ABORIGINAL PEOPLES TELEVISION NETWORK INCORPORATED

Transcription

1 Financial Statements of ABORIGINAL PEOPLES TELEVISION NETWORK

2 KPMG LLP Suite One Lombard Place Winnipeg MB R3B 0X3 Canada Telephone Fax Internet (204) (204) INDEPENDENT AUDITORS REPORT To the Directors of Aboriginal Peoples Television Network Incorporated We have audited the accompanying financial statements of Aboriginal Peoples Television Network Incorporated, which comprise the statement of financial position as at August 31, 2016, the statements of operations, changes in net assets and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for not-for-profit organizations, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation and fair presentation of the 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. KPMG Canada provides services to KPMG LLP.

3 Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Aboriginal Peoples Television Network Incorporated as at August 31, 2016, and its results of operations and its cash flows for the year then ended in accordance with Canadian accounting standards for not-for-profit organizations. Chartered Professional Accountants December 4, 2016 Winnipeg, Canada

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5 Statement of Operations, with comparative information for 2015 Revenue: Subscriber fees $ 39,848,883 $ 40,404,938 Advertising (note 10) 2,568,020 2,664,900 Contributions (note 13): Shaw Communications Inc. 1,500,000 1,500,000 Other 450, ,364 44,367,597 45,393,202 Expenses: Network operations: Amortization of capital assets 1,832,509 1,655,106 Facility operating costs 965, ,699 Insurance 140, ,834 Repairs and maintenance 1,235, ,303 Transponder and uplink rental (note 13) 3,841,688 3,499,040 Uplink activities 500, ,094 Vehicle leases 112, ,426 8,628,550 7,487,502 Network programming: Communications and marketing (note 10) 2,243,231 3,176,398 Consultants 485, ,425 Equipment and office supplies 45,326 58,769 Production expense 454, ,469 Amortization of film and television programs 11,334,981 10,535,393 Program development contributions 1,017,266 1,200,896 Socan fees 403, ,644 Salaries 8,729,159 8,389,592 Travel 675, ,284 25,388,021 25,481,870 General administration: Bad debt 33,023 Board meetings 344, ,439 Entertainment 61,160 51,757 General office 282, ,101 Interest and finance charges 63, ,555 Memberships 20,256 47,552 Mortgage interest 508, ,513 Professional development 334, ,213 Professional fees 1,473, ,146 Recruitment and relocation 30,235 25,317 Salaries and benefits 3,412,116 3,470,237 Staff travel 190, ,661 Telephone 164, ,936 6,886,395 6,010,450 40,902,966 38,979,822 Net earnings $ 3,464,631 $ 6,413,380 See accompanying notes to financial statements.

6 Statement of Changes in Net Assets, with comparative information for 2015 Invested in capital assets Unrestricted Total Total Balance, beginning of year $ 8,674,962 $ 40,891,242 $ 49,566,204 $ 43,152,824 Net earnings (loss) (1,832,509) 5,297,140 3,464,631 6,413,380 Investment in capital assets 3,529,048 (3,529,048) Mortgage advances (395,457) 395,457 Balance, end of year $ 9,976,044 $ 43,054,791 $ 53,030,835 $ 49,566,204 See accompanying notes to financial statements.

7 Statement of Cash Flows, with comparative information for 2015 Cash provided by (used in): Operating activities: Net earnings $ 3,464,631 $ 6,413,380 Items not affecting cash: Amortization of film and television program rights 11,334,981 10,535,393 Amortization of capital assets 1,832,509 1,655,106 16,632,121 18,603,879 Net change in other non-cash working capital items: Restricted cash 307,872 (67,560) Accounts receivable 172, ,874 Prepaid expenses, deposits and other assets (46,606) (53,659) Accounts payable and accrued liabilities (912,159) 1,231,051 Deferred contributions (144,917) (251,333) Film and television program accounts payable (265,371) (435,038) 15,743,925 19,958,214 Investing activities: Advance of loan receivable (note 11[b]) (150,000) Purchase of capital assets (3,529,048) (6,261,482) Purchase of film and television program rights (12,064,677) (11,805,262) (15,743,725) (18,066,744) Financing activities: Advances of mortgage, net 395,457 4,097,718 Increase in cash 395,657 5,989,188 Cash, beginning of year 17,304,512 11,315,324 Cash, end of year $ 17,700,169 $17,304,512 See accompanying notes to financial statements.

8 Notes to Financial Statements 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 license application in 1999, it was renamed Aboriginal Peoples Television Network. The Company was established to share programming by, for and about Aboriginal Peoples with all Canadians and viewers around the world. The Company is a charitable organization as defined in the Income Tax Act (Canada) and as such is exempt from tax. Effective August 31, 2013, the Company s license was renewed for five years by the Canadian Radio-television and Telecommunications Commission (CRTC) to distribute programming through broadcast distribution undertakings 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. Significant accounting policies: These financial statements are prepared in accordance with Canadian accounting standards for not-for profit organizations and include the following significant accounting policies. (a) Principles of consolidation: As a result of its wholly owned share interest in Animiki See Digital Productions Inc. (AnP) and Animiki See Digital Distribution Inc. (AnD) and its ability to influence their Board of Directors, the Company has a controlling interest in AnP and AnD. AnP is an agent for the production and acquisition of certain film and television broadcast rights for the Company. AnD is an agent for the sale and distribution of certain film and television broadcast rights for the Company. The Company does not consolidated AnP and AnD, and provides disclosure of the assets, liabilities and results of operations in note 11. On November 24, 2014, Project APTN Inc. (APTN US) was incorporated in the State of New Mexico, United States of America. As a result of its wholly owned share interest in APTN US and its ability to appoint all of its Board of Directors, the Company has a controlling interest in APTN US. The financial statements of the Company include the accounts of APTN US.

9 2. Significant accounting policies (continued): (b) Revenue recognition: The Company follows the deferral method of accounting for revenue. Subscriber fees are recognized monthly on the basis of the number of subscribers reported by terrestrial and Direct to Home satellite broadcasting distribution undertakings (BDUs) 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 are recognized as revenue when received or receivable if the amount to be received can be reasonably estimated, collection is reasonably assured and the related services are delivered or related expenses are recognized. Contributions that do not meet this criteria are deferred. (c) Film and television program 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 intangible 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 (generally assumed to be four plays) or on a straight-line basis over the expected term of the licensing agreements for unlimited play programs (lesser of the term of the contract and four years). Film and television program rights are carried at cost less accumulated amortization and accumulated impairment losses, if any. Intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Such assets are impaired if their recoverable amount, based on estimated future cash flows, is less than their carrying amount. Salaries of permanent and contract staff and other program development costs are expensed as incurred.

10 2. Significant accounting policies (continued): (d) Program development contributions: The Company provides early development contributions to organizations that develop programming suitable to the Company. These contributions do not necessarily provide the Company with specific rights to acquire future benefits and are therefore expensed as incurred. (e) Capital assets: Capital assets are recorded at cost and are amortized as follows: Asset Buildings Office equipment Digital and other broadcast equipment Computer equipment Leasehold improvements Rate 4% declining balance 20% declining balance 20% declining balance 35% declining balance Shorter of useful life and term of lease Construction in progress is transferred to the appropriate capital asset category and amortization begins when the capital project is completed and the asset is placed in service. (f) 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. Short-term investments, if any are composed of guaranteed investment certificates with an original maturity in excess of 90 days. (g) License: License renewal costs are expensed as incurred.

11 2. Significant accounting policies (continued): (h) Financial instruments: Financial instruments are recorded at fair value on initial recognition. Freestanding derivative instruments that are not in a qualifying hedging relationship and equity instruments that are quoted in an active market are subsequently measured at fair value. All other financial instruments are subsequently measured at cost or amortized cost, unless management has elected to carry the instruments at fair value. The Company has not elected to carry any such financial instruments at fair value. Transaction costs incurred on the acquisition of financial instruments measured subsequently at fair value are expensed as incurred. All other financial instruments are adjusted by transaction costs incurred on acquisition and financing costs. These costs are amortized using the straight-line method. Financial assets are assessed for impairment on an annual basis at the end of the fiscal year if there are indicators of impairment. If there is an indicator of impairment, the Company determines if there is a significant adverse change in the expected amount or timing of future cash flows from the financial asset. If there is a significant adverse change in the expected cash flows, the carrying value of the financial asset is reduced to the highest of the present value of the expected cash flows, the amount that could be realized from selling the financial asset or the amount the Company expects to realize by exercising its right to any collateral. If events and circumstances reverse in a future period, an impairment loss will be reversed to the extent of the improvement, not exceeding the initial impairment charge. (i) 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. Significant items subject to such estimates and assumptions include the carrying value of film and television program rights and capital assets and their useful lives. Actual results could differ from these estimates.

12 3. Restricted cash: Restricted cash of $12,760 ( $320,632) as at August 31, 2016 is held in a trust account relating to a holdback for the construction of 333 Portage Avenue, which is a requirement under Manitoba law, Builders Liens Act. 4. Accounts receivable: Subscriber fees $ 4,303,900 $ 4,599,000 Advertising 445, ,434 Goods and services tax 94, ,913 Other 99,873 29,311 $ 4,943,673 $ 5,116, Film and televisions program rights: Deposits paid on programs in process $ 3,513,039 $ 3,023,740 Broadcast rights, net of accumulated amortization of $ 31,430,556 ( $21,843,856) 20,226,172 19,985,775 $ 23,739,211 $ 23,009,515 The Company has entered into various agreements to acquire additional film and television program rights amounting to approximately $19,118,715 (note 12), to be paid out in the period from fiscal 2016 to 2018 ( $22,601,366). During fiscal 2016, the Company retired broadcast rights that were fully amortized of approximately $1.6 million, which reduced both the total cost and the accumulated amortization of broadcast rights by this amount.

13 6. Capital assets: Accumulated Net book Net book Cost amortization value value Land $ 1,396,065 $ $ 1,396,065 $ 1,396,065 Buildings 10,167,775 1,021,550 9,146,225 4,282,492 Office equipment 2,363,647 1,786, , ,889 Digital and other broadcast equipment 25,230,826 18,333,171 6,897,655 6,548,670 Computer equipment 1,703,348 1,403, , ,626 Leasehold improvements 1,582,436 1,262, , ,810 Construction in progress 173, ,680 3,906,708 $ 42,617,777 $ 23,807,978 $ 18,809,799 $ 17,113, Bank indebtedness: The Company has a line of credit facility up to $2,500,000 of which no balance was outstanding as at August 31, 2016 ( nil). Advances under the line of credit facility bear interest at Royal Bank prime plus 1 percent and are repayable on demand. This facility is secured by a general security agreement giving the lender first ranking security interest in personal property of the Company.

14 8. Mortgage: Business Development Bank of Canada: Amended mortgage agreement with interest only payments until the mortgage has been fully disbursed, collateralized by land and buildings as well as a general security agreement on all assets of the Company subject to existing registered charges, priority on inventory and receivables to the lender extending the line of credit (note 7) and future charges on specific equipment to creditors financing the purchase or lease. $ 8,833,755 $ 8,438,298 Less current portion 220, ,638 Long-term portion $ 8,612,877 $ 8,231,660 The loan was fully disbursed as at September 23, 2016, with a final principal balance of $9,028,898. Also effective as at that date, the interest rate on the loan was adjusted to a fixed rate of percent per year, and had a maturity date of September 23, As permitted under the loan agreement, in November 2016, the Company made a prepayment of $1,351,153, funded from cash on hand. Following the prepayment, the mortgage agreement terms were amended to become payable in monthly blended payments of $61,144, due January 23, The following principal payments for the next five fiscal years reflect the amended terms and include the prepayment of $1,351,153 made by the Company in fiscal 2017: 2017 $ 1,644, , , , ,969 Thereafter 5,863,020 $ 9,028,898

15 9. Related party balances and transactions: During the year, the following amounts were charged to the Company by member organizations: Film and television program rights acquisitions $ 363,109 $ 527,688 Other 38,316 36,465 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. Amounts due to member organizations, which are included in accounts payable and accrued liabilities and film and television program accounts payable, consist of: Inuit Broadcasting Corporation $ 73,013 $ Okalakatiget Society 25,480 Taqramuit Nipingat Inc. 26,117 16,640 Native Communications Inc. 2,415 $ 101,545 $ 42,120 Deposits paid on programs in process (note 5) include amounts paid to member organizations of: Wataway Native Communications $ 35,360 $ 35,360 Inuit Broadcasting Corporation 23,186 37,796 Taqramuit Nipingat Inc. 10,660 8,840 Okalakatiget Society 23,400 $ 92,606 $ 81,996

16 10. 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 August 31, 2016 include $152,788 ( $212,664) related to non-monetary transactions. 11. Investment in AnP and AnD: (a) Summary financial information: The Company s share of net earnings of AnP and AnD is not significant. The carrying value of the investment in AnP and AnD is comprised of the loan receivable from AnD as described in note 11 (b). A consolidated financial summary of AnP s and AnD s financial position as at August 31, 2016 and 2015 and the results of its operations for the years then ended are set out below. Financial position: Assets $ 689,520 $ 561,121 Liabilities $ 325,485 $ 190,611 Shareholder s equity 364, ,510 Results of operations: $ 689,520 $ 561,121 Revenue $ 486,545 $ 452,384 Expenses 493, ,947 Loss for the year $ (6,475) $ (15,563) Cash flow from (used in): Operating activities $ (145,703) $ 176,204 Investing activities (18,514) (7,939) Financing activities 150,000 Net change in cash $ (14,217) $ 168,265

17 11. Investment in affiliates (continued): The Company had the following transactions with AnP and AnD: The Company sold information technology services in the amount of $6,000 ( $6,000) to AnP. The Company paid $295,147 ( $131,198) for program development to AnP. The Company entered into a loan agreement with AnD in the amount of $150,000 (note 11(b)). These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the Company and both AnP and AnD. (b) Loan receivable: On August 31, 2016, the Company entered into an unsecured loan agreement with AnD, lending AnD an amount of $150,000. The loan bears interest at the rate of RBC Prime plus 0.5 percent. In accordance with the agreement, interest is to be paid quarterly or can be rolled into the loan principal at the end of each quarter. Based on an amendment to the loan agreement dated November 10, 2016, the loan is to be repaid in full by August 31, AnD s objective is to secure distribution rights for the productions made for the Company and to sell these and the Company owned productions to the global television market.

18 12. Commitments, contingencies and guarantees: Commitments: The Company has commitments for office space and equipment under operating leases, and maintenance contracts as follows: 2017 $ 408, , , , and thereafter 119,391 Under the terms of its licence with the CRTC, the Company is required to spend significant amounts on new programming projects, technical improvements and audience research. To date, the Company has met these commitments. Furthermore, as indicated in note 5, the Company has entered into various agreements to acquire film and television program rights amounting to approximately $19,118,715 to be paid out in the period from fiscal 2017 to In May 2014, the Company entered into a construction contract in the amount of $4.6 million, for the redevelopment of the property at 333 Portage Avenue. The contract was substantially complete as of August 31, Contingencies: The Company is involved in various legal matters arising in the ordinary course of business. Management believes 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.

19 13. Contribution agreements: The Company's agreement with Shaw Communications Inc. and affiliates (Shaw) expiring on August 31, 2020, provides the Company with an annual contribution of $1,500,000. Shaw or the Company may terminate the agreement in certain circumstances, including if Shaw is no longer required by the CRTC to make a contribution to the creation and presentation of Canadian programming. In addition, in fiscal 2016 the Company received transponder and uplink services from an affiliate of Shaw at a cost of $2,829,000 ( $2,829,000). 14. Risk management: 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 BDUs and advertising agencies. The Company performs regular credit assessments of its customers and provides allowances for potentially uncollectible amounts. For the years ended August 31, 2016 and 2015, the majority of subscriber fees were generated from five BDUs. Interest rate risk: The Company is subject to interest rate risk to the extent that required interest payments on bank overdraft will fluctuate with changes in the prime rate. Liquidity risk: Liquidity risk is the risk of having insufficient cash to meet financial obligations without raising funds at unfavourable rates or selling assets on a forced basis. The purpose of liquidity management is to ensure that there is sufficient cash to meet all financial commitments and obligations as they fall due. The liquidity requirements of the Company have been met primarily by funds received from subscriber fees and to a lesser extent from advertising revenues. Cash provided from these sources is used primarily for payment of network programming, network operations and general and administrative expenses. To manage cash flow requirements, the Company budgets expenditures for future periods based on expected funding received. In addition, the Company has an operating line for temporary cash shortfalls.