6-K 1 d61147_6-k.htm FORM 6-K

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE MONTH OF NOVEMBER 2004

CF CABLE TV INC.
(Name of Registrant)

300 Viger Avenue East, Montreal, Canada, H2X 3W4
(Address of principal executive offices)

[Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.]

Form 20-F     |_|               Form 40-F     |_|

[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g 3-2(b) under the Securities Exchange Act of 1934.]

Yes     |_|               No     |X|

[If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g 3-2(b): 82-__________.]

CF CABLE TV INC.
Filed in this Form 6-K

Documents index

1.

 

Unaudited Consolidated Financial Statements of CF Cable TV Inc. for the quarter ended September 30, 2004; and Report to bondholders (Management Discussion and Analysis for the quarter ended September 30, 2004).

COMPANY LOGO

Unaudited financial information

Form 6-K*

for the quarter ended

September 30, 2004

*

This document has not been filed with the U.S. Securities and Exchange Commission (SEC) but has been delivered to the SEC for informational purposes only.

October 18, 2004

CF CABLE TV INC.

Interim Consolidated Financial Statements
(Unaudited)

Three month and nine-month periods ended September 30, 2003 and 2004

Financial Statements

 

Highlights

2

 

Management’s discussion and analysis

3-7

 

Interim Consolidated Statements of Operations

8

 

Interim Consolidated Statements of Retained Earnings (Deficit)

9

 

Interim Consolidated Balance Sheets

10

 

Interim Consolidated Statements of Cash Flows

11

 

Notes to Interim Consolidated Financial Statements

12

Highlights

FINANCIAL STATISTICS

 

 

For the three-month
period ended

 

For the nine-month
period ended

 
(in thousands of Canadian dollars)

 

September 30,
2003

 

September 30,
2004

 

September 30,
2003

 

September 30,
2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Restated)

 

 

 

(Restated)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Revenues

 

 

$

40,170

 

 

 

$

45,334

 

 

 

$

120,674

 

 

 

$

133,326

 

 
Operating income

 

 

 

13,387

 

 

 

 

17,911

 

 

 

 

39,549

 

 

 

 

45,901

 

 
Depreciation and amortization

 

 

 

3,597

 

 

 

 

3,988

 

 

 

 

10,601

 

 

 

 

11,748

 

 
Net income

 

 

 

5,172

 

 

 

 

11,147

 

 

 

 

29,935

 

 

 

 

20,831

 

 
Cash flows from operating activities

 

 

 

4,863

 

 

 

 

12,855

 

 

 

 

22,699

 

 

 

 

27,354

 

 
Acquisition of fixed assets

 

 

 

3,345

 

 

 

 

6,246

 

 

 

 

9,058

 

 

 

 

18,887

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CUSTOMER STATISTICS

Home passed (1)

 

 

 

 

 

 

 

 

657,817

 

 

662,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Cable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Basic Cable Customers (2)

 

 

 

 

 

 

 

 

417,370

 

 

417,773

 
% Penetration (3)

 

 

 

 

 

 

 

 

63.4

%

 

63.1

%
Basic Cable, Net additions (losses)

 

 

575

 

 

3,443

 

 

(7,309

)

 

(42

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Digital Cable Customers

 

 

 

 

 

 

 

 

47,711

 

 

74,132

 
% Penetration (4)

 

 

 

 

 

 

 

 

11.4

%

 

17.7

%
Digital Cable, Net additions

 

 

4,518

 

 

5,584

 

 

10,368

 

 

19,251

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Internet Access

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Cable Modem

 

 

 

 

 

 

 

 

99,717

 

 

125,548

 
% Penetration (3)

 

 

 

 

 

 

 

 

15.2

%

 

19.0

%
Cable Modem, Net additions

 

 

7,058

 

 

7,271

 

 

13,909

 

 

18,489

 

(1)

Homes passed are number of living units, such as residential homes, apartments and condominium units, passed by the cable television distribution network in a given cable system service area to which we offer the named service.

 

 

(2)

Basic customers are customers who received basic cable service, including analogue and digital customers.

 

 

(3)

Represents customers as a percentage of homes passed.

 

 

(4)

Represents digital customers as a percentage of basic customers.

- 2 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

Certain statements in this report may constitute forward-looking statements that are based on management’s expectations, estimates, projections and assumptions. Words such as “expects,” “anticipates,” “plans,” “believes,” “estimates,” “projects” and other words or similar expressions are intended to identify forward-looking statements. These forward-looking statements involve significant risks, uncertainties and assumptions and are subject to change upon various factors, including economic conditions, competition, emerging technologies, regulation and other, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary materially from those as described herein. Any forward-looking statement speak only as of the date on which it was originally made and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This analysis should also be read in conjunction with the Management’s Discussion and Analysis included in our December 31, 2003 Annual Consolidated Financial Statements and the Notes thereto.

General

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada, or Canadian GAAP.

As calculated in our interim consolidated financial statements, operating income for us means earnings before depreciation and amortization, financial expenses, gain or loss on foreign currency and dividend income from an affiliated company, income taxes, and non-controlling interest in a subsidiary. Operating income is not a measure of results that is consistent with generally accepted accounting principles. It is not intended to be regarded as an alternative to other financial operating performance measures or to the statement of cash flows as a measure of liquidity. It is not intended to represent funds available for debt service, dividends, reinvestment or other discretionary uses, and should not be considered in isolation as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. We use operating income because management believes that it is a meaningful measure of performance commonly used in the cable industry and by the investment community to analyse and compare companies. It also facilitates year-over-year comparison of results, since operating income excludes, among other things, unusual items that are not readily comparable from year to year. Our definition of operating income may not be identical to similarly titled measures reported by other companies. Operating income margin is operating income as a percentage of operating revenues.

Significant changes

On January 16, 2004, we contracted a subordinated debt of $165.0 million from Vidéotron (1998) Ltée, an affiliated company. This subordinated debt bears interest at 10.75% per annum and matures on January 16, 2019. On the same day, we invested the whole proceeds of $165.0 million into 165,000 preferred shares, Series D of Vidéotron (1998) Ltée. These shares carry the right to receive an annual dividend of 11% payable in June and December of each year. This transaction was effected to improve the tax consolidation of Vidéotron Ltée and its subsidiaries.

- 3 -

Changes in accounting principles

In 2004, we revised and adopted accounting policy for the timing of revenue and expense recognition regarding connection fees, based on the Canadian Institute of Chartered Accountants (CICA) Emerging Issues Committee Abstract 141 and 142. We chose to adopt the new policy prospectively without restatement of prior periods.

Effective January 1st, 2004, connection fee revenues are now deferred and recognized as revenue over the average period that customers are expected to remain connected to the network, estimated to be 30 months.  The incremental and direct costs related to the connection fees, in an amount not exceeding the revenue, are now deferred and are recognized as an operating expense over the same 30-month period.  Previously, the connection fees and their related incremental and direct costs were recognized immediately in the operating revenues and expenses.  This change in accounting policy had no effect on operating income and net income. For the nine-month period ended September 30, 2004, $1.9 million of revenues and expenses has been deferred in relation to this accounting change.

Third Quarter ended September 30, 2004

Consolidated Statements of Income

Consolidated operating revenues for the third quarter ended September 30, 2004 were $45.3 million, compared to $40.2 million for the same period in 2003, an increase of $5.1 million, or 12.7 %. The increase would have been $5.9 million or 14.7% if we exclude the impact of the change in accounting policy. This growth was primarily the result of an increase in Internet revenues due to a higher number of high speed Internet customers and an increase in the Internet royalty rate paid by a related company. Other increases in revenues resulted from a price increase we implemented in March 2004 for basic cable, the sale of more lucrative cable television packages, an increase in the sales of set-top boxes to digital cable customers and a growth in the number of our basic cable customers by 3,443, or 0.8%.

Average revenue per customer per month (ARPU) increased to $36.34 for the third quarter ended September 30, 2004, from $32.21 for the same period in 2003, representing an increase of 12.8%. This increase is due to higher penetration of Internet services, price increases and customer conversions from analogue to digital, providing higher revenue per customer. The ARPU would have been $36.95, or a 14.7% increase if we exclude the impact of the change in accounting policy.

Directs costs increased $0.8 million, or 6.7 %, to $12.7 million for the third quarter ended September 30, 2004 from $11.9 million for the same period in 2003. This increase is mainly due to higher volume of sales of set-top boxes to digital cable customers. Direct costs for cable television services for the third quarter of 2004, which consist of programming costs, were lower than for the same period in 2003 due to a $1.2 million contract negotiation and litigations settlement with programming services.

Operating and administrative expenses decreased by $0.1 million, or 0.7 %, to $14.7 million for third quarter ended September 30, 2004 from $14.8 million in 2003. The decrease is due to the deferral of $1.1 million of connection incremental and direct costs due to the adoption of the aforementioned new accounting policy, partially offset by the change in the percentage of operating and administrative expenses recharged by the parent company, which is based on the number of customers.

- 4 -

Depreciation and amortization expenses for the third quarter of 2004 were $4.0 million, an increase of $0.4 million, or 11.1%, from $3.6 million for the same period in 2003. This increase was attributable to ongoing capital expenditures required to support an increased number of Internet access customers, network extensions and maintenance capital.

Financial expenses for the second quarter 2004 were $6.6 million, as compared to $1.8 million for the same period in 2003, an increase of $4.8 million, or 267%. The increase was attributable to the payment of $4.5 million of interest expense on the new $165.0 million deeply subordinated debt with Vidéotron (1998) Ltée, an affiliated company, which was compensated by a $4.6 million dividend income related to the $165.0 million investment in Vidéotron (1998) Ltée. We also received lower interest revenues due to payments of amounts receivable from the parent.

We recorded a foreign exchange gain of $2.1 million on US dollar-denominated long-term debt as compared to a loss of $0.2 million in 2003.

Income taxes for the third quarter ended September 30, 2004 was $2.8 million, compared to $2.7 million for the same period in 2003, representing an effective tax rate of 20.1% compared to 34.5% in 2003, a decrease of 14.4% based on income before income taxes. This reduction is mainly due to the $165.0 million tax consolidation transactions with Vidéotron (1998) Ltée in which we receive non taxable dividends and pay deductible interests and by gains on foreign currency denominated debt compared to losses in 2003.

Nine months ended September 30, 2004

Consolidated Statements of Income

Consolidated operating revenues for the nine months ended September 30, 2004 were $133.3 million, compared to $120.7 million for the same period in 2003, an increase of $12.6 million, or 10.4%. The increase would have been $14.5 million or 12.0% if we exclude the impact of the change in accounting policy. We have introduced price increases in cable distribution and Internet access starting March 1st, 2004.

Average revenue per customer per month (ARPU) increased to $35.56 for the nine months ended September 30, 2004, from $31.96 for the same period in 2003, representing a 11.3% increase. The ARPU would have been $36.06, or a 12.8% increase if we exclude the impact of the change in accounting policy.

Directs costs increased by $7.5 million, or 20.9 %, to $43.3 million for the nine months ended September 30, 2004 from $35.8 million for the same period in 2003. This increase is mainly attributable to higher volume of sales of set-top boxes to digital cable customers, partially offset by lower acquisition cost and favourable exchange rate on US dollar on this equipment.

Operating and administrative expenses decreased by $1.1 million, or 2.5 %, to $44.1 million for nine months ended September 30, 2004 from $45.3 million for the same period in 2003 due to the deferral of $1.9 million of incremental and direct costs due to new accounting policy, partially offset by the change in the percentage of operating and administrative expenses recharged by the parent company.

- 5 -

Depreciation and amortization expenses for the nine months ended September 30, 2004 were $11.7 million, an increase of $1.1 million, or 10.4%, from $10.6 million for the same period in 2003. This increase was attributable to ongoing capital expenditures required to support an increased number of Internet access customers, network extensions and maintenance capital.

Financial expenses for the nine months ended September 30, 2004 were $19.2 million, as compared to $5.1 million for the same period in 2003, an increase of $14.1 million, or 276%. The increase was attributable to the payment of $12.6 million of interest expense on the new $165.0 million deeply subordinated debt with Vidéotron (1998) Ltée, an affiliated company, which was compensated by a $12.8 million dividend income related to the $165.0 million investment in Vidéotron (1998) Ltée. We also received lower interest revenues due to payments of amounts receivable from the parent company and made a lower foreign exchange gain on short-term monetary items.

We recorded a foreign exchange loss of $2.3 million on US dollar-denominated long-term debt as compared to a gain of $17.2 million in 2003.

Income taxes for the third quarter ended September 30, 2004 was $4.8 million, compared to $11.2 million for the same period in 2003, representing an effective tax rate of 18.8% compared to 27.2% in 2003, a decrease of 8.4% based on income before income taxes. This reduction is mainly due to the $165.0 million tax consolidation transactions with Vidéotron (1998) Ltée in which we receive non taxable dividends and pay deductible interests, partly offset by losses on foreign currency denominated debt compared to gains in 2003.

Liquidity and Capital Resources

Cash provided by operating activities during the nine months ended September 30, 2004 was $27.4 million, as compared to $22.7 million for the same period in 2003, an increase of $4.7 million. Cash flows from operations before changes in non-cash operating items, amounted to $41.7 million for the nine months ended September 30, 2004 compared to $34.1 million for the same period in 2003. This $7.6 million increase is mainly due to improved revenues. Changes in non-cash operating items used $14.4 million in the nine months ended September 30, 2004, as compared to $11.4 million for the same period in 2003, an increase on non-cash operative items used of $3.0 million. The variation in non-cash operating items is mainly due to the timing in the payments made to the parent company.

The total cash flows used by investing activities for the nine months ended September 30, 2004 were $183.5 million as compared to $9.0 million for the same period last year, an increase of $174.5 million, mainly due to the acquisition of preferred shares, Series D, of Vidéotron (1998) Ltée, an affiliated company, for an amount of $165.0 million. During the nine months ended September 30, 2004, we invested $18.9 million in capital expenditures compared to $9.1 million during the same period in 2003. The increase is due to support additional capacity of Internet services and higher volume of network extensions.

Cash flows generated from financing activities were $156.0 million in the nine months ended September 30, 2004 as compared to used cash flows of $13.7 million for the same period in 2003. On January 16, 2004, we borrowed $165.0 million in the form of a deeply subordinated debt from an affiliated company, Vidéotron (1998) Ltée, and used the whole proceeds of this loan to purchase 165,000 preferred shares, series D of Vidéotron (1998) Ltée. The Company also reduced its issued and paid-up capital on common shares for a total amount of $70.0 million in consideration of the repayment of amounts receivable from the parent company.

- 6 -

As at September 30, 2004, the Company’s cash position amounted to a cash deficiency of $0.1 million compared to a positive $0.1 million at the end of the same period in 2003.

Management believes that cash flows from operations and available sources of financing should be sufficient to cover cash requirements for capital investment, interest payments and mandatory debt repayment.

Risks and Uncertainties

Competition is very intense in television services distribution. Our principal competitors include off-air television and providers of other entertainment, direct broadcast satellite, private cable, other cable distribution and wireless distribution. Competition is also intense in high-speed Internet access from digital subscriber line (DSL) technology.

The cable and Internet access industries are experiencing rapid and significant technological changes, which may result in alternative means of transmission and which could have a materially adverse effect on our business, financial condition or results of operations. We may not be able to successfully compete with existing or newly developed alternative technologies or may be required to acquire, develop or integrate new technologies ourselves.

No material changes in main risk factors and uncertainties have occurred since December 31, 2003.  For more details and descriptions of our risks and uncertainties, please refer to our 2003 Form 20-F Report and our 2003 Annual Financial Statements.

Regulation

We are subject to extensive government regulations mainly through the Broadcasting Act (Canada) and the Telecommunications Act (Canada), both of which are administered by the Canadian Radio-television and Telecommunications Commission. Changes to the regulations and policies governing broadcast satellite services, the introduction of new regulations or policies or terms of license could have a material effect on our business, financial condition or results of operations.

- 7 -

CF CABLE TV INC.
Interim Consolidated Statements of Operations
(Unaudited)

Three month and nine-month periods ended September 30, 2003 and 2004
(in thousands of Canadian dollars)

 

 

Three-month period ended
September 30

 

Nine-month period ended
September 30

 

 

 

 

 

 

 

2003

 

2004

 

2003

 

2004

 

 

 

 

 

 

 

 

 

(Restated)

 

 

 

(Restated)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Operating revenues

 

$

40,170

 

$

45,334

 

$

120,674

 

$

133,326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Direct costs

 

 

11,947

 

 

12,714

 

 

35,833

 

 

43,282

 

 

 

 

 

 

 

 

 

 

28,223

 

 

32,620

 

 

84,841

 

 

90,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Operating and administrative expenses

 

 

14,836

 

 

14,709

 

 

45,292

 

 

44,143

 

 

 

 

 

 

 
Operating income before the undernoted

 

 

13,387

 

 

17,911

 

 

39,549

 

 

45,901

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Depreciation and amortization

 

 

3,597

 

 

3,988

 

 

10,601

 

 

11,748

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Financial expenses (note 2)

 

 

1,787

 

 

6,645

 

 

5,128

 

 

19,177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
(Gain) loss on foreign currency long-term debt

 

 

182

 

 

(2,060

)

 

(17,214

)

 

2,303

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Dividend income from an affiliated company

 

 

—

 

 

(4,562

)

 

—

 

 

(12,844

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Income before the undernoted

 

 

7,821

 

 

13,900

 

 

41,034

 

 

25,517

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 
     Current

 

 

157

 

 

708

 

 

481

 

 

1,516

 
     Future

 

 

2,539

 

 

2,095

 

 

10,692

 

 

3,277

 

 

 

 

 

 

 

 

 

 

2,696

 

 

2,803

 

 

11,173

 

 

4,793

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,125

 

 

11,097

 

 

29,861

 

 

20,724

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Share in results of a company subject to significant influence

 

 

47

 

 

50

 

 

74

 

 

108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Non-controlling interest in a subsidiary

 

 

—

 

 

—

 

 

—

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Net income

 

$

5,172

 

$

11,147

 

$

29,935

 

$

20,831

 

 

 

 

 

 

 

See accompanying notes to the unaudited interim consolidated financial statements.

- 8 -

CF CABLE TV INC.
Interim Consolidated Statements of Retained Earnings (Deficit)
(Unaudited)

Three month and nine-month periods ended September 30, 2003 and 2004
(in thousands of Canadian dollars)

 

 

Three-month period ended
September 30

 

Nine-month period ended
September 30

 

 

 

 

 

 

 

2003

 

2004

 

2003

 

2004

 

 

 

 

 

 

 

 

 

(Restated)

 

 

 

 

(Restated)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Balance at beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 
As previously reported

 

$

(5,239

)

$

15,919

 

$

(35,639

)

$

6,235

 

 
Changes in accounting principles (note 1)

 

 

—

 

 

—

 

 

5,637

 

 

—

 

 

 

 

 

 

 

 
As restated

 

 

(5,239

)

 

15,919

 

 

(30,002

)

 

6,235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Net income

 

 

5,172

 

 

11,147

 

 

29,935

 

 

20,831

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Balance at end

 

$

(67

)

$

27,066

 

$

(67

)

$

27,066

 

 

 

 

 

 

 

See accompanying notes to the unaudited interim consolidated financial statements.

- 9 -

CF CABLE TV INC.
Interim Consolidated Balance Sheets
(Unaudited)

As at December 31, 2003 and September 30, 2004
(in thousands of Canadian dollars)

 

 

December 31,
2003

 

September 30,
2004

 

 

 

 

 

 

 

 

 

 

 

 

 
Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Current assets:

 

 

 

 

 

 

 

 
Cash

 

$

155

 

$

13

 

 
Amounts receivable from parent company

 

 

75,266

 

 

18,119

 

 
Amounts receivable from affiliated companies

 

 

2,762

 

 

3,356

 

 
Advances to parent company

 

 

733

 

 

733

 

 
Income taxes receivable

 

 

—

 

 

105

 

 
Inventories

 

 

454

 

 

521

 

 
Prepaid expenses

 

 

179

 

 

513

 

 

 

 

 

 

 

 

79,549

 

 

23,360

 

 

 

 

 

 

 

 

 
Futures income taxes

 

 

1,295

 

 

1,095

 
Fixed assets

 

 

195,582

 

 

198,949

 
Goodwill

 

 

167,892

 

 

167,892

 
Deferred charges

 

 

4,412

 

 

6,026

 
Investments

 

 

976

 

 

1,075

 
Investments in an affiliated company

 

 

—

 

 

165,000

 

 

 

 

 

 

 

$

449,706

 

$

563,397

 

 

 

 

 

 

 

 

 

 

 

 

 
Liabilities and Shareholder’s Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Current liabilities:

 

 

 

 

 

 

 

 
Issued and outstanding cheques

 

$

51

 

$

128

 

 
Accounts payable and accrued liabilities

 

 

29,786

 

 

17,031

 

 
Amounts payable to affiliated companies

 

 

317

 

 

322

 

 
Deferred revenue and prepaid services

 

 

19,410

 

 

20,653

 

 
Income tax payable

 

 

45

 

 

1,192

 

 

 

 

 

 

 

 

49,609

 

 

39,326

 

 

 

 

 

 

 

 

 
Deferred revenue

 

 

—

 

 

2,782

 
Foreign exchange forward contract

 

 

—

 

 

4,941

 
Future income taxes

 

 

34,760

 

 

37,837

 
Long-term debt

 

 

98,015

 

 

95,377

 
Due to parent company (note 3)

 

 

25,969

 

 

25,969

 
Due to an affiliated company (note 3)

 

 

—

 

 

165,000

 
Non-controlling interest in a subsidiary

 

 

10

 

 

—

 

 

 

 

 

 

 

 

208,363

 

 

371,232

 
Shareholder’s equity:

 

 

 

 

 

 

 

 
Share capital (note 4)

 

 

235,000

 

 

165,000

 

 
Contributed surplus

 

 

108

 

 

99

 

 
Retained earnings

 

 

6,235

 

 

27,066

 

 

 

 

 

 

 

 

241,343

 

 

192,165

 

 

 

 

 

 

 

$

449,706

 

$

563,397

 

 

 

 

 

Contingencies (note 6)

See accompanying notes to the unaudited interim consolidated financial statements.

- 10 -

CF CABLE TV INC.
Interim Consolidated Statements of Cash Flows
(Unaudited)

Three month and nine-month periods ended September 30, 2003 and 2004
(in thousands of Canadian dollars)

 

 

Three-month period ended
September 30

 

Nine-month period ended
September 30

 

 

 

 

 

 

 

2003

 

2004

 

2003

 

2004

 

 

 

 

 

 

 

 

 

(Restated)

 

 

 

(Restated)

 

 

 
Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Net income

 

$

5,172

 

$

11,147

 

$

29,935

 

$

20,831

 

 
Adjustments for the following items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Depreciation and amortization

 

 

3,664

 

 

4,055

 

 

10,801

 

 

11,948

 

 
Future income taxes

 

 

2,539

 

 

2,095

 

 

10,692

 

 

3,277

 

 
Share in the results of a company subject to significant influence

 

 

(47

)

 

(50

)

 

(74

)

 

(108

)

 
Loss on disposal of fixed assets

 

 

—

 

 

451

 

 

—

 

 

3,482

 

 
(Gain) loss on foreign currency denominated debt

 

 

182

 

 

(2,060

)

 

(17,214

)

 

2,303

 

 
Non-controlling interest in a subsidiary

 

 

—

 

 

—

 

 

—

 

 

1

 

 

 

 

 

 

 
     Cash flows from operations

 

 

11,510

 

 

15,638

 

 

34,140

 

 

41,734

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
     Net change in non-cash operating items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Current income taxes

 

 

76

 

 

587

 

 

(603

)

 

1,042

 

 
Net amounts receivable and payable from/to affiliated companies

 

 

(6,481

)

 

(1,767

)

 

(8,076

)

 

(4,405

)

 
Inventories

 

 

16

 

 

2

 

 

—

 

 

(67

)

 
Prepaid expenses

 

 

(169

)

 

153

 

 

(256

)

 

(334

)

 
Accounts payable and accrued liabilities

 

 

188

 

 

(3,471

)

 

(1,464

)

 

(12,755

)

 
Deferred revenue

 

 

(277

)

 

1,713

 

 

(1,042

)

 

2,139

 

 

 

 

 

 

 

 

 

 

(6,647

)

 

(2,783

)

 

(11,441

)

 

(14,380

)

 

 

 

 

 

 

 
Cash flows from operating activities

 

 

4,863

 

 

12,855

 

 

22,699

 

 

27,354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Acquisition of fixed assets

 

 

(3,345

)

 

(6,246

)

 

(9,058

)

 

(18,887

)

 
Proceeds on disposal of fixed assets

 

 

—

 

 

95

 

 

—

 

 

362

 

 
Acquisition of non-controlling interest

 

 

—

 

 

—

 

 

—

 

 

(11

)

 
Investment in an affiliated company

 

 

—

 

 

—

 

 

—

 

 

(165,000

)

 
Other

 

 

—

 

 

—

 

 

88

 

 

—

 

 

 

 

 

 

 

 
Cash flows used in investing activities

 

 

(3,345

)

 

(6,151

)

 

(8,970

)

 

(183,536

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Repayment of long-term debt

 

 

(10

)

 

—

 

 

(25

)

 

—

 

 
Advances to parent company

 

 

(1,512

)

 

(7,003

)

 

(13,699

)

 

60,963

 

 
Due to an affiliated company

 

 

—

 

 

—

 

 

—

 

 

165,000

 

 
Redemption of capital shares

 

 

—

 

 

—

 

 

—

 

 

(70,000

)

 

 

 

 

 

 

 
Cash flows from (used in) financing activities

 

 

(1,522

)

 

(7,003

)

 

(13,724

)

 

155,963

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Net change in cash and cash equivalents

 

 

(4

)

 

(299

)

 

5

 

 

(219

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Cash and cash equivalents at beginning of period

 

 

69

 

 

184

 

 

60

 

 

104

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Cash and cash equivalents at end of period

 

$

65

 

$

(115

)

$

65

 

$

(115

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Cash and cash equivalents are comprised of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Cash

 

$

143

 

$

13

 

$

143

 

$

13

 

 
Issued and outstanding cheques

 

 

(78

)

 

(128

)

 

(78

)

 

(128

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

65

 

$

(115

)

$

65

 

$

(115

)

 

 

 

 

 

 

See accompanying notes to the unaudited interim consolidated financial statements.

- 11 -

CF CABLE TV INC.
Notes to Interim Consolidated financial statements
(unaudited)

Three month and nine-month periods ended September 30, 2003 and 2004

 

1.
Basis of presentation and accounting changes:

 

 

 

The Company is a distributor of pay-television services in the Province of Québec providing cable television and Internet access services.

 

 

 

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles on a basis consistent with those followed in the most recent audited annual consolidated financial statements.  These unaudited interim consolidated financial statements do not include all information and note disclosures required by Canadian generally accepted accounting principles for annual financial statements, and therefore should be read in conjunction with the December 31, 2003 audited consolidated financial statements and the notes below:

 

 

 
Changes in accounting policies:

 

 

 
a)

Reconnection costs:

 

 

 

 

 

During the fourth quarter of 2003, the Company revised its accounting of reconnecting costs.  Up to the end of the third quarter of 2003, the costs of reconnecting customers, which included material, direct labour, and certain overhead charges were capitalised to the fixed assets and depreciated over a three-year or four-year period on a straight-line basis.

 

 

 

 

 

The Company changed its accounting policies to expense, as they are incurred, the costs of reconnecting customers.  These changes have been applied retroactively and have had the following effects for the three-month and the nine-month periods ended September 30, 2003:

 

 

 

 

 

•

The operating costs increased by $254,000 and $812,000;

 

 

 

 

 

 

•

The depreciation expense decreased by $279,000 and $836,000;

 

 

 

 

 

 

•

The income tax expense increased by $23,000 and $52,000; and

 

 

 

 

 

 

•

The net income increased by $2,000 and decreased by $28,000.

 

 

 

 

 
b)

Revenue recognition and revenue arrangements with multiple deliverables:

 

 

 

 

 

In 2004, the Company revised and adopted its accounting policy for the timing of revenue and expense recognition regarding connection fees, based on the CICA Emerging Issues Committee Abstract 141 and 142.  The Company chose to adopt the new policy prospectively without restatement of prior periods.

 

 

 

 

 

Effective January 1, 2004, connection fee revenues are now deferred and are recognized as revenue over the average period that customers are expected to remain connected to the network, estimated to be 30 months.  The incremental and direct costs related to the connection fees, in an amount not exceeding the revenue, are now deferred and are recognized as an operating expense over the same 30-month period.  Previously, the connection fees and their related incremental and direct costs, were recognized immediately in the operating revenues and expenses.  This change in accounting policy had no effect on reported operating income and net income.  Deferred revenue and deferred charges increased by $1.9 million and $1.9 million, respectively, as of September 30, 2004.

- 12 -

CF CABLE TV INC.

Notes to Interim Consolidated financial statements (continued)
(unaudited)

Three month and nine-month periods ended September 30, 2003 and 2004

 

2.
Financial expenses:

 

 

 

Three-month period ended
September 30

 

Nine-month period ended
September 30

 

 

 

 

 

 

 

 

 

2003

 

2004

 

2003

 

2004

 

 

 

 

 

 

 

 

 

 

 

(in thousands of Canadian dollars)

 

 

 

 

 

 

 
Third parties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on long-term debt

 

 

$

2,438

 

 

 

$

2,254

 

 

 

$

7,451

 

 

 

$

6,871

 

 

 

 
Amortization of deferred financing costs

 

 

 

67

 

 

 

 

67

 

 

 

 

200

 

 

 

 

200

 

 

 

 
Gain on foreign currency short-term monetary items

 

 

 

61

 

 

 

 

(110

)

 

 

 

(466

)

 

 

 

(168

)

 

 

 
Other interest and penalty charges

 

 

 

(1

)

 

 

 

41

 

 

 

 

—

 

 

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,565

 

 

 

 

2,252

 

 

 

 

7,185

 

 

 

 

6,974

 

 

 
Parent company:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest  income

 

 

 

(778

)

 

 

 

(66

)

 

 

 

(2,057

)

 

 

 

(349

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Companies under common control:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

—

 

 

 

 

4,459

 

 

 

 

—

 

 

 

 

12,552

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,787

 

 

 

$

6,645

 

 

 

$

5,128

 

 

 

$

19,177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.

Due to parent or affiliated companies:

 

 

 

December 31,
2003

 

September 30,
2004

 

 

 

 

 

 

 

 

 

(in thousands of Canadian dollars)

 

 

 

 

 

 

 
Inter-company Deeply Subordinated Debt, bank prime rate plus 2% and repayable after the total repayment of the Senior Secured First Priority Notes

 

 

$

25,969

 

 

 

$

25,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Deeply Subordinated Debt (a)

 

 

 

—

 

 

 

 

165,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

25,969

 

 

 

$

190,969

 

 

 

 

 

 

 

 

 

 

 

 

a)

Deeply Subordinated Debt:

 

 

 

 

 

On January 16, 2004, the Company borrowed $165.0 million from Vidéotron (1998) Ltée, an affiliated company.  This loan bears interest at 10.75% and matures on January 16, 2019. The repayment of capital and interest on the inter-company Deeply Subordinated Debt is subordinated to the repayment of the Senior Secured First Priority Notes maturing in 2007. On the same date, the Company, invested the whole proceeds from this loan into 165,000 Preferred Shares Class ‘’D’’ of Vidéotron (1998) Ltée carrying a fixed annual cumulative preferred dividend of 11%.

- 13 -

CF CABLE TV INC.
Notes to Interim Consolidated financial statements (continued)
(unaudited)

Three month and nine-month periods ended September 30, 2003 and 2004

 

4.
Share capital:

 

 

 
Authorised :

 

 

 

 

100,000,000 preferred shares, without par value, ranking prior to the common shares with regard to payment of dividends and repayment of capital, without voting rights, carrying a fixed annual cumulative preferred dividend at a rate equal to the prime rate of the lead banker of the Company plus 2.25% and redeemable.

 

 

 

 

 

100,000,000 common shares, without par value, with voting rights and participating

 

 

 

December 31,
2003

 

September 30,
2004

 

 

 

 

 

 

 

 

 

(in thousands of Canadian dollars)

 

 
Issued and paid:

 

 

 

 

 

 

 

 

 

5,000,230 common shares

 

 

$

235,000

 

 

 

$

165,000

 

 

 

On January 16, 2004, the Company reduced its issued and paid-up capital on common shares for a total amount of $70.0 million.

 

 
5.
Employee future benefits:

 

 

 
The following table presents the Company’s net benefit costs:

 

 

 

Three-month period ended
September 30

 

Nine-month period ended
September 30

 

 

 

 

 

 

 

 

 

2003

 

2004

 

2003

 

2004

 

 

 

 

 

 

 

 

 

 

 

(in thousands of Canadian dollars)

 

 

 

 

 

 

 
Net benefit costs

 

 

$

3

 

 

 

$

3

 

 

 

$

8

 

 

 

$

7

 

 

- 14 -

CF CABLE TV INC.
Notes to Interim Consolidated financial statements (continued)
(unaudited)

Three month and nine-month periods ended September 30, 2003 and 2004

 

6.

Contingencies and guarantees:

 

 

 

 

a)

Contingencies:

 

 

 

 

 

In 1999, the purchaser of a business sold by the parent Company initiated an arbitration by which he claimed an amount of $8.6 million as a reduction of the purchase price of the business.  It is not possible at this stage to determine the outcome of this claim.

 

 

 

 

 

In the normal course of business, the Company is a party to various claims and lawsuits.  Even though the outcome of these various pending cases as at September 30, 2004, cannot be determined with certainty, the Company believes that their outcome will not have a materially adverse impact on its financial position or operating results.

 

 

 

 

b)

Guarantees:

 

 

 

 

 

The Company has guaranteed a portion of the residual values of certain assets under operating leases for the benefit of the lessor.  If the fair value of the assets, at the end of their respective lease terms, is less than the residual value guaranteed, the Company must, under certain conditions, compensate the lessor for a portion of the shortfall. As at September 30, 2004, the maximum exposure in respect of these guarantees is $0.3 million and no amount has been recorded in the financial statements.

 

 

 

7.

Comparative figures:

 

 

 

 

Certain comparative figures have been reclassified from statements previously presented to conform to the presentation adopted in the current period.

- 15 -

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

CF CABLE TV INC.

 

 

 

 

 

(signed) Yvan Gingras

 

 

 

 

By:

Yvan Gingras

 

 

 

Executive Vice-President, Finance
and Operations

 

 

 

 

 

Date: November 8, 2004