CANWEST GLOBAL COMMUNICATIONS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2005 AND 2004
(UNAUDITED)
January 11, 2006
TO THE AUDIT COMMITTEE OF CANWEST GLOBAL COMMUNICATIONS CORP.
In accordance with our engagement letter dated March 22, 2005, we have reviewed
the accompanying interim consolidated balance sheet of CANWEST GLOBAL
COMMUNICATIONS CORP. (the "Company") as at November 30, 2005 and the related
interim consolidated statements of earnings, retained earnings and cash flows
for the three month periods ended November 30, 2005 and 2004. 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.
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
CANWEST GLOBAL COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE NOTED)
FOR THE THREE MONTHS ENDED
----------------------------------
NOVEMBER 30, NOVEMBER 30,
2005 2004
Revenue 860,461 872,630
Operating expenses 431,258 409,643
Selling, general and administrative expenses 190,289 173,101
Ravelston management contract termination - 281
------------ -----------
238,914 289,605
Amortization of intangibles 5,575 4,939
Amortization of property, plant and equipment 23,728 21,680
Other amortization 1,474 1,179
------------ ----------
Operating income 208,137 261,807
Interest expense (52,634) (73,208)
Interest income 501 646
Amortization of deferred financing costs (1,949) (2,201)
Interest rate and foreign currency swap losses (120,539) (44,598)
Foreign exchange gains (losses) (574) 10,496
Investment gains, losses and write-downs (note 5) 85,135 1,635
Loss on debt extinguishment (note 4) (116,589) (43,992)
------------ -----------
1,488 110,585
Provision for (recovery of) income taxes (note 3) (70,405) 37,183
------------ -----------
Earnings before the following 71,893 73,402
Minority interests (43,715) (38,407)
Interest in earnings of equity accounted affiliates 830 451
Realized currency translation adjustments (116) -
------------ -----------
NET EARNINGS FROM CONTINUING OPERATIONS 28,892 35,446
Earnings (loss) from discontinued operations 1,058 (31)
------------ -----------
NET EARNINGS FOR THE PERIOD 29,950 35,415
============ ===========
EARNINGS PER SHARE FROM CONTINUING OPERATIONS:
BASIC $ 0.16 $ 0.20
DILUTED $ 0.16 $ 0.20
EARNINGS PER SHARE:
BASIC $ 0.17 $ 0.20
DILUTED $ 0.17 $ 0.20
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 NOVEMBER AS AT AUGUST
30, 31,
2005 2005
ASSETS
CURRENT ASSETS
Cash 93,594 29,858
Accounts receivable 614,098 486,568
Inventory 11,686 13,533
Investment in broadcast rights 177,426 188,729
Future income taxes 3,893 3,893
Other current assets 39,386 26,043
Assets of discontinued operations (note 6) - 2,850
--------- ---------
940,083 751,474
Other investments 23,563 23,059
Investment in broadcast rights 37,805 21,197
Property, plant and equipment 693,258 709,222
Future income taxes 180,486 54,058
Other assets 137,159 200,242
Intangible assets 1,040,680 1,144,299
Goodwill 2,006,426 2,424,867
--------- ---------
5,059,460 5,328,418
========= =========
LIABILITIES
CURRENT LIABILITIES
Accounts payable 176,417 174,602
Accrued liabilities 283,262 294,380
Income taxes payable 73,471 51,883
Broadcast rights accounts payable 97,158 78,318
Deferred revenue 35,837 36,774
Future income taxes 42,675 44,663
Current portion of long term debt and obligations under
capital leases 16,058 22,216
--------- ---------
724,878 702,836
Long term debt and related foreign currency swap liability
(note 4)
2,669,803 2,886,090
Interest rate and foreign currency swap liability 127,708 215,075
Obligations under capital leases 14,940 16,101
Other accrued liabilities 160,600 144,532
Future income taxes 98,647 77,255
Minority interests 39,405 90,581
--------- ---------
3,835,981 4,132,470
--------- ---------
Contingencies (note 11)
SHAREHOLDERS' EQUITY
Capital stock 850,012 849,909
Contributed surplus 8,324 7,685
Retained earnings 380,241 350,291
Cumulative foreign currency translation adjustments (15,098) (11,937)
--------- ---------
1,223,479 1,195,948
--------- ---------
5,059,460 5,328,418
========= =========
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
----------------------------
NOVEMBER 30, NOVEMBER 30,
2005 2004
RETAINED EARNINGS - BEGINNING OF YEAR 350,291 340,001
Net earnings for the period 29,950 35,415
------- -------
RETAINED EARNINGS - END OF PERIOD 380,241 375,416
======= =======
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
----------------------------
NOVEMBER 30, NOVEMBER 30,
2005 2004
CASH GENERATED (UTILIZED) BY:
OPERATING ACTIVITIES
Net earnings from continuing operations for the period 28,892 35,446
Items not affecting cash
Amortization 32,726 29,999
Non-cash interest expense 1,261 23,608
Future income taxes (100,310) (13,386)
Realized currency translation adjustments 116 -
Interest rate and foreign currency swap losses net of settlements 22,945 453
Loss on debt extinguishment 116,589 43,992
Investment gains, losses and write-downs (85,135) (1,635)
Amortization and write-down of film and television programs - 2,984
Pension expense 3,933 2,781
Minority interests 43,715 38,407
Earnings from equity accounted affiliates (830) (451)
Foreign exchange gains (726) (5,520)
Stock based compensation expense 640 1,409
---------- --------
63,816 158,087
Changes in non-cash operating accounts (113,902) (122,392)
---------- --------
Cash flows from operating activities of continuing operations (50,086) 35,695
Cash flows from operating activities of discontinued operations 1,058 18,141
---------- --------
Cash flows from operating activities (49,028) 53,836
---------- --------
INVESTING ACTIVITIES
Other investments - 83
Investment in broadcast licenses (1,066) -
Acquisitions - (12,493)
Proceeds from divestitures 518,654 -
Proceeds from sales of other investments - 2,171
Proceeds from sale of property, plant and equipment 970 400
Purchase of property, plant and equipment (20,874) (18,009)
---------- --------
497,684 (27,848)
---------- --------
FINANCING ACTIVITIES
Issuance of long term debt net of financing costs 816,940 144,212
Repayment of long term debt (1,379,188) (169,045)
Advances (repayments) of revolving facilities net of financing costs 582,626 74,266
Settlement of swap liabilities (354,205) -
Swap recouponing payments (48,726) (98,502)
Payments of capital leases (458) (420)
Issuance of share capital 103 6
Issuance of share capital of Network TEN 498 1,465
Payment of distributions to minority interests (3,852) -
Financing activities from discontinued operations - (12,590)
---------- --------
(386,262) (60,608)
---------- --------
Foreign exchange gain on cash denominated in foreign currencies 1,342 162
---------- --------
NET CHANGE IN CASH 63,736 (34,458)
CASH - BEGINNING OF PERIOD 29,858 97,271
---------- --------
CASH - END OF PERIOD 93,594 62,813
========== ========
The notes constitute an integral part of the consolidated financial statements.
CANWEST GLOBAL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2005 AND 2004
(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, outdoor
advertising, and Internet websites in Canada, Australia, New Zealand and
Ireland. The Company's operating segments include television, publishing
and interactive operations, radio and outdoor advertising. In Canada, the
Television segment includes the operation of the Global Television
Network, Prime TV, various other conventional and specialty channels and
Cool FM and The Beat radio stations. The Australian Television segment
includes TEN Group Pty Limited's ("TEN Group") TEN Television Network
("Network TEN"). The Canadian Publishing and Interactive 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 Company's 74.2% ownership
of the publishing and interactive operations, excluding the National Post,
is held through CanWest MediaWorks Limited Partnership. The New Zealand
Television segment includes CanWest MediaWorks NZ Limited's 3 and C4
Television Networks. The New Zealand Radio segment includes CanWest
MediaWorks NZ Limited's RadioWorks operation, which is comprised of six
nationally-networked radio brands and two local radio brands. The Irish
Television segment includes the Company's 45% interest in the Republic of
Ireland's TV3 Television Network. The Australian Outdoor Advertising
segment includes EyeCorp Pty Limited ("Eye Corp"), an outdoor advertising
operation which is wholly owned by TEN Group. Corporate and Other includes
various investments in media operations and corporate costs.
The Company's broadcast customer base is comprised primarily of large
advertising agencies, which place advertisements with the Company on
behalf of their customers. Publishing and interactive 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.
A summary of significant accounting policies followed in the preparation
of these consolidated financial statements is as follows:
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 of 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 Canadian dollars unless
otherwise noted.
2. ACQUISITIONS AND DIVESTITURES
Acquisition
On September 1, 2004, Eye Corp acquired the remaining 50% of Eye Shop Pty
Limited (formerly Eye Village Joint Venture) for $12.5 million (AUS$13.4
million). In Addition on July 1, 2005, Eye Corp acquired 100% of Eye Drive
Melbourne Pty Limited (formerly Southcoast Pty Limited) for $7.0 million
(AUS$7.8 million). The principal business activities of these companies is
the sale of outdoor advertising.
Eye Corp accounted for these acquisitions using the purchase method. As
such, the results of operations reflect revenue and expenses of the
acquired operations since the date of acquisition. A summary of the fair
value of the assets and liabilities acquired is as follows:
Current assets 5,872
Property, plant and equipment 5,224
Site licenses 3,931
Goodwill 9,633
Liabilities (1,607)
------
23,053
======
Consideration:
Cash 19,487
Carrying value of investment at date of acquisition 3,566
------
23,053
======
Divestiture
On October 13, 2005, the Company transferred its investment in its
newspaper and interactive operations (excluding the National Post) and
certain shared service operations, which provide customer support and
administrative services to the Company (the "Publications Group") to a new
entity, CanWest MediaWorks Limited Partnership (the "Limited
Partnership"). In exchange, the Company received units of the Limited
Partnership representing a 74.2% ownership interest and notes receivable
of $1,339.5 million.
Concurrently, the CanWest MediaWorks Income Fund (the "Fund") closed its
initial public offering ("IPO") of units and invested the proceeds for
units of the Limited Partnership representing a 25.8% interest. Total
proceeds for the offering were $550 million and costs of the offering were
$34.2 million and were paid by the Limited Partnership.
In addition, the Limited Partnership obtained credit facilities in the
amount of $1 billion and drew $830.0 million on the credit facilities.
The Limited Partnership utilized the proceeds of the issuance of the units
to the Fund and $822.5 million in drawings under its new credit facilities
to repay the $1,339.5 million note payable to the Company.
As a result of the transaction, the Company recorded a dilution gain of
$84.1 million on the sale of a 25.8% interest in the operations
transferred to the Limited Partnership. The
Company also recorded a deemed disposition of goodwill, property plant and
equipment, mastheads, circulation, accrued liabilities, income taxes
payable and future income taxes liability related to the newspaper and
interactive operations that were not previously pushed down to the
underlying operations of $413.6 million, $9.0 million, $78.4 million,
$12.0 million, $1.4 million, ($2.7) million, and $16.1 million,
respectively.
Approximately 26% of the Company's units of the Limited Partnership are
subordinated in the payment of distributions if the Limited Partnership
does not have adequate resources on a quarterly basis to fund
distributions. The subordination period ends October 31, 2007, at which
time these units will have the same terms and conditions of the other
partnership units.
3. INCOME TAXES
The Company's provision for income taxes reflects an effective income tax
rate which differs from the combined Canadian statutory rate as follows:
FOR THE THREE MONTHS
ENDED NOVEMBER 30,
--------------------
2005 2004
Income taxes at combined Canadian statutory
rate of 34.65% (2004 - 35.20%) 516 38,926
Non-taxable portion of capital (gains) and losses (2,261) 1,358
Effect of valuation allowance on future tax assets 3,435 1,285
Effect of foreign income tax rates differing from
Canadian income tax rates (5,996) (8,214)
Incremental taxes on debt extinguishment - 5,777
Change in expected future tax rates (2,985) (4,173)
Large corporations tax 934 949
Non-deductible expenses 1,021 709
Non-taxable dilution gain on disposition to Limited
Partnership (54,484) -
Limited Partnership net earnings allocated to minority
interests (2,606) -
Effect of resolved tax dispute (7,052) -
Other (927) 566
------- ------
Provision for (recovery of) income taxes (70,405) 37,183
======= ======
4. LONG TERM DEBT
AS AT AS AT
NOVEMBER 30, AUGUST 31,
2005 2005
Senior Secured Credit facility(1) 447,388 -
Senior Secured Credit facility (2) - 346,100
Senior unsecured notes (2) 292 237,420
Senior subordinated notes (2) 9,964 549,632
Senior subordinated notes 921,065 936,967
CanWest MediaWorks Limited
Partnership Secured Credit
facility(3) 825,000 -
Bank loan Australian $130,000 (Aug.
31, 2005 - Australian $180,000) 112,216 160,794
Senior unsecured notes US$125,000
(Aug. 31, 2005 - US$125,000) 145,922 148,609
Term and demand loan (euro)7,198 (Aug
31, 2005 - (euro)8,368) 9,906 12,270
Term bank loan NZ$186,485 (Aug
31, 2005 - NZ$187,802 152,899 154,824
Other 4,250 4,250
--------- ---------
2,628,902 2,550,866
Effect of foreign currency swaps (2) 55,057 356,241
--------- ---------
Long term debt 2,683,959 2,907,107
Less portion due within one year (14,156) (21,017)
--------- ---------
Long term portion 2,669,803 2,886,090
========= =========
Except for the changes noted in (1) (2) and (3), the terms and conditions
of the long term debt are the same as disclosed in the August 31, 2005
consolidated financial statements.
- ----------
(1) In October 2005, the Company obtained a new $500 million revolving term
credit facility. As at November 30, 2005, the Company has $22.0 million
available on this facility. The revolving facility matures in five years,
is subject to certain restrictions and bears interest at the prevailing
prime rate, U.S. base rate, banker's acceptance rate or LIBOR plus, in
each case, an applicable margin. This facility is secured by substantially
all of the Company's directly held assets including the assets of its
Canadian broadcast operations, the National Post, partnership units of
CanWest MediaWorks Limited Partnership, and shares of CanWest MediaWorks
(NZ) Limited and TEN Group Pty Limited, excluding the convertible
debenture held in TEN Group Pty Limited.
(2) During the quarter, the Company settled debt and associated swaps as
follows:
i. In October 2005, the Company completed a tender offer for its
10.625% senior subordinated notes payable due in 2011 and its
7.625% senior unsecured notes payable due in 2013. Substantially
all of the notes under these facilities were settled. Debt with a
book value of $765.8 million was retired for cash of $849.4
million. In addition, deferred financing and other costs of $27.0
million relating to these notes were written off. The transaction
resulted in a loss on debt retirement of $75.3 million, net of
tax of $35.3 million. As a result of the repayment of these notes
the Company recorded a swap loss of $34.5 million, net of tax of
$19.0 million related to the associated cross currency interest
rate swaps. The notes not settled under the tender offers are due
on the original due dates and are subject to the same terms
except that the covenants associated with these notes have been
eliminated.
ii. In October 2005, the Company retired its senior credit facility.
Debt with a book value of $526.4 million was settled for cash of
$526.4 million. In addition, deferred financing costs of $6.0
million relating to these notes were written off. The transaction
resulted in a loss on debt retirement of $3.9 million, net of tax
of $2.1 million. In addition, as a result of the settlement of
this debt, the Company will record a loss of $46.3 million, net
of tax of $25.4 million related to the associated interest rate
and cross currency interest rate swaps.
iii. In November 2005, the Company retired interest rate and cross
currency interest rate swap contracts relating to the 7.625%
notes, the 10.625% notes and 50% of the cross currency interest
rate swap related to the senior secured credit facilities for
cash of $364.0 million.
(3) CanWest MediaWorks Limited Partnership obtained credit facilities in the
amount of $1 billion consisting of an $825 million non-revolving term
credit facility and a $175 million revolving term credit facility. The
revolving facility matures in five years, is subject to certain
restrictions and bears interest at the prevailing prime rate, U.S. base
rate, banker's acceptance rate or LIBOR plus, in each case, an applicable
margin. The non-revolving facility matures in five years, and bears
interest at the prevailing prime rate, U.S. base rate, banker's acceptance
rate or LIBOR plus, in each case, an applicable margin. On closing of the
IPO, the Limited Partnership drew $825.0 million on its non-revolving
facility and $5.0 million on its revolving facility. The Limited
Partnership has entered into five year interest rate swap contracts to fix
the interest payments on a notional amount of $825.0 million for the first
three years and $660.0 million for the remaining two years resulting in an
effective interest rate of 5%.
Under its Senior Secured Credit facility the Company is required to maintain a
fair value of its interest rate swaps and foreign currency and interest rate
swaps above a prescribed minimum liability ($500 million). There are also
prescribed minimum liabilities with individual counterparties, which have
two-way recouponing provisions. The Company was required to make net recouponing
payments of $119 million in the three months ended November 30, 2005 (2004 -
$137 million), $69 million of this recouponing payment related to overhanging
swaps and accordingly was reflected in cash flows from operating activities.
Further strengthening of the Canadian currency and/or declining interest rates
may result in further payments to counterparties.
The Company is subject to covenants under certain of the credit facilities
referred to above, including thresholds for leverage and interest coverage and
is also subject to certain restrictions under negative covenants.
5. INVESTMENT GAINS AND LOSSES
The Company has recorded the following investment gains and losses.
FOR THE THREE MONTHS ENDED
NOVEMBER 30,
----------------------------
2005 2004
Dilution gain - sale of 25.8% of Limited
Partnership 84,050 -
Gain on sale of investments - 2,171
Dilution gain - TEN Group and CanWest
MediaWorks NZ Limited 63 176
Other 1,022 (712)
------ -----
85,135 1,635
====== =====
6. DISCONTINUED OPERATIONS
In the year ended August 31, 2004 the Company commenced a process to sell
its Fireworks Entertainment Division. As a result, the results of
operations of Fireworks were classified as a loss from discontinued
operations in the consolidated statements of earnings, the net cash flows
were classified as operating, investing and financing activities from
discontinued operations in the consolidated statements of cash flows and
the assets and liabilities were classified on the consolidated balance
sheets as assets and liabilities of discontinued operations. Prior to the
classification as a discontinued operation, these results were reported
within the Canadian Entertainment segment. In July and September 2005, a
subsidiary of the Company sold certain assets and operations which
comprise its film and television program operations for net proceeds of
$16.1 million. $2.3 million of these proceeds are recorded in accounts
receivable as they have been held in escrow to be released over a 30 month
period. In September 2005, a subsidiary of the Company completed the sale
of its remaining film and television program rights for net proceeds of
$2.9 million. Certain remaining accounts receivable and accounts payable
will be settled by the Company.
The earnings (loss) from discontinued operations of Fireworks are
summarized as follows:
FOR THE THREE MONTHS
ENDED NOVEMBER 30,
------------------------------
2005 2004
Revenue 1,226 21,398
============= =============
Earnings from discontinued operations
before tax expense 1,062 177
Income tax expense 4 208
------------- -------------
Earnings (loss) from discontinued
operations 1,058 (31)
============= =============
Earnings (loss) from discontinued
operations per share:
Basic and diluted $ 0.00 $ 0.00
The carrying value of the net assets related to the discontinued Fireworks
Entertainment division is as follows:
AS AT NOVEMBER 30, AS AT AUGUST 31,
2005 2005
Accounts receivable - 329
Investment in film and television programs - 2,521
-- -----
Net assets - 2,850
== =====
7. EARNINGS PER SHARE
The following table provides a reconciliation of the denominators used in
computing basic and diluted earnings per share.
FOR THE THREE MONTHS ENDED
NOVEMBER 30,
----------------------------
2005 2004
Basic weighted average shares outstanding during the period 177,400,415 177,279,495
Dilutive effect of options 264,656 126,541
----------- -----------
Diluted weighted average shares outstanding during the period 177,665,071 177,406,036
=========== ===========
Options outstanding that would have been anti-dilutive 1,751,072 2,429,191
=========== ===========
8. STOCK BASED COMPENSATION
The Company utilizes the fair value approach to account for stock based
compensation on a prospective basis for options granted after September 1,
2003, and as a result, the Company has recorded compensation expense and a
credit to contributed surplus for the three months ended November 30, 2005
of $0.4 million (2004 - $1.4 million). The fair value of the options
granted during the three months ended November 30, 2005 was estimated
using the Black-Scholes option pricing model with the assumptions of no
dividend yield (2004 - nil), an expected volatility of 31% (2004 - 42%),
risk free interest rates of 4.0% (2004 - 4.2%) and an expected life of 7
years (2004 - 7 years).
The total fair value of 982,750 stock options granted by the Company in
the three months ended November 30, 2005 with an average exercise price of
$10.10 per option was $4.1 million, a weighted average fair value per
option of $4.17. During the three months ended November 30, 2004,
1,177,500 stock options were granted with a total fair value of $6.3
million, and a weighted average fair value per option of $5.35. During
2005, the Company agreed to issue approximately 187,000 shares, which vest
in two years, for no consideration. The fair value of the shares at the
time of issuance was $10.40 per share. During the three months ended
November 30, 2005, the Company recorded compensation expense, and a credit
to contributed surplus, of $0.2 million (2004 - nil) related to these
shares.
The proforma cost of share compensation expense, for awards granted prior
to September 1, 2003, for the three months ended November 30, 2005 would
be $0.2 million (2004 - $0.3 million). A value of $1.3 million would be
charged to proforma net earnings in future years according to the vesting
terms of the options. The resulting proforma net earnings from continuing
operations, basic and diluted earnings per share for the three months
ended November 30, 2005 would be $28.6 million, $0.16 and $0.16
respectively (2004 - $35.1 million, $0.20, and $0.20). The resulting
proforma net earnings, basic and diluted earnings per share for the three
months ended November 30, 2005 would be $29.7 million, $0.17 and $0.17
respectively (2004 - $35.1 million, $0.20, and $0.20).
9. RELATED PARTY TRANSACTIONS
In October 2005, the Company settled notes with a book value of $49.7
million (US$41.9 million) under the same terms offered to the unrelated
senior subordinated note holders for $55.4 million. For the three months
ended November 30, 2005, interest expense related to this debt totaled
$0.7 million (2004 - $1.5 million).
A company which is owned by CanWest Communications Corporation owns
CanWest Global Place in Winnipeg, Manitoba, a building in which the
Company is a tenant. For the three months ended November 30, 2005, rent
paid to this company amounted to $0.3 million (2004 - $0.3 million) and is
included in selling, general and administrative expenses. The obligations
under these operating leases continue until August 2010.
All the related party transactions have been recorded at the exchange
amounts, which are representative of market rates.
10. EMPLOYEE BENEFIT PLANS
The Company has a number of funded and unfunded defined benefit plans, as
well as defined contribution plans, that provide pension, other retirement
and post retirement benefits to its employees. The measurement date for
our plans is June 30 of each year. Information regarding the components of
net periodic benefit cost for our benefit plans is presented below:
FOR THE THREE MONTHS ENDED NOVEMBER 30,
POST RETIREMENT
PENSION BENEFITS BENEFITS
---------------------------------------
2005 2004 2005 2004
Current service cost 5,781 4,443 451 332
Employee contributions (1,536) (1,540) - -
Accrued interest on benefits 6,153 6,107 631 586
Expected return on plan assets (5,800) (5,055) - -
Amortization of transitional obligation 108 147 76 -
Amortization of past service costs 302 302 34 34
Amortization of net actuarial loss (gain) 1,369 757 15 (13)
Changes in valuation allowance (21) (17) - -
------- ------- ------- -------
Total pension and post retirement
benefit expense 6,356 5,144 1,207 939
======= ======= ======= =======
11. CONTINGENCIES
(a) The Company has requested arbitration related to $86.5 million owed
by Hollinger International Inc., Hollinger Inc. and certain related
parties (collectively "Hollinger") related to certain unresolved
adjustments and claims related to its November 15, 2000 acquisition
of certain newspaper assets from Hollinger. Hollinger disputes this
claim and claims that it and certain of its affiliates are owed $45
million by the Company. The outcome and recoverability of this claim
is not determinable.
(b) 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 shareholders 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 action was stayed
on the basis that the Ontario courts have no jurisdiction to try the
claim. In April 2004, a statement of claim was filed in Manitoba by
the same minority shareholders, which was substantially the same as
the previous claim, seeking damages of $405 million. In June 2005,
the Company filed a Statement of Defence and Counterclaim. In its
Counterclaim, the Company is seeking a declaration of the fair value
of the former minority shareholders' interest in CBL and repayment
of the difference between the fair value and the redemption amount
paid by the Company to the former shareholders. The Company believes
the allegations in the Statement of Claim are substantially without
merit and not likely to have a material adverse effect on its
business, financial condition or results of operation. The outcome
of this claim is not determinable and the Company intends to
vigorously defend this lawsuit.
(c) The Company is one of several defendants to a claim by a proposed
class of freelance writers instituted in July 2003 in respect of
works that they provided to newspapers and other print publications
in Canada. The total amount claimed (by all plaintiffs against all
defendants) is $500 million in compensatory damages and $250 million
in exemplary and punitive damages. The outcome of this claim is not
determinable.
(d) CanWest MediaWorks NZ Limited has received a Notice of Proposed
Adjustment from the New Zealand Inland Revenue covering the years
2002 to 2004 that proposes a potential tax liability of NZ$13.3
million on the treatment of its optional convertible notes. A Notice
of Proposed Adjustment is an instrument through which the New
Zealand Inland Revenue advises a taxpayer that it is considering
amending its tax assessment from that in the tax return and is not a
confirmation of liability. CanWest MediaWorks NZ Limited is
confident that the tax treatment that it has applied to the notes is
correct and does not believe that any material additional tax
liability will result. The outcome of this situation is not
determinable and CanWest MediaWorks NZ Limited intends to dispute
the proposed adjustments.
(e) The Company is involved in various legal matters arising in the
ordinary course of business. The resolution of these matters is not
expected to have a material adverse effect on the Company's
financial position, results of operations or cash flows.
12. SEGMENTED INFORMATION
The Company operates primarily within the publishing, online, broadcasting
and outdoor advertising industries in Canada, New Zealand, Ireland and
Australia.
Each segment operates as a strategic business unit with separate
management. Segment performance is measured primarily upon the basis of
segment operating profit. The Company accounts for inter-segmented
information as if the sales were to third parties. Segmented information
and a reconciliation from segment operating profit to earnings before
income taxes are presented below:
REVENUE(1) SEGMENT OPERATING PROFIT (2)
------------------- ---------------------------
2005 2004 2005 2004
OPERATING SEGMENTS
Publishing and Online - Canada 341,298 325,759 81,624 85,651
------- ------- -------- --------
Television
Canada 187,075 200,281 28,970 55,492
Australia - Network TEN 230,696 246,851 104,490 120,192
New Zealand 36,100 35,751 12,275 14,529
Ireland 12,046 11,321 5,725 4,641
------- ------- -------- --------
465,917 494,204 151,460 194,854
Radio - New Zealand 23,572 23,763 7,018 7,738
Outdoor - Australia 29,674 28,904 7,469 7,793
Corporate and other - - (8,657) (6,150)
------- ------- -------- --------
860,461 872,630 238,914 289,886
======= =======
Ravelston management contract
termination - (281)
-------- --------
238,914 289,605
Amortization of intangibles 5,575 4,939
Amortization of property, plant
and equipment 23,728 21,680
Other amortization 1,474 1,179
-------- --------
Operating income 208,137 261,807
Interest expense (52,634) (73,208)
Interest income 501 646
Amortization of deferred financing
costs (1,949) (2,201)
Interest rate and foreign currency
swap losses (120,539) (44,598)
Foreign exchange gains (losses) (574) 10,496
Investment gains, losses and
write-downs 85,135 1,635
Loss on debt extinguishment (116,589) (43,992)
-------- --------
Earnings before income
taxes 1,488 110,585
======== ========
(1) Represents revenue from third parties. In addition, the following segments
recorded intercompany revenues: Canadian Television - $0.3 million (2004 -
$0.2 million), Publishing and Interactive - Canada - nil (2004 - $0.1
million).
(2) Corporate and other in 2004 has been reclassified between segments to
conform with the presentation adopted in the current year.
13. SUBSEQUENT EVENTS
(a) During the quarter, the Company announced its successful bids to
acquire interests in two radio stations in Turkey. On September 21,
2005, the Company announced that CGS Televizyon Ve Radyo Yayincilioi
Ticaret Anonim Sirketi ("CGS") was successful in its bid to acquire
the assets of Super FM for consideration of US$33 million, which
will be payable upon completion of the transaction. On September 22,
2005, the Company announced that Pasifik Televizyon Ve Radyo
Yayincilioi Ticaret A.S. ("Pasifik") was successful in its bid to
acquire the assets of Metro FM for consideration of US$23 million,
which will be payable upon completion of the transaction. In
exchange for the payment of $US 42.0 million, the Company will
acquire a 75% economic interest in both CGS and Pasifik. These
transactions, which are subject to regulatory approvals by certain
Turkish authorities and are expected to be completed once these
regulatory approvals have been obtained. Subject to a relaxation of
foreign ownership restrictions and the receipt of all necessary
regulatory approvals, the Company has the right to convert its
interest to a 75% equity interest in Metro FM and Super FM.
(b) On December 21, 2005, TEN Group announced that it had successfully
completed a private placement in the United States of A$150 million
10 year floating rate senior notes that are due in 2015.