Exhibit 99.3
DHX Media Ltd.
Unaudited Interim Condensed Consolidated Financial Statements
September 30, 2018
(expressed in thousands of Canadian dollars)
November 12, 2018
Management’s Responsibility for Financial Reporting
The accompanying unaudited interim condensed consolidated financial statements ofDHX Media Ltd. (the “Company”) are the responsibility of management and have been approved by the Board of Directors (the “Board”). The Board is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the unaudited interim condensed consolidated financial statements. The Board carries out this responsibility through its Audit Committee. The Audit Committee reviews the Company’s unaudited interim condensed consolidated financial statements and recommends their approval by the Board.
The Audit Committee is appointed by the Board and all of its members are independent directors. It meets with the Company’s management and reviews internal control and financial reporting matters to ensure that management is properly discharging its responsibilities before submitting the unaudited interim condensed consolidated financial statements to the Board for approval.
The unaudited interim condensed consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. When alternative methods of accounting exist, management has chosen those it deems most appropriate in the circumstances. The unaudited interim condensed consolidated financial statements include amounts based on informed judgments and estimates of the expected effects of current events and transactions with appropriate consideration to materiality. In addition, in preparing the unaudited interim condensed consolidated financial statements, management must make determinations as to the relevancy of information to be included, and make estimates and assumptions that affect reported information. Actual results in the future may differ materially from our present assessment of this information because future events and circumstances may not occur as expected.
| (signed) “Michael Donovan” | (signed)“Doug Lamb” | |
| Chief Executive Officer | Chief Financial Officer | |
| Halifax, Nova Scotia | Toronto, Ontario |
DHX Media Ltd.
Unaudited Interim Condensed Consolidated Balance Sheet
As at September 30, 2018 and June 30, 2018
(expressed in thousands of Canadian dollars)
| September 30, 2018 | June 30, 2018 | |||||||
| $ | $ | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | 46,286 | 46,550 | ||||||
| Amounts receivable (note 4) | 247,977 | 251,538 | ||||||
| Prepaid expenses and other | 7,613 | 8,580 | ||||||
| Investment in film and television programs (note 5) | 186,384 | 186,008 | ||||||
| 488,260 | 492,676 | |||||||
| Long-term amounts receivable (note 4) | 17,893 | 18,789 | ||||||
| Acquired and library content (note 6) | 141,548 | 147,088 | ||||||
| Property and equipment | 29,204 | 30,436 | ||||||
| Intangible assets | 535,458 | 546,997 | ||||||
| Goodwill | 239,827 | 240,806 | ||||||
| 1,452,190 | 1,476,792 | |||||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Bank indebtedness (note 7) | 9,500 | 16,350 | ||||||
| Accounts payable and accrued liabilities | 130,895 | 130,545 | ||||||
| Deferred revenue | 42,598 | 47,552 | ||||||
| Interim production financing (note 7) | 99,517 | 93,683 | ||||||
| Current portion of long-term debt and obligations under finance leases (note 7) | 3,356 | 10,524 | ||||||
| 285,866 | 298,654 | |||||||
| Long-term debt and obligations under finance leases (note 7) | 536,355 | 746,046 | ||||||
| Other long-term liabilities | 12,312 | 13,621 | ||||||
| Deferred income taxes (note 8) | 21,614 | 17,679 | ||||||
| 856,147 | 1,076,000 | |||||||
| Shareholders’ Equity | ||||||||
| Equity attributable to Shareholders of the Company | 330,046 | 315,078 | ||||||
| Non-controlling interest (note 9) | 265,997 | 85,714 | ||||||
| 596,043 | 400,792 | |||||||
| 1,452,190 | 1,476,792 | |||||||
| Commitments and contingencies(note 14) | ||||||||
The accompanying notes form an integral part of these unaudited interim condensed consolidated financial statements.
DHX Media Ltd.
Unaudited Interim Condensed Consolidated Statement of Changes in Equity
For the three month periods ended September 30, 2018 and 2017
(expressed in thousands of Canadian dollars)
| Common shares $ | Contributed surplus $ | Accumulated other comprehensive income (loss) $ | Retained earnings (deficit) $ | Non- controlling interest $ | Total $ | |||||||||||||||||||
| Balance - June 30, 2017 | 304,320 | 26,310 | (21,596 | ) | 20,263 | 86,556 | 415,853 | |||||||||||||||||
| Net income for the period | — | — | — | 8,148 | 1,419 | 9,567 | ||||||||||||||||||
| Other comprehensive loss for the period | — | — | (5,828 | ) | — | — | (5,828 | ) | ||||||||||||||||
| Comprehensive (loss) income for the period | — | — | (5,828 | ) | 8,148 | 1,419 | 3,739 | |||||||||||||||||
| Common shares issued | 59 | — | — | — | — | 59 | ||||||||||||||||||
| Dividends declared | — | — | — | (2,681 | ) | — | (2,681 | ) | ||||||||||||||||
| Share-based compensation | — | 1,194 | — | — | — | 1,194 | ||||||||||||||||||
| Non-controlling interest on acquisition of subsidiaries | — | — | — | — | 4,178 | 4,178 | ||||||||||||||||||
| Balance - September 30, 2017 | 304,379 | 27,504 | (27,424 | ) | 25,730 | 92,153 | 422,342 | |||||||||||||||||
| Balance - June 30, 2018 | 305,167 | 29,060 | (14,618 | ) | (4,531 | ) | 85,714 | 400,792 | ||||||||||||||||
| Adoption of IFRS 9 (note 3) | — | — | — | (1,049 | ) | — | (1,049 | ) | ||||||||||||||||
| Adoption of IFRS 15 (note 3) | — | — | 481 | (5,823 | ) | — | (5,342 | ) | ||||||||||||||||
| Balance - July 1, 2018 | 305,167 | 29,060 | (14,137 | ) | (11,403 | ) | 85,714 | 394,401 | ||||||||||||||||
| Net (loss) income for the period | — | — | — | (2,350 | ) | 5,687 | 3,337 | |||||||||||||||||
| Other comprehensive loss for the period | — | — | (10,623 | ) | — | — | (10,623 | ) | ||||||||||||||||
| Comprehensive (loss) income for the period | — | — | (10,623 | ) | (2,350 | ) | 5,687 | (7,286 | ) | |||||||||||||||
| Common shares issued | 247 | (385 | ) | — | — | — | (138 | ) | ||||||||||||||||
| Share-based compensation | — | 374 | — | — | — | 374 | ||||||||||||||||||
| Disposal of interest in subsidiary, net of transaction costs and taxes (note 9) | — | — | — | 34,096 | 174,596 | 208,692 | ||||||||||||||||||
| Balance - September 30, 2018 | 305,414 | 29,049 | (24,760 | ) | 20,343 | 265,997 | 596,043 | |||||||||||||||||
The accompanying notes form an integral part of these unaudited interim condensed consolidated financial statements.
DHX Media Ltd.
Unaudited Interim Condensed Consolidated Statement of Income (Loss)
For the three month periods ended September 30, 2018 and 2017
(expressed in thousands of Canadian dollars, except for amounts per share)
| September 30, 2018 | September 30, 2017 | |||||||
| $ | $ | |||||||
| Revenues(note 18) | 104,038 | 98,621 | ||||||
| Expenses(note 12) | ||||||||
| Direct production costs and expense of film and television produced | 61,284 | 55,650 | ||||||
| Amortization of acquired and library content (note 6) | 3,574 | 3,899 | ||||||
| Amortization of property and equipment and intangible assets | 5,385 | 5,908 | ||||||
| Development, integration and other | 1,888 | 1,585 | ||||||
| Selling, general and administrative | 19,187 | 19,826 | ||||||
| Finance costs (note 11) | 19,273 | 11,520 | ||||||
| Change in fair value of embedded derivative | (4,800 | ) | — | |||||
| Foreign exchange gain | (2,434 | ) | (11,281 | ) | ||||
| 103,357 | 87,107 | |||||||
| Income before income taxes | 681 | 11,514 | ||||||
| Provision for (recovery of) income taxes | ||||||||
| Current income taxes (note 8) | 270 | 712 | ||||||
| Deferred income taxes (note 8) | (2,926 | ) | 1,235 | |||||
| (2,656 | ) | 1,947 | ||||||
| Net income for the period | 3,337 | 9,567 | ||||||
| Net income attributable to non-controlling interests | 5,687 | 1,419 | ||||||
| Net (loss) income attributable to Shareholders of the Company | (2,350 | ) | 8,148 | |||||
| Basic (loss) earnings per common share(note 16) | (0.02 | ) | 0.06 | |||||
| Diluted (loss) earnings per common share(note 16) | (0.02 | ) | 0.06 | |||||
The accompanying notes form an integral part of these unaudited interim condensed consolidated financial statements.
DHX Media Ltd.
Unaudited Interim Condensed Consolidated Statement of Comprehensive Income (Loss)
For the three month periods ended September 30, 2018 and 2017
(expressed in thousands of Canadian dollars)
| Three months ended | ||||||||
| September 30, 2018 | September 30, 2017 | |||||||
| $ | $ | |||||||
| Net income for the period | 3,337 | 9,567 | ||||||
| Other comprehensive loss | ||||||||
| Items that may be subsequently reclassified to the statement of income (loss) | ||||||||
| Foreign currency translation adjustment | (10,623 | ) | (5,828 | ) | ||||
| Comprehensive (loss) income for the period | (7,286 | ) | 3,739 | |||||
The accompanying notes form an integral part of these unaudited interim condensed consolidated financial statements.
DHX Media Ltd.
Unaudited Interim Condensed Consolidated Statement of Cash Flows
For the three month periods ended September 30, 2018 and 2017
(expressed in thousands of Canadian dollars)
| September 30, | September 30, | |||||||
| 2018 | 2017 | |||||||
| $ | $ | |||||||
| Cash provided by (used in) | ||||||||
| Operating activities | ||||||||
| Net income for the period | 3,337 | 9,567 | ||||||
| Charges (credits) not involving cash | ||||||||
| Amortization of property and equipment | 1,761 | 1,789 | ||||||
| Amortization of intangible assets | 3,624 | 4,119 | ||||||
| Unrealized foreign exchange gain | (3,897 | ) | (12,425 | ) | ||||
| Amortization of deferred financing fees | 938 | 1,235 | ||||||
| Accretion on tangible benefit obligation | 104 | 133 | ||||||
| Share-based compensation | 374 | 1,194 | ||||||
| Write-down of term facility unamortized issue costs | 7,320 | — | ||||||
| Accretion on Senior Unsecured Convertible Debentures | 566 | — | ||||||
| Change in the fair value of embedded derivatives | (4,800 | ) | — | |||||
| Deferred tax (recovery) expense | (2,926 | ) | 1,235 | |||||
| Amortization of acquired and library content | 3,574 | 3,899 | ||||||
| Net investment in film and television programs (note 17) | (3,053 | ) | (2,380 | ) | ||||
| Net change in non-cash balances related to operations (note 17) | (16,771 | ) | (19,678 | ) | ||||
| Cash used in operating activities | (9,849 | ) | (11,312 | ) | ||||
| Financing activities | ||||||||
| Common shares issued, net of cash-settled withholding taxes | (138 | ) | 59 | |||||
| Proceeds from (repayment of) bank indebtedness | (6,850 | ) | 13,874 | |||||
| Proceeds from (repayment of) interim production financing | 5,833 | (15,540 | ) | |||||
| Decrease in cash held in trust | — | 239,877 | ||||||
| Repayment of long-term debt and obligations under finance leases | (213,851 | ) | (227,770 | ) | ||||
| Cash (used in) provided by financing activities | (215,006 | ) | 10,500 | |||||
| Investing activities | ||||||||
| Business acquisitions, net of cash acquired | — | (4,228 | ) | |||||
| Proceeds on sale of interest in a subsidiary, net of cash fees paid (note 9) | 229,088 | — | ||||||
| Acquisition of property and equipment | (266 | ) | (786 | ) | ||||
| Acquisition/cost of intangible assets | (3,911 | ) | (3,271 | ) | ||||
| Cash provided by (used in) investing activities | 224,911 | (8,285 | ) | |||||
| Effect of foreign exchange rate changes on cash | (320 | ) | (1,030 | ) | ||||
| Net change in cash during the period | (264 | ) | (10,127 | ) | ||||
| Cash - Beginning of period | 46,550 | 62,143 | ||||||
| Cash - End of period | 46,286 | 52,016 | ||||||
Supplemental information (note 17)
The accompanying notes form an integral part of these unaudited interim condensed consolidated financial statements.
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
| 1 | Nature of business |
DHX Media Ltd. (the “Company”) is a public company, and the ultimate parent, whose common shares are traded on the Toronto Stock Exchange (“TSX”), admitted on May 19, 2006, under the symbol DHX. On June 23, 2015, the Company commenced trading its Variable Voting Shares on the NASDAQ Global Trading Market (“NASDAQ”) under the symbol DHXM. The Company, incorporated on February 12, 2004 under the laws of the Province of Nova Scotia, Canada, and continued on April 25, 2006 under the Canada Business Corporation Act, develops, produces and distributes films and television programs for the domestic and international markets; licenses its brands in the domestic and international markets; broadcasts films and television programs in the domestic market; and manages copyrights, licensing and brands for third parties. The address of the Company’s head office is 1478 Queen Street, Halifax, Nova Scotia, Canada, B3J 2H7.
| 2 | Basis of preparation |
These unaudited interim condensed consolidated financial statements were prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), applicable to the preparation ofInternational Accounting Standard ("IAS") 34,Interim Financial Reporting, and follow the same accounting policies as those used in the Company's most recent audited annual consolidated financial statements, except for the new accounting policies adopted and described in note 3. These unaudited interim condensed consolidated financial statements do not include all the disclosures included in the Company's audited annual consolidated financial statements. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements.
These unaudited interim condensed consolidated financial statements have been authorized for issuance by the Board of Directors on November 12, 2018.
| 3 | Significant accounting policies, judgments and estimation uncertainty |
These unaudited interim condensed consolidated financial statements have been prepared using the same policies and methods as the annual consolidated financial statements of the Company for the year ended June 30, 2018, except for the new and amended accounting standards adopted and described below.
New and amended standards adopted
| i) | IFRS 9, Financial Instruments ("IFRS 9") |
Effective July 1, 2018, the Company adopted IFRS 9, which establishes a single classification and measurement approach for financial assets and financial liabilities that reflect the business model in which they are managed and their cash flow characteristics. IFRS 9 also provides guidance on an entity's own credit risk relating to financial liabilities and amends the impairment model by introducing a new 'expected credit loss' model for calculating impairment. IFRS 9 replaces IAS 39,Financial instruments: recognition and measurement ("IAS 39").
Under the previous accounting standard, the Company calculated its provision for impaired receivables by applying an 'incurred loss' model. Under IFRS 9, the Company applied the 'expected credit loss' model. Trade receivables, goods and services taxes recoverable and federal and provincial film tax credits and other government assistance are provided for based on estimated recoverable amounts as determined by using a combination of the customer's historical default experience and expected future credit losses. Goods and services taxes recoverable and other government assistance do not contain any significant uncertainty. The resulting increase to the provision for impaired receivables as at July 1, 2018 was $1,049 with a corresponding increase to opening deficit.
| (1) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
In addition, the Company previously classified its financial assets as 'loans and receivables' and its financial liabilities as 'other financial liabilities', both of which were measured at amortized cost, with the exception of embedded derivatives which was classified as 'Fair value through profit and loss' and measured, on a recurring basis, at fair value. Under IFRS 9, the measurement basis would remain the same across all financial instruments, however the category for classification has been amended to 'Amortized Cost' for its financial assets classified as loans and receivables and and its financial liabilities classified as other financial liabilities, and to 'Fair value through profit and loss' for its embedded derivative.
| ii) | IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) |
Effective July 1, 2018, the Company adopted IFRS 15, which establishes a new comprehensive framework to record revenues from contracts for the sale of goods or services, unless the contracts are in the scope of other standards. IFRS 15 replaces IAS 18,Revenue,IAS 11,Construction Contracts, and some revenue related interpretations. Under IFRS 15, revenue is recognized at an amount that reflects the expected consideration receivable in exchange for transferring goods or services to a customer, applying the following five steps: 1) identify the contract with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company adopted IFRS 15 using the modified retrospective method, which requires the cumulative effect of initially applying the Standard to be recognized at the date of initial application, which is July 1, 2018, and that the financial information previously presented for the year ended June 30, 2018 would remain unchanged. The Company also elected to apply the practical expedient which permits the Company to apply IFRS 15 retrospectively only to contracts that are not completed contracts at the date of initial application.
The significant changes to the Company's revenue recognition policies are as follows:
• Under its proprietary production channel, the Company previously recorded revenue for the initial broadcast rights when the production was completed and available to the customer. Under IFRS 15, an assessment is made at the inception of each contract to determine whether i) the performance obligations are satisfied at a point in time, which generally occurs when the production is completed, available to the customer, and the customer has the contractual right to broadcast or stream the content, or ii) the Company transfers control of the production over time and therefore satisfies the performance obligations and recognizes revenue over time. Over time recognition generally occurs when the Company's production creates an asset that the customer controls as that production is created. When performance obligations are satisfied at a point in time, revenue is recognized when all the aforementioned criteria are met. When performance obligations are satisfied over time during the production of the show, revenue is recognized using the percentage of completion method, based on actual costs incurred compared to the total estimated costs. This change did not have an effect on the Company's opening balance sheet.
• Under its distribution channel, the Company previously recorded revenue on certain distribution license agreements for its television and film content when the contract was executed and the licensed content was available to the customer. Under IFRS 15, revenue is deferred and recorded as revenue when the licensed content is available to the customer and the customer has the contractual right to broadcast or stream the content. This change did not have an effect on the Company's opening balance sheet.
| (2) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
• Under its consumer products-owned channel, the Company previously recognized license revenue relating to certain minimum guarantees for royalties on its copyrights and brands at the start of the license period. Under IFRS 15, the Company determined that these were right-of-access licenses and as a result, minimum guarantees are deferred and amortized over the term of the license. Royalty revenue is calculated as the greater of royalties based on underlying sales or the pro-rata allocation of the minimum guarantee. This change resulted in a July 1, 2018 adjustment to increase opening deficit by $5,823, an increase to opening deferred revenue by $6,459, a decrease to opening deferred income taxes by $1,117, and a decrease to accumulated other comprehensive loss by $481.
• For renewals or extensions of license agreements for television and film content, the Company previously recorded revenue when the agreement was renewed or extended. Under IFRS 15, revenue related to the extension or renewal term is recognized when the customer has the contractual right to broadcast or stream the content. This change did not have an effect on the Company's opening balance sheet.
The following is a reconciliation of the impact of IFRS 15 for the three month period ended September 30, 2018:
| Three months ended September 30, 2018 | ||||
| Revenue under IFRS 15, as reported | 104,038 | |||
| Impact of IFRS 15 on revenue: | ||||
| Revenue on minimum guarantees (1) | (816 | ) | ||
| Revenue on proprietary production shows (2) | 2,341 | |||
| Revenue on distribution licenses (3) | 850 | |||
| Revenue under IAS 18 | 106,413 | |||
| Direct production costs and expense of film and television produced under IFRS 15, as reported | 61,284 | |||
| Impact of IFRS 15 on Direct production costs and expense of film and television produced (4): | 1,405 | |||
| Direct production costs and expense of film and television produced under IAS 18 | 62,689 | |||
(1) Revenue on minimum guarantees - these are minimum guarantees on royalties in the consumer products-owned channel that were previously recognized at the inception of the license period but under IFRS 15 are recognized over the license term as a "right-to-access license", resulting in a corresponding adjustment to deferred revenue.
(2) Revenue on proprietary production shows - these are proprietary production revenues that would have met the previous revenue recognition criteria under IAS 18 and recognized at a point in time with a corresponding adjustment to amounts receivable, but have been deferred under IFRS 15 as the risks and rewards of ownership under IAS 18 transferred to the customer at an earlier date than control was transferred under IFRS 15.
(3) Revenue on distribution licenses - these are distribution revenues that would have met the previous revenue recognition criteria under IAS 18 and recognized at a point in time with a corresponding adjustment to amounts receivable, but have been deferred under IFRS 15 as the risks and rewards of ownership under IAS 18 transferred to the customer at an earlier date than control transferred under IFRS 15.
(4) Direct production and new media costs - these costs are the expense of film and television produced related to proprietary production shows that have been deferred, with a corresponding adjustment to investment in film and television programs.
| (3) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
| iii) | IFRIC 22, Foreign currency transactions and advance consideration ("IFRIC 22") |
Effective July 1, 2018, the Company adopted IFRIC 22, which clarified how to determine the date of transaction for the exchange rate to be used on initial recognition of a related asset, expense or income where an entity pays or receives consideration in advance for foreign currency-denominated contracts. For a single payment or receipt, the date of the transaction is the date on which the entity initially recognises the non-monetary asset or liability arising from the advance consideration (the prepayment or deferred income/contract liability).
The Company has elected to apply IFRIC 22 prospectively beginning July 1, 2018. The adoption of this standard did not have a material impact to the Company's consolidated financial statements.
| iv) | Amendments to IFRS 2, Share-based payment ("IFRS 2") |
Effective July 1, 2018, the Company adopted the amendments to IFRS 2, which clarified the classification and measurement of certain share-based payment transactions. The adoption of this amendment did not have an impact to the Company's consolidated financial statements.
Accounting standards issued but not yet applied
| i) | In January 2016, the IASB issued IFRS 16,Leases ("IFRS 16") effective for annual periods beginning on or after January 1, 2019. IFRS 16 provides a comprehensive model for the measurement, presentation and disclosure of leases and replaces IAS 17,Leases. The adoption of IFRS 16 will result in substantially all lessee leases being recorded on the balance sheet as an asset with a corresponding liability with both current and long-term portions. The Company is currently evaluating the impact of IFRS 16 on its consolidated financial statements. |
| ii) | In June 2017, the IASB issued IFRIC 23 to clarify how the requirements of IAS 12,Income Taxes should be applied when there is uncertainty over income tax treatments. The interpretation is effective for annual periods beginning on or after January 1, 2019, with modified retrospective or retrospective application permitted. The Company is currently evaluating the impact of IFRIC 23 on its consolidated financial statements. |
| (4) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
| 4 | Amounts receivable |
| September 30, 2018 | June 30, 2018 | |||||||
| $ | $ | |||||||
| Trade receivables | 153,492 | 163,203 | ||||||
| Less: Loss allowance on trade receivables | (10,726 | ) | (9,742 | ) | ||||
| 142,766 | 153,461 | |||||||
| Goods and services tax recoverable, net | 623 | 1,203 | ||||||
| Federal and provincial film tax credits and other government assistance | 104,588 | 96,874 | ||||||
| Short-term amounts receivable | 247,977 | 251,538 | ||||||
| Long-term amounts receivable | 17,893 | 18,789 | ||||||
| Total amounts receivable | 265,870 | 270,327 | ||||||
Loss allowance on trade receivables:
| September 30, 2018 | June 30, 2018 | |||||||
| $ | $ | |||||||
| Opening balance | 9,742 | 4,772 | ||||||
| Impact of adoption of IFRS 9 | 1,049 | — | ||||||
| Opening balance, restated for IFRS 9 | 10,791 | 4,772 | ||||||
| Loss allowance on trade receivables | 702 | 5,089 | ||||||
| Receivables written off during the period | (491 | ) | (197 | ) | ||||
| Recoveries of trade receivables previously provided for | — | (12 | ) | |||||
| Foreign exchange | (276 | ) | 90 | |||||
| Closing balance | 10,726 | 9,742 | ||||||
| (5) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
| 5 | Investment in film and television programs |
| September 30, 2018 | June 30, 2018 | |||||||
| $ | $ | |||||||
| Development costs | 2,140 | 2,112 | ||||||
| Productions in progress | ||||||||
| Cost, net of government and third-party assistance | 23,476 | 17,577 | ||||||
| Productions completed and released | ||||||||
| Cost, net of government and third-party assistance | 528,968 | 529,494 | ||||||
| Accumulated expense | (380,145 | ) | (377,041 | ) | ||||
| Accumulated write-down of investment in film and television programs | (15,910 | ) | (15,910 | ) | ||||
| 132,913 | 136,543 | |||||||
| Program and film rights - broadcasting | ||||||||
| Cost | 136,665 | 134,765 | ||||||
| Accumulated expense | (106,023 | ) | (102,202 | ) | ||||
| Accumulated write-down of program and film rights | (2,787 | ) | (2,787 | ) | ||||
| 27,855 | 29,776 | |||||||
| 186,384 | 186,008 | |||||||
All program and film rights - broadcasting, noted above, relate to DHX Television.
The continuity of investment in film and television programs is as follows:
| September 30, 2018 | June 30, 2018 | |||||||
| $ | $ | |||||||
| Net opening investment in film and television programs | 186,008 | 195,180 | ||||||
| Increase in development costs | 28 | 434 | ||||||
| Cost of productions (completed and released and productions in progress), net of government assistance and third-party assistance | 8,051 | 33,088 | ||||||
| Expense of investment in film and television programs | (3,104 | ) | (33,554 | ) | ||||
| Write-down of investment in film and television programs | — | (4,779 | ) | |||||
| Increase of program and film rights - broadcasting | 1,900 | 14,110 | ||||||
| Expense of program and film rights - broadcasting | (3,821 | ) | (18,546 | ) | ||||
| Write-down of program and film rights - broadcasting | — | (2,787 | ) | |||||
| Foreign exchange | (2,678 | ) | 2,862 | |||||
| 186,384 | 186,008 | |||||||
During the three months ended September 30, 2018, interest of $265 (2017 - $532) has been capitalized to investment in film and television programs.
| (6) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
| 6 | Acquired and library content |
| September 30, 2018 | June 30, 2018 | |||||||
| $ | $ | |||||||
| Net opening acquired and library content | 147,088 | 155,940 | ||||||
| Additions | — | 8,406 | ||||||
| Write-down of acquired and library content | — | (3,402 | ) | |||||
| Amortization | (3,574 | ) | (15,916 | ) | ||||
| Foreign exchange | (1,966 | ) | 2,060 | |||||
| 141,548 | 147,088 | |||||||
| 7 | Bank indebtedness, interim production financing, long-term debt and obligations under finance leases |
| September 30, 2018 | June 30, 2018 | |||||||
| $ | $ | |||||||
| Bank indebtedness | 9,500 | 16,350 | ||||||
| Interim production financing | 99,517 | 93,683 | ||||||
| Long-term debt and obligations under finance leases | 539,711 | 756,570 | ||||||
| Interest bearing debt and obligations under finance leases | 648,728 | 866,603 | ||||||
| Amount due within 12 months | (112,373 | ) | (120,557 | ) | ||||
| Amount due beyond 12 months | 536,355 | 746,046 | ||||||
| a) | Bank indebtedness |
The Revolving Facility has a maximum available balance of US$30,000 (CAD $38,835) and matures on June 30, 2022. The Revolving Facility may be drawn down by way of either $USD base rate, $CAD prime rate, $CAD bankers’ acceptance, or $USD and £GBP LIBOR advances (the “Drawdown Rate”) and bears interest at floating rates ranging from the Drawdown Rate + 2.50% to the Drawdown Rate + 3.75%.
As at September 30, 2018, $9,500 (June 30, 2018 - $16,350) was drawn on the Revolving Facility.
| b) | Interim production financing |
| September 30, 2018 | June 30, 2018 | |||||||
| $ | $ | |||||||
| Interim production credit facilities with various institutions, bearing interest at bank prime plus 0.5% - 1.0%. Assignment and direction of specific production financing, licensing contracts receivable and film tax credits receivable with a net book value of approximately $123,165 at September 30, 2018 (June 30, 2018 - $115,639) have been pledged as security. | 99,517 | 93,683 | ||||||
During the three months ended September 30, 2018, the $CDN bank prime rate averaged 3.68% (Q1 2018 - 2.99%).
| (7) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
| c) | Long-term debt and obligations under finance leases |
| September 30, 2018 | June 30, 2018 | |||||||
| $ | $ | |||||||
| Term Facility, net of unamortized issue costs of $14,201 (June 30, 2018 - $22,232) | 411,329 | 623,066 | ||||||
| Senior Unsecured Convertible Debentures, net of unamortized issue costs of $5,363 (June 30, 2018 - $5,588) and embedded derivatives at fair value of $7,140 (June 30, 2018 - $11,940) | 120,738 | 124,747 | ||||||
| Obligations under various finance leases, bearing interest at rates ranging from 4.0% to 9.8%, maturing on dates ranging from October 2018 to June 2022 | 7,644 | 8,757 | ||||||
| 539,711 | 756,570 | |||||||
| Less: Current portion | (3,356 | ) | (10,524 | ) | ||||
| 536,355 | 746,046 | |||||||
| (i) | Term Facility |
As at September 30, 2018, the Company's Term Facility had a principal balance of US$328,722 (June 30, 2018 - US$490,050), bearing interest at floating rates of either $USD base rate + 2.75% or $USD LIBOR + 3.75% and will mature on December 29, 2023.
During the current quarter, the Company repaid US$161,328 against its Term Facility using proceeds from the sale of a 49% interest of the Company's 80% ownership in Peanuts (note 9). As a result of this repayment, the Company recorded a write-down of its unamortized issue costs of $7,320.
The Term Facility is repayable in equal quarterly installment payments of US$1,238 or 0.25% of the initial principal commencing September 30, 2017. As a result of the repayment in the current quarter, the Company is not required to make any further installment payments through to maturity.
The Term Facility also requires repayments equal to 50% of Excess Cash Flow (the "Excess Cash Flow Payments") (as defined in the Senior Secured Credit Agreement), commencing for the fiscal year-ended June 30, 2018, while the First Lien Net Leverage Ratio (as defined in the Senior Secured Credit Agreement) is greater than 3.50 times, reducing to 25% of Excess Cash Flow while First Lien Net Leverage Ratio (as defined in the Senior Secured Credit Agreement) is at or below 3.50 times and greater than 3.00 times, with the remaining balance due on December 29, 2023. As at September 30, 2018, no payments were owed under the Excess Cash Flow Payments terms of the Term Facility.
The Senior Secured Credit Facilities require that the Company comply with a Total Net Leverage Ratio covenant, as defined in the Senior Secured Credit Agreement:
| Period | Ratio Target | |
| Each fiscal quarter commencing September 30, 2018 | < 6.75x | |
| Each fiscal quarter commencing September 30, 2019 | < 6.50x | |
| Each fiscal quarter commencing September 30, 2020 | < 5.75x | |
| Each fiscal quarter commencing September 30, 2021 to Maturity at December 29, 2023 | < 5.50x |
As at September 30, 2018, the Company was in compliance with all its debt covenants with a Total Net Leverage Ratio of 5.35x.
| (8) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
| (ii) | Senior Unsecured Convertible Debentures |
As at September 30, 2018, the Senior Unsecured Convertible Debentures had a principal balance of $140,000 (June 30, 2018 - $140,000), bearing interest at an annual rate of 5.875% and paid semi-annually on March 31 and September 30 of each year. The Senior Unsecured Convertible Debentures are convertible into Common Voting Shares or Variable Voting Shares of the Company at a price of $8.00 per share, subject to certain customary adjustments. The Senior Unsecured Convertible Debentures mature September 30, 2024.
The Senior Unsecured Convertible Debentures have a cash conversion option whereby the Company can elect to make a cash payment in lieu of issuing Common Voting Shares or Variable Voting Shares upon exercise of the conversion option feature by the holder of the Senior Unsecured Convertible Debentures. As a result, the Senior Unsecured Convertible Debentures were deemed to have no equity component at initial recognition and the estimated fair value of the embedded derivatives is recorded as a financial liability and included with the debt component on the Company's consolidated balance sheet. Changes in the estimated fair value of the embedded derivatives are recorded through the Company's consolidated statement of income. As at September 30, 2018, the estimated fair value of the embedded derivatives was $7,140.
| 8 | Income taxes |
Significant components of the Company’s net deferred income tax liability as at September 30, 2018 and June 30, 2018 are as follows:
| September 30, 2018 | June 30, 2018 | |||||||
| $ | $ | |||||||
| Broadcast licenses | (17,967 | ) | (17,967 | ) | ||||
| Tangible benefit obligation | 2,115 | 2,171 | ||||||
| Deferred revenue | 952 | — | ||||||
| Foreign tax credits | 2,324 | 2,324 | ||||||
| Property and equipment | 760 | 697 | ||||||
| Share issuance costs and deferred financing fees | 389 | (1,603 | ) | |||||
| Investment in film and television programs and acquired and library content | (31,641 | ) | (27,568 | ) | ||||
| Intangible assets | (8,880 | ) | (9,633 | ) | ||||
| Non-capital losses and other | 30,334 | 33,900 | ||||||
| Net deferred income tax liability | (21,614 | ) | (17,679 | ) | ||||
Deferred income tax liabilities have not been recognized for the withholding tax and other taxes that would be payable on unremitted earnings of certain subsidiaries, as such amounts are permanently reinvested. Unremitted earnings totaled $75,786 at September 30, 2018 (June 30, 2018 - $72,648).
| (9) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
The reconciliation of income taxes computed at the statutory tax rates to income tax expense (recovery) is as follows:
| Three months ended | ||||||||
| September 30, 2018 | September 30, 2017 | |||||||
| $ | $ | |||||||
| Income tax expense (recovery) based on combined federal and provincial tax rates of 31% (June 30, 2017 - 31%) | 211 | 3,578 | ||||||
| Income taxes increased (reduced) by: | ||||||||
| Share-based compensation | 116 | 370 | ||||||
| Non-taxable portion of capital gain | (2,009 | ) | (2,022 | ) | ||||
| Tax rate differential | 942 | 306 | ||||||
| Non-controlling interest | (1,763 | ) | (439 | ) | ||||
| Other | (153 | ) | 154 | |||||
| Provision for income taxes | (2,656 | ) | 1,947 | |||||
The Company operates in multiple jurisdictions with differing tax rates. The Company’s effective tax rates are dependent on the jurisdiction to which income relates.
| 9 | Disposal of interest in subsidiary and non-controlling interest |
On July 23, 2018, the Company completed the sale of a non-controlling interest in its Peanuts subsidiary ("Peanuts") to Sony Music Entertainment (Japan) Inc. ("SMEJ"). SMEJ acquired 49% of the Company's 80% interest in Peanuts for gross proceeds of $234,610 and net proceeds of $208,692 (net of transaction costs of $8,720 and taxes of $17,198). The Company recorded a non-controlling interest of $174,596 on the sale to SMEJ.
As at September 30, 2018, the Company holds a 41% interest in Peanuts, SMEJ holds a 39% interest, and the members of the family of Charles M. Schulz hold a 20% interest. Subsequent to the sale, the Company continues to control Peanuts and therefore consolidates 100% of Peanuts.
| 10 | Share capital and contributed surplus |
Common shares
The common shares of the Company are inclusive of Common Voting Shares, Variable Voting Shares and Non-Voting Shares. As at September 30, 2018, the Company had 52,900,433 Common Voting Shares, 81,481,618 Variable Voting Shares and nil Non-Voting Shares issued and outstanding.
During the three months ended September 30, 2018, the Company issued 15,699 common shares, at an average price of $2.66 as part of the Company’s employee share purchase plan.
Options
On September 27, 2018, 4,046,500 options were granted to directors, officers and employees with an exercise price of $1.50 per common share. Included in this option grant were 3,046,500 that vest over four years and expire in seven years, and 1,000,000 that vest based on market conditions and expire in seven years.
| (10) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
Performance share unit plan
During the three month period ended September 30, 2018, 72,462 PSU's were paid out to employees, including accrued dividends, 2,849 were forfeited and 63,049 were cancelled relating to taxes payable on the units issued.
| 11 | Finance costs |
Finance costs comprised of the following:
| Three months ended | ||||||||
| September 30, 2018 | September 30, 2017 | |||||||
| $ | $ | |||||||
| Finance costs | ||||||||
| Interest income | (502 | ) | (88 | ) | ||||
| Interest expense on bank indebtedness | 200 | 92 | ||||||
| Accretion of tangible benefit obligation | 104 | 133 | ||||||
| Interest on long-term debt | 10,470 | 9,999 | ||||||
| Amortization of deferred financing fees | 938 | 1,235 | ||||||
| Write-down of term facility unamortized issue costs | 7,320 | — | ||||||
| Accretion on Senior Unsecured Convertible Debentures | 567 | — | ||||||
| Interest on finance leases | 176 | 149 | ||||||
| 19,273 | 11,520 | |||||||
| (11) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
| 12 | Expenses by nature and employee benefit expense |
The following sets out the expenses by nature:
| Three months ended | ||||||||
| September 30, 2018 | September 30, 2017 | |||||||
| $ | $ | |||||||
| Investment in film and television programs | ||||||||
| Direct production and new media costs | 54,359 | 45,236 | ||||||
| Expense of film and television programs | 3,104 | 4,954 | ||||||
| Expense of film and broadcast rights for broadcasting | 3,821 | 5,460 | ||||||
| Development, integration and other | 1,888 | 1,585 | ||||||
| Amortization of acquired and library content | 3,574 | 3,899 | ||||||
| Office and administrative | 4,619 | 4,844 | ||||||
| Finance costs, changes in fair value of embedded derivative, and foreign exchange | 12,039 | 239 | ||||||
| Investor relations and marketing | 575 | 865 | ||||||
| Professional and regulatory | �� | 1,814 | 1,319 | |||||
| Amortization of property and equipment and intangible assets | 5,385 | 5,908 | ||||||
| 91,178 | 74,309 | |||||||
| The following sets out the components of employee benefits expense: | ||||||||
| Salaries and employee benefits | 11,805 | 11,604 | ||||||
| Share-based compensation | 374 | 1,194 | ||||||
| 12,179 | 12,798 | |||||||
| 103,357 | 87,107 | |||||||
| 13 | Financial instruments |
Financial instruments recorded at fair value on the consolidated balance sheet are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The value hierarchy has the following levels:
| Level 1 - | Valuation based on quoted prices observed in active markets for identical assets and liabilities. |
| Level 2 - | Valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are observable for that instrument, and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| Level 3 - | Valuation techniques with significant unobservable market inputs. |
A financial instrument is classified to the lowest of the hierarchy for which a significant input has been considered in measuring fair value.
Fair value estimates are made at a specific point in time based on relevant market information. These are estimates and involve uncertainties and matters of significant judgment and cannot be determined with precision. Changes in assumptions and estimates could significantly affect fair values.
| (12) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
Financial assets and liabilities measured at fair value
| As at | ||||||||||||
| September 30, 2018 | June 30, 2018 | |||||||||||
Fair value hierarchy | Fair value(1) | Fair value hierarchy | Fair value(1) | |||||||||
| Embedded Derivatives(2) | Level 2 | (7,140 | ) | Level 2 | (11,940 | ) | ||||||
| Foreign currency forwards(3) | Level 2 | (4 | ) | Level 2 | (61 | ) | ||||||
(1) The Company values its derivatives using valuations that are calibrated to the initial trade prices. Subsequent valuations are based on observable inputs to the valuation model.
(2) The fair value of embedded derivatives are estimated using valuation models.
(3) The fair value of foreign currency contracts is determined using prevailing exchange rates.
Financial assets and liabilities not measured at fair value
The carrying amount of all financial instruments presented in the unaudited interim condensed consolidated financial statements approximate their fair values, except for the Senior Unsecured Convertible Debentures as follows:
| As at | ||||||||||||||||||||
| September 30, 2018 | June 30, 2018 | |||||||||||||||||||
Fair value hierarchy | Fair value liability | Carrying value | Fair value hierarchy | Fair value liability | Carrying value | |||||||||||||||
| Senior Unsecured Convertible Debentures(1) | Level 1 | 117,600 | 126,101 | Level 1 | 123,200 | 130,355 | ||||||||||||||
(1) The fair value of the convertible debentures is based on market quotes as these are actively traded on the open exchange.
| 14 | Commitments and contingencies |
Commitments
The Company has entered into various operating leases for operating premises and equipment. The future aggregate minimum payments are as follows:
| $ | ||||
| Year ended June 30, 2019 | 7,168 | |||
| 2020 | 8,377 | |||
| 2021 | 6,969 | |||
| 2022 | 6,318 | |||
| Beyond 2022 | 23,785 | |||
The Company has entered into various contracts to buy broadcast rights with future commitments totaling $13,489.
| (13) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
Contingencies
The Company is, from time-to-time, involved in various claims, legal proceedings and complaints arising in the normal course of business and as such, provisions have been recorded where appropriate. Management does not believe that the final determination of these claims will have a material adverse effect on the financial position or results of operations of the Company.
| 15 | Capital disclosures |
The Company’s objectives when managing capital are to provide an adequate return to shareholders, safeguard its assets, maintain a competitive cost structure and continue as a going concern in order to pursue the development, production, distribution and licensing of its film and television properties and broadcast operations. During the three months ended September 30, 2018, the Company did not declare a dividend (September 30, 2017 - $2,681). The balance of the Company’s cash is being used to maximize ongoing development and reduce leverage.
The Company’s capital at September 30, 2018 and June 30, 2018 is summarized in the table below:
| September 30, 2018 | June 30, 2018 | |||||||
| $ | $ | |||||||
| Total bank indebtedness, long-term debt and obligations under capital leases, excluding interim production financing | 549,211 | 772,920 | ||||||
| Less: Cash | (46,286 | ) | (46,550 | ) | ||||
| Net debt | 502,925 | 726,370 | ||||||
| Total Shareholders’ Equity | 596,043 | 400,792 | ||||||
| 1,098,968 | 1,127,162 | |||||||
To facilitate the management of its capital structure, the Company prepares annual expenditure operating budgets that are updated as necessary depending on various factors including industry conditions and operating cash flow. These budgets are regularly reviewed by the Board of Directors.
| 16 | Earnings per common share |
| a) | Basic |
Basic earnings per share is calculated by dividing the net income (loss) attributable to shareholders of the Company by the weighted average number of common shares outstanding during the period.
| Three months ended | ||||||||
| September 30, 2018 | September 30, 2017 | |||||||
| $ | $ | |||||||
| Net (loss) income attributable to shareholders of the Company | (2,350 | ) | 8,148 | |||||
| Weighted average number of common shares (in 000's) | 134,463 | 134,407 | ||||||
| Basic (loss) earnings per share | (0.02 | ) | 0.06 | |||||
| (14) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
| b) | Diluted |
Diluted earnings per share reflect the potential dilutive effect that could occur if additional common shares were assumed to be issued under securities or instruments that may entitle their holders to obtain common shares in the future. Dilution could occur through the exercise of stock options, the exercise of PSUs, or the exercise of the conversion option of the convertible debentures. The number of additional shares for inclusion in the diluted earnings per share calculation was determined using the treasury stock method.
For the three month period ended September 30, 2018, the diluted weighted average number of common shares outstanding is the same as the basic weighted average number of common shares outstanding, as the Company had a net loss for the period and the exercise of any potentially dilutive instruments would be anti-dilutive.
For the three month period ended September 30, 2018, the weighted average number of potentially dilutive instruments, comprised of shares issuable in respect of stock options and PSUs was 790,189.
| Three months ended | ||||||||
| September 30, 2018 | September 30, 2017 | |||||||
| $ | $ | |||||||
| Net (loss) income attributable to shareholders of the Company | (2,350 | ) | 8,148 | |||||
| Weighted average number of common shares (in 000's) | 134,463 | 135,197 | ||||||
| Diluted (loss) earnings per share | (0.02 | ) | 0.06 | |||||
| (15) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
| 17 | Statement of cash flows - supplementary information |
Net change in non-cash balances related to operations
| September 30, | September 30, | |||||||
| 2018 | 2017 | |||||||
| $ | $ | |||||||
| Decrease (increase) in amounts receivable | 3,965 | 21,376 | ||||||
| Decrease (increase) in prepaid expenses and other | 967 | (190 | ) | |||||
| Decrease (increase) in long-term amounts receivable | 896 | 2,533 | ||||||
| Increase (decrease) in accounts payable and accrued liabilities | (10,198 | ) | (33,038 | ) | ||||
| Increase (decrease) in deferred revenue | (12,090 | ) | (9,696 | ) | ||||
| Tangible benefit obligation payments | (311 | ) | (663 | ) | ||||
| (16,771 | ) | (19,678 | ) | |||||
During the period, the Company paid and received the following:
| September 30, | September 30, | |||||||
| 2018 | 2017 | |||||||
| $ | $ | |||||||
| Interest paid | 13,343 | 10,067 | ||||||
| Interest received | 43 | 88 | ||||||
| Taxes paid | 1,325 | 2,794 | ||||||
Net change in film and television programs
| September 30, | September 30, | |||||||
| 2018 | 2017 | |||||||
| $ | $ | |||||||
| Decrease (increase) in development | (28 | ) | (426 | ) | ||||
| Decrease (increase) in productions in progress | (5,899 | ) | 264 | |||||
| Decrease (increase) in productions completed and released | (2,151 | ) | (3,648 | ) | ||||
| Expense of film and television programs | 3,104 | 4,954 | ||||||
| Decrease (increase) in program and film rights - broadcasting | (1,900 | ) | (8,984 | ) | ||||
| Expense of film and broadcast rights for broadcasting | 3,821 | 5,460 | ||||||
| (3,053 | ) | (2,380 | ) | |||||
| (16) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
Reconciliation between the opening and closing balances on the consolidated balance sheet arising from financing activities
| Senior | ||||||||||||||||
| Unsecured | ||||||||||||||||
| Term | Convertible | Finance | ||||||||||||||
| Facility | Debentures | leases | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Balance - June 30, 2018 | 623,066 | 124,747 | 8,757 | 756,570 | ||||||||||||
| Repayments | (212,437 | ) | — | (1,414 | ) | (213,851 | ) | |||||||||
| Total financing cash flow activities | (212,437 | ) | — | (1,414 | ) | (213,851 | ) | |||||||||
| Amortization of deferred financing costs | 713 | 225 | — | 938 | ||||||||||||
| Write-down of term facility unamortized issue costs | 7,320 | — | — | 7,320 | ||||||||||||
| New finance leases | — | — | 301 | 301 | ||||||||||||
| Change in fair value of embedded derivatives | — | (4,800 | ) | — | (4,800 | ) | ||||||||||
| Accretion on Senior Unsecured Convertible Debentures | — | 566 | — | 566 | ||||||||||||
| Unrealized foreign exchange gain | (7,333 | ) | — | — | (7,333 | ) | ||||||||||
| Total financing non-cash activities | 700 | (4,009 | ) | 301 | (3,008 | ) | ||||||||||
| Balance - September 30, 2018 | 411,329 | 120,738 | 7,644 | 539,711 | ||||||||||||
| Senior | ||||||||||||||||||||
| Term | Special | Unsecured | Finance | |||||||||||||||||
| Facility | Warrants | Notes | leases | Total | ||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Balance - June 30, 2017 | 616,339 | 133,751 | 225,000 | 8,245 | 983,335 | |||||||||||||||
| Repayments | (1,605 | ) | — | (225,000 | ) | (1,165 | ) | (227,770 | ) | |||||||||||
| Total financing cash flow activities | (1,605 | ) | — | (225,000 | ) | (1,165 | ) | (227,770 | ) | |||||||||||
| Amortization of deferred financing costs | 928 | 307 | — | — | 1,235 | |||||||||||||||
| New finance leases | — | — | — | 398 | 398 | |||||||||||||||
| Unrealized foreign exchange gain | (24,540 | ) | — | — | — | (24,540 | ) | |||||||||||||
| Total financing non-cash activities | (23,612 | ) | 307 | — | 398 | (22,907 | ) | |||||||||||||
| Balance - September 30, 2017 | 591,122 | 134,058 | — | 7,478 | 732,658 | |||||||||||||||
| (17) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
| 18 | Revenues and segmented information |
The Company operates production entities and offices throughout Canada, the United States and Europe. In evaluating performance, the Chief Operating Decision Maker ("CODM") does not distinguish or group its production, distribution and merchandising operations ("Content Business") on a geographic basis. The Company has determined that it has three reportable segments being the Content Business, CPLG, which manages copyrights, licensing and brands for third parties and DHX Television.
| Three months ended September 30, 2018 | ||||||||||||||||
| CPLG | DHX Television | Content | Consolidated | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Revenues | 2,578 | 13,277 | 88,183 | 104,038 | ||||||||||||
| Direct production costs and expense of film and television produced, and selling, general and administrative | 3,210 | 7,135 | 66,958 | 77,303 | ||||||||||||
| Segment profit (loss) | (632 | ) | 6,142 | 21,225 | 26,735 | |||||||||||
| Corporate selling, general and administrative | 3,168 | |||||||||||||||
| Amortization of property and equipment and intangible assets | 5,385 | |||||||||||||||
| Finance costs | 19,273 | |||||||||||||||
| Foreign exchange gain | (2,434 | ) | ||||||||||||||
| Change in fair value of embedded derivative | (4,800 | ) | ||||||||||||||
| Amortization of acquired and library content | 3,574 | |||||||||||||||
| Development, integration and other | 1,888 | |||||||||||||||
| Income before income taxes | 681 | |||||||||||||||
| Three months ended September 30, 2017 | ||||||||||||||||
| CPLG | DHX Television | Content | Consolidated | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Revenues | 5,014 | 14,087 | 79,520 | 98,621 | ||||||||||||
| Direct production costs and expense of film and television produced, and selling, general and administrative | 2,811 | 8,369 | 59,748 | 70,928 | ||||||||||||
| Segment profit | 2,203 | 5,718 | 19,772 | 27,693 | ||||||||||||
| Corporate selling, general and administrative | 4,548 | |||||||||||||||
| Amortization of property and equipment and intangible assets | 5,908 | |||||||||||||||
| Finance costs | 11,520 | |||||||||||||||
| Foreign exchange gain | (11,281 | ) | ||||||||||||||
| Amortization of acquired and library content | 3,899 | |||||||||||||||
| Development, integration and other | 1,585 | |||||||||||||||
| Income before income taxes | 11,514 | |||||||||||||||
As at September 30, 2018, $33,224, and $206,603 of goodwill was allocated to, DHX Television and Content Business, respectively (June 30, 2018 - $33,224, and $207,582, respectively).
| (18) |
DHX Media Ltd.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the period ended September 30, 2018
(expressed in thousands of Canadian dollars unless otherwise noted, except for amounts per share)
The following table presents further components of revenue derived from the following areas:
| September 30, 2018 | September 30, 2017 | |||||||
| $ | $ | |||||||
| Content | ||||||||
| Production revenue | 508 | 2,520 | ||||||
| Distribution revenue | 24,973 | 23,157 | ||||||
| Merchandising and licensing and other revenue | 40,687 | 36,205 | ||||||
| Producer and service fee revenue | 22,015 | 17,638 | ||||||
| 88,183 | 79,520 | |||||||
| DHX Television | ||||||||
| Subscriber revenue | 12,333 | 13,079 | ||||||
| Promotion and advertising revenue | 944 | 1,008 | ||||||
| 13,277 | 14,087 | |||||||
| CPLG | ||||||||
| Third party brand representation revenue | 2,578 | 5,014 | ||||||
| 104,038 | 98,621 | |||||||
| (19) |