Exhibit 2
CANWEST GLOBAL COMMUNICATIONS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED MAY 31, 2003 AND 2002
(UNAUDITED)
[LETTERHEAD OF PRICEWATERHOUSECOOPERS]
July 17, 2003
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 May 31, 2003 and the related interim
consolidated statements of earnings, retained earnings and cash flows for the
three and nine month periods 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.
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 NINE MONTHS ENDED
MAY 31 MAY 31 MAY 31 MAY 31
2003 2002 2003 2002
REVENUE 593,212 617,014 1,758,015 1,788,724
Operating expenses 317,364 313,965 912,123 941,415
Selling, general and administrative expenses 125,967 148,220 423,620 429,515
Restructuring expenses 21,053 - 21,053 -
---------- ---------- ---------- ----------
128,828 154,829 401,219 417,794
Amortization of intangibles 4,375 4,375 13,125 13,125
Amortization of property, plant and equipment 17,419 19,133 55,117 55,364
Other amortization 1,313 1,660 5,165 4,831
---------- ---------- ---------- ----------
OPERATING INCOME 105,721 129,661 327,812 344,474
Financing expenses (93,287) (88,544) (279,478) (286,223)
Dividend income 1,999 1,883 3,532 3,241
---------- ---------- ---------- ----------
14,433 43,000 51,866 61,492
Investment gain (loss) net of write downs (2,277) - 19,831 63,020
Interest rate swap loss (4,767) - (13,634) -
---------- ---------- ---------- ----------
7,389 43,000 58,063 124,512
Provision for income taxes 8,670 20,342 16,010 31,902
---------- ---------- ---------- ----------
EARNINGS (LOSS) BEFORE THE FOLLOWING (1,281) 22,658 42,053 92,610
Minority interests - 570 - 4,330
Interest in earnings of Network TEN 12,428 7,989 49,089 22,188
Interest in loss of other equity accounted affiliates (256) (529) (1,035) (966)
Realized currency translation adjustments 1,593 - 693 (1,000)
---------- ---------- ---------- ----------
NET EARNINGS FOR THE PERIOD 12,484 30,688 90,800 117,162
========== ========== ========== ==========
EARNINGS PER SHARE:
BASIC $ 0.07 $ 0.17 $ 0.47 $ 0.66
DILUTED $ 0.07 $ 0.17 $ 0.47 $ 0.64
The notes constitute an integral part of the consolidated financial statements.
CANWEST GLOBAL COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
AS AT
-----------------------
MAY 31 AUGUST 31
2003 2002
ASSETS
CURRENT ASSETS
Cash 102,154 61,090
Accounts receivable 556,650 470,246
Income taxes recoverable - 33,334
Inventory 13,018 19,836
Investment in film and television programs 96,616 98,096
Future income taxes 32,777 30,013
Other 10,499 13,726
--------- ---------
811,714 726,341
Investment in Network TEN 26,718 4,494
Other investments 166,826 162,361
Investment in film and television programs 300,691 317,176
Property, plant and equipment 636,548 679,224
Other assets 95,611 103,975
Intangibles 1,097,274 1,096,458
Goodwill 2,478,218 2,631,099
--------- ---------
5,613,600 5,721,128
========= =========
LIABILITIES
CURRENT LIABILITIES
Accounts payable 139,931 164,988
Accrued liabilities 195,714 227,104
Income taxes payable 7,334 -
Film and television program accounts payable 79,192 64,834
Deferred revenue 47,902 60,596
Current portion of long term debt 77,829 172,753
--------- ---------
547,902 690,275
Long term debt 3,313,199 3,337,163
Other accrued liabilities 104,469 86,217
Future income taxes 439,402 431,562
--------- ---------
4,404,972 4,545,217
--------- ---------
SHAREHOLDERS' EQUITY
Capital stock 846,814 896,422
Contributed surplus 3,647 3,647
Retained earnings 400,504 317,376
Cumulative foreign currency translation adjustments (42,337) (41,534)
--------- ---------
1,208,628 1,175,911
--------- ---------
5,613,600 5,721,128
========= =========
The notes constitute an integral part of the consolidated financial statements.
CANWEST GLOBAL COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MAY 31 MAY 31 MAY 31 MAY 31
2003 2002 2003 2002
RETAINED EARNINGS - BEGINNING OF PERIOD, AS
PREVIOUSLY REPORTED 388,020 390,832 317,376 475,053
Adjustment for adoption of new accounting
pronouncements - - - (170,695)
------- ------- ------- --------
RETAINED EARNINGS - BEGINNING OF PERIOD,
AS ADJUSTED 388,020 390,832 317,376 304,358
Excess of redemption price over carrying
value of preferred shares - - (7,672) -
Net earnings for the period 12,484 30,688 90,800 117,162
------- ------- ------- --------
RETAINED EARNINGS - END OF PERIOD 400,504 421,520 400,504 421,520
======= ======= ======= ========
The notes constitute an integral part of the consolidated financial statements.
CANWEST GLOBAL COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MAY 31 MAY 31 MAY 31 MAY 31
2003 2002 2003 2002
CASH GENERATED (UTILIZED) BY:
OPERATING ACTIVITIES
Net earnings for the period 12,484 30,688 90,800 117,162
Items not affecting cash
Amortization 23,126 27,583 78,239 80,565
Interest paid in kind 28,597 27,340 85,585 78,153
Future income taxes 1,398 3,016 1,614 12,400
Interest in earnings of Network TEN (12,428) (7,989) (49,089) (22,188)
Interest in loss of other equity accounted
affiliates 256 529 1,035 966
Minority interests - (813) - (6,519)
Realized currency translation adjustments (1,593) - (693) 1,000
Interest rate swap loss 4,767 - 13,634 -
Investment (gain) loss net of write downs 2,277 - (19,831) (63,020)
Distributions from Network TEN - - 30,212 60,984
-------- ------- -------- --------
58,884 80,354 231,506 259,503
Investment in film and television programs (24,196) (28,923) (100,181) (133,628)
Amortization of film and television programs 38,474 27,352 110,011 108,089
Other changes in non-cash operating accounts (8,824) (40,236) (106,598) (157,057)
-------- ------- -------- --------
64,338 38,547 134,738 76,907
-------- ------- -------- --------
INVESTING ACTIVITIES
Proceeds from sale of other investments - - - 87,000
Other investments - (4,408) (4,473) (4,408)
Proceeds from divestitures - - 193,500 133,039
Purchase of property, plant and equipment (8,627) (10,402) (20,949) (39,425)
-------- ------- -------- --------
(8,627) (14,810) 168,078 176,206
-------- ------- -------- --------
FINANCING ACTIVITIES
Issuance of long term debt 294,700 - 385,674 -
Repayment of long term debt (313,367) (64,243) (590,146) (211,760)
Issuance of share capital - - 392 520
Preferred share redemption - - (57,672) -
Net change in bank loans and advances - - - (28,999)
-------- ------- -------- --------
(18,667) (64,243) (261,752) (240,239)
-------- ------- -------- --------
NET CHANGE IN CASH 37,044 (40,506) 41,064 12,874
CASH - BEGINNING OF PERIOD 65,110 72,869 61,090 19,489
-------- ------- -------- --------
CASH - END OF PERIOD 102,154 32,363 102,154 32,363
======== ======= ======== ========
The notes constitute an integral part of the consolidated financial statements.
CANWEST GLOBAL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED MAY 31, 2003 AND 2002
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
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 Broadcast segment includes the operation of the Global Television
Network, Global Prime, various other conventional and specialty channels and the
Cool FM radio station. 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 57.1% 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.
2. ACQUISITIONS AND DIVESTITURES
a) 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.
b) In August 2002, the Company sold its 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) In October 2001, the Company completed the sale of CKVU Sub Inc. and
received proceeds of $133.0 million.
e) In September 2001, the Company completed the sale of CF Television Inc.
and received proceeds of $87.0 million.
3. INVESTMENT IN NETWORK TEN
During the nine months ended May 31, 2003 Network TEN issued 5.8 million shares
for proceeds of $10.6 million as a result of the exercise of management stock
options. This effectively diluted the Company's economic interest in Network TEN
to 57.1% from 57.5% and resulted in an investment gain of $1.5 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 57.1%
(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.
SUMMARY CONSOLIDATED BALANCE SHEETS
AS AT
---------------------
MAY 31 AUGUST 31
2003 2002
Assets
Current assets 275,547 285,303
Other assets 3,428 4,825
Property, plant and equipment 82,443 71,875
Long term investments 12,152 2,188
Intangibles 255,324 246,305
Goodwill 51,978 49,304
------- --------
680,872 659,800
======= ========
Liabilities and Shareholders' Equity
Current liabilities 168,350 191,736
Long term liabilities 439,558 442,975
Subordinated debentures issued to the Company 40,154 40,154
Share capital 50,710 40,146
Deficit (17,609) (52,232)
Cumulative foreign currency translation adjustment (291) (2,979)
------- --------
680,872 659,800
======= ========
OTHER CONSOLIDATED FINANCIAL DATA
FOR THE NINE MONTHS
ENDED MAY 31
-----------------------
2003 2002
Cash flow from operations (1) 112,800 95,100
======= =======
Distributions paid 52,500 111,900
======= =======
Capital expenditures 20,800 19,500
======= =======
(1) Cash flow from operations before changes in non-cash operating accounts
SUMMARY CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS
ENDED MAY 31
----------------------
2003 2002
Revenue 477,280 398,302
Operating expenses 338,695 289,839
-------- --------
138,585 108,463
Amortization of property, plant, equipment
and other 11,419 10,754
-------- --------
Operating income 127,166 97,709
Financing expenses (59,886) (19,894)
-------- --------
67,280 77,815
Provision for income taxes 19,334 23,662
-------- --------
Earnings before the following 47,946 54,153
Goodwill impairment loss - (20,905)
Minority interests - 3,359
-------- --------
Net earnings for the period 47,946 36,607
Interest in respect of subordinated
debentures held by the Company 43,236 3,902
-------- --------
Earnings for the period before interest
in respect of subordinated debentures 91,182 40,509
======== ========
SUMMARY STATEMENTS OF RETAINED EARNINGS
FOR THE NINE MONTHS
ENDED MAY 31
--------------------
2003 2002
Retained earnings (deficit) - beginning of year (52,232) 94,142
Earnings for the period before interest in respect of
subordinated debentures 91,182 40,509
Distributions paid (56,559) (123,984)
-------- --------
Retained earnings (deficit) - end of period (17,609) 10,667
======== ========
The Company's economic interest in Network TEN's earnings for the nine months
ended May 31, 2003 is $ 49.1 million (2002- $ 22.2 million).
4. RESTRUCTURING EXPENSES
During the three months ended May 31, 2003 the Company undertook restructuring
activities in its Canadian Media and Entertainment operations. The $21 million
cost of this restructuring, consisting of $17 million in employee severance, $2
million in lease termination costs and $2 million in costs related to
discontinuing certain film and television projects, has been recorded in the
three months ended May 31, 2003. As at May 31, 2003, $17 million of this amount
remains accrued for future
expenditures; consisting of $14 million in employee severance, $2 million in
lease termination costs and $0.3 million related to discontinued film and
television projects.
5. 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 May 31, 2003 total availability was US$59.6
million, of which US$55.7 million was advanced.
In April 2003, the Company issued US$200 million ($295 million) in senior
unsecured 7 5/8% notes maturing in April 2013. In May 2003, the Company repaid
$274 million in 12.125% junior subordinated notes.
As a result of debt repayments during the year the Company has interest rate
swaps outstanding in aggregate notional amounts in excess of its underlying
debt. The change in value of these overhanging swaps was expensed in the period.
6. CAPITAL STOCK
In December 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.
7. 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 NINE MONTHS ENDED
MAY 31 MAY 31
----------------------------------------------------------
2003 2002 2003 2002
Net earnings 12,484 30,688 90,800 117,162
Excess of redemption price over
carrying value of preferred
shares - - (7,672) -
------------ ------------ ------------ ------------
Earnings available to common
shareholders 12,484 30,688 83,128 117,162
============ ============ ============ ============
Basic weighted average shares
outstanding during the period 177,071,250 177,054,958 177,068,661 176,921,717
Dilutive effect of options 8,040 28,644 6,718 26,889
Dilutive effect of preference
shares - 4,599,212 - 4,922,729
------------ ------------ ------------ ------------
Diluted weighted average shares
outstanding during the period 177,079,290 181,682,814 177,075,379 181,871,335
============ ============ ============ ============
Options outstanding that would
have been anti-dilutive 2,143,247 1,686,073 2,143,247 1,715,700
============ ============ ============ ============
8. 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 nine months ended May
31, 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 costs of stock option expense for the three and nine
months ended May 31, 2003 are $375,988 and $1,234,299 respectively (2002 -
$661,558 and $1,997,521). A value of $4,815,492 would 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 May 31, 2003 are $0.07 and $0.07 respectively (2002 -
$0.17 and $0.17) and nine months ended May 31, 2003 are $0.46 and $0.46,
respectively (2002 - $0.65 and $0.63).
9. CONTINGENCY AND GUARANTEES
CONTINGENCY
In March 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.
GUARANTEES
In connection with the disposition of assets, the Company has provided customary
representations and warranties that range in duration. In addition, as is
customary, the Company has agreed to indemnify the buyers of certain assets in
respect of certain liabilities pertaining to events occurring prior to the
respective sales relating to taxation, environmental, litigation and other
matters. The Company is unable to estimate the maximum potential liability for
these indemnifications as the underlying agreements often do not specify a
maximum amount and the amounts are dependent upon the outcome of future
contingent events, the nature and likelihood of which cannot be determined.
The Company has issued financial letters of credit in support of a variety of
obligations, primarily in support of indebtedness of TV3 Ireland, in the
aggregate amount of $55.2 million.
The Company and its subsidiaries enter into operating leases in the ordinary
course of business for real property and equipment. In certain instances, the
Company has guaranteed the obligations of the lessee under such agreements. The
Company believes the likelihood of a material payment pursuant to such
guarantees is remote.
The Company has not made any significant indemnification payments in the past,
and no amount has been accrued in these consolidated financial statements in
respect of such guarantees. A liability
would be recognized should any loss under an indemnification agreement become
probable and estimable.
10. SUBSEQUENT EVENT
In July 2003, the Company sold certain other investments with a book value of
$54 million for proceeds of $44 million.
11. 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 NINE MONTHS ENDED
MAY 31 MAY 31
-------------------------------------------------------
2003 2002 2003 2002
REVENUE
TELEVSION
Canada 207,635 208,784 593,461 564,995
New Zealand - TV3 and TV4 24,096 17,251 69,549 48,738
Ireland - TV3 8,556 7,039 26,520 21,973
------- ------- --------- ---------
240,287 233,074 689,530 635,706
RADIO - NEW ZEALAND 17,644 14,568 54,654 44,909
ENTERTAINMENT - CANADA 36,074 31,036 119,297 129,662
PUBLICATIONS AND ONLINE - CANADA 300,566 339,278 900,003 983,288
Inter-segment revenue (1,359) (942) (5,469) (4,841)
------- ------- --------- ---------
TOTAL REVENUE 593,212 617,014 1,758,015 1,788,724
======= ======= ========= =========
OPERATING PROFIT
TELEVISION
Canada 82,944 75,387 206,833 182,774
New Zealand - TV3 and TV4 90 (1,641) 7,063 (4,043)
Ireland - TV3 2,736 2,094 8,651 6,807
------- ------- --------- ---------
85,770 75,840 222,547 185,538
RADIO - NEW ZEALAND 4,421 3,262 15,168 11,648
ENTERTAINMENT - CANADA (5,339) (1,501) (4,756) 4,225
PUBLICATIONS AND ONLINE - CANADA 71,757 84,629 206,510 234,774
------- ------- --------- ---------
SEGMENT OPERATING PROFIT 156,609 162,230 439,469 436,185
Corporate expenses 6,728 7,401 17,197 18,391
Restructuring expenses 21,053 - 21,053 -
------- ------- --------- ---------
OPERATING PROFIT 128,828 154,829 401,219 417,794
======= ======= ========= =========
12. 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.
REVISION OF PRIOR YEARS' INFORMATION
The Company's 2001 and subsequent periods' net income and shareholders' equity
have been revised to reflect certain adjustments to previously reported net
income and shareholders' equity 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, its cross currency interest rate and interest rate swaps did
not meet all of the criteria for hedge accounting under FAS 133. As a 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 nine months ended May 31, 2002 by $4.9 million (net of income taxes of
$2.7 million). The effect on shareholders' equity resulting from these
adjustments was an increase of $4.8 million (net of income taxes of $9.4
million) as at August 31, 2002 and a decrease of $5.9 million (net of income
taxes of $2.5 million) as at August 31, 2001.
CONSOLIDATED STATEMENTS OF EARNINGS
The following is a reconciliation of net earnings reflecting the differences
between Canadian and U.S. GAAP:
FOR THE NINE MONTHS
ENDED
MAY 31
2003 2002
$000 $000
REVISED
Net earnings in accordance with Canadian GAAP 90,800 117,162
Pre-operating costs, net of tax of ($1,012)
(2002 - $1,754) 2,596 (1,070)
Realization of cumulative translation
adjustments, net of tax of nil (693) 1,000
Integration costs related to CanWest
Publications, net of tax of $109 (193) -
Programming costs imposed by regulatory
requirement, net of tax of $1,852
(2002 - $1,746) (2,455) (2,316)
Equity accounted affiliates in trust, net of
tax of nil - 3,375
US GAAP adjustments in equity accounted
affiliates net of tax of ($1,359) 2,125 -
Unrealized gain (loss) on interest rate and
cross currency swaps net of tax of $28,747
(2002 - ($2,659)) (403) 4,872
--------- ---------
Net earnings in accordance with U.S. GAAP
before cumulative effect of adoption of new
accounting policies 91,777 123,023
Cumulative effect of adoption of new
accounting policies, net of tax of $2,500 - (45,269)
--------- ---------
Net earnings in accordance with U.S. GAAP
91,777 77,754
========= =========
Earnings per share:
Earnings before cumulative effect of adoption
of new accounting policies
Basic $ 0.48 $ 0.70
Diluted $ 0.48 $ 0.68
Earnings per share
Basic $ 0.48 $ 0.44
Diluted $ 0.48 $ 0.43