Canbras Releases Third Quarter Results.Business Editors/High-Tech Writers MONTREAL--(BUSINESS WIRE)--Oct. 31, 2003 Canbras Communications Corp. (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension : CBC (1) (Cell Broadcast Center) See cell broadcast. (2) (Cipher Block Chaining) In cryptography, a mode of operation that combines the ciphertext of one block with the plaintext of the next block. ): -- BCI BCI Bat Conservation International BCI Brain-Computer Interface BCI Business Continuity Institute BCI Business Cycle Indicators BCI Banco de Credito e Inversiones (Chilean bank) BCI Bell Canada International to vote in favour Favor or favour (see spelling differences) may be
all of Canbras' assets -- Canbras to hold special meeting of shareholders to seek approval for the sale of all of its operations and the winding up of the Corporation -- Cable subscribers exceed 191,000, up 2% from third quarter of 2002 -- Internet access See how to access the Internet. subscribers exceed 15,000, up 24% from third quarter of 2002 -- Revenue up by 10% from third quarter of 2002, to reach $16.3 million -- EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become up by approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 58% from the third quarter of 2002, to reach $5.9 million Canbras Communications Corp. (TSX.CBC) ("Canbras" or the "Corporation") today released results for the third quarter ended September September: see month. 30, 2003. Renato Renato may refer to:
Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). communications operations in Brazil Brazil (brəzĭl`), Port. Brasil, officially Federative Republic of Brazil, republic (2005 est. pop. 186,113,000), 3,286,470 sq mi (8,511,965 sq km), E South America. , and that closing of the sale transactions was subject to certain conditions including the obtaining of the requisite approval of Canbras' shareholders and of all required Brazilian regulatory agencies regulatory agency Independent government commission charged by the legislature with setting and enforcing standards for specific industries in the private sector. The concept was invented by the U.S. , as well as the approval of Canbras' bank lending syndicates. We expect that the closing conditions will be met over the next several months and that the sale transactions will close during the first quarter of 2004." BCI has informed Canbras that BCI has entered into an agreement with Horizon Cablevision For the unrelated Canadian company, see . Cablevision Systems Corporation is an American cable television company. It is the 5th largest cable provider in the USA, with most customers residing in New York, New Jersey, Connecticut, and Pennsylvania. do Brasil S.A. ("Horizon") to vote its 76.6% majority stake in Canbras in favour of the Horizon sale transaction. As a result of the signing of the definitive agreements to sell substantially all assets of the Corporation, Canbras recorded, at the end of the third quarter of 2003, a $42.9 million write-down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. of the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of its long lived assets, which also includes a provision for estimated cost of disposal. Upon closing of the sale transactions, the Corporation will charge to income foreign exchange losses previously deferred and included in the foreign currency translation adjustment account in the shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. section of the balance sheet. Had closing of the sale transactions occurred on September 30, 2003, the total charge to income would have been $93.6 million. The total amount of the loss to be recorded on the sale transactions will fluctuate with operating results and foreign exchange movements between September 30, 2003 and the date of closing of the sale transactions. Mr. Ferreira added: "The strong performance of Canbras' operations during the first nine month of this year played an important role in the Corporation's ability to reach an agreement to sell its broadband communications operations in Brazil and maximize In a graphical environment, to enlarge a window to the full size of the screen. See Win Maximize windows. shareholder value. While cable subscriber subscriber, n the person, usually the employee, who represents the family unit in relation to the prepayment plan. Other family members are dependents. Also called certificate holders or enrollees. levels remain relatively stable from the beginning of the year, EBITDA for the first nine months of 2003 has experienced solid growth of approximately 64% over the same period a year ago." Operating Results Review Third Quarter 2003 versus third Quarter 2002 Revenue for the third quarter of 2003 was $16.3 million, an increase of 10.2% over the third quarter of 2002. The increase was primarily a result of price increases and cable and access subscriber growth, partially offset by a 7% devaluation devaluation, decreasing the value of one nation's currency relative to gold or the currencies of other nations. It is usually undertaken as a means of correcting a deficit in the balance of payments. of the average translation rate of Brazilian reais into Canadian dollars Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents relative to the third quarter of 2002. In Brazilian reais, revenue for the third quarter of 2003 increased by approximately 18% over the third quarter of 2002. EBITDA (earnings before interest, taxes, depreciation, amortization and foreign exchange) reached $5.9 million in the third quarter of 2003, up from $3.7 million a year ago. This increase was a result of higher revenues as well as lower cost of service and operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. mainly due to the weaker foreign exchange translation rate of the Brazilian real The real (IPA: [xe'aw] or [ʁe'aɫ], symbol: R$, ISO 4217 code: BRL, plural: reais) is the currency of Brazil. It is also the name of the earliest Brazilian currency (see from the Colonial period to 1942. . The Corporation recorded a net loss of $42.2 million in the quarter, compared to a net loss of $1.7 million in the third quarter of 2002. The higher net loss in the quarter is attributed to the $42.9 million write-down of the carrying value of Canbras' long-lived long-lived adj. 1. Having a long life: a long-lived aunt. 2. Lasting a long time; persistent: a long-lived rumor. 3. assets as a result of the signing of definitive agreements to sell all of the Corporations' broadband communications operations in Brazil. Year-to-Date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. September 2003 versus Year-to Date September 2002 Revenue for the nine months ended September 30, 2003 was $45.3 million, down 6.6% over the same period of the previous year. This decrease was a result of a 31% devaluation of the average translation rate of Brazilian reais into Canadian dollars relative to the nine month period ended September 30, 2002, partially offset by price increases and cable and access subscriber growth. In Brazilian reais, revenue for the first nine months of 2003 increased by more than 21% over the same period of 2002. EBITDA for the nine months ended September 30, 2003 reached $13.9 million, up from $8.5 million a year ago. This increase was the result of lower operating expenses and cost of service mainly due to the weaker foreign exchange translation rate of the Brazilian real. The net loss for the nine months ended September 30, 2003 was $38.6 million, compared to a net loss of $6.5 million for the same period the previous year. The higher net loss is primarily attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to the $42.9 million write-down of the carrying value of long-lived assets recorded in the third quarter of 2003, partially offset by lower depreciation and amortization expenses as a result of the change in the functional currency of the Corporation's Brazilian subsidiaries and the increased EBITDA and a foreign exchange gain on the US dollar denominated debt due to a 17% appreciation relative to December December: see month. 31, 2002 in the Brazilian real compared to the US dollar. Interest expenses were lower in the first nine months of 2003 compared to the first nine months of 2002 as a result of the purchase by the Corporation of US$9.25 million in notes issued under Canbras TVA's US-denominated credit facility from a group of banks during the first quarter of 2002 and the additional debt repayments made during 2003. Capital expenditures for the nine months ended September 30, 2003 were $3.9 million compared to $8.2 million in the comparable period of 2002. This decrease was mainly due to lower subscriber additions. During the first nine months of 2003, cash increased by $4.6 million as cash provided by operating activities exceeded (i) capital expenditures of $3.9 million, (ii) a $3.1 million debt repayment Repayment The act of paying back a debt. Notes: Everyone has to repay their debts eventually. See also: Debt, Defeasance, Loan and (iii) cash used for discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. of $0.9 million. Also during the first nine months of 2003, the Canbras Group sold $0.6 million of materials held for future capital expenditures. General Canbras, through the Canbras Group of companies, is a leading broadband communications services provider in Brazil, offering cable television, high speed Internet access and data transmission services in Greater Sao Paulo Paulo is the Portuguese form of the given name Paul:
tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. areas, and cable TV services in the State of Paran Paran (pā`răn), desert, the eastern region of the Sinai peninsula. In accounts in the Bible, Ishmael settled there. It was also the Israelites' first resting place after their stay at Sinai, and the refuge of David when Samuel died. . Canbras Communications Corp.'s common shares are listed on the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. under the trading symbol Trading symbol See: Ticker symbol CBC. Visit our web site at www.canbras.ca. Forward looking statements This news release may contain certain forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. that reflect the current views and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. expectations of Canbras with respect to its performance, business and future events. Forward looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance, or achievements, and may contain words like "believe" "anticipate", "expect", "will likely result", or words or phrases of similar meaning. Such statements are subject to a number of important risks and uncertainties which are difficult to predict and assumptions which may prove to be inaccurate. Whether actual results and developments conform with the Corporation's expectations and predictions are subject to a number of known and unknown risks and uncertainties. Factors that could cause actual results or events to differ materially from current expectations include, among other things: the fact that there can be no assurance that the requisite approvals of the Brazilian regulatory agencies or of other third-parties, in connection with the sale transactions described in this news release will be obtained, or the timing of issuance of any such approvals; the fact that there can be no assurance that other closing conditions in connection with such sale transactions will be satisfied, or when they will be satisfied; and the factors set forth in the Corporation's filings with the Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. securities commissions. In addition, forward-looking statements do not reflect the potential impact of any failure to comply with covenants in credit facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities or any acceleration acceleration, change in the velocity of a body with respect to time. Since velocity is a vector quantity, involving both magnitude and direction, acceleration is also a vector. In order to produce an acceleration, a force must be applied to the body. of indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. under any credit facilities that may occur in future, or of any other divestitures, monetizations, mergers, acquisitions, other business combinations or other transactions or regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. proceedings that may be announced after these statements are made. Canbras disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.
CANBRAS COMMUNICATIONS CORP.
SELECTED OPERATING STATISTICS
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As at As at
September 30, September 30,
2003 2002 Variation
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Broadband cable services:
Homes passed 881,252 866,652 1.7%
Km of activated plant 4,158 4,158 0.0%
Cable television subscribers 191,912 188,245 1.9%
Internet access subscribers 15,450 12,433 24.3%
Premium subscribers 67,129 74,727 (10.2%)
% of activated plant
bi-directional 80% 80%
Penetration of homes passed 21.8% 21.7% 0.1 percen-
tage pt
Year-to-date average
gross revenue per
subscriber (in Reais)
Cable television 55.55 49.74 11.7%
Internet access 68.24 53.61 27.3%
Three Months Ended Nine Months Ended
September 30, September 30,
Foreign Exchange rates 2003 2002 2003 2002
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Rs/C$- at period end 2.17 2.45 2.17 2.45
Rs/C$- average for the period 2.13 1.99 2.19 1.67
CANBRAS COMMUNICATIONS CORP.
Consolidated Interim Financial Statements
September 30, 2003
(Unaudited)
(see Note 9, Subsequent event)
CANBRAS COMMUNICATIONS CORP.
Consolidated Interim Statements of Operations (Unaudited)
(in thousands of Canadian dollars, except per share amounts)
Three months ended Nine months ended
September 30, September 30,
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2003 2002 2003 2002
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Revenues
Cable television $13,925 $12,862 $38,773 $42,302
Internet access 1,097 882 2,875 2,651
Data transmission
and other 1,283 1,054 3,668 3,571
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Total revenue 16,305 14,798 45,316 48,524
Cost of services 3,806 4,370 11,244 15,720
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Gross margin 12,499 10,428 34,072 32,804
Operating, selling,
general and
administrative expenses 6,620 6,700 20,214 24,354
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Earnings before interest,
taxes, depreciation
and amortization 5,879 3,728 13,858 8,450
Depreciation and
amortization
expense (Note 2) 3,882 6,385 11,549 18,768
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Operating income (loss) 1,997 (2,657) 2,309 (10,318)
Interest expense (1,156) (1,257) (2,946) (4,269)
Interest income 455 158 825 794
Foreign exchange gain
(loss) and other (733) 156 3,924 5,422
Loss on write-down of
long-lived
assets (Note 3) (42,853) - (42,853) -
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Loss before non-
controlling interest (42,290) (3,600) (38,741) (8,371)
Non-controlling interest 135 1,908 133 1,912
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Net loss (42,155) (1,692) (38,608) (6,459)
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Loss per share -
basic and diluted $(0.77) $(0.03) $(0.70) $(0.12)
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Weighted average
number of shares
outstanding 55,098,071 55,098,071 55,098,071 55,086,452
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(See Note 9, Subsequent event)
CANBRAS COMMUNICATIONS CORP.
Consolidated Interim Statements of Deficit (Unaudited)
(in thousands of Canadian dollars)
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Three months ended Nine months ended
September 30, September 30,
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2003 2002 2003 2002
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Deficit, beginning
of period, as
previously reported $(155,659) $(134,780) $(159,206) $(128,947)
Cumulative effect on
prior years of change
in accounting policy
for foreign currency
translation - - - (1,066)
Transitional
goodwill impairment - (19,170) - (19,170)
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Deficit, beginning of
period, as restated (155,659) (153,950) (159,206) (149,183)
Net loss
for the period (42,155) (1,692) (38,608) (6,459)
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Deficit, end
of period $(197,814) $(155,642) $(197,814) $(155,642)
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CANBRAS COMMUNICATIONS CORP.
Consolidated Interim Balance Sheets
(in thousands of Canadian dollars)
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Unaudited
As at As at
September 30, December 31,
2003 2002
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Assets
Current assets
Cash and cash equivalents $14,217 $9,627
Accounts receivable 1,918 1,812
Prepaid expenses and other 4,114 3,175
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20,249 14,614
Fixed assets, net of accumulated
depreciation and write-down (Note 3) 41,364 111,254
Licenses, net of accumulated
amortization and write-down (Note 3) 15,493 46,374
Deferred costs net of write-down (Note 3) 5,110 13,718
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$82,216 $185,960
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Liabilities
Current liabilities
Accounts payable and
accrued liabilities (Note 3) $24,683 $19,115
Debt due within one year 2,668 14,593
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27,351 33,708
Long-term debt 19,000 14,578
Other long-term liabilities 1,241 963
Non-controlling interest (Note 4) 5,538 18,234
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$53,130 $67,483
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Shareholders' equity
Capital stock $277,683 $277,683
Deficit (197,814) (159,206)
Foreign currency
translation adjustment (Note 9) (50,783) -
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29,086 118,477
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$82,216 $185,960
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(See Note 9, Subsequent event)
CANBRAS COMMUNICATIONS CORP.
Consolidated Interim Statements of Cash Flows (Unaudited)
(in thousands of Canadian dollars)
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Three months ended Nine months ended
September 30, September 30,
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2003 2002 2003 2002
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Cash provided by
operating activities
Net loss $(42,155) $(1,692) $(38,608) $(6,459)
Items not affecting cash
Loss on write-down
of long-lived
assets (Note 3) 42,853 - 42,853 -
Depreciation and
amortization expense 3,882 6,385 11,549 18,768
Non-controlling interest (135) (1,908) (133) (1,912)
Foreign exchange and other 674 (1,656) (4,028) (1,996)
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5,119 1,129 11,633 8,401
Changes in non-cash
working capital items (318) 2,577 93 1,889
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4,801 3,706 11,726 10,290
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Cash (used for) provided
by financing activities
Reduction in long-term debt (707) - (3,052) (15,022)
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(707) - (3,052) (15,022)
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Cash used in
investing activities
Additions to fixed assets (936) (2,099) (3,885) (8,197)
Additions to deferred costs (14) (161) (124) (921)
Proceeds from sale of
materials held for
future capital expenditures - - 566 -
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(950) (2,260) (3,443) (9,118)
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Effect of exchange rate
changes on cash and
cash equivalents (40) - 262 -
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Cash and cash equivalents,
(used for) provided
by continuing operations 3,104 1,446 5,493 (13,850)
Cash used for discontinued
operations (Note 7) (227) (1,944) (903) (5,369)
Cash and cash equivalents,
beginning of period 11,340 16,351 9,627 35,072
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Cash and cash equivalents,
end of period $14,217 $15,853 $14,217 $15,853
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(See Note 9, Subsequent event)
CANBRAS COMMUNICATIONS CORP.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited)
Three and nine month period ended September 30, 2003
All tabular dollar amounts in thousands of Canadian dollars, except
per share amounts)
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1. Description of the business and basis of presentation
Canbras Communications Corp. (the "Corporation" or "CCC"),
originally incorporated under the laws of British Columbia on
August 7, 1986, was continued under the Canada Business
Corporations Act effective June 22, 1998. The indirect majority
shareholder of CCC during 2001 was Telecom Americas Ltd. ("TAL"),
and effective as of February 8, 2002, distributed its 75.6%
indirect interest in CCC to Bell Canada International Inc.
("BCI"), which then became the indirect majority shareholder of
CCC. CCC, through its subsidiaries (collectively the "Canbras
Group") is engaged in the acquisition, development and operation
of broadband communication services in Brazil including cable
television ("CATV"), Internet access and data services, in Brazil.
On October 8, 2003, the Corporation announced that, pursuant to
the sale process commenced by it in 2002, the Corporation had
entered into definitive agreements for the sale of all of its
broadband communications operations in Brazil (see Note 9).
In the opinion of the Corporation, the unaudited interim
consolidated financial statements have been prepared on a basis
consistent with the annual audited financial statements, except as
noted below in Note 2a) (Foreign currency translation) and 2b)
(Segmented information), and contain all adjustments necessary for
a fair presentation of the financial position as at September 30,
2003 and the results of operations and cash flows for the three
and nine months ended September 30, 2003 and 2002, respectively.
The interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for
the year ended December 31, 2002 as set out in the 2002 Annual
Report of the Corporation, prepared in accordance with generally
accepted accounting principles in Canada ("GAAP"). Capitalized
terms used herein, and not otherwise defined, have the meanings
defined in the 2002 Annual Report of the Corporation.
2. Significant accounting policies
The preparation of financial statements in accordance with
Canadian GAAP requires that management make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the recognition of revenues and expenses, and the
disclosure of contingent assets and liabilities. Actual results
could differ from those estimates.
a) Impairment of long-lived assets
In December 2002, the CICA issued a new section in the CICA
Handbook, section 3063, Impairment of long-lived assets. The
Corporation early adopted these new recommendations during the
third quarter of 2003, effective January 1, 2003. This Section
provides guidance on the recognition, measurement and disclosure
of the impairment of long-lived assets. It replaces the write-down
provisions in Section 3061 "Property, Plant and Equipment". The
Section:
- Requires an impairment loss for a long-lived asset to be held
and used to be recognized when its carrying amount exceeds the
sum of the undiscounted cash flows expected from its use and
eventual disposition;
- Requires an impairment loss for a long-lived asset to be held
and used to be measured as the amount by which its carrying
amount exceeds its fair value.
See note 3 for the impact of the adoption of CICA 3063 on the
September 30, 2003 consolidated interim financial statements.
b) Disposal of long-lived assets and discontinued operations
During the third quarter of 2003, the Corporation applied the new
recommendations in section 3475 of the CICA Handbook , Disposal of
long-lived assets and discontinued operations, which the CICA
made effective May 1, 2003. This Section provides guidance on the
recognition, measurement, presentation and disclosure of long-
lived assets to be disposed. It replaces the disposal provisions
of Property, Plant and Equipment, Section 3061 as well as
Discontinued Operations, Section 3475. The Section:
- Provides criteria for classifying assets as held for sale;
- Requires an asset classified as held for sale to be measured at
fair value less cost to sell;
- Provides criteria for classifying a disposal as a discontinued
operation; and
- Specifies presentation and disclosures for discontinued
operations and other disposals of long-lived assets.
See note 9 for the impact of the adoption of CICA 3475 on the
September 30, 2003 consolidated interim financial statements.
c) Foreign currency translation
As of January 1, 2003, the Corporation's Brazilian subsidiaries
were no longer considered to be integrated operations due to the
fact that the day-to-day financing of the subsidiaries' operations
had become largely independent of the Corporation and accordingly,
the subsidiaries are considered self-sustaining subsidiaries. The
Corporation continues to report the financial results in Canadian
dollars, but the functional currency of its foreign subsidiaries
changed from Canadian dollars to Brazilian reais. Accordingly, for
accounting and financial reporting purposes the Corporation
switched method of translation from the temporal method to the
current-rate method. This change in accounting policy was applied
prospectively with no restatement of prior year's results. Under
the current-rate method, assets and liabilities of the
subsidiaries denominated in a foreign currency are translated into
Canadian dollars at exchange rates in effect at the balance sheet
dates. Revenues and expenses are translated at the average
exchange rates prevailing during the period. The resulting
unrealized gains or losses are accumulated and reported as a
foreign currency translation adjustment in shareholders' equity.
The impact of changing the method of translation from the temporal
to the current-rate method as of January 1, 2003, was a reduction
in the carrying value of fixed assets, licenses, deferred costs
and non-controlling interest of $40,818,000, $19,959,000,
$4,571,000 and $12,410,000 respectively and as a result,
shareholders' equity was reduced by $52,938,000. The reductions
reflect the decline in value of the Brazilian real relative to the
Canadian dollar since the time the non-monetary assets were first
acquired. As fixed assets, licenses and deferred costs are
depreciated or amortized over their useful lives, the reduction in
carrying values for these assets has resulted in lower
depreciation and amortization charges in 2003. The carrying value
of the net assets, as well as the foreign currency translation
adjustment in shareholders' equity, will fluctuate each quarter
based on the exchange rate in effect at each balance sheet date.
As a result of the appreciation in the Brazilian real relative to
the Canadian dollar in the first nine months of 2003, $2,155,000
was recorded as an increase to the foreign currency translation
adjustment account in shareholders' equity.
d) Segmented information
Effective as of January 1, 2003, the Corporation decided that it
operated in only one significant segment: Broadband cable services
(including cable television, high speed Internet access and data
transmission). As a result, it will no longer consider Internet
Service Provider (ISP) a separate reportable segment.
3. Impairment of long-lived assets
As a result of the signing of agreements for the sale of
substantially all assets of the Corporation announced on October
8, 2003 (see Note 9), the Corporation recorded an impairment
charge of $42,853,000 on its long-lived assets consisting of fixed
assets, licenses and deferred costs. The fair value used to
determine the impairment charge on the long-lived assets was based
on the net proceeds (after disposal costs of $4,643,000 included
in accounts payable and accrued liabilities) expected from the
purchaser of the Corporation's broadband communication operations
in Brazil.
4. Credit Facility
On May 14, 2003, the Corporation's subsidiary, Canbras TVA,
entered into a new Reais-denominated credit facility with a group
of Brazil-based banks for the purpose of refinancing Canbras TVA's
US$18.5 million Floating Rate Note facility.
The new Reais-denominated credit facility, has a four-year term
expiring in February, 2007, and is subject to monthly amortization
of principal and interest as well as certain mandatory prepayment
terms, and bears interest at a floating rate equal to 110% of the
Brazilian Interbank Certificate of Deposit ("CDI") rate. The funds
are to be disbursed in two tranches. The first was disbursed on
May 14, 2003 in an amount of BR$22,400,000 which was used,
together with BR$4,000,000 of cash on hand, to repay the Series B
Floating Rate Notes in the principal amount of US $9.25 million.
The second drawdown is expected on May 14, 2004 in an amount
sufficient to repay the Series C Floating Rate Notes in the
principal amount of US $9.25 million. The new credit facility and
the existing Floating Rate Note facility rank pari passu and are
secured by a first priority pledge on substantially all assets of
Canbras TVA. In addition, Canbras and its partner in Canbras TVA
pledged to the lenders under both facilities their capital stock
of Canbras TVA. As at September 30, 2003 the amount outstanding
under the credit facility amounted to $21,668,000 (US$9,250,000
and BR$19,871,000).
5. Put and call options
During the fourth quarter of 2001, the Canbras Group amended the
put and call options previously entered into with its Brazilian
partner, Cia Tecnica de Engenharia Eletrica ("Alusa") in two of
its subsidiaries to purchase, subject to regulatory approval, such
partner's equity interests in these two subsidiaries (together the
"Vale Properties"). The put and call options were exercisable,
until December 2002, with the option price payable in January
2003, for R$10,960,000 (equivalent to $7,523,000 as of 12/31/2001)
plus interest at the Brazilian interbank deposit rate ("CDI") plus
0.5% monthly from the fourth quarter of 2001 to the payment date.
The Corporation accounted for this transaction as an additional
acquisition of the Vale Properties resulting in a purchase price
of $7,523,000 being allocated to license.
Alusa's right to require the Canbras Group to purchase such
partner's interest in the Vale Properties expired unexercised on
December 21, 2002. As a result, $5,956,000 (BR$13,340,000
including accrued interest), previously shown as debt, was
reclassified as non-controlling interest on the December 31, 2002
balance sheet. On October 8, 2003, the parties reached an
agreement subject to certain closing conditions to realign their
respective ownership interests in the Vale Properties (see Note
9).
6. Stated Capital
a) Common shares, as at September 30, 2003 are as follows:
(1) Authorized: An unlimited number of common shares
(2) Issued and outstanding:
Stated
Number Capital
----------------------------------------------------------
Balance as at December 31, 2002 55,098,071 $277,683
----------------------------------------------------------
Balance as at September 30, 2003 55,098,071 $277,683
----------------------------------------------------------
----------------------------------------------------------
b) Stock Options
At September 30, 2003, 631,000 stock options were outstanding of
which 605,467 were exercisable. The stock options are exercisable
on a one-for-one basis for common shares of the Corporation. The
total stock options outstanding have exercise prices ranging from
$2.25 to $11.75 per share over a remaining contract life between
3.7 to 5.3 years.
7. Discontinued operations
The Corporation adopted a formal plan of disposal for its private
telephone resale operations conducted by its subsidiary Teleminio
Servicos de Telematica Ltda. ("TST") through the winding down of
TST's operations by December 31, 2002 (unless earlier sold to a
third-party). As a result, the Corporation recorded a provision of
$6,021,000 in the year ended December 31, 2001. This provision
includes both the write-down of assets and accruals ($4,626,000)
and the operating losses expected to be incurred between the date
TST's operations were treated as discontinued and the ultimate
wind-down date ($1,395,000). Accordingly, the consolidated
statements of operations and cash flows exclude the revenues,
expenses and cash flows of the discontinued operations. The cash
flows for the discontinued operations for the current and prior
year are presented as a single line in consolidated statements of
cash flows, and are identified as discontinued operations.
Effective March 1, 2002, all of the shares of TST were sold to a
third party and certain liabilities incurred up to February 28,
2002 were assumed by the Canbras Group.
The net balance of the accrual as of September 30, 2003 represents
liabilities and potential contingencies retained by the Canbras
Group in connection with sale of TST and is comprised of the
following:
Customer and labor claims $800
Legal fees to administer claims 289
TST bank loans 35
Other contingencies 979
--------
$2,103
--------
--------
The Corporation expects to settle approximately 50% of the total
obligation in the next nine months.
The assumptions and resulting estimates, on which the estimated
loss amounts are based, may change with the passage of time and as
additional information is obtained. Any changes to the estimates
will be recognized as part of the loss on discontinued operations
in the period in which such change occurs.
Cash flows used for discontinued operations are as follows:
Three months ended Nine months ended
September 30, September 30,
------------------------------------------------------------------
2003 2002 2003 2002
------------------------------------------------------------------
Operating activities $(227) $(1,944) $(903) $(5,369)
------------------------------------------------------------------
Cash flows used
for discontinued
operations $(227) $(1,944) $(903) $(5,369)
------------------------------------------------------------------
------------------------------------------------------------------
8. Comparative figures
Certain comparative figures have been reclassified to conform with
the presentation adopted in 2003.
9. Subsequent event
On October 8, 2003, the Corporation announced that, pursuant to
the sale process commenced by it in 2002, the Corporation had
entered into definitive agreements for the sale of all of its
broadband communications operations in Brazil.
Under an agreement entered into with Horizon Cablevision do Brasil
S.A. ("Horizon"), Canbras has agreed to sell to Horizon all of the
equity capital of its subsidiary Canbras Participacoes Ltda.
("CPAR"), through which Canbras holds substantially all of its
interests in its broadband subsidiaries operating in the Greater
Sao Paulo and surrounding areas, including all of its interests in
its core subsidiary Canbras TVA Cabo Ltda., for a purchase price
of $32,600,000 (the "Horizon Sale"). On closing of the Horizon
Sale, Canbras will receive gross proceeds of $22,168,000 in cash,
and a one year promissory note in the original principal amount of
$10,432,000 bearing interest at 10%. The amount of the note is
subject to reduction in the event indemnification obligations of
the Corporation arise under the terms of the agreement signed with
Horizon.
In a related transaction, Canbras has agreed to sell to Alusa all
of its interests in its cable television subsidiaries operating in
Parana State, in consideration for the assumption of all
liabilities of such subsidiaries by Alusa. In addition, Canbras
(through CPAR) and Alusa, who are currently partners in two
broadband companies operating in the Greater Sao Paulo cities of
Sao Jose dos Campos and Guarulhos, have entered into an agreement
under which they will swap their interests in such companies. CPAR
will acquire from Alusa its 21% interest in the Sao Jose dos
Campos company, which subsidiary will then by included in the
Horizon Sale; and CPAR will transfer to Alusa the 78% interest
held by CPAR in the Guarulhos company, and Alusa will assume the
indebtedness, if any, of the Guarulhos company due to certain
subsidiaries of CPAR.
The consummation of the Horizon Sale transaction as well as the
transactions with Alusa are subject to a number of conditions,
including the obtaining of all required regulatory approvals from
the Brazilian telecommunications regulatory agency and the
Brazilian antitrust regulatory agency, other requisite third-party
approvals, and the requisite approval of the shareholders of
Canbras. The closings of the transactions with Alusa are also
conditions to the closing of the Horizon Sale transaction, and all
such transactions are to close concurrently. The closings are
currently anticipated to occur in the first quarter of 2004.
On October 31, 2003, BCI informed Canbras that BCI had entered
into an agreement with Horizon to vote its 76.6% majority stake in
Canbras in favour of the Horizon sale transaction.
Canbras will call and hold a special meeting of shareholders. At
the special meeting of shareholders, which Canbras anticipates
will take place before the end of 2003, Canbras will seek the
required shareholder approval for the Horizon Sale transaction and
the other transactions with Alusa, which together constitute a
sale of all or substantially all of the Corporation's assets.
As a result of the above sale transactions, the Corporation
recorded an impairment charge on its long-lived assets in the
amount of $42,853,000 (see Note 3). Upon closing of the sale
transactions, the Corporation will charge to income foreign
exchange losses previously deferred and included in the foreign
currency translation adjustment account in the shareholders'
equity section of the balance sheet. Had the closing of the sale
transactions occurred on September 30, 2003, the additional charge
to income would have been $50,783,000 resulting in a total loss of
$93,636,000. The additional charge of $50,783,000 will have no
impact on total shareholders' equity. The total amount of the loss
to be recorded on the sale transactions will fluctuate with
operating results and foreign exchange movements between September
30, 2003 and the date of closing of the sale transactions.
Assets and liabilities that are being held for sale as at October
8, 2003, included in the consolidated balance sheet, and recorded
at their fair value are as follows:
2003
-------------------------------------------------------
Current assets $19,063
Fixed assets, net of accumulated depreciation 41,364
Licenses, net of accumulated amortization 15,493
Deferred costs 5,110
-------------------------------------------------------
Total assets 81,030
-------------------------------------------------------
Current liabilities $22,651
Long-term debt 19,000
Other long-term liabilities 1,241
-------------------------------------------------------
Total liabilities 42,892
-------------------------------------------------------
Non-controlling interest 5,538
-------------------------------------------------------
Net assets $32,600
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