Exhibit 2
CANWEST GLOBAL COMMUNICATIONS CORP.
INTRODUCTION
Market conditions during the quarter ended November 30, 2002 showed continued
improvement from the previous quarter. Both revenues and operating profits
(EBITDA) were higher than for the same period in 2002, with an operating profit
improvement of 9% when the comparison is made on a same asset (pro-forma) basis.
Improvement in operating results was evident at the Company's international
broadcasting operations, particularly in the South Pacific where television
operations in Australia and New Zealand recorded significant revenue and EBITDA
improvements. Economic indicators and feedback from both television and
newspaper advertising markets suggest that the improvement in operating results
should continue through the current fiscal year.
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 industry in New Zealand, the
newspaper publishing industry in Canada, and has an interest in the out-of-home
advertising industry 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 following discussion is based on the Company's consolidated results for the
three month period ended November 30, 2002. Comparisons with the prior year's
results are affected by corporate development initiatives and accordingly, the
Company also provides pro forma comparatives for revenue and EBITDA. Pro forma
revenue and EBITDA reflect the sale of certain publishing interests in
Saskatchewan and Atlantic Canada to GTC Transcontinental in August 2002 as if it
had occurred at the beginning of fiscal 2002.
The following is a reconciliation of actual revenue and EBITDA to proforma
revenue and EBITDA for the three months ending November 30, 2001:
Revenue EBITDA(1)
$000 $000
As reported 642,580 171,090
Publishing properties divested (26,329) (8,607)
------- -------
Proforma 616,251 162,483
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
any interest on subordinated debentures and dividends received by the Company.
TRENDS
The Company has historically derived more than 80% 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 quarter of 2003 appear to confirm that the Canadian economy has
rebounded with a more rapid resumption of economic growth than in other major
economies.
Feedback from both television and newspaper advertising markets suggests that
the improvement in operating results evident in the first quarter should
continue through the current fiscal year. Advance bookings for the second
quarter of fiscal 2003 indicate a sustained strengthening of the television
advertising market, with a similar trend now evident for newspapers as well.
(1) EBITDA is not a recognized measure under Canadian GAAP. Management believes
that in addition to net income, EBITDA is a useful supplemental measure as
it provides investors with an indication of cash available for distribution
prior to debt service, capital expenditures and income taxes. Investors
should be cautioned, however, that EBITDA should not be construed as an
alternative to net income determined in accordance with GAAP as an indicator
of the Company's performance. The Company's methodology in calculating
EBITDA may differ from other companies' and, accordingly, EBITDA may not be
comparable to measures used by other companies.
2
2003 INTERIM REPORT TO SHAREHOLDERS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002
CanWest's Canadian television stations and metropolitan newspapers remained the
most highly rated and most read properties in their respective markets and it is
management's opinion that this leadership position has been instrumental in
helping the Company's revenue and operating profit rebound quickly from the
effects of the economic slowdown in the first half of fiscal 2002.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002
Consolidated revenue for the quarter was $634 million compared to $616 million
last year on a pro forma basis, an increase of 3%. Consolidated operating profit
(EBITDA) for the quarter was $177 million, up 9% from the $162 million generated
by the same properties on a pro forma basis in the first quarter of 2002. Actual
EBITDA for the first quarter last year was $171 million, and included the
contribution from properties sold to GTC Transcontinental in August 2002. Cash
flow from operations before changes in non-cash working capital and investment
in and amortization of film and television programs for the first quarter was
$101 million or $0.57 per share, up 26% from the $80 million or $0.45 per share
recorded in the corresponding period last year.
Canadian television revenue, including the Prime specialty channel, increased by
$12 million or 6%, to $213 million for the quarter. Canadian broadcast operating
profit (EBITDA) increased by $6 million or 8% to $82 million. Market data
provided by the Bureau of Broadcast Measurement indicates that Global Television
stations continue to lead the ratings in prime time. Global Television ranked
first for the season in the 18-49 demographic winning all 16 weeks overall, and
winning 14 of 16 weeks in primetime. Global Ontario 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 led the prime time ratings in Vancouver, with 12 of the top 20
programs.
Canadian television operating expenses were up by $5 million or 4% in the first
quarter compared to last year. This primarily reflects increased programming
costs arising from new programs that continue to drive ratings and the timing of
releases of first run U.S. network series. This includes the continuation of the
top ranked Survivor series and popular continuing series such as Friends,
Everybody Loves Raymond and 24 which airs on the Company's CH stations.
Publications revenue for the first quarter was $314 million, up slightly from
the pro forma revenues of $313 million last year. Run of press linage continues
to be flat overall but with some upward trends through the reporting period in
the retail and national sectors. The quarter was affected negatively by a labour
shutdown at the Victoria Times-Colonist which began at the beginning of the
reporting period and continued through the first week of November 2002.
Publications EBITDA for the first quarter increased by 2%, to $82 million from
the $81 million recorded for the same period last year on a pro forma basis.
Newsprint costs at CanWest Publications were down $9 million for the quarter
compared to last year, reflecting both volume and price reductions.
CanWest's share of first quarter revenue from TV3 in Ireland in local currency
was up 8% to 13 million compared to the same period in 2002. EBITDA was E 3
million, up 4% over the same three months last year.
Results for TV3 and TV4 in New Zealand improved substantially for the quarter,
due to a combination of an improving New Zealand economy, a stronger New Zealand
dollar, and increasing audience ratings at TV3. Television revenue was 25%
higher than the same quarter one year ago increasing to NZ$35 million from NZ$28
million. EBITDA improved dramatically, increasing by NZ$9 million to NZ$10
million. New Zealand radio revenue of NZ$24 million was about the same as last
year in local currency terms, with EBITDA NZ$7.1 million, 10% higher than the
same quarter last year. In Canadian dollars, radio operations in New Zealand
contributed EBITDA of $5 million in the quarter, while New Zealand television
operations reported an increase in EBITDA to $7 million from $1 million a year
ago. Results from New Zealand were translated at $0.75, 15% higher than the rate
of translation in the same quarter last year.
Fireworks Entertainment, CanWest's feature film and program production and
distribution division, continued to be affected by a weak international
distribution market, particularly in Europe, and the fact that it had no major
feature film releases during the quarter. EBITDA declined to $2 million for the
quarter compared to $4 million in the same quarter last year. Revenue was also
down by 16% to $48 million. During the reporting period Fireworks finalized a
$172 million ($US 110 million) stand-alone credit facility that will enable the
company to finance future television and feature film projects.
Corporate and development costs increased marginally over the first quarter in
2003 to $5 million.
3
CANWEST GLOBAL COMMUNICATIONS CORP.
Financing costs were $92 million in the quarter, compared to $105 million for
the three months ending November 30, 2001, reflecting lower debt levels and
interest rates.
Depreciation and amortization cost for the quarter totaled $25 million, compared
to $23 million for the same three months in 2002. Income taxes totaled $18
million for the quarter, compared to $20 million for the same quarter last year.
The effective tax rate for the 3 months ended November 30, 2002 at 29% is
significantly less than the statutory rate of approximately 39% primarily as a
result of the effect of tax loss carry forwards which were not recognized in
prior years.
The Company's interest in income from Network TEN was $26 million, an increase
of $6 million, or 33%, over the same period last year. Television revenue at
Network TEN, was A$193 million for the quarter, compared to revenue of A$161
million last year. Television EBITDA at TEN increased by 24%, to A$74 million in
the first quarter of 2003 compared to the A$60 million during the same period
last year. Our share of revenue and EBITDA were improved 29% to $96 million and
34% to $37 million, respectively. Average rates of exchange of Australian
dollars to Canadian dollars were 8% higher for the quarter in 2003 compared to
the same period in 2002.
TEN's recent ratings gains, attributed to locally produced Big Brother and the
success of its other Australian drama and sports programming, continued through
the first quarter and into the current quarter. Network TEN's strong ratings
translated into increased revenue share of the overall TV advertising market in
Australia.
Eye Corp. generated revenue of A$21 million in the quarter, down 11% from the
same quarter last year. EBITDA for the quarter was A$2 million, a decrease from
the A$3 million recorded in the same quarter a year earlier.
CanWest reported net earnings of $68 million or $0.39 per share for the quarter.
Net earnings reported for the same quarter last year were $108 million or $0.61
per share. The net earnings result last year included a gain on the sale of
CKVU, which added $63 million to the result. Excluding this gain, net earning in
the current period represent an increase of $23 million over last year's
reported results.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations before investment and amortization of film and
television programs and changes in non-cash working capital amounted to $101
million for the three months ending November 30, 2002, $21 million higher than
in the same period last year.
Changes in non-cash working capital amounted to a use of funds of $185 million
for the three months compared to a use of $150 million for the same quarter last
year.
Capital spending in the first quarter totaled $5 million compared to $14 million
for the same quarter last year. Current year capital spending reflects normal
repair and replacement expenditures.
The Company made principal debt repayments totaling $40 million in the first
quarter and received advances under the Fireworks loan facility of $89 million.
Scheduled repayments of the Company's senior credit facility amount to $127
million over the next twelve months.
In December 2002, the Company redeemed its Series 2 Preference Shares for cash
of $57.7 million. Also in December, the Company received an interim distribution
on interest and dividends from Network TEN totaling $30 million.
Usage, including outstanding letters of credit under the Company's senior credit
facility at November 30, 2002 was $1,840 million, leaving unused negotiated
credit of $492 million at November 30, 2002.
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%.
Total long-term debt of $3,588 million includes $977 million in junior
subordinated notes, which bear interest payable in kind through November 2005.
Total drawn debt from third parties at Fireworks at November 30, 2002 was $89
million. Network TEN had drawn A$395 million of its A$700 million credit
facility and had cash on hand of A$51 million at November 30, 2002. Senior
leverage under the Company's senior credit facility was 3.67 times EBITDA for
the 12 months ended November 30, 2002, compared to a covenant of 4.75 times and
for the same period total leverage was 5.1 times EBITDA compared to a covenant
of 5.75 times. In addition, the Company had cash and short term investments
amounting to $31 million at November 30, 2002.
4
2003 INTERIM REPORT TO SHAREHOLDERS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002
OUTLOOK
Markets for all operating units have strengthened considerably in the first
quarter of 2003 in particular the television operations in Canada, Australia and
New Zealand. The Company expects this positive trend to continue for the next
quarter and the balance of the fiscal year.
Advanced bookings for television indicate continued strong advertiser demand in
fiscal 2003. Global Television continues to lead ratings, particularly in prime
time, in the key markets of Toronto and Vancouver The Company's flagship
national news program Global National with Kevin Newman has been embraced by
Canadian television audiences and has surpassed the audience numbers of the CBC
National, and is closing in on the CTV National newscast.
Overall newspaper advertising linage remains flat but improvements in certain
sectors, particularly national and retail advertising during the reporting
period suggest improvements overall in future months and should contribute to
increased EBITDA of our newspaper assets going forward. The newspapers are
maintaining the lower cost base achieved through operating improvements made
over the past 18 months. Circulation remains stable in general and is increasing
in some markets, notably Montreal where the bringing online a new printing press
provided an opportunity to re-launch the Gazette during the first quarter of
fiscal 2003.
The Company's six new digital specialty channels have remained among the most
popular among Canadian digital television subscribers with 2.6 million
subscribers. These new stations will become increasingly important as the number
of subscribers to digital television services continues to grow and advertisers
respond to the unique ability of specialty channels to access niche markets. As
well new channels now in planning stages should increase CanWest's footprint
among the digital services in the second and third quarter of fiscal 2003.
The Company will also enter the radio market in Canada in the third quarter of
fiscal 2003 with the launch of COOL 99.1 FM in Winnipeg. The Company has also
filed applications with the Canadian Radio-television and Telecommunications
Commission for additional radio stations. Management believes the addition of
radio to the already comprehensive offering of conventional and digital
television, newspapers and online properties, will further enhance CanWest's
offering to Canadian advertisers.
The Company's interactive properties have been realigned to include Infomart, an
online news archives subscriber service, and FP Data Group, a financial data
subscriber service. CanWest web sites attracted 2.4 million unique visitors in
October, 2002, making canada.com the most visited Canadian owned news site.
As previously stated, reducing corporate debt remains the top priority of the
Company. Subsequent to the reporting period the Company announced an agreement
had been reached to sell our community newspapers in Southern Ontario, including
four small daily newspapers and associated properties to Osprey Media. The sale,
which is expected to close in mid-February 2003, is for $193.5 million, which
will be used to reduce corporate debt.
CanWest's other immediate priorities are to pursue additional operational
efficiencies and cost reductions at all units; to build on the progress already
made in integrating television, publishing and interactive assets as
complementary and mutually supportive media businesses, to expand its national
and local multi-platform advertising sales, and to complete the corporate
services projects that will provide both cost savings and improved service to
internal and external clients.
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.
5
CANWEST GLOBAL COMMUNICATIONS CORP.
[PRICEWATERHOUSECOOPERS LOGO]
PricewaterhouseCoopers LLP
Chartered Accountants
One Lombard Place
Suite 2300
Winnipeg Manitoba
Canada R3B 0X6
Telephone +1 (204) 926 2400
Facsimile +1 (204) 944 1020
TO THE AUDIT COMMITTEE OF
CANWEST GLOBAL COMMUNICATIONS CORP.
January 17, 2003, except for note 8 which is of April 3, 2003 and the revision
to note 10 which is as of June 6, 2003
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 November 30, 2002, and the related
interim consolidated statements of earnings, retained earnings and cash flows
for the three 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 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.
Our previous report dated January 17, 2003 has been withdrawn and the financial
information in accordance with the United States Generally Accepted Accounting
Principles in note 10 has been revised as described under the headings Revision
to 2002 and prior period's information.
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.
PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
6
2003 INTERIM REPORT TO SHAREHOLDERS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands of Canadian dollars)
As of
----------------------------------
November 30, August 31,
2002 2002
ASSETS
Current Assets
Cash 31,489 61,090
Accounts receivable 607,685 470,246
Income taxes recoverable 16,858 33,334
Inventory 14,908 19,836
Investment in film and television programs 92,462 98,096
Future income taxes 29,174 30,013
Other 13,086 13,726
--------- ---------
805,662 726,341
Investment in Network TEN 31,005 4,494
Other investments 162,583 162,361
Investment in film and television programs 366,551 317,176
Property, plant and equipment 670,315 679,224
Other assets 104,686 103,975
Intangibles 1,101,373 1,096,458
Goodwill 2,632,033 2,631,099
--------- ---------
5,874,208 5,721,128
========= =========
LIABILITIES
Current Liabilities
Bank loans and advances 27,858 -
Accounts payable 155,401 164,988
Accrued liabilities 194,348 227,104
Film and television program accounts payable 57,414 64,834
Deferred revenue 68,874 60,596
Current portion of long term debt 154,465 172,753
--------- ---------
658,360 690,275
Long term debt 3,433,225 3,337,163
Other accrued liabilities 82,842 86,217
Future income taxes 438,157 431,562
--------- ---------
4,612,584 4,545,217
--------- ---------
SHAREHOLDERS' EQUITY
Capital stock 896,439 896,422
Contributed surplus 3,647 3,647
Retained earnings 385,811 317,376
Cumulative foreign currency translation adjustments (24,273) (41,534)
--------- ---------
1,261,624 1,175,911
--------- ---------
5,874,208 5,721,128
========= =========
The notes constitute an integral part of the consolidated financial statements.
7
CANWEST GLOBAL COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE 3 MONTHS ENDED NOVEMBER 30
(UNAUDITED)
(In thousands of Canadian dollars except as otherwise noted)
2002 2001
---------------------------
REVENUE 633,563 642,580
Operating expenses 302,293 334,177
Selling general and administrative expenses 154,767 137,313
-------- ---------
176,503 171,090
Amortization of intangibles 4,375 4,375
Amortization of property, plant and equipment 19,211 17,984
Other amortization 1,382 838
-------- ---------
151,535 147,893
Financing expenses (92,332) (104,910)
Dividend income 1,533 1,358
-------- ---------
60,736 44,341
Gain on sale of CKVU - 63,020
-------- ---------
60,736 107,361
Provision for income taxes 17,748 19,744
-------- ---------
EARNINGS BEFORE THE FOLLOWING 42,988 87,617
Minority interests - 2,075
Interest in earnings of Network TEN 25,777 19,442
Interest in loss of other equity accounted affiliates (330) -
Realized currency translation adjustment - (1,000)
-------- ---------
NET EARNINGS FOR THE PERIOD 68,435 108,134
======== =========
NET EARNINGS PER SHARE
Basic $ 0.39 $ 0.61
Diluted $ 0.36 $ 0.60
8
2003 INTERIM REPORT TO SHAREHOLDERS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
FOR THE 3 MONTHS ENDED NOVEMBER 30
(UNAUDITED)
(In thousands of Canadian dollars)
2002 2001
---------------------
Retained earnings - beginning of year, as previously reported 317,376 475,053
Adjustment for adoption of new accounting pronouncements - (170,695)
------- -------
Retained earnings - beginning of the year, as adjusted 317,376 304,358
Net earnings for the period 68,435 108,134
------- -------
Retained earnings - end of period 385,811 412,492
======= =======
9
CANWEST GLOBAL COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 3 MONTHS ENDED NOVEMBER 30
(UNAUDITED)
(In thousands of Canadian dollars except as otherwise noted)
2002 2001
---------------------------------
CASH GENERATED (UTILIZED) BY:
OPERATING ACTIVITIES
Net earnings for the period 68,435 108,134
Items not affecting cash
Amortization 27,410 25,620
Interest paid in kind 28,374 25,209
Future income taxes 2,092 4,335
Interest in earnings of Network TEN (25,777) (19,442)
Interest in loss of other equity accounted affiliates 330 -
Minority interests - (2,075)
Realized currency translation adjustments - 1,000
Gain on sale of CKVU - (63,020)
--------- ---------
100,864 79,761
Investment in film and television programs (56,774) (78,451)
Amortization of film and television programs 39,696 46,247
Other changes in non-cash operating accounts (184,745) (150,217)
--------- ---------
(100,959) (102,660)
--------- ---------
INVESTING ACTIVITIES
Other investments (560) -
Proceeds from sale of other investments - 87,000
Proceeds from divestitures - 133,039
Purchase of property, plant and equipment (5,358) (14,475)
--------- ---------
(5,918) 205,564
--------- ---------
FINANCING ACTIVITIES
Issuance of long term debt 89,076 -
Repayment of long term debt (39,675) (91,622)
Issuance of share capital 17 62
Net change in bank loans and advances 27,858 (8,094)
--------- ---------
77,276 (99,654)
--------- ---------
NET CHANGE IN CASH (29,601) 3,250
CASH - BEGINNING OF YEAR 61,090 19,489
--------- ---------
CASH - END OF PERIOD 31,489 22,739
========= =========
CASH FLOW PER SHARE
Basic $ 0.57 $ 0.45
Diluted $ 0.54 $ 0.44
The notes constitute an integral part of the consolidated financial statements.
10
2003 INTERIM REPORT TO SHAREHOLDERS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 3 MONTHS ENDED NOVEMBER 30, 2002 AND 2001
(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 distribution 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 57.5% economic
interest 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.
2. ACQUISITIONS AND DIVESTITURES
(a) 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.
(b) On October 31, 2001, the Company completed the sale of CKVU Sub Inc. and
received proceeds of $133.0 million.
(c) 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
The Company owns approximately 15% 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 57.5% 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 50% 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.
11
CANWEST GLOBAL COMMUNICATIONS CORP.
SUMMARY CONSOLIDATED BALANCE SHEETS
As of
---------------------------
November 30 August 31
2002 2002
Assets
Current assets 263,631 285,303
Other assets 1,850 4,825
Property, plant and equipment 74,427 71,875
Long term investments 6,203 2,188
Intangibles 252,068 246,305
Goodwill 50,489 49,304
------- -------
648,668 659,800
======= =======
Liabilities and Shareholders' Equity
Current liabilities 191,438 191,736
Long term liabilities 383,094 442,975
Subordinated debentures issued to the Company 40,154 40,154
Share capital 40,146 40,146
Retained earnings (deficit) (4,461) (52,232)
Cumulative foreign currency translation adjustment (1,703) (2,979)
------- -------
648,668 659,800
======= =======
OTHER CONSOLIDATED FINANCIAL DATA
For the three months
ended November 30
----------------------------
2002 2001
Cash flow from operations (1) 51,400 38,700
====== =======
Distributions paid - 111,900
====== =======
Capital expenditures 4,600 7,500
====== =======
(1) Cash flow from operations before changes in non-cash operating accounts.
12
2003 INTERIM REPORT TO SHAREHOLDERS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002
SUMMARY CONSOLIDATED STATEMENTS OF EARNINGS
For the three months
ended November 30
-----------------------
2002 2001
Revenue 185,124 148,136
Operating expenses 119,221 97,846
------- -------
Operating profit before amortization 65,903 50,290
Amortization of property, plant, equipment and other 3,662 3,416
------- -------
62,241 46,874
Financing expenses (29,668) (22,779)
------- -------
32,573 24,095
Provision for income taxes 9,828 7,289
------- -------
Earnings before the following 22,745 16,806
Minority interests 42 721
------- -------
Net earnings for the period 22,787 17,527
Interest in respect of subordinated debentures held by the Company 24,984 18,368
------- -------
Earnings for the year before interest in respect of subordinated
debentures 47,771 35,895
======= =======
SUMMARY STATEMENT OF RETAINED EARNINGS
For the three months
ended November 30
----------------------
2002 2001
Retained earnings (deficit) - beginning of year (52,232) 94,142
Earnings for the period before interest in respect of
subordinated debentures 47,771 35,895
Distributions paid - (123,984)
------- --------
Retained earnings (deficit) - end of period (4,461) 6,053
======= ========
The Company's economic interest in Network TEN's earnings for the three months
ended November 30, 2002 is $25.8 million (2001- $19.4 million).
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 November 30, 2002 total availability was US$63.3
million, of which US$57.2 million was advanced.
13
CANWEST GLOBAL COMMUNICATIONS CORP.
5. EARNINGS PER SHARE
The following table provides a reconciliation of the denominators used in
computing basic and diluted earnings and cash flow per share. Cash flow is
defined as cash flow from operations excluding amortization of and investment in
film and television programs and changes in non-cash operating accounts.
For the three months
ended November 30
--------------------------------------
2002 2001
Basic weighted average shares outstanding during the period 177,064,433 176,649,477
Dilutive effect of options 4,115 26,710
Dilutive effect of preference shares 11,117,534 4,860,661
----------- -----------
Diluted weighted average shares outstanding during the period 188,186,082 181,536,848
=========== ===========
During the period, the Company had 1,748,747 options outstanding which would
have been antidilutive (2001 - 1,669,553 options).
6. STOCK BASED COMPENSATION
The Company utilizes the intrinsic value approach to accounting for stock
compensation expense. No stock options were issued during the period. The pro
forma cost of stock option expense for the three months ended November 30, 2002
was $309,033 (2001 - $289,916) A value of $4,238,967 will be charged to pro
forma earnings in future periods according to the vesting terms of the options.
The resulting pro forma net earnings and diluted earnings per share for the
three months ended November 30, 2002 are $0.39 and $0.36, respectively (2001 -
$0.61 and $0.59).
7. CONTINGENCY
On March 5, 2001, a statement of claim was filed against the Company and certain
of the Company's subsidiaries by 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.
8. SUBSEQUENT EVENTS
(a) Subsequent to the end of the period, 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. The shares were redeemed on
December 18, 2002 and the Company financed the redemption through its senior
credit facility.
(b) In December 2002 the Company received an interim distribution from Network
TEN of approximately $30 million.
(c) In February 2003, the Company sold its 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.
(d) In April 2003, the Company issued US$200 million in 7.625% senior unsecured
notes due April 15, 2013. The proceeds were used to finance the repayment of
$275 million of obligations under the 12.125% junior subordinated notes.
9. SEGMENTED INFORMATION
The Company operates primarily within the publishing, online, broadcasting and
entertainment industries in Canada, New Zealand, Ireland and Australia.
14
2003 INTERIM REPORT TO SHAREHOLDERS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002
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 Canadian dollars is as follows:
For the three months
ended November 30
----------------------
2002 2001
REVENUE
Television
Canada 212,537 200,768
Canada - operations in development 1,969 -
New Zealand - TV3/4 26,211 18,363
Ireland - TV3 10,101 8,532
------- -------
250,818 227,663
Radio - New Zealand 17,845 15,304
Entertainment - Canada 48,044 57,528
Publications - Canada 314,302 339,197
Online operations - Canada 5,594 5,267
Inter-segment revenues (3,040) (2,379)
------- -------
TOTAL REVENUE 633,563 642,580
======= =======
OPERATING PROFIT
Television
Canada 81,821 75,483
Canada - operations in development (424) -
New Zealand - TV3/4 7,243 718
Ireland - TV3 3,987 3,300
------- -------
92,627 79,501
Radio - New Zealand 5,354 4,270
Entertainment - Canada 1,615 4,100
Publications - Canada 82,250 89,602
Online operations - Canada (456) (1,899)
------- -------
SEGMENT OPERATING PROFIT 181,390 175,574
Corporate expenses 4,887 4,484
------- -------
OPERATING PROFIT 176,503 171,090
======= =======
10. 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 last annual financial statements.
15
CANWEST GLOBAL COMMUNICATIONS CORP.
REVISION OF 2002 AND PRIOR PERIOD'S INFORMATION
The Company's 2001 and subsequent periods net income has been revised to reflect
certain adjustments to previously reported net income in accordance with US GAAP
for the accounting for derivative financial instruments. The Company has
determined, notwithstanding their designation as hedges and achievement of their
intended economic purpose, that its cross currency interest rate and interest
rate swaps did not meet all of the criteria required for hedge accounting under
FAS 133. As result, the unrealized gains and losses on derivative financial
instruments are included in net income as they arise whereas previously these
amounts were included in other comprehensive income. These adjustments resulted
in increasing net income for the three months ended November 30, 2002 by $0.5
million (net income taxes of ($1.9 million) and decreasing net income for the
three months ended November 30, 2001 by $19.2 million (net of income taxes of
($8.4 million)).
CONSOLIDATED STATEMENTS OF EARNINGS
The following is a reconciliation of net earnings reflecting the differences
between Canadian and U.S. GAAP:
For the three months
ended November 30
------------------------
2002 2001
Revised Revised
Net earnings in accordance with Canadian GAAP 68,435 108,134
Pre-operating costs - net of tax of ($242) (2001 - $946) 748 (810)
Realization of cumulative currency translation adjustments net of tax of nil - 1,000
Integration costs related to CanWest Publications net of tax of $109 (193) -
Programming costs imposed by regulatory requirement
net of tax of $620 (2001 - $714) (822) (946)
Equity accounted affiliates in trust net of tax of nil - 3,375
Unrealized gains (losses) on interest rate and cross currency
interest rate swaps net of taxes of $1,856 (2001-($8,382)) 457 (19,281)
-------- ----------
Net earnings in accordance with U.S. GAAP before
cumulative effect of adoption of new accounting policies 68,625 91,472
Cumulative effect of adoption of new accounting
policies net of tax of $2,500 - (170,695)
-------- ----------
Net earnings (loss) in accordance with U.S. GAAP 68,625 (79,223)
======== ==========
Earnings per share:
Net earnings before cumulative effect of adoption of new accounting policies
Basic $ 0.39 $ 0.52
Diluted $ 0.36 $ 0.50
Net earnings (loss)
Basic $ 0.39 ($ 0.45)
Diluted $ 0.36 ($ 0.44)
16
2003 INTERIM REPORT TO SHAREHOLDERS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002
The following financial information has been prepared on a combined basis to
proportionately consolidate the Company's 57.5% 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.
COMBINED STATEMENTS OF EARNINGS
FOR THE 3 MONTHS ENDED NOVEMBER 30
(UNAUDITED)
(In thousands of Canadian dollars except as otherwise noted)
2002 2001
-------- ---------
Revenue 740,009 727,758
Operating expenses 520,725 523,268
-------- ---------
Operating profit before undernoted 219,284 204,490
Corporate and development expenses 4,887 4,484
-------- ---------
Operating profit before amortization (EBITDA) 214,397 200,006
Amortization of intangibles 4,375 4,375
Amortization of capital assets 21,228 18,944
Other amortization 1,471 1,842
-------- ---------
Earnings before financing expenses (EBIT) 187,323 174,845
Financing expenses (95,001) (107,447)
Dividend income 1,533 1,358
-------- ---------
93,855 68,756
Gain on sale of CKVU - 63,020
-------- ---------
Earnings before income taxes 93,855 131,776
Provision for income taxes 25,090 25,132
-------- ---------
Earnings before the following 68,765 106,644
Minority interests - 2,490
Interest in loss of equity accounted affiliates (330) -
Realized currency translation adjustment - (1,000)
-------- ---------
Net earnings 68,435 108,134
======== =========
Net earnings per share: (1)
Basic $ 0.39 $ 0.61
Diluted $ 0.36 $ 0.60
(1) Earnings per share have been calculated on the basis of the weighted
average number of shares outstanding during the three months of 177,064,433
(2001 - 176,649,477).
17
CANWEST GLOBAL COMMUNICATIONS CORP.
COMBINED BALANCE SHEETS
(UNAUDITED)
(In thousands of Canadian dollars)
As of
--------------------------
November 30, August 31,
2002 2002
ASSETS
Current Assets
Cash 57,391 66,904
Accounts receivable 682,605 527,475
Income taxes recoverable 5,548 67,253
Inventory 14,908 19,836
Investment in film and television programs 136,907 161,771
Future income taxes 29,174 30,013
Other 19,409 19,654
------------ ----------
945,942 892,906
Other investments 166,149 163,619
Investment in film and television programs 366,551 317,176
Property, plant and equipment 727,303 734,499
Other assets 105,752 106,750
Intangibles and goodwill 3,880,125 3,870,526
------------ ----------
6,191,822 6,085,476
============ ==========
LIABILITIES
Current Liabilities
Bank loans and advances 27,858 -
Accounts payable and accrued liabilities 410,261 479,365
Film and program accounts payable 83,720 64,834
Deferred revenue 69,236 60,596
Current portion of long term debt 156,670 187,167
------------ ----------
747,745 791,962
Long term debt 3,634,748 3,566,116
Other accrued liabilities 89,707 100,259
Future income taxes 457,998 451,228
------------ ----------
4,930,198 4,909,565
------------ ----------
SHAREHOLDERS' EQUITY
Capital stock 896,439 896,422
Contributed surplus 3,647 3,647
Retained earnings 385,811 317,376
Cumulative foreign currency translation adjustments (24,273) (41,534)
------------ ----------
1,261,624 1,175,911
------------ ----------
6,191,822 6,085,476
============ ==========
18
2003 INTERIM REPORT TO SHAREHOLDERS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002
COMBINED STATEMENTS OF RETAINED EARNINGS
FOR THE 3 MONTHS ENDED NOVEMBER 30
(UNAUDITED)
(In thousands of Canadian dollars)
2002 2001
------------------
Retained earnings, - beginning of year, as previously reported 317,376 475,053
Adjustment for adoption of new accounting pronouncements - (170,695)
------- --------
Retained earnings - beginning of year, as adjusted 317,376 304,358
Net earnings for the period 68,435 108,134
------- --------
Retained earnings - end of period 385,811 412,492
======= ========
19
CANWEST GLOBAL COMMUNICATIONS CORP.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE 3 MONTHS ENDED NOVEMBER 30
(UNAUDITED)
(In thousands of Canadian dollars except as otherwise noted)
2002 2001
---------------------
CASH GENERATED (UTILIZED) BY:
OPERATING ACTIVITIES
Net earnings for the period 68,435 108,134
Items not affecting cash
Amortization 29,517 27,584
Interest paid in kind 28,374 25,209
Future income taxes 2,092 4,207
Interest in loss of equity accounted affiliates 330 -
Minority interests - (2,490)
Gain on sale of CKVU - (63,020)
Realized currency translation adjustments - 1,000
--------- ---------
128,748 100,624
Investment in film and television programs (56,774) (78,451)
Amortization of film and television programs 39,696 46,247
Other changes in non-cash operating accounts (150,232) (186,743)
--------- ---------
(38,562) (118,323)
--------- ---------
INVESTING ACTIVITIES
Other investments (560) -
Proceeds from sale of other investments - 87,000
Proceeds from divestitures - 133,039
Purchase of property, plant and equipment (8,028) (18,794)
--------- ---------
(8,588) 201,245
--------- ---------
FINANCING ACTIVITIES
Dividends paid - -
Issuance of long term debt 89,076 -
Repayment of long term debt (79,314) (75,860)
Issuance of share capital 17 62
Net change in bank loans and advances 27,858 (8,094)
--------- ---------
37,637 (83,892)
--------- ---------
NET CHANGE IN CASH (9,513) (970)
CASH - BEGINNING OF PERIOD 66,904 29,718
--------- ---------
CASH - END OF PERIOD 57,391 28,748
========= =========
CASH FLOW FROM OPERATIONS PER SHARE: (1)
Basic $ 0.73 $ 0.57
Diluted $ 0.68 $ 0.55
(1) Cash flow from operations per share have been calculated on the
basis of the weighted average number of shares outstanding during
the three months of 177,064,433 (2001 - 176,649,477).
20
2003 INTERIM REPORT TO SHAREHOLDERS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002
COMBINED BUSINESS SEGMENT INFORMATION (1)
(UNAUDITED)
(In thousands of Canadian dollars)
For the three months
ended November 30
-----------------------------------------
2002 2001 2001
Actual Actual Proforma (2)
REVENUE
Television
Canada 212,537 200,768 200,768
Australia - Network TEN 96,239 74,538 74,538
New Zealand - TV3 and TV4 26,211 18,363 18,363
Ireland - TV3 10,101 8,532 8,532
------- ------- ---------
345,088 302,201 302,201
Television operations in development - Canada 1,969 - -
Radio - New Zealand 17,845 15,304 15,304
Entertainment - Canada 48,044 57,528 57,528
Publications - Canada 314,302 339,197 312,868
Outdoor - Australia 10,207 10,640 10,640
On-line Operations - Canada 5,594 5,267 5,267
Inter-segment revenues (3,040) (2,379) (2,379)
------- ------- ---------
TOTAL REVENUE 740,009 727,758 701,429
======= ======= =========
OPERATING PROFIT
Television
Canada 81,821 75,483 75,483
Australia - Network TEN 37,025 27,643 27,643
New Zealand - TV3 and TV4 7,243 718 718
Ireland - TV3 3,987 3,300 3,300
------- ------- ---------
130,076 107,144 107,144
Television operations in development - Canada (424) - -
Radio - New Zealand 5,354 4,270 4,270
Entertainment - Canada 1,615 4,100 4,100
Publications - Canada 82,250 89,602 80,995
Outdoor - Australia 869 1,273 1,273
On-line Operations - Canada (456) (1,899) (1,899)
------- ------- ---------
SEGMENT OPERATING PROFIT 219,284 204,490 195,883
------- ------- ---------
Corporate expenses 4,887 4,484 4,484
------- ------- ---------
OPERATING PROFIT (EBITDA) 214,397 200,006 191,399
======= ======= =========
(1) Combined results include the Company's 57.5% economic interest in Network
TEN.
(2) Proforma results exclude the results of Community newspapers sold effective
August 7, 2002.
21