenses for the year ended include 648,000 ( ,000) of non-monetary transactions. (8)

15 12 Commitments, contingencies and guarantees Commitments The Company has commitments for office space and equipment under operating leases, and maintenance contracts as follows: Year ending August 31, , , , , ,776 The Company has committed to spend the amount of the subscriber fee increases approved in fiscal 2006 primarily on programming expenditures. As indicated in note 6, at, the Company had entered into various agreements to acquire investments in film and television program rights amounting to approximately 13,000,000. Contingencies The Company is involved in various legal matters arising in the ordinary course of business. The resolution of these matters is not likely to have a material adverse effect on the Company s financial position, results of operations or cash flows. Guarantees The Company has agreed to indemnify its current and former directors and officers to the extent permitted by law, against any and all charges, costs, expenses, amounts paid in settlement and damages incurred by the directors and officers as a result of any lawsuit or any other judicial, administrative or investigative proceeding in which the directors and officers are sued as a result of their service. These indemnification claims will be subject to any statutory or other legal limitation period. The nature of such indemnification prevents the Company from making a reasonable estimate of the maximum potential amount if it could be required to pay to counter parties. The Company has purchased directors and officers liability insurance. (9)

16 13 Contribution agreements The Company has entered into contribution agreements with the Government of Canada - Department of Canadian Heritage and Canadian Satellite Communications Inc. The agreement with the Department of Canadian Heritage, which provides for annual contributions of 2,100,000, expires on March 31, The Company has entered into an agreement with Canadian Satellite Communications Inc. ( CSCI ), which provides the Company with an annual contribution of 1,500,000. In addition, the Company received transponder and uplink services from CSCI at a cost of 2,637,172 (2007-2,524,473). The agreement expires on August 31, On June 7, 2007, the CRTC approved a special benefit contribution to the Company of 2,250,000. To date, no amounts have been received, therefore revenue has not been recorded in respect of these contributions. 14 Financial instruments Fair values The initial recognition of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities (including those related to film and television program accounts payable), approximate the fair value of these financial instruments. Their subsequent measurement is dependent on their classification as described below. Concentration of credit risk The Company is exposed to credit risk, primarily in relation to accounts receivable. Exposure to credit risk varies due to the concentration of balances owing from Canadian cable companies and advertising agencies. The Company performs regular credit assessments of its customers and provides allowances for potentially uncollectible amounts. Interest rate risk The Company is subject to interest rate risk to the extent that required interest payments on bank overdraft and the term loan will fluctuate with changes in the prime rate and to the extent that the fair value of its obligations under capital leases will fluctuate with changes in interest rates. 15 Comparative figures Certain prior year amounts have been reclassified to conform with the current year s presentation. (10)

17