Effective: April 1, 2001
Responsibility: Vice-President and Chief Financial Officer
Accounting practices and procedures required for the Toronto Broadcasting Centre will be in accordance with existing policies and generally accepted accounting principles. However, certain aspects of the undertaking demand variations from existing policies. These variations are noted below in Appendix A and override the existing policies when accounting for the Toronto Broadcasting Centre.
- This policy was updated November 2003
- This policy replaced Corporate Finance and Administration Policy 703.20 "Broadcast Centre Development Project" Toronto
All questions pertaining to the interpretation and application of this policy should be referred to the Director, Policy and Internal Control.
DEPARTMENT RESPONSIBLE TO UPDATE THIS WEBPAGE
Specific accounting treatment for the Toronto Broadcast Centre
- Costs normally funded from the Corporation’s Operating Appropriation.
- The relocation to the Broadcasting Centre and the ensuing modernization of operations have provided future long-term economic benefits to the Corporation so that certain costs inherent in the relocation, which would normally be funded from the operating appropriation, were funded from the capital appropriation.
- Because the duration of these benefits could not be reasonably determined, these capitalized values have been amortized 100% in the year they were incurred.
- Examples of costs that were treated this way are moving, training, pre-opening staffing, production planning and early access costs.
- Capital Lease Valuation.
- CBC/Radio-Canada took possession of the Broadcasting Centre on July 10, 1992 at which time a Capital Lease asset was recorded in the books of account for $ 500.3 million. This was made up of $ 476.3 million financed through the developer and $ 24.0 million of CBC/Radio-Canada capital expenditures relating to the building.
- Additional expenditures recorded after July 10, 1992 increased the total Capital Lease to $ 511.4 million, made up of $ 479.5 million financed through the developer and $ 31.9 million of CBC/Radio-Canada capital expenditures.
- The $ 31.9 million has been funded from the annual capital appropriations as the expenditures occurred. The $ 479.5 million financed through the developer will be funded from annual capital appropriations as the debt is repaid, in accordance with CBC/Radio-Canada Policy 2.3.3 Capital Leases.
- Capital Lease Obligation.
- CBC/Radio-Canada took possession of the Broadcasting Centre on July 10, 1992 at which time a Capital Lease Obligation was recorded in the books of account for $ 476.3 million, being the amount of the Capital Lease asset that was financed through the developer.
- Between July 10, 1992 and January 30, 1997 when permanent financing was established, the Capital Lease Obligation was reduced to $ 400.0 million made up of $ 384.4 million of costs financed through the developer and $ 15.6 million of accumulated interest and executory costs incurred during the interim financing period.
- Effective January 30, 1997 permanent financing of the Broadcasting Center was established through the issue of a $ 400.0 million 7.53% Secured Bond offering by the Broadcast Centre Trust.
- This offering calls for 61 semi-annual payments of $ 16.5 million each, covering principal and interest, starting on May 1, 1997 with the final payment on May 1, 2027. See Amortization Schedule on Appendix C.
- The principal portion of these payments will be recorded in the books of account in accordance with the Amortization Schedule with the $ 15.6 million interest portion of the obligation being liquidated first.
- Since the interest portion of the obligation was created through budgetary charges to the Operating Appropriation, there will be no charge to the Capital Appropriation until the interest portion of the debt is liquidated.
- These semi-annual payments, to be made by the Broadcast Centre Trust, are secured by the payments to be made by the CBC/Radio-Canada to the Broadcast Centre Trust under the building lease entered into between the parties. CBC/Radio-Canada is required to pay the $ 16.5 million semi-annual lease payments to the Broadcast Centre Trust 15 days before the May 1 and November 1 due dates.
- Interest Costs
- During the “rent free period” from July 10, 1992 to March 31, 1993 the interest on the Capital Lease Obligation amounted to $ 21.7 million. This interest was added to the Capital Lease Obligation and was charged as a budgetary cost against the Operating Appropriation for the fiscal year ended March 31, 1993.
- During the interim financing period from April 1, 1993 to January 30, 1997 the interest on the Capital Lease Obligation was charged as a budgetary cost against the Operating Appropriation in each fiscal year.
- At January 30, 1997 the unpaid balance of interest charged during the “rent free” and the “interim financing” periods was included in the $ 400.0 million Capital Lease Obligation.
- From January 31, 1997 interest expense is to be recorded in the books of account in accordance with the Amortization Schedule and at March 31 of each year the unpaid interest at that time is to be accrued.
- Since the semi-annual payments of $ 16.5 million are considered “lease” payments by CBC/Radio-Canada, the total of each of these payments will be charged as a budgetary cost against the Operating Appropriation until such time that a portion of the payment is to be applied against the Capital Appropriation, as specified in section 3 f) above.
- Therefore, in the books of account, the budgetary interest expense cost element will reflect the total semi-annual payments in accordance with Section 4 e) and the non-budgetary expense cost element will reflect the difference between this amount and the actual interest determined in accordance with Section 4 d). The result being that total interest expense (budgetary and non-budgetary) for financial statement purposes will be in accordance with GAAP.
A synopsis of significant events in the evolution of the project to construct the Broadcasting Centre.
- On October 13, 1978 the Corporation acquired a 9.3-acre property (the site) located in downtown Toronto from the Canadian National Railway.
- In September 1988, with Governor in Council approval, the Corporation signed a project agreement with Cadillac Fairview Corporation Limited (Cadillac). The major aspects of this agreement are:
- Cadillac to construct the Broadcasting Centre on the site.
- Cadillac to develop the remainder of the site with commercial, retail and residential properties and a hotel.
- The Corporation to grant a ground lease to Cadillac to provide them with access to the site to construct the Broadcasting Centre.
- The Corporation to grant leases to Cadillac for the portion of the site not occupied by the Broadcasting Centre to provide them with access to develop the balance of the site. The term of these leases is from October 1, 1988 to September 30, 2087 and the annual rent is based on the stages of development of each of the properties.
- The Corporation to sell or lease the Air Rights associated with the residential / hotel component.
- The Corporation to lease the Broadcasting Centre and the portion of the site it occupies from Cadillac.
- In August 1991, the Corporation executed a lease with Cadillac for the Broadcasting Centre and the portion of the site it occupies. Key aspects of this lease agreement are:
- The term of the lease is to August 30, 2038, or upon repayment of the permanent financing, at which time title to the Broadcasting Centre will be transferred to the Corporation. Therefore it is a Capital Lease.
- The Corporation does have the option, with 90 days notice to Cadillac, to acquire ownership of the Broadcasting Centre upon payment of the greater of one dollar or the balance of Cadillac’s outstanding obligations under the agreement.
- The determination of the rent to be paid by the Corporation to Cadillac will be based on the annual payments that Cadillac is required to make on the financing for the Broadcasting Centre construction.
- There is a rent-free period of up to15 months from date of substantial completion of the Broadcasting Centre. No lease payments are required during this period but interest on the obligation will continue to accrue. The rent-free period has no impact on the Corporation’s capital budget.
- On July 9, 1992 the Broadcasting Center was substantially complete and the Corporation took occupancy. The rent-free period contained in the lease agreement started on July 10, 1992 and was in effect until March 31, 1993.
- The Capital Lease and related Obligations were recorded in the Corporation’s books of account in July 1992.
- Between April 1, 1993 and March 31, 1997, the Corporation made lease payments to Cadillac in accordance with the lease agreement.
- In June 1995 Broadcast Centre BCT Inc. was incorporated under the Business Corporations Act (Ontario) for the sole purpose of acting as trustee of the Broadcast Centre Trust. The Broadcast Centre Trust was settled as a special purpose trust in July 1995 for the following purposes:
- To act as ground tenant under the land lease from the Corporation and as landlord and owner of the Broadcasting Centre.
- To assume the limited recourse interim financing incurred in the design, development and construction of the Broadcasting Centre and to facilitate permanent financing.
- In January 1997 the Broadcast Centre Trust issued $ 400,000,000 of 7.53% Secured Bonds maturing May 1, 2027. The purpose of this issue was to address the permanent financing requirement noted in 7 b) and the proceeds from the issue were used to repay in full the Broadcast Centre Trust’s interim indebtedness in relation to the development of the site.
- Under the Building Lease agreement, the Corporation is obliged to pay the Broadcast Centre Trust for the semi-annual payments of interest and principal as identified in the Offering Memorandum, plus executory costs.