Mayor seems confused about CityWest dividends

[BTravenn]

The Mayor appears to be confused when he says that CityWest management, not the council, decides whether dividends will be paid to the City, as reported in the Northern View’s print edition yesterday.

Under the page 2 header “No recourse for the City” he is quoted as saying: “City West is a separate legal entity with its own board of directors and own management. The City of Prince Rupert can request a dividend, but really it’s up to the management and board of directors whether or not City West uses that money for other things or whether they allow a dividend”.

By the Mayor’s interpretation, when CityWest decides not to pay a dividend the council’s hands are tied and other measures like cut-backs, layoffs and tax increases have to be considered in order to balance the budget.

The Mayor expresses optimism that the City will see dividends in “two or three years”. That seems like a long time to wait considering that Citywest failed to pay dividends in 2010 and 2011 (a dividend was apparently paid last year but the amount has not been reported). Notwithstanding the Mayor’s ‘optimism’ the implication is that the City’s finances are likely to get worse before they get better.

During the public question period at the last council meeting, when these issues were discussed, things got a bit testy. The Mayor admonished acting chair Ashley that if one citizen could not ask questions more to his liking she should “kick him off the mic”. That kind of comment does not encourage public participation, as another citizen later observed < thenorthernview.com/news/205789281.html >.

In answer to concerns about lack of transparency, CityWest CFO Chris Marett is reported as saying that the company provides the City with an audited financial statement and at least one annual presentation to the council.

However, that overlooks that section 11.3 of CityWest’s articles of incorporation requires that the audited statement be presented “at an open meeting of the municipal council”, a requirement that has not been met.

As for the Mayor’s contentions about how dividends are approved, under section 21.2 of CityWest’s articles the company may “from time to time declare and authorize payment of such dividends that, pursuant to section 137 of the Business Corporations Act, the shareholders may determine by an ordinary resolution.”

Section 137 allows powers that would otherwise be exercised by the board to be transferred to other persons, in this case the shareholders, which is the City as represented by its’ elected council.

The Mayor’s assertion that the council can only “request” dividends also does not square with resolutions reported in the council minutes:

“9. RESOLUTIONS FROM CLOSED MEETINGS. Council passed a resolution directing CityWest Cable and Telephone Corporation to declare and authorize payment of a dividend in the amount of $1,000,000 for 2011.” (April 26, 2011 minutes) < princerupert.ca/images/edito … inutes.pdf >.

The words “declare and authorize” also appear in article 21.2. At a later meeting a clarification was made as to when the dividend would be payable:

“9. RESOLUTIONS FROM CLOSED MEETINGS. That Council release to the Regular Meeting on May 24, 2011 that Council as the Shareholder of CityWest Cable & Telephone Corporation declares a $1 million dividend payable by June 10,2011.” (May 24, 2011 minutes, as reported in June 6, 2011 agenda package) < princerupert.ca/images/edito … Agenda.pdf >.

In 2011 CityWest repaid interest-free debt rather than paying a dividend. That suggests that either subsequent decisions were made that the council did not report, or that the CityWest board did not act on the council’s shareholder resolution to declare a dividend. The latter possibility raises questions about the relationship between the council and the board that it appoints.

North Coast Review comments that at a time when the council is making difficult budgetary decisions that will likely result in City employees being laid off, those local workers “might wonder aloud, just how CityWest can deny the City it’s anticipated dividend, while at the same time hiring on staff for their Terrace and Kitimat operations.” < northcoastreview.blogspot.ca/201 … ry-to.html >.

Laying off City workers while CityWest hires managers in Terrace-Kitimat should not sit well with the Mayor and council either. For all of the talk over the years about CityWest providing jobs it would be ironic to say the least if those jobs come at the expense of local City jobs delivering essential services.

There are also, of course, valid concerns about reductions in service levels and increases in property taxes.

Citywest may not have much cash these days as a result of capital expenditures and funding commitments for staff increases elsewhere. However, should that be accepted as just the way things are, as if the Mayor and council cannot do anything about it?

Perhaps the council should consider declaring a dividend, as CityWest’s articles empower them to do and as they have done on previous occasions, but this time ensure that the dividend is paid, even if it is not very much money. When times are tough, anything is better than nothing, and CityWest should pay something.

(CityWest’s articles, as approved by the council, can be found in the October 22, 2009 agenda package, starting at page 28 < princerupert.ca/images/edito … Agenda.pdf >.)

[Dex]

Good work BTravenn. Thanks! When I consider Jack’s experience portfolio:

• The current Chief Executive Officer of the City of Prince Rupert and was instrumental in the creation of City West’s articles,

• “His experience in local government totals 27 years, including 19 years at the executive management level. His combined experience involves 5 local governments and various committees, boards and societies, including the Board of Trustees of the Municipal Finance Authority of British Columbia, the Board of Directors of the Western Transportation Advisory Council (WESTAC), the Coastal Community Network and Skeena Queen Charlotte Regional District.” -quote from City’s web site

I have difficulties accepting the idea he was totally unaware of the City’s powers to demand a dividend from City West. Also in considering the fact that the City has demanded dividends from City West in the past, I would find it reasonable to conclude, short of a misquote, that the Mayor’s motivation for his comment was to misdirect the audience. Is there a possibility this was a misquote?

[hitest]

Good work, BTravenn:)

[Jabber63]

but would any of those articles by in contravention of the CRTC’s ruling that Citywest must be independent of the City? do those articles of corporation conflict with that ruling?

[MiG]

Let me repeat this:

Citywest will start acting like a real company when Prince Rupert starts acting like a real owner.

Until then, Citywest does what it wants. Who is going to challenge them? Council? The Mayor?

Nah… Just use the reality distortion field on them. “Citywest is self funded!”

[Dex]

@Jabber63

but would any of those articles by in contravention of the CRTC’s ruling that Citywest must be independent of the City? do those articles of corporation conflict with that ruling?

I am not sure of the CRTC ruling you are referring to. Can you provide a link? If I were to make a summary guess in my sleep deprived state…Considering the specific articles we are referencing here also exist in corporations with private shareholders it would be interesting to see a ruling which would rule out these articles without affecting several other articles; which would significantly change the fundamental relationship with the municipality and the corporation. Something I would expect council to inform the city of immediately and make a special resolution amending the articles to conform to the CRTC ruling; lest they loose their license. only guessing here

[BTravenn]

@Jabber63

but would any of those articles by in contravention of the CRTC’s ruling that Citywest must be independent of the City? do those articles of corporation conflict with that ruling?

There’s no such CRTC ruling (their orders and decisions are readily accessible online for review). The CRTC deals with tariffs, the subsidy resulting from CityWest’s declining landline customer base, CityWest’s apparent inability to implement number portability, and not much else.

CityWest and the City are independent legal entities. There is no doubt about that. The connection between them is that the City is the shareholder (the City is also a lender, but that is a separate relationship).

The Mayor would have us believe that there is nothing that he and the council can do if CityWest’s board decides not to pay a dividend, other than be “optimstist going forward” and say that “hopefully” there will be a dividend in two or three years. In other words, he is not responsible.

What the Mayor skips over is that as the shareholder the City has rights under the company’s articles, including to appoint the board, receive an audited financial statement at a public meeting, and under article 21.2 the right to declare and authorize dividends. None of that changed when the council approved new articles in 2009.

There is a strange doublespeak around CityWest that is captured by the headlines of the Northern View article. On page 1 we are reassured “CityWest will pay out: Mayor”, while on page 2 that is qualified by “No recourse by the City”. The Mayor is all-knowing, but powerless.

When it suits certain purposes, CityWest and the City are one and the same. No one but the City would give CityWest $21.7 million in interest-free loans or forgive $20 million in debt, which flys in the face of assertions by CityWest that it is “a completely self-sufficient company”. When it suits other purposes they are separate and there is nothing that the Mayor and council can do if citizens are unhappy about tax increases, service reductions and anticipated lay-offs of City workers.

The reality of the relationship, though, is to be found in CityWest’s articles of incorporation as posted on the City website. The Northern View reports, “Mussallem said the City cannot force CityWest to pay a dividend”. That is quite simply untrue.

[Dex]

@BTravenn

When it suits certain purposes, CityWest and the City are one and the same. No one but the City would give CityWest $21.7 million in interest-free loans or forgive $20 million in debt, which flys in the face of assertions by CityWest that it is “a completely self-sufficient company”. When it suits other purposes they are separate and there is nothing that the Mayor and council can do if citizens are unhappy about tax increases, service reductions and anticipated lay-offs of City workers.

You do now where this money that the City/Sole shareholder is lending and forgiving came from ?

[BTravenn]

[quote=“Dex”]

@BTravenn

When it suits certain purposes, CityWest and the City are one and the same. No one but the City would give CityWest $21.7 million in interest-free loans or forgive $20 million in debt, which flys in the face of assertions by CityWest that it is “a completely self-sufficient company”. When it suits other purposes they are separate and there is nothing that the Mayor and council can do if citizens are unhappy about tax increases, service reductions and anticipated lay-offs of City workers.

You do now where this money that the City/Sole shareholder is lending and forgiving came from ?[/quote]

That was the accumulated value of City Tel’s assets after decades of reinvesting earnings in the business to acquire and maintain physical assets. Those assets were worth about $44 million in 2006. They were ‘sold’ to CityWest and ‘paid for’ with an interest-free loan from the City. The deal was vendor-financed.

CityWest also borrowed money at arms length to finance the purchase of Monarch cable, with interest being payable. However, that should not obscure that purchasing City Tel’s assets with an interest-free loan from the City (and apparently no clear repayment terms) provides CityWest with a significant commercial advantage.

If CityWest paid interest on its’ debt to the City it would be less able to compete (or try to compete) against the private sector, including in Terrace-Kitimat. For instance, if CityWest paid prime + 1 (which is a good rate) on $21.7 million in debt it would be paying the City about $870,000 a year in interest. That leaves asides the $20 million loan that was forgiven.

CityWest is not subsidized by the City writing cheques to the company. It is subsidized by the City providing a substantial interest-free loan and writing off debt.

The alternative for the City would have been to sell City Tel for cash and invest the proceeds in an endowment fund that earns a return, as Edmonton did when it sold Ed Tel to Telus in 1995.

[Dex]

Wait!!! Since the City is the sole owner/shareholder of City West, this means we are really only lending money to ourselves with money we got by selling to ourselves.

Could you ever see a circumstance where having $20,000 in a %5 interest savings account would be better utilized by renovating your house, potentially building it’s value up another $30,000? Especially if you always wanted the option to sell on the table and/or needed more equity for financing? You wouldn’t be getting an interest cheque every month but your net value would increase. Bill Gates was the richest man in the world from owning shares in Microsoft, a corporation which never paid him a dividend or loan payment.

The $20 million dollars was likely (speculating) better utilized by increasing the equity in the shareholder’s (our) company Citywest than collecting interest for the shareholder. We didn’t really lose 20 million dollars, we invested it in a business we own. Revaluation of Citywest. This was likely done for market growth and expansion and we certainly have seen this with Citywest. I cannot fully judge the performance of this manoeuvre, as I have not audited Citywest, but I can say I have seen growth and impressive results from Citywest; excluding wireless.

Can you say with authority that the shareholder’s $20 million revaluation and interest reduction for its company has not resulted in a net benefit to the shareholder?

I have intentionally over-simplified the ideas here for an expanded audience. I am trying to express that the 20 million revaluation and lowered interest loans were not necessarily a loss to the shareholder/city. This post is limited to that concept, so consider when responding.

[chookie]

[quote=“Dex”]Wait!!! Since the City is the sole owner/shareholder of City West, this means we are really only lending money to ourselves with money we got by selling to ourselves.

Could you ever see a circumstance where having $20,000 in a %5 interest savings account would be better utilized by renovating your house, potentially building it’s value up another $30,000? Especially if you always wanted the option to sell on the table and/or needed more equity for financing? You wouldn’t be getting an interest cheque every month but your net value would increase. Bill Gates was the richest man in the world from owning shares in Microsoft, a corporation which never paid him a dividend or loan payment.

The $20 million dollars was likely (speculating) better utilized by increasing the equity in the shareholder’s (our) company Citywest than collecting interest for the shareholder. We didn’t really lose 20 million dollars, we invested it in a business we own. Revaluation of Citywest. This was likely done for market growth and expansion and we certainly have seen this with Citywest. I cannot fully judge the performance of this manoeuvre, as I have not audited Citywest, but I can say I have seen growth and impressive results from Citywest; excluding wireless.

Can you say with authority that the shareholder’s $20 million revaluation and interest reduction for its company has not resulted in a net benefit to the shareholder?

I have intentionally over-simplified the ideas here for an expanded audience. I am trying to express that the 20 million revaluation and lowered interest loans were not necessarily a loss to the shareholder/city. This post is limited to that concept, so consider when responding. [/quote]

“ It is difficult to get a man to understand something when his salary depends on not understanding it” (Upton Sinclair).

[MiG]

@Dex

Wait!!! Since the City is the sole owner/shareholder of City West, this means we are really only lending money to ourselves with money we got by selling to ourselves.

Hold on a second. The City/Citywest BOUGHT Monarch Cable. Not from ourselves. Who paid for that?

[quote]Can you say with authority that the shareholder’s $20 million revaluation and interest reduction for its company has not resulted in a net benefit to the shareholder?
[/quote]

Yes. No more dividends, apparently. And has already been pointed out, putting the cost of buying Monarch Cable in the bank and just getting interest would have been more than what the City has received from Citywest.

Sounds like someone at Citywest has been trying out their reality distortion field on you. It still works.

[BTravenn]

@Dex

Could you ever see a circumstance where having $20,000 in a %5 interest savings account would be better utilized by renovating your house, potentially building it’s value up another $30,000? Especially if you always wanted the option to sell on the table and/or needed more equity for financing? You wouldn’t be getting an interest cheque every month but your net value would increase. Bill Gates was the richest man in the world from owning shares in Microsoft, a corporation which never paid him a dividend or loan payment.

Unfortunately those analogies do not work because CityWest’s numbers have been heading the wrong way. In 2006 the auditor valued the City’s investment in Citywest at $46,379,323. By 2011 the value had declined to $28,036,763. (Those numbers come from the Consolidated Statement of Financial Position in the City’s annual financial statements.)

@Dex

The $20 million dollars was likely (speculating) better utilized by increasing the equity in the shareholder’s (our) company Citywest than collecting interest for the shareholder. We didn’t really lose 20 million dollars, we invested it in a business we own. Revaluation of Citywest. This was likely done for market growth and expansion and we certainly have seen this with Citywest. I cannot fully judge the performance of this manoeuvre, as I have not audited Citywest, but I can say I have seen growth and impressive results from Citywest; excluding wireless.

Can you say with authority that the shareholder’s $20 million revaluation and interest reduction for its company has not resulted in a net benefit to the shareholder?

Your theory about debt being forgiven to increase the value of shareholder equity does not work because CityWest did a corresponding write down of the value of its’ physical assets, largely to reflect decommissioning of the analog cell phone network. (Unfortunately CityWest no longer makes those details available to the public on its’ web site.)

Forgiving the loan was not a “maneuver” to increase value. That was done to reflect financial reality, which is that CityWest is worth less than it was in the past. The authority for this is the auditor’s statement in Note 6 of the 2008 financial statement: “The City has forgiven debt of $20,000,000 in the year to reflect current financial conditions.”

What this means is that if the company was sold its’ sales or breakup value would not have been sufficient to repay $20 million of the debt. That is what happens when the net value of an investment declines.

As for “growth and impressive results”, you can apply as much lipstick as you want but the underlying reality is that the value of the City’s investment in CityWest declined by almost 40% between 2006 and 2011.

[BTravenn]

[quote=“chookie”]
“ It is difficult to get a man to understand something when his salary depends on not understanding it” (Upton Sinclair).[/quote]

There is much wisdom in that quote. I think, though, that particularly for City workers facing lay-offs their salaries may depend on better understanding the costs of the City having so much money tied up in an investment in CityWest that has been declining in value and is no longer paying dividends.

[MiG]

The City/Citywest bought Monarch Cable in 2005 for 23.5 million dollars. There was no public consultation, and the taxpayers were told there wasn’t time to consult, and Prince Rupert’s communication company had no effective way to consult on the purchase.

In 2013 dollars, that’s about $27-28 million, depending on which inflation averages used.

After buying Monarch for 23.5 million, the company was valued at the above-mentioned 46 million. Which means that their existing Prince Rupert based business (wireless, landlines, and DSL internet) was worth around 22-23 million back in 2005-2006. Rough numbers.

Fast forward to 2013, and now we’re told that the company is now worth 28 million.

In other words, it’s now worth exactly the same as it was before the City shelled out 23.5 million to buy Monarch. How’s that for taxpayer and shareholder value?

And there are people who still, with a straight face, tell you that Citywest has been a good investment. In what world is throwing away 23 million dollars a good investment?

So yes, let the reality distortion field keep doing its magic, and keep telling us up is down, black is white, and losing 23 million dollars (plus interest-free loans, and no dividends) is good for the City. Anyone who claims this is true is either lying to you, or has serious problems with dealing with reality.

Meanwhile, two serious questions:

1. Please correct me if my numbers are wrong. The City did pay $23.5 million in 2005 for Monarch, right?

2. How much would the City have made if it just put that money in the bank? Obviously, Prince Rupert would still have the original $23.5 million, but how much more in interest would it have?

[Dex]

@MiG

@Dex

Wait!!! Since the City is the sole owner/shareholder of City West, this means we are really only lending money to ourselves

with money we got by selling to ourselves.

Hold on a second. The City/Citywest BOUGHT Monarch Cable. Not from ourselves. Who paid for that?

The loan to pay for Monarch Cable was/is the Citywest Group of Companies’ liability. They pay interest on that loan. The money that was used by the shareholder (City) to originally loan money interest free and also eventually “forgive” a loan to Citywest, for which the city is the sole shareholder, came from the sale of Citytel, which the city owned, to the Citywest Group of Companies who borrowed the money from the City (shareholder) to purchase. Isn’t this fun?

@MiG

[quote]Can you say with authority that the shareholder’s $20 million revaluation and interest reduction for its company has not resulted in a net benefit to the shareholder?

Yes. No more dividends, apparently.
[/quote]

Then how did Bill Gates become the richest man in the world when his company, Microsoft, was not paying him dividends?

[quote=“MiG”]
And has already been pointed out, putting the cost of buying Monarch Cable in the bank and just getting interest would have been more than what the City has received from Citywest.

Sounds like someone at Citywest has been trying out their reality distortion field on you. It still works.[/quote]

To my knowledge I have met only one employee from Citywest and the only topic discussed was our hobby we have in common and the topic of Citywest never came up. If it is not obvious from the above statement I am also not an employee of Citywest. The only interest I have in Citywest is as a customer and a resident of Prince Rupert shareholder.

[Dex]

@BTravenn

@Dex

Could you ever see a circumstance where having $20,000 in a %5 interest savings account would be better utilized by renovating your house, potentially building it’s value up another $30,000? Especially if you always wanted the option to sell on the table and/or needed more equity for financing? You wouldn’t be getting an interest cheque every month but your net value would increase. Bill Gates was the richest man in the world from owning shares in Microsoft, a corporation which never paid him a dividend or loan payment.

Unfortunately those analogies do not work because CityWest’s numbers have been heading the wrong way. In 2006 the auditor valued the City’s investment in Citywest at $46,379,323. By 2011 the value had declined to $28,036,763. (Those numbers come from the Consolidated Statement of Financial Position in the City’s annual financial statements.)

Are you really judging the performance of a company from a Consolidated Statement of Financial Position, a simple balance sheet ?

@BTravenn

@Dex

The $20 million dollars was likely (speculating) better utilized by increasing the equity in the shareholder’s (our) company Citywest than collecting interest for the shareholder. We didn’t really lose 20 million dollars, we invested it in a business we own. Revaluation of Citywest. This was likely done for market growth and expansion and we certainly have seen this with Citywest. I cannot fully judge the performance of this manoeuvre, as I have not audited Citywest, but I can say I have seen growth and impressive results from Citywest; excluding wireless.

Can you say with authority that the shareholder’s $20 million revaluation and interest reduction for its company has not resulted in a net benefit to the shareholder?

Your theory about debt being forgiven to increase the value of shareholder equity does not work because CityWest did a corresponding write down of the value of its’ physical assets, largely to reflect decommissioning of the analog cell phone network. (Unfortunately CityWest no longer makes those details available to the public on its’ web site.)

Forgiving the loan was not a “maneuver” to increase value. That was done to reflect financial reality, which is that CityWest is worth less than it was in the past. The authority for this is the auditor’s statement in Note 6 of the 2008 financial statement: “The City has forgiven debt of $20,000,000 in the year to reflect current financial conditions.”

What this means is that if the company was sold its’ sales or breakup value would not have been sufficient to repay $20 million of the debt. That is what happens when the net value of an investment declines.

My intention was to be simplistic and not get into accounting principles with my example. My speculation as to the publicly stated reasons may or may not be in error but the result of the $20 million forgiveness is that Citywest was able to form partnerships and grow its business and further expand to other markets. It is very unlikely this would have been possible otherwise, don’t you agree?

[quote=“BTravenn”]
As for “growth and impressive results”, you can apply as much lipstick as you want but the underlying reality is that the value of the City’s investment in CityWest declined by almost 40% between 2006 and 2011.[/quote]

Citywest has expanded its operation laying a fibre optic backbone from Prince Rupert to Prince George (450 miles 722 kilometers). It has grown from a telephone company in 2005 to what is today Citywest GoC, expanding in other markets such as Kitimat, Terrace/Thornhill, Houston, Smithers/Telkwa, Stewart, and Hazelton. Upgraded its cable networks in local markets. Improved services such as 24/7 hour call support, Video on demand, more HD channels,fast unlimited internet. I am starting to sound like a Citywest salesman so I will stop here, but it would be disingenuous to say Citywest hasn’t seen significant growth and a future market potential.

One thing I am impressed with though, is your ability to judge the performance of a company from a simple balance sheet.

[Dex]

@Jabber63

but would any of those articles by in contravention of the CRTC’s ruling that Citywest must be independent of the City? do those articles of corporation conflict with that ruling?

Your suggestion inspired me to research this question and I found a letter dated 19 August 2005 from the CRTC to Prince Rupert City Telephone responding to an application to acquire Monarch Cable by Citywest Group of Companies. Thought it may interest you and maybe others. I believe it was October of that year Citywest acquired Monarch so they must have amended the rules. A link and a portion of the letter. crtc.gc.ca/eng/archive/2005/lb050819.htm

The Commission has received a letter from the Canadian Cable Telecommunications Association (CCTA), dated 16 August 2005, stating that the City West Group of Companies (City West), in which the City of Prince Rupert is the sole shareholder, had recently announced that it would purchase the assets of Monarch Cable, which operates six cable systems in British Columbia.

The CCTA argued that the ownership and operation of cable systems by City West would contravene the Direction to the CRTC (Ineligibility to Hold Broadcasting Licences), SOR/97-231, 22 April 1997 , which prohibits the issuance or renewal of broadcasting licences to municipal governments, amongst others.

Further, the CCTA noted that the Monarch cable systems in question are exempt from licensing and that a condition of this exemption is that these undertakings be eligible to hold a licence. In its view, since municipal governments are not eligible to hold a licence by virtue of the Direction described above, the cable systems in question would no longer be exempt from licensing if purchased by City West. Consequently, by purchasing and operating these undertakings, City West could be found to be carrying on a broadcasting undertaking without a licence, as set out in section 32 of the Broadcasting Act.

As you are aware, the Department of Canadian Heritage has issued an invitation to comment on proposed amendments to the government’s policy direction (Notice No. PRI-BPI-001-2005). The purpose of the proposed amendments is to make municipally­owned telecommunications carriers eligible to hold broadcasting licences. However, at the present time, the regulatory framework that would permit municipal governments or their agents to hold broadcasting licences is not in place. In fact, the Canadian Alliance of Publicly-owned Telephone Systems (CAPTS), of which Prince Rupert is a member, filed its comments on the proposed amendments on 25 July 2005 .

The CCTA requested that the Commission exercise its authority to examine this transaction and advise the City of Prince Rupert that approval will not be forthcoming unless and until the government’s policy direction to the CRTC is changed to allow it.

Please provide your comments with regard to the attached letter from the CCTA by no later than 26 August 2005 . At the same time, please provide your comments, with full supporting rationale, as to whether or not City West would be eligible to hold a broadcasting licence should the amendments proposed in Notice No. PRI-BPI-001-2005 ultimately be adopted.

[BTravenn]

@Dex

Then how did Bill Gates become the richest man in the world when his company, Microsoft, was not paying him dividends?

Gates became the richest man in the world (for a while; he’s been overtaken) by owning shares in a publically trading company whose shares substantially increased in value for several years.

The value of an equity investment can be reflected in the market value of the shares and/or the amount of dividends paid on those shares. A good investment can have high growth in share value but pay no dividends, or a static or low growth share value but pay good dividends, or provide an acceptable combinatinon of those forms of return.

CityWest paid good dividends from 2006 to 2009, but since then has not paid dividends other than $500,000 in 2012 (apparently; that has not been confirmed). It is not expected to pay dividends for at least “two or three years”, according to the Mayor. The shares are not publically trading, so the market value is uncertain; although a 40% decline in the value of the City’s total investment between 2006 and 2011 does not bode well.

For a lender, the value of an investment is measured by the amount of interest paid on the loan, a record of repaying principal through agreed periodic payments, or the likelihood of the remaining principal being repaid at the end of the term. CityWest pays no interest, has only made one principal repayment (in 2011), and $20 million in debt was forgiven because from an audit perspective there was no realistic prospect that it would ever be repaid.

Whichever way you slice it or dice it, CityWest has not been a good investment, either from an equity investor or a lender perspective, for a few years.

[quote=“Dex”]
Are you really judging the performance of a company from a Consolidated Statement of Financial Position, a simple balance sheet ?[/quote]

From the Consolidated Statements and the other components of the financial statements. That is what the statements are for. And that’s why municipal governments are legally required to audit and disclose their financial statements, so that the public is properly informed, among other things, about any investment activities by the elected council involving public funds.

If you don’t want to rely on financial statements, how do you base your decisions about whether elected officials are managing public funds properly?

[quote=“Dex”]
My intention was to be simplistic and not get into accounting principles with my example. My speculation as to the publicly stated reasons may or may not be in error but the result of the $20 million forgiveness is that Citywest was able to form partnerships and grow its business and further expand to other markets. It is very unlikely this would have been possible otherwise, don’t you agree?[/quote]

I have no basis for agreeing with that. There may have been more activity and market expansion, but that is not evidence that the value of the business grew. Again, the numbers go the other way. After the $20 million loan forgiveness the value of the City’s investment further declined, from $31,401,399 in 2008 to $28,036,763 in 2011.

[quote=“Dex”]
Citywest has expanded its operation laying a fibre optic backbone from Prince Rupert to Prince George (450 miles 722 kilometers). It has grown from a telephone company in 2005 to what is today Citywest GoC, expanding in other markets such as Kitimat, Terrace/Thornhill, Houston, Smithers/Telkwa, Stewart, and Hazelton. Upgraded its cable networks in local markets. Improved services such as 24/7 hour call support, Video on demand, more HD channels,fast unlimited internet. I am starting to sound like a Citywest salesman so I will stop here, but it would be disingenuous to say Citywest hasn’t seen significant growth and a future market potential.

One thing I am impressed with though, is your ability to judge the performance of a company from a simple balance sheet.[/quote]

Again, activity does not necessarily translate into ‘significant growth’ in the value of an investment and ‘future market potential’. There can be ‘a race to the bottom’ where businesses dig themselves into deeper holes.

We will have to see what happens. Public sector accounting rules require that the City’s 2012 audited financial statement (which should be provided in a few weeks) show the bare bones of CityWest’s financial performance.

For the present, things are not looking good. In 2006 the expectation was that CityWest would pay $2,000,000 a year in dividends. That expectation was revised to $1,000,000 a year. This year the council is disappointed that the City will not be receiving a $500,000 dividend, and no one can say when dividends will be paid again. In the absence of a dividend (or loan repayment) this year the council is having to consider tax increases, service cutbacks and staff layoffs. Where’s the good news story in that?

As for the balance sheet and the other parts of a financial statement, they’re not “simple” documents, but they are legally required to better ensure transparency, because without that information all that we are getting may be just a bunch of talk.

[Dex]

@BTravenn

@Dex

Then how did Bill Gates become the richest man in the world when his company, Microsoft, was not paying him dividends?

Gates became the richest man in the world (for a while; he’s been overtaken) by owning shares in a publically trading company whose shares substantially increased in value for several years.

The value of an equity investment can be reflected in the market value of the shares and/or the amount of dividends paid on those shares. A good investment can have high growth in share value but pay no dividends, or a static or low growth share value but pay good dividends, or provide an acceptable combinatinon of those forms of return.

CityWest paid good dividends from 2006 to 2009, but since then has not paid dividends other than $500,000 in 2012 (apparently; that has not been confirmed). It is not expected to pay dividends for at least “two or three years”, according to the Mayor. The shares are not publically trading, so the market value is uncertain; although a 40% decline in the value of the City’s total investment between 2006 and 2011 does not bode well.

So we are all in agreement then, the lack of dividends is in no way an indicator of the share value and/or a measure of any benefit to the shareholder.

@BTravenn

For a lender, the value of an investment is measured by the amount of interest paid on the loan, a record of repaying principal through agreed periodic payments, or the likelihood of the remaining principal being repaid at the end of the term. CityWest pays no interest, has only made one principal repayment (in 2011), and $20 million in debt was forgiven because from an audit perspective there was no realistic prospect that it would ever be repaid.

Whichever way you slice it or dice it, CityWest has not been a good investment, either from an equity investor or a lender perspective, for a few years.

Shareholder loans to corporations with reduced interest or interest free is common. It is also common for shareholders to pass assets to corporations, either through loan forgiveness or many other ways. Short of seeing the full financials it is difficult to quantify the performance of these measures.

[quote=“BTravenn”]

@Dex

Are you really judging the performance of a company from a Consolidated Statement of Financial Position, a simple balance sheet ?[/quote]

From the Consolidated Statements and the other components of the financial statements. That is what the statements are for. And that’s why municipal governments are legally required to audit and disclose their financial statements, so that the public is properly informed, among other things, about any investment activities by the elected council involving public funds.

If you don’t want to rely on financial statements, how do you base your decisions about whether elected officials are managing public funds properly?

I can judge the performance of the City’s financial state easier because they are using a different accounting model, Fund accounting, which better focuses on accountability and fiscal responsibility, not profit.

[quote=“BTravenn”]

[quote=“Dex”]
My intention was to be simplistic and not get into accounting principles with my example. My speculation as to the publicly stated reasons may or may not be in error but the result of the $20 million forgiveness is that Citywest was able to form partnerships and grow its business and further expand to other markets. It is very unlikely this would have been possible otherwise, don’t you agree?[/quote]

I have no basis for agreeing with that. There may have been more activity and market expansion, but that is not evidence that the value of the business grew. Again, the numbers go the other way. After the $20 million loan forgiveness the value of the City’s investment further declined, from $31,401,399 in 2008 to $28,036,763 in 2011.

[quote=“Dex”]
Citywest has expanded its operation laying a fibre optic backbone from Prince Rupert to Prince George (450 miles 722 kilometers). It has grown from a telephone company in 2005 to what is today Citywest GoC, expanding in other markets such as Kitimat, Terrace/Thornhill, Houston, Smithers/Telkwa, Stewart, and Hazelton. Upgraded its cable networks in local markets. Improved services such as 24/7 hour call support, Video on demand, more HD channels,fast unlimited internet. I am starting to sound like a Citywest salesman so I will stop here, but it would be disingenuous to say Citywest hasn’t seen significant growth and a future market potential.

One thing I am impressed with though, is your ability to judge the performance of a company from a simple balance sheet.[/quote]

Again, activity does not necessarily translate into ‘significant growth’ in the value of an investment and ‘future market potential’. There can be ‘a race to the bottom’ where businesses dig themselves into deeper holes.

We will have to see what happens. Public sector accounting rules require that the City’s 2012 audited financial statement (which should be provided in a few weeks) show the bare bones of CityWest’s financial performance.

For the present, things are not looking good. In 2006 the expectation was that CityWest would pay $2,000,000 a year in dividends. That expectation was revised to $1,000,000 a year. This year the council is disappointed that the City will not be receiving a $500,000 dividend, and no one can say when dividends will be paid again. In the absence of a dividend (or loan repayment) this year the council is having to consider tax increases, service cutbacks and staff layoffs. Where’s the good news story in that?

As for the balance sheet and the other parts of a financial statement, they’re not “simple” documents, but they are legally required to better ensure transparency, because without that information all that we are getting may be just a bunch of talk.[/quote]

My original post on this subject was to challenge the belief that was going around that we were funding Citywest, and also with the impression the City was out 20 million dollars and lost interest income. These practices are common with shareholders and corporations for benefit. No one here can quantify these practices without more financial information so one cannot say with authority “that the shareholder’s $20 million revaluation and interest reduction for its company has not resulted in a net benefit to the shareholder”. Short of that, maybe our approach and language to our concerns should be modified.

I will say this though, this in no way attempts to excuse the current state of the city. But would any of the recent anger against Citywest exist if the Port’s property wasn’t reassessed and City Council wasn’t “shocked” about the lack of loan payment/dividend.