EXHIBIT 1
CANWEST GLOBAL COMMUNICATIONS CORP.
INTERIM REPORT TO SHAREHOLDERS
FOR THE SIX MONTHS ENDING FEBRUARY 28, 2003
INTRODUCTION
Market conditions during the quarter and the six-month period ended February 28,
2003 showed continued improvement from the same periods from the year before,
particularly in television broadcasting, both in Canada and internationally.
Revenues, EBITDA and operating income were higher than for the same period in
2002, with an EBITDA improvement of 13% when the comparison is made on a same
asset (pro-forma) basis for the same quarter the year before and a 10%
improvement compared to the same six month period from the year earlier.
Improvement in operating results continued at all the Company's international
broadcasting operations.
Television and radio operations in Australia and New Zealand recorded
significant revenue and EBITDA improvements, and in Europe, television
operations in the Republic of Ireland also made significant gains over the same
period the year earlier. Economic indicators from both television and newspaper
advertising markets suggest that the improvement in operating results should
continue through the remainder of the current fiscal year. To date it appears
that the war in Iraq will not have a significant impact on Canadian or the
international advertising markets in which the Company operates.
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE COMPANY
The Company is a Canadian-based, multi-platform international media company.
CanWest owns or has a controlling or substantial interest in operations in the
television broadcasting industries in Canada, Australia, New Zealand, Ireland
and the United Kingdom, the radio broadcasting industries in New Zealand and
Canada, the newspaper publishing industry in Canada, and the out-of-home
advertising industries in Australia and South East Asia. The Company owns
Internet properties that support these media assets, including canada.com.
CanWest is also a producer and international distributor of feature films and
television programming.
The Company's audit committee has reviewed and approved the consolidated interim
financial statements. PricewaterhouseCoopers LLP was engaged by the audit
committee to perform a review of the interim financial statements in accordance
with CICA Handbook section 7050, Auditor Review of Interim Financial Statements,
in order to assist the audit committee in fulfilling its regulatory obligations
with respect to the consolidated interim financial statements.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not
a recognized measure of financial performance under Canadian GAAP. Management
believes that, in addition to operating income and net earnings, EBITDA is a
useful supplemental measure. Management utilizes EBITDA as a measure of segment
profitability in making strategic resource allocations. In addition, the Company
and its lenders and investors use EBITDA to measure performance against the
Company's various leverage covenants. Investors are cautioned, however, that
EBITDA should not be construed as an alternative to operating income (earnings
before interest and taxes, or "EBIT") or net earnings determined in accordance
with GAAP as an indicator of the Company's performance.
1
The Company's method of calculating EBITDA may differ from other companies and,
accordingly, EBITDA may not be comparable to measures used by other companies.
The following is a reconciliation of operating income (EBIT) to operating income
before amortization (EBITDA) in thousands of Canadian dollars:
BROADCASTING
-----------------------------------------------
PUBLISHING
AND NEW ZEALAND
ONLINE -------------------- ENTERTAINMENT CORPORATE
CANADA CANADA TV RADIO IRELAND TV CANADA AND OTHER TOTAL
FOR THE THREE MONTHS ENDED FEBRUARY 28, 2003
Operating income (loss)
(EBIT) 38,281 35,999 (1,010) 4,821 1,395 (1,218) (7,712) 70,556
Amortization 14,678 6,493 740 572 533 186 2,130 25,332
------ ------ ------ ----- ----- ------ ------ ------
Operating income (loss)
before amortization
(EBITDA) 52,959 42,492 (270) 5,393 1,928 (1,032) (5,582) 95,888
====== ====== ====== ===== ===== ====== ====== ======
FOR THE THREE MONTHS ENDED FEBRUARY 28, 2002
Operating income (loss)
(EBIT) 46,120 25,017 (3,784) 3,637 955 1,505 (6,530) 66,920
Amortization 16,322 6,887 664 479 458 121 24 24,955
------ ------ ------ ----- ----- ------ ------ ------
Operating income
(loss) before
amortization (EBITDA) 62,442 31,904 (3,120) 4,116 1,413 1,626 (6,506) 91,875
====== ====== ====== ===== ===== ===== ====== ======
BROADCASTING
------------------------------------------------
PUBLISHING
AND NEW ZEALAND
ONLINE -------------------- ENTERTAINMENT CORPORATE
CANADA CANADA TV RADIO IRELAND TV CANADA AND OTHER TOTAL
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2003
Operating income (loss)
(EBIT) 105,275 110,616 5,486 9,641 4,869 271 (14,067) 222,091
Amortization 29,478 13,273 1,487 1,106 1,046 312 3,598 50,300
------- ------- ------ ------ ----- ----- ------- -------
Operating income (loss)
before amortization
(EBITDA) 134,753 123,889 6,973 10,747 5,915 583 (10,469) 272,391
======= ======= ====== ====== ===== ===== ======= =======
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2002
Operating income (loss)
(EBIT) 118,415 94,868 (3,627) 7,431 3,779 5,490 (11,543) 214,813
Amortization 31,730 12,519 1,225 955 934 236 553 48,152
------- ------- ------ ------ ----- ----- ------- -------
Operating income (loss)
before amortization
(EBITDA) 150,145 107,387 (2,402) 8,386 4,713 5,726 (10,990) 262,965
======= ======= ====== ====== ===== ===== ======= =======
2
The following discussion is based on the Company's consolidated results for the
three and six month period ended February 28, 2003. Comparisons with the prior
year's results are affected by corporate initiatives, including the divestiture
of certain newspaper publishing properties, and accordingly, the Company also
provides certain pro forma comparatives. Pro forma revenue, EBITDA and operating
income reflect the sale of newspaper publishing interests in Saskatchewan and
Atlantic Canada to G.T.C. Transcontinental Group Ltd. ("GTC") in August 2002 as
if it had occurred at the beginning of fiscal 2002.
THREE MONTHS ENDED FEBRUARY 28, 2002 SIX MONTHS ENDED FEBRUARY 28, 2002
OPERATING OPERATING
REVENUE EBITDA INCOME REVENUE EBITDA INCOME
$000 $000 $000 $000 $000 $000
As reported 529,130 91,875 66,920 1,171,710 262,965 214,813
Community
newspapers (26,741) (6,953) (6,153) (53,070) (15,560) (14,011)
------- ------ ------ --------- ------- -------
Pro forma 502,389 84,922 60,767 1,118,640 247,405 200,802
======= ====== ====== ========= ======= =======
ACCOUNTING POLICIES
The Company prepares its consolidated financial statements in Canadian dollars
and in accordance with Canadian GAAP. The Company accounts for its economic
interest in Network TEN using the equity method of accounting. Under this
method, the Company's interest in Network TEN's net earnings (before interest on
subordinated debentures) is included in consolidated earnings, and an adjustment
is made to the carrying value at which the investment is recorded on the
consolidated balance sheet. The carrying value of this investment is reduced by
interest on subordinated debentures and dividends received by the Company.
TRENDS
The Company has historically derived more than 70% of its revenue from
advertising in Canada. For that reason, the Company's results typically reflect
overall activity in the economy. Advertising markets in North America and
throughout the world recovered in the second half of fiscal 2002. Results for
the first six months of 2003 appear to confirm that the Canadian economy has
rebounded with a more rapid resumption of economic growth than in other major
economies.
Results from the Company's television and newspaper assets suggest the
improvement in operating results evident in first quarter continued through the
second quarter of the current fiscal year. Advance bookings in the Company's
television advertising markets for the third quarter of fiscal 2003 were strong
at the beginning of the quarter. The impact of the Iraq war, which overtook
normal television schedules for several days, was temporary, and it appears that
the Company's advertising markets will remain strong through the third quarter
and beyond.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 28, 2003
Consolidated revenue for the quarter was $531 million compared to $502 million
last year on a pro forma basis, an increase of 6%. Consolidated EBITDA for the
three months was $96 million, up 13% from the $85 million generated by the same
properties on a pro forma basis during the same three month period of 2002.
Actual EBITDA for the second quarter last year was $92 million, and included
3
the contribution from properties sold to GTC in August 2002. Operating income
for the three months was $71 million compared to $67 million for the same period
last year. Cash flow from operations before changes in non-cash working capital
and investment in and amortization of investment in film and television programs
for the first quarter was $72 million or $0.41 per share, down 27% from the $99
million or $0.56 per share recorded in the corresponding period last year as a
result of lower distributions from Network TEN during the period. Cash flow from
operations for the quarter was $171 million compared to $141 million for the
corresponding period last year.
Canadian television revenue, including the Prime specialty channel and the
digital specialty channels under development, increased by $16 million or 10%,
to $171 million for the three months. Canadian television EBITDA increased by
$11 million or 33% to $42 million. Operating income increased $11 million or 44%
to $36 million. CanWest television stations continue to rate well. In the
reporting period from December to February, a period affected by a number of
specials and event programs, CanWest series continue to rate strongly with 3 of
the top 10 in the Toronto/Hamilton market and 4 of the top 10 in the Vancouver
market. When specials are included CanWest stations rate 7 of the top 10 most
watched programs through during the quarter. (BBM people meters,
Toronto/Vancouver 18-49)
Canadian television operating expenses were up by $5 million or 4% in the
quarter compared to the same period last year.
Publishing and online revenue for the second quarter was $280 million, up 2%
from the pro forma revenues of $273 million last year. Run-of-press (ROP) linage
continues to recover more slowly than television, with some upward trends
through the reporting period in the retail and national sectors. Publishing and
online EBITDA for the second quarter declined by 5%, to $53 million from the $55
million recorded for the same period last year on a pro forma basis reflecting
higher fuel costs and increased newsprint prices. The Company's publishing
segment includes its online and electronic publishing operations, which saw
significant improvements in EBITDA, reflecting a break even result, compared to
a $1 million operating loss for the same quarter last year. Operating income for
the publishing and online segment declined by 4% to $38 million from the $40
million recorded for the same quarter last year on a pro forma basis.
CanWest's international broadcasting operations continue to perform extremely
well through the reporting period. Second quarter revenue at TV3 in Ireland was
up 7% to (euro)10 million compared to the same period in 2002. EBITDA was
(euro)2 million, up 33% compared to the same three months last year. The
Company's share of revenue was $8 million, and EBITDA was $2 million. The
Company's share of operating income was $1 million, up 46% compared to the same
quarter last year.
Results for TV3 and TV4 in New Zealand continued to reflect a sustained
improvement over the past several quarters, attributable to a combination of an
improving New Zealand economy, a significantly stronger New Zealand dollar, and
increasing audience ratings at TV3. Television revenue of NZ$24 million was 19%
higher than the NZ$20 million recorded in the same quarter one year ago. In
Canadian dollars, the increase in TV3/4 revenue was 47% from $13 million to $19
million.
Revenue from New Zealand radio improved by 4% in local currency to NZ$23 million
for the quarter, with EBITDA of NZ$7 million, 7% higher than the same quarter
last year. Operating income was NZ$6 million compared to NZ$5 million for the
same quarter last year. Results from New Zealand were translated into Canadian
dollars at $0.8178, 23% higher than the rate of translation in the same quarter
last year.
Revenue at Fireworks Entertainment, CanWest's feature film and television
program production and distribution division, decreased by 14% to $35 million
reflecting continued weakness in international media markets. Fireworks posted
an EBITDA loss of $1 million compared to EBITDA of $2 million for the same
quarter last year. The operating loss was $1 million, down $3 million compared
to the same quarter last year.
4
Depreciation and amortization cost for the quarter totaled $25 million,
essentially the same as for the same three months in 2002.
Financing costs were $94 million in the quarter, compared to $93 million for the
three months ending February 28, 2002.
Investment gains totaled $22 million for the quarter and included a gain on the
sale of Ontario community newspapers of $21 million, and a $1 million dilution
gain resulting from the exercise of management share options at Network TEN
which diluted our economic interest in TEN from 57.5% to 57.2%.
The Company recorded a $9 million accounting loss in the quarter as a result of
overhanging swaps created by the application of asset sale proceeds to
indebtedness which had previously been hedged.
The recovery of income taxes totaled $10 million for the quarter, compared to $8
million for the same quarter last year. The Company's interest in income from
Network TEN was $11 million an increase of $16 million from the same period last
year. The prior year included a goodwill write down related to Eye Corp., our
share of which was $11 million.
Television revenue at Network TEN, was A$125 million an increase of 9% for the
quarter, from A$115 million last year. EBITDA at TEN was A$37 million in the
second quarter compared to A$36 million for the same period last year. Operating
income at TEN was A$34 million compared to A$34 million for the same quarter
last year. CanWest's share of TEN's revenue increased by 18% to $64 million,
while it's share of TEN's EBITDA grew by 10% to $19 million. Our share of
operating income increased by 10% to $17 million from $16 million. Our 57.5%
economic interest in Network TEN was reduced to 57.2% at the end of the second
quarter as a result of the exercise of certain management stock options. The
average exchange rate value of the Australian dollar appreciated to the Canadian
dollar by 9% for the quarter, compared to the average for the second quarter of
2002.
The success of TEN's domestic Australian programming, including reality shows,
sports and drama, contributed substantially to it's recent ratings gains, which
continued through the second quarter. Network TEN continued to gain increased
share in an overall Australian TV advertising market that continues to
experience only modest growth.
Eye Corp., Network TEN's out-of-home subsidiary, generated revenue of A$16
million in the quarter, down 11% from the same quarter last year, reflecting the
continued difficult market conditions in that sector, EBITDA for the quarter was
A$1 million, an improvement from the A$0.4 million EBITDA loss recorded in the
same quarter a year earlier, attributable mainly to progress made by new
management at Eye Corp in reducing operating costs. Operating loss for the
quarter was A$1.1 million, an improvement from the operating loss of A$3.3
million posted in the second quarter last year.
CanWest reported net earnings of $10 million or $0.01 per share for the quarter.
The loss reported for the same quarter last year was $22 million or $0.12 per
share. Net earnings per share were reduced by $0.04 in the second quarter of
2003 as a result of the redemption of the Series 2 preference shares at a price
in excess of the carrying value of the shares.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 28, 2003
Consolidated revenue for the six months was $1,165 million compared to $1,119
million last year on a pro forma basis, an increase of 4%. Consolidated EBITDA
for the six months was $272 million, up 10% from the $247 million generated by
the same properties on a pro forma basis in the first six
5
months of 2002. Actual EBITDA for the first six months last year was $263
million, and included the contribution from properties sold to GTC in August
2002. Operating income for the six months was $222 million, up 11% from $201
million on a pro forma basis for the first six months last year. Cash flow from
operations before changes in non-cash working capital and investment in and
amortization of investment in film and television programs for the first half
was $173 million or $0.98 per share, down slightly from the $179 million or
$1.01 per share recorded in the corresponding period last year.
Cash flow from operations was $70 million compared to $39 million for the first
six months last year. Cash flow was negatively affected by a reduction in
distributions from Network TEN. Offsetting this shortfall were improvements in
operating results, a reduction in the net investments in film and television
programs by Fireworks, and greater efficiencies in working capital.
The Company's Canadian television revenue, including the Company's Prime
specialty channel and the digital specialty channels under development,
increased by $30 million or 8%, to $386 million for the six months. The
Company's Canadian television EBITDA increased by $17 million or 15% to $124
million, while operating income increased by $16 million or 17% to $111 million.
During the Fall 2002 ratings period Bureau of Broadcast Measurement indicated
that CanWest television stations lead the ratings in prime time. During the
period from September to December 2002, Global and CH Television ranked first
for the season in the 18-49 demographic winning all 16 weeks overall, and
winning 14 of 16 weeks in primetime in Toronto and Vancouver. Global Ontario and
CH had 10 of the top 20 programs in the 18-49 demographic, including the number
one rated show, Survivor V, Thailand. Survivor was also the number one show
across all demographics. Similarly, Global and CH led the prime time ratings in
Vancouver, with 12 of the top 20 programs. (BBM people meters -
Toronto/Vancouver, 18-49 demographic)
Canadian television operating expenses were up by $13 million or 5% in the first
half of the year compared to the same period last year. This primarily reflects
programming, marketing and promotional costs associated with CanWest's new
digital specialty channels which were on air for a full six months in fiscal
2003, compared to only two months in 2002. Additionally, analogue programming
costs were higher in the first six months, primarily as a result of timing of
the airing of programs, this variance is expected to reverse over the back half
of the year.
Publishing and online revenue for the first six months was $599 million, up
slightly from the pro forma revenues of $591 million last year. The reporting
period was affected negatively by a labour shutdown at the Victoria
Times-Colonist that began at the beginning of September and continued through
the first week of November 2002.
EBITDA from Publishing and online was $135 million, for the six-month period,
the same result as recorded for the previous year on a pro forma basis, while
operating income was $105 million for each of the six months periods on a same
store basis.
Revenue at TV3 in Ireland in local currency was up 8% to (euro)24 million
compared to the same period in 2002. EBITDA increased by 14% to (euro)7 million,
compared to the same six month period last year, while operating income
increased by 19% to (euro)5 million.
Revenues, EBITDA and operating income for the six-month period improved
substantially at TV3 and TV4 in New Zealand. Revenue in local currency was 22%
higher than the same period one year ago, increasing to NZ$58 million from NZ$48
million. EBITDA and operating income also showed significant improvement,
increasing to NZ$9 million and NZ$7 million, respectively, from losses the year
before of NZ$4 million and NZ$6 million, respectively.
6
Revenues from New Zealand radio of NZ$47 million for the six-month period were
3% ahead of last year in local currency terms. EBITDA of NZ$14 million for the
six months was 8% higher than the results recorded one year ago, while operating
income was 9% higher at $12 million. In Canadian dollars, radio operations in
New Zealand contributed EBITDA and operating income of $11 million and $10
million in the quarter, while New Zealand television operations reported
increases in EBITDA and operating income to $7 million and $5 million,
respectively, from losses the year before. Results from New Zealand were
translated into Canadian dollars at an average rate of $0.7857, 19% higher than
the rate of translation in the same six month period last year.
Fireworks Entertainment, CanWest's feature film and television program
production and distribution division recorded $83 million in revenue and EBITDA
of $1 million for the first six months.
Depreciation and amortization cost for the first half totaled $50 million,
compared to $48 million for the same six months in 2002.
Financing costs were $186 million for the six months, compared to $198 million
for the six months ending February 28, 2002, reflecting lower debt levels and
interest rates. Year to date investment gains of $22 million (gain on sale of
Ontario communities and dilution gain on investment in Network TEN) compare to
$63 million for the first six months last year. The gain in the prior year arose
on the sale of CKVU in the first quarter of 2002.
Income taxes totaled $7 million for the two quarters of 2003, compared to $12
million for the same six months last year. The effective tax rate of
approximately 13% in each comparative period compare to a statutory rate of 39%.
The effective rate is affected by the existence of loss carryforwards in New
Zealand not previously recognized, lower tax rates in international
jurisdictions, and non-taxable investment gains. The Company's interest in
income from Network TEN was $37 million an increase of $22 million from the same
period last year.
Television revenue at Network TEN, was A$318 million for the six months,
compared to revenue of A$276 million last year. Television EBITDA at TEN
increased by 16%, to A$111 million in the first half of 2003 compared to the
A$96 million during the same period last year. Operating income increased by 16%
to A$105 million in the first half of 2003 compared to A$91 million during the
same period in 2002. CanWest's share of revenue, EBITDA and operating income,
expressed in Canadian currency improved by 24% to $160 million, 25% to $56
million and 26% to $53 million, respectively. The average rate of exchange of
Australian dollars to Canadian dollars was 8% higher for the six months in 2003
compared to the same period in 2002.
TEN's ratings gains made in the first quarter of fiscal 2003 continued into the
second quarter and are attributable to the success of both locally produced
programming such as Big Brother, and of other Australian programming,
particularly sports. The stronger ratings enable TEN to capture an increased
share of the overall TV advertising market in Australia.
Eye Corp. generated revenue of A$37 million in the six months, down 11% from the
same period last year. EBITDA and operating loss for the six months were A$2.6
million and a loss of A$1.3 million, up from the A$2.3 million and a loss of
A$4.7 million recorded in the same period a year earlier.
CanWest reported net earnings of $78 million or $0.40 per share for the six
month period. Net earnings reported for the first half last year were $86
million or $0.49 per share.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations before investment in and amortization of film and
television programs and changes in non-cash working capital amounted to $72
million for the three months ending February 28, 2003, compared with $99 million
for the same period last year. For the six months, cash flow from
7
operations before investment in and amortization of film and television programs
and changes in non-cash working capital amounted to $173 million compared to
$179 million last year.
Fireworks invested $19 million in film and television programs for the quarter,
compared to $26 million for the same quarter last year. On a year to date basis,
the cash investment has been $76 million for the current year, compared to $105
million for the first six months last year. Amortization of film and television
programs of $32 million for the quarter and $72 million for the year to date
were down from the $34 million and $81 million posted for the second quarter and
first six months last year reflecting the overall decline in activity for the
Entertainment segment.
Changes in non-cash working capital amounted to a source of funds of $87 million
for the three months compared to a source of $34 million for the same quarter
last year. On a year to date basis, $98 million was used in operations compared
to a use of $116 million for the same period last year.
Capital spending in the quarter totaled $7 million compared to $15 million for
the same quarter last year. On a year to date basis, capital spending totaled
$12 million compared to $29 million last year. Current year capital spending
reflects normal repair and replacement expenditures.
The Company made principal debt repayments totaling $237 million in the quarter
and $277 million in the first six months, including $193.5 million derived from
proceeds from the sale of Ontario community newspapers. In the first six months,
the Company received advances under the Fireworks loan facility of $92 million.
Scheduled repayments of the Company's senior credit facility amount to $40
million over the next twelve months.
In December, the Company redeemed its Series 2 Preference Shares for cash of
$57.7 million. In January 2003, the Company received an interim distribution of
interest and dividends from Network TEN totaling $30 million.
Usage, including outstanding letters of credit under the Company's senior credit
facility at February 28, 2003 was $1,600 million.
Total long-term debt of $3,381 million includes $1,005 million in junior
subordinated notes, which bear interest payable in kind through November 2005.
Total drawn debt from third parties at Fireworks at February 28, 2003 was $92
million. Network TEN had drawn A$414 million of its A$700 million credit
facility and had cash on hand of A$21 million at February 28, 2003.
The Company has entered into currency and interest rate swaps under its senior
indebtedness. The average cost of debt, including the junior subordinated notes,
after taking into account other financial instruments in place was 10%.
Senior secured leverage under the Company's senior credit facility was 3.42
times EBITDA for the 12 months ended February 28, 2003, compared to a covenant
of 4.50 times. Additionally, the Company had cash and short-term investments
amounting to $65 million at February 28, 2003.
On April 3, 2003, the Company completed a private placement of US$200 million
(approximately $295 million) of senior unsecured notes at an interest rate of
7.625% per annum. Substantially all of the proceeds will be used to retire a
portion of the 12.125% subordinated notes held by Hollinger International Inc.
and Hollinger Canadian Newspapers Limited Partnership, reducing interest costs
by approximately $12.7 million annually going forward. The repayment of
subordinated notes held by the Hollinger companies will take place in mid-May
2003.
8
In March 2003, the Company's lenders consented to an amendment to the senior
secured credit facility which provides for a change in certain financial ratios
that the Company is required to maintain in order to permit the offering of the
new unsecured notes. The amendment resulted in the term credit facilities being
permanently reduced by $275 million, through a draw on the revolving credit
facility, which occurred in April. Proforma for this transaction, unutilized
negotiated credit at February 28, 2003 was $268 million. The amendment also
resulted in the senior leverage covenant being replaced by a senior secured
leverage covenant and the interest coverage covenant being relaxed to allow for
the payment of interest on the notes.
The impact of the offering and the repayment of the Hollinger debt will be to
reduce our current weighted average borrowing rate to 9.77% from current levels.
OUTLOOK
All CanWest television operations have shown considerable strength through the
first half of fiscal 2003. This positive trend should continue as all the
economic indicators in the respective economies of Canada, Australia, New
Zealand and Ireland show positive growth. The impact of the of the Iraq war on
advertising revenues appears to be limited to the first few days of the conflict
when much of the media disrupted regular schedules to provide extensive war
coverage.
Global Television continued to rate strongly with 3 of the top 10 series in
Toronto and 4 of the top 10 in Vancouver during the period from December 1, 2002
to February 28, 2003, when ratings were affected by a proliferation of specials
such as the Super Bowl and the Grammy Awards. When specials are included, Global
carried 7 of the top 10 shows in Toronto and Vancouver. The ratings are based on
BBM people meters and cover the 18-49 demographic.
The recovery in Canadian newspaper advertising markets remains slower than for
television with certain sectors such as careers still well below their prior
peak levels of advertising spending. Improvements are evident in other sectors,
particularly national and retail advertising during the reporting period and
this suggests that the modest positive trend should continue for the coming
months and that should support continuation of the positive operating result
growth going forward. The Company's newspapers are maintaining the lower cost
base achieved through operating improvements made over the past 18 months.
Circulation revenue remains stable in general and is increasing in some markets,
notably Montreal where the bringing online of a new printing press provided an
opportunity to take advantage of higher print quality and color capability to
re-launch the Gazette.
The Company completed a realignment of its online operations that now include
Infomart, a subscription based online news archives service and FP Data Group, a
subscription based financial data service. CanWest is a leading provider of
online content through Canada.com. The eContent Institute, a national online
organization recognized Infomart.ca as the top Canadian provider in the News
Service category. "With its very easy-to-use interface, intuitive design and fit
in the English-Canadian marketplace, infomart.ca is second to none. It is a must
have for news," said the judging committee.
The Company's six new digital specialty channels in Canada remained among the
most popular with digital television subscribers. Close to 3 million subscribers
now have access to the services, and advertisers are beginning to show a higher
level of interest in the niche market opportunities provided by these new
channels.
9
On the last day of the current reporting period, the Company launched its first
entry into the Canadian radio market with COOL 99.1FM in Winnipeg. The Company
has also applied to the Canadian Radio-television and Telecommunications
Commission (CRTC) for certain additional radio licences and has appeared at
public CRTC hearings in support of its applications for new radio stations in
Montreal, Quebec and Kitchener, Ontario. While no decisions have yet been handed
down in respect of these applications, management believes the continued
expansion into radio is a logical and prudent step for CanWest in Canada, and
will further enhance CanWest's offering to Canadian advertisers.
CanWest's immediate priorities are to continue to focus on debt reduction, to
pursue additional operational efficiencies and cost reductions at all units and
to build on the progress already made in integrating television, publishing and
online assets in Canada as complementary and mutually supportive media
businesses.
CanWest remains committed to pursuit of additional operational efficiencies and
cost reductions at all units. The Company announced a major re-organization of
the senior management of its Canadian media operations in January 2003. The more
integrated management structure has streamlined decision-making and enhanced the
ability of the Company's television, publishing and interactive assets to work
more closely together as complementary and mutually supportive media businesses.
This re-organization was followed by the launch of the CanWest News Service and
the Canadian News Desk, headquartered in Winnipeg, but with resources in
locations across Canada. CanWest consumers saw immediate benefits of increased
depth and wider coverage of Canadian and international news on both television
and in CanWest's newspapers.
FORWARD LOOKING STATEMENTS
Certain statements in this report may constitute forward-looking statements.
Such forward looking statements involve risks, uncertainties and other factors
which may cause actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. The Company may not
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
10
[PRICEWATERHOUSECOOPERS LOGO]
PRICEWATERHOUSECOOPERS LLP
CHARTERED ACCOUNTANTS
One Lombard Place
Suite 2300
April 4, 2003 Winnipeg, Manitoba
Canada R3B 0X6
Telephone +1 (204) 926 2400
Facsimile +1 (204) 944 1020
TO THE AUDIT COMMITTEE OF
CANWEST GLOBAL COMMUNICATIONS CORP.
In accordance with our engagement letter dated January 10, 2003, we have
reviewed the accompanying interim consolidated balance sheet of CanWest Global
Communications Corp. (the "Company") as at February 28, 2003, and the related
interim consolidated statements of earnings, retained earnings and cash flows
for the three months and six months then ended. These interim consolidated
financial statements are the responsibility of the Company's management.
We performed our review in accordance with Canadian generally accepted standards
for a review of interim financial statements by an entity's auditor. Such an
interim review consists principally of applying analytical procedures to
financial data, and making enquiries of, and having discussions with, persons
responsible for financial and accounting matters. An interim review is
substantially less in scope than an audit, whose objective is the expression of
an opinion regarding the interim financial statements; accordingly, we do not
express such an opinion. An interim review does not provide assurance that we
would become aware of any or all significant matters that might be identified in
an audit.
Based on our review, we are not aware of any material modification that needs to
be made for these interim consolidated financial statements to be in accordance
with Canadian generally accepted accounting principles.
This report is solely for the use of the Audit Committee of the Company to
assist it in discharging its regulatory obligation to review these interim
consolidated financial statements, and should not be used for any other purpose.
Any use that a third party makes of this report, or any reliance or decisions
made based on it, are the responsibility of such third parties. We accept no
responsibility for loss or damages, if any, suffered by any third party as a
result of decisions made or actions taken based on this report.
/s/ PRICEWATERHOUSECOOPERS LLP
CHARTERED ACCOUNTANTS
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and the other member firms of PricewaterhouseCoopers International Limited, each
of which is a separate and independent legal entity.
11
CANWEST GLOBAL COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE NOTED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 FEBRUARY 28
2003 2002 2003 2002
Revenue 531,240 529,130 1,164,803 1,171,710
Operating expenses 292,466 293,273 594,759 627,450
Selling, general and administrative
expenses 142,886 143,982 297,653 281,295
--------- --------- --------- ---------
95,888 91,875 272,391 262,965
Amortization of intangibles 4,375 4,375 8,750 8,750
Amortization of property, plant and equipment 18,487 18,247 37,698 36,231
Other amortization 2,470 2,333 3,852 3,171
--------- --------- --------- ---------
Operating income 70,556 66,920 222,091 214,813
Financing expenses (93,859) (92,769) (186,191) (197,679)
Dividend income - - 1,533 1,358
--------- --------- --------- ---------
(23,303) (25,849) 37,433 18,492
Investment gains 22,108 - 22,108 63,020
Interest rate swap loss (8,867) - (8,867) -
--------- --------- --------- ---------
(10,062) (25,849) 50,674 81,512
Provision for (recovery of) income taxes (10,408) (8,184) 7,340 11,560
--------- --------- --------- ---------
Earnings (loss) before the following 346 (17,665) 43,334 69,952
Minority interests - 1,685 - 3,760
Interest in earnings (loss) of Network TEN 10,884 (5,243) 36,661 14,199
Interest in loss of other equity accounted
affiliates (449) (437) (779) (437)
Realized currency translation adjustments (900) - (900) (1,000)
--------- --------- --------- ---------
Net earnings (loss) for the period 9,881 (21,660) 78,316 86,474
========= ========= ========= =========
EARNINGS (LOSS) PER SHARE:
BASIC $ 0.01 ($ 0.12) $ 0.40 $ 0.49
DILUTED $ 0.01 ($ 0.12) $ 0.40 $ 0.48
The notes constitute an integral part of the consolidated financial statements.
12
CANWEST GLOBAL COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
AS AT
-----------------------------
FEBRUARY 28, AUGUST 31,
2003 2002
ASSETS
CURRENT ASSETS
Cash 65,110 61,090
Accounts receivable 525,947 470,246
Income taxes recoverable 4,075 33,334
Inventory 15,290 19,836
Investment in film and television programs 112,763 98,096
Future income taxes 30,882 30,013
Other 9,671 13,726
--------- ---------
763,738 726,341
Investment in Network TEN 14,527 4,494
Other investments 167,392 162,361
Investment in film and television programs 332,663 317,176
Property, plant and equipment 650,399 679,224
Other assets 90,044 103,975
Intangibles 1,109,017 1,096,458
Goodwill 2,482,850 2,631,099
--------- ---------
5,610,630 5,721,128
========= =========
LIABILITIES
CURRENT LIABILITIES
Accounts payable 175,776 164,988
Accrued liabilities 160,885 227,104
Film and television program accounts payable 66,137 64,834
Deferred revenue 56,363 60,596
Current portion of long term debt 128,558 172,753
--------- ---------
587,719 690,275
Long term debt 3,252,540 3,337,163
Other accrued liabilities 111,254 86,217
Future income taxes 434,984 431,562
--------- ---------
4,386,497 4,545,217
--------- ---------
SHAREHOLDERS' EQUITY
Capital stock 846,814 896,422
Contributed surplus 3,647 3,647
Retained earnings 388,020 317,376
Cumulative foreign currency translation adjustments (14,348) (41,534)
--------- ---------
1,224,133 1,175,911
--------- ---------
5,610,630 5,721,128
========= =========
The notes constitute an integral part of the consolidated financial statements.
13
CANWEST GLOBAL COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 FEBRUARY 28
2003 2002 2003 2002
Retained earnings - beginning of period, as
previously reported 385,811 412,492 317,376 475,053
Adjustment for adoption of new accounting
pronouncements - - - (170,695)
------- ------- ------- --------
Retained earnings - beginning of period,
as adjusted 385,811 412,492 317,376 304,358
Excess of redemption price over carrying
value of preferred shares (7,672) - (7,672) -
Net earnings (loss) for the period 9,881 (21,660) 78,316 86,474
------- ------- ------- --------
Retained earnings - end of period 388,020 390,832 388,020 390,832
======= ======= ======= ========
The notes constitute an integral part of the consolidated financial statements.
14
CANWEST GLOBAL COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 FEBRUARY 28
2003 2002 2003 2002
CASH GENERATED (UTILIZED) BY:
OPERATING ACTIVITIES
Net earnings (loss) for the period 9,881 (21,660) 78,316 86,474
Items not affecting cash
Amortization 27,703 27,362 55,113 52,982
Interest paid in kind 28,614 25,604 56,988 50,813
Future income taxes (1,876) 3,103 216 7,438
Interest in (earnings) loss of Network TEN (10,884) 5,243 (36,661) (14,199)
Interest in loss of other equity accounted
affiliates 449 437 779 437
Minority interests - (1,685) - (3,760)
Realized currency translation adjustments 900 - 900 1,000
Interest rate swap loss 8,867 - 8,867 -
Investment gains (22,108) - (22,108) (63,020)
Distributions from Network TEN 30,212 60,984 30,212 60,984
-------- ------- -------- --------
71,758 99,388 172,622 179,149
Investment in film and television programs (19,211) (26,254) (75,985) (104,705)
Amortization of film and television programs 31,841 34,490 71,537 80,737
Other changes in non-cash operating accounts 86,971 33,807 (97,774) (116,410)
-------- ------- -------- --------
171,359 141,431 70,400 38,771
-------- ------- -------- --------
INVESTING ACTIVITIES
Proceeds from sale of other investments - - - 87,000
Other investments (3,913) - (4,473) -
Proceeds from divestitures 193,500 - 193,500 133,039
Purchase of property, plant and equipment (6,964) (14,548) (12,322) (29,023)
-------- ------- -------- --------
182,623 (14,548) 176,705 191,016
-------- ------- -------- --------
FINANCING ACTIVITIES
Issuance of long term debt 1,898 - 90,974 -
Repayment of long term debt (237,104) (55,895) (276,779) (147,517)
Issuance of share capital 375 47 392 109
Preferred share redemption (57,672) - (57,672) -
Net change in bank loans and advances (27,858) (20,905) - (28,999)
-------- ------- -------- --------
(320,361) (76,753) (243,085) (176,407)
-------- ------- -------- --------
Net change in cash 33,621 50,130 4,020 53,380
CASH - BEGINNING OF PERIOD 31,489 22,739 61,090 19,489
-------- ------- -------- --------
CASH - END OF PERIOD 65,110 72,869 65,110 72,869
======== ======= ======== ========
The notes constitute an integral part of the consolidated financial statements.
15
CANWEST GLOBAL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 6 MONTHS ENDED FEBRUARY 28, 2003 AND 2002
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE NOTED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Company is an international media company with interests in broadcast
television, publishing, radio, specialty cable channels, out-of-home
advertising, production and distribution of film and television programming and
internet websites in Canada, Australia, New Zealand, Ireland and Northern
Ireland. The Company's operating segments include television and radio
broadcasting, entertainment, and publishing and online operations. In Canada,
the Television Broadcasting segment includes the operation of the Global
Television Network, Global Prime and various other conventional and specialty
channels. The Canadian Publishing and Online segment includes the publication of
a number of newspapers, including metropolitan daily newspapers, and the
National Post as well as operation of the canada.com web portal and other web
based operations. The Entertainment segment includes the operation of CanWest
Entertainment, a producer and distributor of film and television programs. The
New Zealand Television Broadcasting segment includes the operations of the TV3
and TV4 Television Networks. The New Zealand Radio Broadcasting segment includes
the More FM and RadioWorks radio networks. The Irish Television Broadcasting
segment includes the Company's 45% interest in the Republic of Ireland's TV3
Television Network. The Corporate and Other segment includes the Company's 57.2%
economic interest (57.5% to February 27, 2003) in the TEN Group Pty Limited
which owns and operates Australia's TEN Television Network ("Network TEN") and
various portfolio investments in media operations, including a 29.9% equity
interest in Northern Ireland's Ulster Television plc ("UTV").
The Company's broadcast customer base is comprised primarily of large
advertising companies who place advertisements with the Company on behalf of
their customers. Publishing revenues, include advertising, circulation and
subscriptions which are derived from a variety of sources. The Company's
advertising revenues are seasonal. Revenues and accounts receivable are highest
in the first and third quarters, while expenses are relatively constant
throughout the year.
BASIS OF PRESENTATION
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in Canada for interim financial statements and
reflect all adjustments which are, in the opinion of management, necessary for
fair statement of the results of the interim periods presented. However, these
interim financial statements do not include all the information and disclosures
required for annual financial statements. The accounting policies used in the
preparation of these interim financial statements are the same as those used in
the most recent annual financial statements. These interim statements should be
read in conjunction with the most recent annual financial statements of the
Company. All amounts are expressed in thousands of Canadian dollars unless
otherwise noted.
16
2. ACQUISITIONS AND DIVESTITURES
a) On February 14, 2003 the Company sold it's interest in community newspapers
and related assets in Southern Ontario for cash proceeds of $193.5 million.
The accounting gain on this sale was $20.7 million; assets and liabilities
disposed amounted to $179.6 million (including goodwill of $157.0 million)
and $6.8 million, respectively.
b) On August 8, 2002, the Company sold it's interest in community newspapers
and related assets in Atlantic Canada and Saskatchewan for cash proceeds of
$257.0 million. The accounting gain on the sale was $48.9 million; assets
and liabilities disposed amounted to $227.3 million and $19.2 million,
respectively.
c) Effective March 31, 2002, the Company acquired the remaining 50% interest
in The National Post not already owned. In September 2001, the Company
assumed control of The National Post and, accordingly, changed its method
of accounting for The National Post to a consolidation basis from an equity
basis.
d) On October 31, 2001, the Company completed the sale of CKVU Sub Inc. and
received proceeds of $133.0 million.
e) On September 12, 2001, the Company completed the sale of CF Television Inc.
and received proceeds of $87.0 million.
3. INVESTMENT IN NETWORK TEN
During the three months ended February 28, 2003 Network TEN issued 5.3 million
shares for proceeds of $9.6 million as a result of the exercise of management
stock options. This effectively diluted the Company's economic interest in
Network TEN to 57.2% from 57.5% and resulted in an investment gain of $1.4
million.
The Company owns approximately 14.8% (15% to February 27, 2003) of the issued
ordinary shares and all of the convertible debentures and subordinated
debentures of Network TEN, an Australian television broadcast network. The
subordinated debentures have an aggregate principal amount of A$45.5 million and
pay interest based on distributions to holders of ordinary shares. The
convertible debentures have an aggregate principal amount of A$45,500 and pay a
market linked rate of interest. The combination of ordinary shares and
subordinated debentures yield distributions equivalent to approximately 57.2%
(57.5% to February 27, 2003) of all distributions paid by Network TEN. The
convertible debentures are convertible, upon payment of an aggregate of A$45.5
million, into a number of ordinary shares which would represent 49.7% (50% to
February 27, 2003) of the issued and outstanding shares of Network TEN at the
time of conversion.
As a result of its contractual right to representation on Network TEN's board of
directors and other factors, the Company accounts for its interest in Network
TEN on the equity basis. The Company has appointed three of the thirteen members
of the board of directors of Network TEN.
The following selected consolidated financial information of Network TEN has
been prepared in accordance with accounting principles generally accepted in
Canada. The accounts have been translated to Canadian dollars using the current
rate method.
17
Summary Consolidated Balance Sheets
AS AT
-------------------------------
FEBRUARY 28 AUGUST 31
2003 2002
Assets
Current assets 247,289 285,303
Other assets 2,141 4,825
Property, plant and equipment 83,034 71,875
Long term investments 7,348 2,188
Intangibles 259,461 246,305
Goodwill 52,606 49,304
------- -------
651,879 659,800
======= =======
Liabilities and Shareholders' Equity
Current liabilities 168,858 191,736
Long term liabilities 430,491 442,975
Subordinated debentures issued to the Company 40,154 40,154
Share capital 49,766 40,146
Deficit (37,760) (52,232)
Cumulative foreign currency translation adjustment 370 (2,979)
------- -------
651,879 659,800
======= =======
Other Consolidated Financial Data
FOR THE SIX MONTHS
ENDED FEBRUARY 28
----------------------------
2003 2002
Cash flow from operations (1) 85,700 80,800
======= =======
Distributions paid 52,500 111,900
======= =======
Capital expenditures 15,000 13,000
======= =======
(1) Cash flow from operations before changes in non-cash operating accounts
18
Summary Consolidated Statements Of Earnings
FOR THE SIX MONTHS
ENDED FEBRUARY 28
-------------------------
2003 2002
Revenue 310,268 256,988
Operating expenses 210,735 177,202
------- -------
99,533 79,786
Amortization of property, plant, equipment
and other 7,488 6,760
------- -------
Operating income 92,045 73,026
Financing expenses (42,301) (12,298)
------- -------
49,744 60,728
Provision for income taxes 13,785 18,601
------- -------
Earnings before the following 35,959 42,127
Goodwill impairment loss - (20,905)
Minority interests - 2,101
------- -------
Net earnings for the period 35,959 23,323
Interest in respect of subordinated
debentures held by the Company 32,091 2,455
------- -------
Earnings for the period before interest
in respect of subordinated debentures 68,050 25,778
======= =======
Summary Statements Of Retained Earnings
FOR THE SIX MONTHS
ENDED FEBRUARY 28
-------------------------
2003 2002
Retained earnings (deficit) - beginning of
year (52,232) 94,142
Earnings for the period before interest in respect of
subordinated debentures 68,050 25,778
Distributions paid (53,578) (123,984)
------- --------
Deficit - end of period (37,760) (4,064)
======= ========
The Company's economic interest in Network TEN's earnings for the six months
ended February 28, 2003 is $36.7 million (2002- $ 14.2 million).
19
4. LONG TERM DEBT
In October 2002, Fireworks Entertainment Inc., a subsidiary of the Company,
secured a stand alone credit facility with a syndicate of lenders. The facility
is a three year revolving facility collateralized by certain assets of Fireworks
Entertainment Inc. and bears interest at floating rates of LIBOR plus 2.25% to
3.5%. The US$110 million total commitment under this facility is based on
acceptable receivables; as at February 28, 2003 total availability was US$64.5
million, of which US$60.8 million was advanced.
5. CAPITAL STOCK
On December 18, 2002, the Company elected to redeem all of its outstanding
Series 2 preference shares recorded at $50.0 million for an aggregate redemption
price of $57.7 million.
6. EARNINGS PER SHARE
The following table provides a reconciliation of the numerators and denominators
used in computing basic and diluted earnings per share.
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
---------------------------------------------------------------------
2003 2002 2003 2002
Net earnings (loss) 9,881 (21,660) 78,316 86,474
Excess of redemption price over
carrying value of preferred
shares (7,672) - (7,672) -
----------- ----------- ----------- -----------
Earnings available to common
shareholders 2,209 (21,660) 70,644 86,474
=========== =========== =========== ===========
Basic weighted average shares
outstanding during the period 177,070,290 177,051,813 177,067,345 176,853,992
Dilutive effect of options 5,934 - 5,934 26,889
Dilutive effect of preference
shares - - - 4,922,729
----------- ----------- ----------- -----------
Diluted weighted average shares
outstanding during the period 177,076,224 177,051,813 177,073,279 181,803,610
=========== =========== =========== ===========
Options outstanding that would
have been anti-dilutive 2,143,247 1,802,686 2,143,247 1,187,373
=========== =========== =========== ===========
20
7. STOCK BASED COMPENSATION
The Company utilizes the intrinsic value approach to accounting for stock
compensation expense. The following are the pro forma results as if the Company
had applied the fair value based method of accounting for stock-based
compensation. The fair value of options granted during the six months ended
February 28, 2003 was estimated using the Black Scholes pricing model with the
assumptions of no dividend yield (2002 - nil), an expected volatility of 54%
(2002 - 40%), risk free interest rates of 4.5% to 4.9% (2002 - 4.8% to 5.4%) and
an expected life of 7 to 9 years (2002 - 6 to 9 years).
The fair value of 394,500 options that were granted by the Company was
$1,502,224. The pro forma cost of stock option expense for the three and six
months ended February 28, 2003 are $549,278 and $858,311 respectively (2002 -
$1,046,047 and $1,335,963). A value of $5,191,913 will be charged to pro forma
earnings in future periods according to the vesting terms of the outstanding
options. The resulting pro forma net earnings and diluted earnings per share for
the three months ended February 28, 2003 are $0.01 and $0.01 respectively (2002
- - ($0.13) and ($0.13)) and six months ended February 28, 2003 are $0.39 and
$0.39, respectively (2002 - $0.48 and $0.47).
8. CONTINGENCY
On March 5, 2001, a statement of claim was filed against the Company and certain
of the Company's subsidiaries by CanWest Broadcasting Ltd.'s ("CBL's") former
minority interests requesting, among other things, that their interests in CBL
be purchased without minority discount. In addition, the claim alleges the
Company wrongfully terminated certain agreements and acted in an oppressive and
prejudicial manner towards the plaintiffs. The lawsuit seeks damages in excess
of $345 million. The Company believes the allegations are substantially without
merit and not likely to have a material adverse effect on its business,
financial condition or results of operation. The Company intends to vigorously
defend this lawsuit.
9. SUBSEQUENT EVENTS
In April 2003, the Company issued US$200.0 million in 7.625% senior unsecured
notes due April 15, 2013. The proceeds will be used to repay approximately
$275.0 million of obligations under the 12.125% junior subordinated notes.
21
10. SEGMENTED INFORMATION
The Company operates primarily within the publishing and online, broadcasting
and entertainment industries in Canada, New Zealand, Ireland and Australia.
Each segment reported below operates as a strategic business unit with separate
management. Segment performance is measured primarily on the basis of operating
profit. There are no significant inter-segment transactions. Segmented
information in thousands of Canadian dollars is as follows:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
-------------------------------------------------------------------
2003 2002 2003 2002
REVENUE
TELEVISION
Canada 171,320 155,443 385,826 356,211
New Zealand - TV3 and TV4 19,242 13,124 45,453 31,487
Ireland - TV3 7,863 6,402 17,964 14,934
------- ------- --------- ---------
198,425 174,969 449,243 402,632
RADIO - NEW ZEALAND 19,165 15,037 37,010 30,341
ENTERTAINMENT - CANADA 35,179 41,098 83,223 98,626
PUBLICATIONS AND ONLINE - CANADA 279,541 299,546 599,437 644,010
INTER-SEGMENT REVENUE (1,070) (1,520) (4,110) (3,899)
------- ------- --------- ---------
TOTAL REVENUE 531,240 529,130 1,164,803 1,171,710
======= ======= ========= =========
OPERATING PROFIT
TELEVISION
Canada 42,492 31,904 123,889 107,387
New Zealand - TV3 and TV4 (270) (3,120) 6,973 (2,402)
Ireland - TV3 1,928 1,413 5,915 4,713
------- ------- --------- ---------
44,150 30,197 136,777 109,698
RADIO - NEW ZEALAND 5,393 4,116 10,747 8,386
ENTERTAINMENT - CANADA (1,032) 1,626 583 5,726
PUBLICATIONS AND ONLINE - CANADA 52,959 62,442 134,753 150,145
------- ------- --------- ---------
SEGMENT OPERATING PROFIT 101,470 98,381 282,860 273,955
CORPORATE EXPENSES 5,582 6,506 10,469 10,990
------- ------- --------- ---------
OPERATING PROFIT 95,888 91,875 272,391 262,965
======= ======= ========= =========
22
11. U.S. GAAP RECONCILIATION
These interim financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP"). In certain
circumstances GAAP as applied in the United States ("U.S.") differs from
Canadian GAAP. The principal differences affecting the Company are disclosed in
the annual financial statements.
CONSOLIDATED STATEMENTS OF EARNINGS
The following is a reconciliation of net earnings reflecting the differences
between Canadian and U.S. GAAP:
FOR THE SIX MONTHS ENDED
FEBRUARY 28
2003 2002
$000 $000
Net earnings in accordance with Canadian
GAAP 78,316 86,474
Pre-operating costs, net of tax of ($860) (2002
- $2,176) 1,957 (2,039)
Realization of cumulative translation
adjustments, net of tax of nil 900 1,000
Integration costs related to Can West
Publications, net of tax of $109 (193) -
Programming costs imposed by regulatory
requirement, net of tax of $1,155
(2002 - $1,198) (1,530) (1,587)
Equity accounted affiliates in trust, net of
tax of nil - 3,375
-------- --------
Net earnings in accordance with U.S. GAAP
before cumulative effect of adoption of
new accounting policies 79,450 87,223
Cumulative effect of adoption of new
accounting policies, net of tax of $2,500 - (45,269)
-------- --------
Net earnings in accordance with U.S.
GAAP 79,450 41,954
======== ========
Earnings per share:
Earnings before cumulative effect of adoption
of new accounting policies
Basic $ 0.41 $ 0.49
Diluted $ 0.41 $ 0.48
Earnings per share
Basic $ 0.41 $ 0.24
Diluted $ 0.41 $ 0.23
23
The following financial information has been prepared on a combined basis to
proportionately consolidate the Company's 57.2% (57.5% to February 27, 2003)
interest in Network TEN. This financial information is supplemental to the
Company's consolidated financial statements and is designed to provide more
complete disclosure of the scope of the Company's operations.
CANWEST GLOBAL COMMUNICATIONS CORP.
COMBINED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT AS OTHERWISE NOTED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 FEBRUARY 28
2003 2002 2003 2002
Revenue 603,199 591,720 1,343,208 1,319,478
Operating expenses 482,392 476,378 1,003,117 999,646
------- ------- --------- ---------
Operating income before undernoted 120,807 115,342 340,091 319,832
Corporate and development expenses 5,582 6,506 10,469 10,990
------- ------- --------- ---------
Operating income before amortization
(EBITDA) 115,225 108,836 329,622 308,842
Amortization of intangibles 4,375 4,375 8,750 8,750
Amortization of property, plant and
equipment 20,597 20,553 41,825 39,497
Other amortization 2,561 1,950 4,032 3,792
------- ------- --------- ---------
OPERATING INCOME (EBIT) 87,692 81,958 275,015 256,803
Financing expenses (97,060) (95,892) (192,061) (203,339)
Dividend income - - 1,533 1,358
------- ------- --------- ---------
(9,368) (13,934) 84,487 54,822
Investment gains 22,108 - 22,108 63,020
Interest rate swap loss (8,867) - (8,867) -
------- ------- --------- ---------
Earnings (loss) before income taxes (EBT) 3,873 (13,934) 97,728 117,842
Provision for (recovery of) income taxes (7,357) (1,620) 17,733 23,512
------- ------- --------- ---------
Earnings (loss) before the following 11,230 (12,314) 79,995 94,330
Minority interests - 2,478 - 4,968
Goodwill impairment loss - (11,387) - (11,387)
Interest in loss of equity accounted
affiliates (449) (437) (779) (437)
Realized currency translation adjustments (900) - (900) (1,000)
------- ------- --------- ---------
Net earnings (loss) for the period 9,881 (21,660) 78,316 86,474
======= ======= ========= =========
EARNINGS (LOSS) PER SHARE: (1)
BASIC $ 0.01 ($ 0.12) $ 0.40 $ 0.49
DILUTED $ 0.01 ($ 0.12) $ 0.40 $ 0.48
(1) Earnings per share have been calculated on the basis of the weighted average
number of shares outstanding during the six months of 177,067,345 (2002 -
176,853,992).
24
CANWEST GLOBAL COMMUNICATIONS CORP.
COMBINED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
AS AT
-----------------------------
FEBRUARY 28, AUGUST 31,
2003 2002
ASSETS
CURRENT ASSETS
Cash 75,755 66,904
Accounts receivable 571,929 527,475
Income taxes recoverable - 67,253
Inventory 15,290 19,836
Investment in film and television programs 192,950 161,771
Future income taxes 30,882 30,013
Other 14,307 19,654
--------- ---------
901,113 892,906
Other investments 171,595 163,619
Investment in film and television programs 332,663 317,176
Property, plant and equipment 712,344 734,499
Other assets 91,269 106,750
Intangibles and goodwill 3,742,860 3,870,526
--------- ---------
5,951,844 6,085,476
========= =========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 398,576 479,365
Income taxes payable 346 -
Film and television program accounts payable 84,625 64,834
Deferred revenue 56,363 60,596
Current portion of long term debt 130,807 187,167
--------- ---------
670,717 791,962
Long term debt 3,466,638 3,566,116
Other accrued liabilities 129,125 100,259
Future income taxes 461,231 451,228
--------- ---------
4,727,711 4,909,565
--------- ---------
SHAREHOLDERS' EQUITY
Capital stock 846,814 896,422
Contributed surplus 3,647 3,647
Retained earnings 388,020 317,376
Cumulative foreign currency translation adjustments (14,348) (41,534)
--------- ---------
1,224,133 1,175,911
--------- ---------
5,951,844 6,085,476
========= =========
25
CANWEST GLOBAL COMMUNICATIONS CORP.
COMBINED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 FEBRUARY 28
2003 2002 2003 2002
Retained earnings - beginning of period, as
previously reported 385,811 412,492 317,376 475,053
Adjustment for adoption of new accounting
pronouncements - - - (170,695)
------- ------- ------- --------
Retained earnings - beginning of period, as
adjusted 385,811 412,492 317,376 304,358
Excess of redemption price over carrying
value of preferred shares (7,672) - (7,672) -
Net earnings (loss) for the period 9,881 (21,660) 78,316 86,474
------- ------- ------- --------
Retained earnings - end of period 388,020 390,832 388,020 390,832
======= ======= ======= ========
26
CANWEST GLOBAL COMMUNICATIONS CORP.
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT AS OTHERWISE NOTED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 FEBRUARY 28
2003 2002 2003 2002
CASH GENERATED (UTILIZED) BY:
OPERATING ACTIVITIES
Net earnings (loss) for the period 9,881 (21,660) 78,316 86,474
Items not affecting cash
Amortization 29,902 29,285 59,419 56,869
Interest paid in kind 28,614 25,604 56,988 50,813
Future income taxes 3,992 20,061 6,084 24,268
Interest in loss of equity accounted
affiliates 449 437 779 437
Minority interests - (2,478) - (4,968)
Goodwill impairment loss - 11,387 - 11,387
Investment gains (22,108) - (22,108) (63,020)
Interest rate swap loss 8,867 - 8,867 -
Realized currency translation adjustments 900 - 900 1,000
-------- -------- -------- --------
60,497 62,636 189,245 163,260
Investment in film and television programs (19,211) (26,254) (75,985) (104,705)
Amortization of film and television programs 31,841 34,490 71,537 80,737
Other changes in non-cash operating
accounts 81,853 2,236 (68,379) (184,507)
-------- -------- -------- --------
154,980 73,108 116,418 (45,215)
-------- -------- -------- --------
INVESTING ACTIVITIES
Other investments (3,913) - (4,473) -
Proceeds from Network TEN dilution 5,499 - 5,499 -
Proceeds from sale of other investments - - - 87,000
Proceeds from divestitures 193,500 - 193,500 133,039
Purchase of property, plant and equipment (12,874) (17,702) (20,902) (36,496)
-------- -------- -------- --------
182,212 (17,702) 173,624 183,543
-------- -------- -------- --------
FINANCING ACTIVITIES
Issuance of long term debt 1,898 131,523 90,974 131,523
Repayment of long term debt (235,571) (115,107) (314,885) (190,967)
Issuance of share capital 375 47 392 109
Preferred share redemption (57,672) - (57,672) -
Net change in bank loans and advances (27,858) (20,905) - (28,999)
-------- -------- -------- --------
(318,828) (4,442) (281,191) (88,304)
-------- -------- -------- --------
Net change in cash 18,364 50,964 8,851 49,994
CASH - BEGINNING OF PERIOD 57,391 28,748 66,904 29,718
-------- -------- -------- --------
CASH - END OF PERIOD 75,755 79,712 75,755 79,712
======== ======== ======== ========
CASH FLOW FROM OPERATIONS PER SHARE: (1) (2)
$ 0.34 $ 0.35 $ 1.07 $ 0.92
BASIC
DILUTED $ 0.34 $ 0.34 $ 1.07 $ 0.90
(1) Cash flow from operations per share has been calculated on the basis of the
weighted average number of shares outstanding during the six months of
177,067,345 (2002 - 176,853,992).
(2) Cash flow from operations is defined as cash flow from operations before
investment in and amortization of film and television programs and other
changes in non cash operating accounts.
27
CANWEST GLOBAL COMMUNICATIONS CORP. (1)
COMBINED BUSINESS SEGMENT INFORMATION
(IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED FEBRUARY 28
-----------------------------------------
2003 2002 2002
ACTUAL ACTUAL PROFORMA
(2)
REVENUE
TELEVISION
Canada 171,320 155,443 155,443
Australia - Network TEN 63,703 54,016 54,016
New Zealand - TV3 and TV4 19,242 13,124 13,124
Ireland - TV3 7,863 6,402 6,402
------- ------- -------
262,128 228,985 228,985
RADIO - NEW ZEALAND 19,165 15,037 15,037
ENTERTAINMENT - CANADA 35,179 41,098 41,098
PUBLICATIONS AND ONLINE - CANADA 279,541 299,546 272,805
OUTDOOR - AUSTRALIA 8,256 8,574 8,574
Inter-segment revenue (1,070) (1,520) (1,520)
------- ------- -------
TOTAL REVENUE 603,199 591,720 564,979
======= ======= =======
OPERATING PROFIT
TELEVISION
Canada 42,492 31,904 31,904
Australia - Network TEN 18,877 17,149 17,149
New Zealand - TV3 and TV4 (270) (3,120) (3,120)
Ireland - TV3 1,928 1,413 1,413
------- ------- -------
63,027 47,346 47,346
RADIO - NEW ZEALAND 5,393 4,116 4,116
ENTERTAINMENT - CANADA (1,032) 1,626 1,626
PUBLICATIONS AND ONLINE - CANADA 52,959 62,442 55,489
OUTDOOR - AUSTRALIA 460 (188) (188)
------- ------- -------
SEGMENT OPERATING PROFIT 120,807 115,342 108,389
Corporate expenses 5,582 6,506 6,506
------- ------- -------
OPERATING PROFIT (EBITDA) 115,225 108,836 101,883
======= ======= =======
(1) Combined results include the Company's 57.5% (57.2% from February 28, 2003)
economic interest in Network TEN.
(2) Proforma results exclude the results of community newspapers sold on August
8, 2002.
28
CANWEST GLOBAL COMMUNICATIONS CORP. (1)
COMBINED BUSINESS SEGMENT INFORMATION
(IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE SIX MONTHS ENDED FEBRUARY 28
-----------------------------------------------
2003 2002 2002
ACTUAL ACTUAL PROFORMA
(2)
REVENUE
TELEVISION
Canada 385,826 356,211 356,211
Australia - Network TEN 159,942 128,554 128,554
New Zealand - TV3 and TV4 45,453 31,487 31,487
Ireland - TV3 17,964 14,934 14,934
--------- --------- ---------
609,185 531,186 531,186
RADIO - NEW ZEALAND 37,010 30,341 30,341
ENTERTAINMENT - CANADA 83,223 98,626 98,626
PUBLICATIONS AND ONLINE - CANADA 599,437 644,010 590,940
OUTDOOR - AUSTRALIA 18,463 19,214 19,214
Inter-segment revenue (4,110) (3,899) (3,899)
--------- --------- ---------
TOTAL REVENUE 1,343,208 1,319,478 1,266,408
========= ========= =========
OPERATING PROFIT
TELEVISION
Canada 123,889 107,387 107,387
Australia - Network TEN 55,902 44,792 44,792
New Zealand - TV3 and TV4 6,973 (2,402) (2,402)
Ireland - TV3 5,915 4,713 4,713
--------- --------- ---------
192,679 154,490 154,490
RADIO - NEW ZEALAND 10,747 8,386 8,386
ENTERTAINMENT - CANADA 583 5,726 5,726
PUBLICATIONS AND ONLINE - CANADA 134,753 150,145 134,585
OUTDOOR - AUSTRALIA 1,329 1,085 1,085
--------- --------- ---------
SEGMENT OPERATING PROFIT 340,091 319,832 304,272
Corporate expenses 10,469 10,990 10,990
--------- --------- ---------
OPERATING PROFIT (EBITDA) 329,622 308,842 293,282
========= ========= =========
(1) Combined results include the Company's 57.5% (57.2% from February 28, 2003)
economic interest in Network TEN.
(2) Proforma results exclude the results of community newspapers sold on August
8, 2002.
29