-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AiArWrg+oRg8OKBKg9+oFaaEILXwBo+HkI/nNduhQDowfuqVh0ZxS1x/xoFwgmOv JUygX+yY60GcaFt/sQE6ww== 0000950123-03-005712.txt : 20030512 0000950123-03-005712.hdr.sgml : 20030512 20030512170207 ACCESSION NUMBER: 0000950123-03-005712 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030509 FILED AS OF DATE: 20030512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CANWEST GLOBAL COMMUNICATIONS CORP CENTRAL INDEX KEY: 0001003565 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 000000000 FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14148 FILM NUMBER: 03693326 BUSINESS ADDRESS: STREET 1: 3100 TD CENTRE STREET 2: 201 PORTAGE AVE CITY: WINNIPEG MANITOBA STATE: A2 BUSINESS PHONE: 2049562025 MAIL ADDRESS: STREET 1: 1981 MCGILL COLLEGE AVE CITY: MONTREAL STATE: A8 ZIP: H3A 3C7 6-K 1 y86345e6vk.txt CANWEST GLOBAL COMMUNICATIONS CORP ================================================================================ FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934 For the month of May 2003 Commission File Number: 001-14148 -------------------------------------- CANWEST GLOBAL COMMUNICATIONS CORP. (Translation of registrant's name into English) -------------------------------------- 3100 TD CENTRE 201 PORTAGE AVENUE WINNIPEG, MANITOBA, CANADA R3B 3L7 (204) 956-2025 (Address of principal executive offices) Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F [ ] Form 40-F [X] Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):_____________. Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders. Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ___________. Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR. Indicate by check mark whether by furnishing the information contained in this Form the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes [ ] No [X] If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-________ ================================================================================ SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CANWEST GLOBAL COMMUNICATIONS CORP. Date: May 12, 2003 By: /S/ JOHN E. MAGUIRE ------------------------------------------------ John E. Maguire Vice President, Finance and Chief Financial Officer EXHIBIT INDEX
Sequentially Exhibit Numbered Number Description Page - ------ ----------- ---- 1 CanWest Global Communications Corp. Interim Report to Shareholders for the six months ending February 28, 2003 1
EX-99.1 3 y86345exv99w1.txt INTERIM REPORT TO SHAREHOLDERS EXHIBIT 1 CANWEST GLOBAL COMMUNICATIONS CORP. INTERIM REPORT TO SHAREHOLDERS FOR THE SIX MONTHS ENDING FEBRUARY 28, 2003 INTRODUCTION Market conditions during the quarter and the six-month period ended February 28, 2003 showed continued improvement from the same periods from the year before, particularly in television broadcasting, both in Canada and internationally. Revenues, EBITDA and operating income were higher than for the same period in 2002, with an EBITDA improvement of 13% when the comparison is made on a same asset (pro-forma) basis for the same quarter the year before and a 10% improvement compared to the same six month period from the year earlier. Improvement in operating results continued at all the Company's international broadcasting operations. Television and radio operations in Australia and New Zealand recorded significant revenue and EBITDA improvements, and in Europe, television operations in the Republic of Ireland also made significant gains over the same period the year earlier. Economic indicators from both television and newspaper advertising markets suggest that the improvement in operating results should continue through the remainder of the current fiscal year. To date it appears that the war in Iraq will not have a significant impact on Canadian or the international advertising markets in which the Company operates. MANAGEMENT'S DISCUSSION AND ANALYSIS THE COMPANY The Company is a Canadian-based, multi-platform international media company. CanWest owns or has a controlling or substantial interest in operations in the television broadcasting industries in Canada, Australia, New Zealand, Ireland and the United Kingdom, the radio broadcasting industries in New Zealand and Canada, the newspaper publishing industry in Canada, and the out-of-home advertising industries in Australia and South East Asia. The Company owns Internet properties that support these media assets, including canada.com. CanWest is also a producer and international distributor of feature films and television programming. The Company's audit committee has reviewed and approved the consolidated interim financial statements. PricewaterhouseCoopers LLP was engaged by the audit committee to perform a review of the interim financial statements in accordance with CICA Handbook section 7050, Auditor Review of Interim Financial Statements, in order to assist the audit committee in fulfilling its regulatory obligations with respect to the consolidated interim financial statements. Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure of financial performance under Canadian GAAP. Management believes that, in addition to operating income and net earnings, EBITDA is a useful supplemental measure. Management utilizes EBITDA as a measure of segment profitability in making strategic resource allocations. In addition, the Company and its lenders and investors use EBITDA to measure performance against the Company's various leverage covenants. Investors are cautioned, however, that EBITDA should not be construed as an alternative to operating income (earnings before interest and taxes, or "EBIT") or net earnings determined in accordance with GAAP as an indicator of the Company's performance. 1 The Company's method of calculating EBITDA may differ from other companies and, accordingly, EBITDA may not be comparable to measures used by other companies. The following is a reconciliation of operating income (EBIT) to operating income before amortization (EBITDA) in thousands of Canadian dollars:
BROADCASTING ----------------------------------------------- PUBLISHING AND NEW ZEALAND ONLINE -------------------- ENTERTAINMENT CORPORATE CANADA CANADA TV RADIO IRELAND TV CANADA AND OTHER TOTAL FOR THE THREE MONTHS ENDED FEBRUARY 28, 2003 Operating income (loss) (EBIT) 38,281 35,999 (1,010) 4,821 1,395 (1,218) (7,712) 70,556 Amortization 14,678 6,493 740 572 533 186 2,130 25,332 ------ ------ ------ ----- ----- ------ ------ ------ Operating income (loss) before amortization (EBITDA) 52,959 42,492 (270) 5,393 1,928 (1,032) (5,582) 95,888 ====== ====== ====== ===== ===== ====== ====== ====== FOR THE THREE MONTHS ENDED FEBRUARY 28, 2002 Operating income (loss) (EBIT) 46,120 25,017 (3,784) 3,637 955 1,505 (6,530) 66,920 Amortization 16,322 6,887 664 479 458 121 24 24,955 ------ ------ ------ ----- ----- ------ ------ ------ Operating income (loss) before amortization (EBITDA) 62,442 31,904 (3,120) 4,116 1,413 1,626 (6,506) 91,875 ====== ====== ====== ===== ===== ===== ====== ======
BROADCASTING ------------------------------------------------ PUBLISHING AND NEW ZEALAND ONLINE -------------------- ENTERTAINMENT CORPORATE CANADA CANADA TV RADIO IRELAND TV CANADA AND OTHER TOTAL FOR THE SIX MONTHS ENDED FEBRUARY 28, 2003 Operating income (loss) (EBIT) 105,275 110,616 5,486 9,641 4,869 271 (14,067) 222,091 Amortization 29,478 13,273 1,487 1,106 1,046 312 3,598 50,300 ------- ------- ------ ------ ----- ----- ------- ------- Operating income (loss) before amortization (EBITDA) 134,753 123,889 6,973 10,747 5,915 583 (10,469) 272,391 ======= ======= ====== ====== ===== ===== ======= ======= FOR THE SIX MONTHS ENDED FEBRUARY 28, 2002 Operating income (loss) (EBIT) 118,415 94,868 (3,627) 7,431 3,779 5,490 (11,543) 214,813 Amortization 31,730 12,519 1,225 955 934 236 553 48,152 ------- ------- ------ ------ ----- ----- ------- ------- Operating income (loss) before amortization (EBITDA) 150,145 107,387 (2,402) 8,386 4,713 5,726 (10,990) 262,965 ======= ======= ====== ====== ===== ===== ======= =======
2 The following discussion is based on the Company's consolidated results for the three and six month period ended February 28, 2003. Comparisons with the prior year's results are affected by corporate initiatives, including the divestiture of certain newspaper publishing properties, and accordingly, the Company also provides certain pro forma comparatives. Pro forma revenue, EBITDA and operating income reflect the sale of newspaper publishing interests in Saskatchewan and Atlantic Canada to G.T.C. Transcontinental Group Ltd. ("GTC") in August 2002 as if it had occurred at the beginning of fiscal 2002.
THREE MONTHS ENDED FEBRUARY 28, 2002 SIX MONTHS ENDED FEBRUARY 28, 2002 OPERATING OPERATING REVENUE EBITDA INCOME REVENUE EBITDA INCOME $000 $000 $000 $000 $000 $000 As reported 529,130 91,875 66,920 1,171,710 262,965 214,813 Community newspapers (26,741) (6,953) (6,153) (53,070) (15,560) (14,011) ------- ------ ------ --------- ------- ------- Pro forma 502,389 84,922 60,767 1,118,640 247,405 200,802 ======= ====== ====== ========= ======= =======
ACCOUNTING POLICIES The Company prepares its consolidated financial statements in Canadian dollars and in accordance with Canadian GAAP. The Company accounts for its economic interest in Network TEN using the equity method of accounting. Under this method, the Company's interest in Network TEN's net earnings (before interest on subordinated debentures) is included in consolidated earnings, and an adjustment is made to the carrying value at which the investment is recorded on the consolidated balance sheet. The carrying value of this investment is reduced by interest on subordinated debentures and dividends received by the Company. TRENDS The Company has historically derived more than 70% of its revenue from advertising in Canada. For that reason, the Company's results typically reflect overall activity in the economy. Advertising markets in North America and throughout the world recovered in the second half of fiscal 2002. Results for the first six months of 2003 appear to confirm that the Canadian economy has rebounded with a more rapid resumption of economic growth than in other major economies. Results from the Company's television and newspaper assets suggest the improvement in operating results evident in first quarter continued through the second quarter of the current fiscal year. Advance bookings in the Company's television advertising markets for the third quarter of fiscal 2003 were strong at the beginning of the quarter. The impact of the Iraq war, which overtook normal television schedules for several days, was temporary, and it appears that the Company's advertising markets will remain strong through the third quarter and beyond. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 28, 2003 Consolidated revenue for the quarter was $531 million compared to $502 million last year on a pro forma basis, an increase of 6%. Consolidated EBITDA for the three months was $96 million, up 13% from the $85 million generated by the same properties on a pro forma basis during the same three month period of 2002. Actual EBITDA for the second quarter last year was $92 million, and included 3 the contribution from properties sold to GTC in August 2002. Operating income for the three months was $71 million compared to $67 million for the same period last year. Cash flow from operations before changes in non-cash working capital and investment in and amortization of investment in film and television programs for the first quarter was $72 million or $0.41 per share, down 27% from the $99 million or $0.56 per share recorded in the corresponding period last year as a result of lower distributions from Network TEN during the period. Cash flow from operations for the quarter was $171 million compared to $141 million for the corresponding period last year. Canadian television revenue, including the Prime specialty channel and the digital specialty channels under development, increased by $16 million or 10%, to $171 million for the three months. Canadian television EBITDA increased by $11 million or 33% to $42 million. Operating income increased $11 million or 44% to $36 million. CanWest television stations continue to rate well. In the reporting period from December to February, a period affected by a number of specials and event programs, CanWest series continue to rate strongly with 3 of the top 10 in the Toronto/Hamilton market and 4 of the top 10 in the Vancouver market. When specials are included CanWest stations rate 7 of the top 10 most watched programs through during the quarter. (BBM people meters, Toronto/Vancouver 18-49) Canadian television operating expenses were up by $5 million or 4% in the quarter compared to the same period last year. Publishing and online revenue for the second quarter was $280 million, up 2% from the pro forma revenues of $273 million last year. Run-of-press (ROP) linage continues to recover more slowly than television, with some upward trends through the reporting period in the retail and national sectors. Publishing and online EBITDA for the second quarter declined by 5%, to $53 million from the $55 million recorded for the same period last year on a pro forma basis reflecting higher fuel costs and increased newsprint prices. The Company's publishing segment includes its online and electronic publishing operations, which saw significant improvements in EBITDA, reflecting a break even result, compared to a $1 million operating loss for the same quarter last year. Operating income for the publishing and online segment declined by 4% to $38 million from the $40 million recorded for the same quarter last year on a pro forma basis. CanWest's international broadcasting operations continue to perform extremely well through the reporting period. Second quarter revenue at TV3 in Ireland was up 7% to (euro)10 million compared to the same period in 2002. EBITDA was (euro)2 million, up 33% compared to the same three months last year. The Company's share of revenue was $8 million, and EBITDA was $2 million. The Company's share of operating income was $1 million, up 46% compared to the same quarter last year. Results for TV3 and TV4 in New Zealand continued to reflect a sustained improvement over the past several quarters, attributable to a combination of an improving New Zealand economy, a significantly stronger New Zealand dollar, and increasing audience ratings at TV3. Television revenue of NZ$24 million was 19% higher than the NZ$20 million recorded in the same quarter one year ago. In Canadian dollars, the increase in TV3/4 revenue was 47% from $13 million to $19 million. Revenue from New Zealand radio improved by 4% in local currency to NZ$23 million for the quarter, with EBITDA of NZ$7 million, 7% higher than the same quarter last year. Operating income was NZ$6 million compared to NZ$5 million for the same quarter last year. Results from New Zealand were translated into Canadian dollars at $0.8178, 23% higher than the rate of translation in the same quarter last year. Revenue at Fireworks Entertainment, CanWest's feature film and television program production and distribution division, decreased by 14% to $35 million reflecting continued weakness in international media markets. Fireworks posted an EBITDA loss of $1 million compared to EBITDA of $2 million for the same quarter last year. The operating loss was $1 million, down $3 million compared to the same quarter last year. 4 Depreciation and amortization cost for the quarter totaled $25 million, essentially the same as for the same three months in 2002. Financing costs were $94 million in the quarter, compared to $93 million for the three months ending February 28, 2002. Investment gains totaled $22 million for the quarter and included a gain on the sale of Ontario community newspapers of $21 million, and a $1 million dilution gain resulting from the exercise of management share options at Network TEN which diluted our economic interest in TEN from 57.5% to 57.2%. The Company recorded a $9 million accounting loss in the quarter as a result of overhanging swaps created by the application of asset sale proceeds to indebtedness which had previously been hedged. The recovery of income taxes totaled $10 million for the quarter, compared to $8 million for the same quarter last year. The Company's interest in income from Network TEN was $11 million an increase of $16 million from the same period last year. The prior year included a goodwill write down related to Eye Corp., our share of which was $11 million. Television revenue at Network TEN, was A$125 million an increase of 9% for the quarter, from A$115 million last year. EBITDA at TEN was A$37 million in the second quarter compared to A$36 million for the same period last year. Operating income at TEN was A$34 million compared to A$34 million for the same quarter last year. CanWest's share of TEN's revenue increased by 18% to $64 million, while it's share of TEN's EBITDA grew by 10% to $19 million. Our share of operating income increased by 10% to $17 million from $16 million. Our 57.5% economic interest in Network TEN was reduced to 57.2% at the end of the second quarter as a result of the exercise of certain management stock options. The average exchange rate value of the Australian dollar appreciated to the Canadian dollar by 9% for the quarter, compared to the average for the second quarter of 2002. The success of TEN's domestic Australian programming, including reality shows, sports and drama, contributed substantially to it's recent ratings gains, which continued through the second quarter. Network TEN continued to gain increased share in an overall Australian TV advertising market that continues to experience only modest growth. Eye Corp., Network TEN's out-of-home subsidiary, generated revenue of A$16 million in the quarter, down 11% from the same quarter last year, reflecting the continued difficult market conditions in that sector, EBITDA for the quarter was A$1 million, an improvement from the A$0.4 million EBITDA loss recorded in the same quarter a year earlier, attributable mainly to progress made by new management at Eye Corp in reducing operating costs. Operating loss for the quarter was A$1.1 million, an improvement from the operating loss of A$3.3 million posted in the second quarter last year. CanWest reported net earnings of $10 million or $0.01 per share for the quarter. The loss reported for the same quarter last year was $22 million or $0.12 per share. Net earnings per share were reduced by $0.04 in the second quarter of 2003 as a result of the redemption of the Series 2 preference shares at a price in excess of the carrying value of the shares. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 28, 2003 Consolidated revenue for the six months was $1,165 million compared to $1,119 million last year on a pro forma basis, an increase of 4%. Consolidated EBITDA for the six months was $272 million, up 10% from the $247 million generated by the same properties on a pro forma basis in the first six 5 months of 2002. Actual EBITDA for the first six months last year was $263 million, and included the contribution from properties sold to GTC in August 2002. Operating income for the six months was $222 million, up 11% from $201 million on a pro forma basis for the first six months last year. Cash flow from operations before changes in non-cash working capital and investment in and amortization of investment in film and television programs for the first half was $173 million or $0.98 per share, down slightly from the $179 million or $1.01 per share recorded in the corresponding period last year. Cash flow from operations was $70 million compared to $39 million for the first six months last year. Cash flow was negatively affected by a reduction in distributions from Network TEN. Offsetting this shortfall were improvements in operating results, a reduction in the net investments in film and television programs by Fireworks, and greater efficiencies in working capital. The Company's Canadian television revenue, including the Company's Prime specialty channel and the digital specialty channels under development, increased by $30 million or 8%, to $386 million for the six months. The Company's Canadian television EBITDA increased by $17 million or 15% to $124 million, while operating income increased by $16 million or 17% to $111 million. During the Fall 2002 ratings period Bureau of Broadcast Measurement indicated that CanWest television stations lead the ratings in prime time. During the period from September to December 2002, Global and CH Television ranked first for the season in the 18-49 demographic winning all 16 weeks overall, and winning 14 of 16 weeks in primetime in Toronto and Vancouver. Global Ontario and CH had 10 of the top 20 programs in the 18-49 demographic, including the number one rated show, Survivor V, Thailand. Survivor was also the number one show across all demographics. Similarly, Global and CH led the prime time ratings in Vancouver, with 12 of the top 20 programs. (BBM people meters - Toronto/Vancouver, 18-49 demographic) Canadian television operating expenses were up by $13 million or 5% in the first half of the year compared to the same period last year. This primarily reflects programming, marketing and promotional costs associated with CanWest's new digital specialty channels which were on air for a full six months in fiscal 2003, compared to only two months in 2002. Additionally, analogue programming costs were higher in the first six months, primarily as a result of timing of the airing of programs, this variance is expected to reverse over the back half of the year. Publishing and online revenue for the first six months was $599 million, up slightly from the pro forma revenues of $591 million last year. The reporting period was affected negatively by a labour shutdown at the Victoria Times-Colonist that began at the beginning of September and continued through the first week of November 2002. EBITDA from Publishing and online was $135 million, for the six-month period, the same result as recorded for the previous year on a pro forma basis, while operating income was $105 million for each of the six months periods on a same store basis. Revenue at TV3 in Ireland in local currency was up 8% to (euro)24 million compared to the same period in 2002. EBITDA increased by 14% to (euro)7 million, compared to the same six month period last year, while operating income increased by 19% to (euro)5 million. Revenues, EBITDA and operating income for the six-month period improved substantially at TV3 and TV4 in New Zealand. Revenue in local currency was 22% higher than the same period one year ago, increasing to NZ$58 million from NZ$48 million. EBITDA and operating income also showed significant improvement, increasing to NZ$9 million and NZ$7 million, respectively, from losses the year before of NZ$4 million and NZ$6 million, respectively. 6 Revenues from New Zealand radio of NZ$47 million for the six-month period were 3% ahead of last year in local currency terms. EBITDA of NZ$14 million for the six months was 8% higher than the results recorded one year ago, while operating income was 9% higher at $12 million. In Canadian dollars, radio operations in New Zealand contributed EBITDA and operating income of $11 million and $10 million in the quarter, while New Zealand television operations reported increases in EBITDA and operating income to $7 million and $5 million, respectively, from losses the year before. Results from New Zealand were translated into Canadian dollars at an average rate of $0.7857, 19% higher than the rate of translation in the same six month period last year. Fireworks Entertainment, CanWest's feature film and television program production and distribution division recorded $83 million in revenue and EBITDA of $1 million for the first six months. Depreciation and amortization cost for the first half totaled $50 million, compared to $48 million for the same six months in 2002. Financing costs were $186 million for the six months, compared to $198 million for the six months ending February 28, 2002, reflecting lower debt levels and interest rates. Year to date investment gains of $22 million (gain on sale of Ontario communities and dilution gain on investment in Network TEN) compare to $63 million for the first six months last year. The gain in the prior year arose on the sale of CKVU in the first quarter of 2002. Income taxes totaled $7 million for the two quarters of 2003, compared to $12 million for the same six months last year. The effective tax rate of approximately 13% in each comparative period compare to a statutory rate of 39%. The effective rate is affected by the existence of loss carryforwards in New Zealand not previously recognized, lower tax rates in international jurisdictions, and non-taxable investment gains. The Company's interest in income from Network TEN was $37 million an increase of $22 million from the same period last year. Television revenue at Network TEN, was A$318 million for the six months, compared to revenue of A$276 million last year. Television EBITDA at TEN increased by 16%, to A$111 million in the first half of 2003 compared to the A$96 million during the same period last year. Operating income increased by 16% to A$105 million in the first half of 2003 compared to A$91 million during the same period in 2002. CanWest's share of revenue, EBITDA and operating income, expressed in Canadian currency improved by 24% to $160 million, 25% to $56 million and 26% to $53 million, respectively. The average rate of exchange of Australian dollars to Canadian dollars was 8% higher for the six months in 2003 compared to the same period in 2002. TEN's ratings gains made in the first quarter of fiscal 2003 continued into the second quarter and are attributable to the success of both locally produced programming such as Big Brother, and of other Australian programming, particularly sports. The stronger ratings enable TEN to capture an increased share of the overall TV advertising market in Australia. Eye Corp. generated revenue of A$37 million in the six months, down 11% from the same period last year. EBITDA and operating loss for the six months were A$2.6 million and a loss of A$1.3 million, up from the A$2.3 million and a loss of A$4.7 million recorded in the same period a year earlier. CanWest reported net earnings of $78 million or $0.40 per share for the six month period. Net earnings reported for the first half last year were $86 million or $0.49 per share. LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations before investment in and amortization of film and television programs and changes in non-cash working capital amounted to $72 million for the three months ending February 28, 2003, compared with $99 million for the same period last year. For the six months, cash flow from 7 operations before investment in and amortization of film and television programs and changes in non-cash working capital amounted to $173 million compared to $179 million last year. Fireworks invested $19 million in film and television programs for the quarter, compared to $26 million for the same quarter last year. On a year to date basis, the cash investment has been $76 million for the current year, compared to $105 million for the first six months last year. Amortization of film and television programs of $32 million for the quarter and $72 million for the year to date were down from the $34 million and $81 million posted for the second quarter and first six months last year reflecting the overall decline in activity for the Entertainment segment. Changes in non-cash working capital amounted to a source of funds of $87 million for the three months compared to a source of $34 million for the same quarter last year. On a year to date basis, $98 million was used in operations compared to a use of $116 million for the same period last year. Capital spending in the quarter totaled $7 million compared to $15 million for the same quarter last year. On a year to date basis, capital spending totaled $12 million compared to $29 million last year. Current year capital spending reflects normal repair and replacement expenditures. The Company made principal debt repayments totaling $237 million in the quarter and $277 million in the first six months, including $193.5 million derived from proceeds from the sale of Ontario community newspapers. In the first six months, the Company received advances under the Fireworks loan facility of $92 million. Scheduled repayments of the Company's senior credit facility amount to $40 million over the next twelve months. In December, the Company redeemed its Series 2 Preference Shares for cash of $57.7 million. In January 2003, the Company received an interim distribution of interest and dividends from Network TEN totaling $30 million. Usage, including outstanding letters of credit under the Company's senior credit facility at February 28, 2003 was $1,600 million. Total long-term debt of $3,381 million includes $1,005 million in junior subordinated notes, which bear interest payable in kind through November 2005. Total drawn debt from third parties at Fireworks at February 28, 2003 was $92 million. Network TEN had drawn A$414 million of its A$700 million credit facility and had cash on hand of A$21 million at February 28, 2003. The Company has entered into currency and interest rate swaps under its senior indebtedness. The average cost of debt, including the junior subordinated notes, after taking into account other financial instruments in place was 10%. Senior secured leverage under the Company's senior credit facility was 3.42 times EBITDA for the 12 months ended February 28, 2003, compared to a covenant of 4.50 times. Additionally, the Company had cash and short-term investments amounting to $65 million at February 28, 2003. On April 3, 2003, the Company completed a private placement of US$200 million (approximately $295 million) of senior unsecured notes at an interest rate of 7.625% per annum. Substantially all of the proceeds will be used to retire a portion of the 12.125% subordinated notes held by Hollinger International Inc. and Hollinger Canadian Newspapers Limited Partnership, reducing interest costs by approximately $12.7 million annually going forward. The repayment of subordinated notes held by the Hollinger companies will take place in mid-May 2003. 8 In March 2003, the Company's lenders consented to an amendment to the senior secured credit facility which provides for a change in certain financial ratios that the Company is required to maintain in order to permit the offering of the new unsecured notes. The amendment resulted in the term credit facilities being permanently reduced by $275 million, through a draw on the revolving credit facility, which occurred in April. Proforma for this transaction, unutilized negotiated credit at February 28, 2003 was $268 million. The amendment also resulted in the senior leverage covenant being replaced by a senior secured leverage covenant and the interest coverage covenant being relaxed to allow for the payment of interest on the notes. The impact of the offering and the repayment of the Hollinger debt will be to reduce our current weighted average borrowing rate to 9.77% from current levels. OUTLOOK All CanWest television operations have shown considerable strength through the first half of fiscal 2003. This positive trend should continue as all the economic indicators in the respective economies of Canada, Australia, New Zealand and Ireland show positive growth. The impact of the of the Iraq war on advertising revenues appears to be limited to the first few days of the conflict when much of the media disrupted regular schedules to provide extensive war coverage. Global Television continued to rate strongly with 3 of the top 10 series in Toronto and 4 of the top 10 in Vancouver during the period from December 1, 2002 to February 28, 2003, when ratings were affected by a proliferation of specials such as the Super Bowl and the Grammy Awards. When specials are included, Global carried 7 of the top 10 shows in Toronto and Vancouver. The ratings are based on BBM people meters and cover the 18-49 demographic. The recovery in Canadian newspaper advertising markets remains slower than for television with certain sectors such as careers still well below their prior peak levels of advertising spending. Improvements are evident in other sectors, particularly national and retail advertising during the reporting period and this suggests that the modest positive trend should continue for the coming months and that should support continuation of the positive operating result growth going forward. The Company's newspapers are maintaining the lower cost base achieved through operating improvements made over the past 18 months. Circulation revenue remains stable in general and is increasing in some markets, notably Montreal where the bringing online of a new printing press provided an opportunity to take advantage of higher print quality and color capability to re-launch the Gazette. The Company completed a realignment of its online operations that now include Infomart, a subscription based online news archives service and FP Data Group, a subscription based financial data service. CanWest is a leading provider of online content through Canada.com. The eContent Institute, a national online organization recognized Infomart.ca as the top Canadian provider in the News Service category. "With its very easy-to-use interface, intuitive design and fit in the English-Canadian marketplace, infomart.ca is second to none. It is a must have for news," said the judging committee. The Company's six new digital specialty channels in Canada remained among the most popular with digital television subscribers. Close to 3 million subscribers now have access to the services, and advertisers are beginning to show a higher level of interest in the niche market opportunities provided by these new channels. 9 On the last day of the current reporting period, the Company launched its first entry into the Canadian radio market with COOL 99.1FM in Winnipeg. The Company has also applied to the Canadian Radio-television and Telecommunications Commission (CRTC) for certain additional radio licences and has appeared at public CRTC hearings in support of its applications for new radio stations in Montreal, Quebec and Kitchener, Ontario. While no decisions have yet been handed down in respect of these applications, management believes the continued expansion into radio is a logical and prudent step for CanWest in Canada, and will further enhance CanWest's offering to Canadian advertisers. CanWest's immediate priorities are to continue to focus on debt reduction, to pursue additional operational efficiencies and cost reductions at all units and to build on the progress already made in integrating television, publishing and online assets in Canada as complementary and mutually supportive media businesses. CanWest remains committed to pursuit of additional operational efficiencies and cost reductions at all units. The Company announced a major re-organization of the senior management of its Canadian media operations in January 2003. The more integrated management structure has streamlined decision-making and enhanced the ability of the Company's television, publishing and interactive assets to work more closely together as complementary and mutually supportive media businesses. This re-organization was followed by the launch of the CanWest News Service and the Canadian News Desk, headquartered in Winnipeg, but with resources in locations across Canada. CanWest consumers saw immediate benefits of increased depth and wider coverage of Canadian and international news on both television and in CanWest's newspapers. FORWARD LOOKING STATEMENTS Certain statements in this report may constitute forward-looking statements. Such forward looking statements involve risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. The Company may not update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 10 [PRICEWATERHOUSECOOPERS LOGO] PRICEWATERHOUSECOOPERS LLP CHARTERED ACCOUNTANTS One Lombard Place Suite 2300 April 4, 2003 Winnipeg, Manitoba Canada R3B 0X6 Telephone +1 (204) 926 2400 Facsimile +1 (204) 944 1020 TO THE AUDIT COMMITTEE OF CANWEST GLOBAL COMMUNICATIONS CORP. In accordance with our engagement letter dated January 10, 2003, we have reviewed the accompanying interim consolidated balance sheet of CanWest Global Communications Corp. (the "Company") as at February 28, 2003, and the related interim consolidated statements of earnings, retained earnings and cash flows for the three months and six months then ended. These interim consolidated financial statements are the responsibility of the Company's management. We performed our review in accordance with Canadian generally accepted standards for a review of interim financial statements by an entity's auditor. Such an interim review consists principally of applying analytical procedures to financial data, and making enquiries of, and having discussions with, persons responsible for financial and accounting matters. An interim review is substantially less in scope than an audit, whose objective is the expression of an opinion regarding the interim financial statements; accordingly, we do not express such an opinion. An interim review does not provide assurance that we would become aware of any or all significant matters that might be identified in an audit. Based on our review, we are not aware of any material modification that needs to be made for these interim consolidated financial statements to be in accordance with Canadian generally accepted accounting principles. This report is solely for the use of the Audit Committee of the Company to assist it in discharging its regulatory obligation to review these interim consolidated financial statements, and should not be used for any other purpose. Any use that a third party makes of this report, or any reliance or decisions made based on it, are the responsibility of such third parties. We accept no responsibility for loss or damages, if any, suffered by any third party as a result of decisions made or actions taken based on this report. /s/ PRICEWATERHOUSECOOPERS LLP CHARTERED ACCOUNTANTS PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. 11 CANWEST GLOBAL COMMUNICATIONS CORP. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE NOTED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 2003 2002 2003 2002 Revenue 531,240 529,130 1,164,803 1,171,710 Operating expenses 292,466 293,273 594,759 627,450 Selling, general and administrative expenses 142,886 143,982 297,653 281,295 --------- --------- --------- --------- 95,888 91,875 272,391 262,965 Amortization of intangibles 4,375 4,375 8,750 8,750 Amortization of property, plant and equipment 18,487 18,247 37,698 36,231 Other amortization 2,470 2,333 3,852 3,171 --------- --------- --------- --------- Operating income 70,556 66,920 222,091 214,813 Financing expenses (93,859) (92,769) (186,191) (197,679) Dividend income - - 1,533 1,358 --------- --------- --------- --------- (23,303) (25,849) 37,433 18,492 Investment gains 22,108 - 22,108 63,020 Interest rate swap loss (8,867) - (8,867) - --------- --------- --------- --------- (10,062) (25,849) 50,674 81,512 Provision for (recovery of) income taxes (10,408) (8,184) 7,340 11,560 --------- --------- --------- --------- Earnings (loss) before the following 346 (17,665) 43,334 69,952 Minority interests - 1,685 - 3,760 Interest in earnings (loss) of Network TEN 10,884 (5,243) 36,661 14,199 Interest in loss of other equity accounted affiliates (449) (437) (779) (437) Realized currency translation adjustments (900) - (900) (1,000) --------- --------- --------- --------- Net earnings (loss) for the period 9,881 (21,660) 78,316 86,474 ========= ========= ========= ========= EARNINGS (LOSS) PER SHARE: BASIC $ 0.01 ($ 0.12) $ 0.40 $ 0.49 DILUTED $ 0.01 ($ 0.12) $ 0.40 $ 0.48
The notes constitute an integral part of the consolidated financial statements. 12 CANWEST GLOBAL COMMUNICATIONS CORP. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS OF CANADIAN DOLLARS)
AS AT ----------------------------- FEBRUARY 28, AUGUST 31, 2003 2002 ASSETS CURRENT ASSETS Cash 65,110 61,090 Accounts receivable 525,947 470,246 Income taxes recoverable 4,075 33,334 Inventory 15,290 19,836 Investment in film and television programs 112,763 98,096 Future income taxes 30,882 30,013 Other 9,671 13,726 --------- --------- 763,738 726,341 Investment in Network TEN 14,527 4,494 Other investments 167,392 162,361 Investment in film and television programs 332,663 317,176 Property, plant and equipment 650,399 679,224 Other assets 90,044 103,975 Intangibles 1,109,017 1,096,458 Goodwill 2,482,850 2,631,099 --------- --------- 5,610,630 5,721,128 ========= ========= LIABILITIES CURRENT LIABILITIES Accounts payable 175,776 164,988 Accrued liabilities 160,885 227,104 Film and television program accounts payable 66,137 64,834 Deferred revenue 56,363 60,596 Current portion of long term debt 128,558 172,753 --------- --------- 587,719 690,275 Long term debt 3,252,540 3,337,163 Other accrued liabilities 111,254 86,217 Future income taxes 434,984 431,562 --------- --------- 4,386,497 4,545,217 --------- --------- SHAREHOLDERS' EQUITY Capital stock 846,814 896,422 Contributed surplus 3,647 3,647 Retained earnings 388,020 317,376 Cumulative foreign currency translation adjustments (14,348) (41,534) --------- --------- 1,224,133 1,175,911 --------- --------- 5,610,630 5,721,128 ========= =========
The notes constitute an integral part of the consolidated financial statements. 13 CANWEST GLOBAL COMMUNICATIONS CORP. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) (IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 2003 2002 2003 2002 Retained earnings - beginning of period, as previously reported 385,811 412,492 317,376 475,053 Adjustment for adoption of new accounting pronouncements - - - (170,695) ------- ------- ------- -------- Retained earnings - beginning of period, as adjusted 385,811 412,492 317,376 304,358 Excess of redemption price over carrying value of preferred shares (7,672) - (7,672) - Net earnings (loss) for the period 9,881 (21,660) 78,316 86,474 ------- ------- ------- -------- Retained earnings - end of period 388,020 390,832 388,020 390,832 ======= ======= ======= ========
The notes constitute an integral part of the consolidated financial statements. 14 CANWEST GLOBAL COMMUNICATIONS CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 2003 2002 2003 2002 CASH GENERATED (UTILIZED) BY: OPERATING ACTIVITIES Net earnings (loss) for the period 9,881 (21,660) 78,316 86,474 Items not affecting cash Amortization 27,703 27,362 55,113 52,982 Interest paid in kind 28,614 25,604 56,988 50,813 Future income taxes (1,876) 3,103 216 7,438 Interest in (earnings) loss of Network TEN (10,884) 5,243 (36,661) (14,199) Interest in loss of other equity accounted affiliates 449 437 779 437 Minority interests - (1,685) - (3,760) Realized currency translation adjustments 900 - 900 1,000 Interest rate swap loss 8,867 - 8,867 - Investment gains (22,108) - (22,108) (63,020) Distributions from Network TEN 30,212 60,984 30,212 60,984 -------- ------- -------- -------- 71,758 99,388 172,622 179,149 Investment in film and television programs (19,211) (26,254) (75,985) (104,705) Amortization of film and television programs 31,841 34,490 71,537 80,737 Other changes in non-cash operating accounts 86,971 33,807 (97,774) (116,410) -------- ------- -------- -------- 171,359 141,431 70,400 38,771 -------- ------- -------- -------- INVESTING ACTIVITIES Proceeds from sale of other investments - - - 87,000 Other investments (3,913) - (4,473) - Proceeds from divestitures 193,500 - 193,500 133,039 Purchase of property, plant and equipment (6,964) (14,548) (12,322) (29,023) -------- ------- -------- -------- 182,623 (14,548) 176,705 191,016 -------- ------- -------- -------- FINANCING ACTIVITIES Issuance of long term debt 1,898 - 90,974 - Repayment of long term debt (237,104) (55,895) (276,779) (147,517) Issuance of share capital 375 47 392 109 Preferred share redemption (57,672) - (57,672) - Net change in bank loans and advances (27,858) (20,905) - (28,999) -------- ------- -------- -------- (320,361) (76,753) (243,085) (176,407) -------- ------- -------- -------- Net change in cash 33,621 50,130 4,020 53,380 CASH - BEGINNING OF PERIOD 31,489 22,739 61,090 19,489 -------- ------- -------- -------- CASH - END OF PERIOD 65,110 72,869 65,110 72,869 ======== ======= ======== ========
The notes constitute an integral part of the consolidated financial statements. 15 CANWEST GLOBAL COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE 6 MONTHS ENDED FEBRUARY 28, 2003 AND 2002 (UNAUDITED) (IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE NOTED) 1. SIGNIFICANT ACCOUNTING POLICIES The Company is an international media company with interests in broadcast television, publishing, radio, specialty cable channels, out-of-home advertising, production and distribution of film and television programming and internet websites in Canada, Australia, New Zealand, Ireland and Northern Ireland. The Company's operating segments include television and radio broadcasting, entertainment, and publishing and online operations. In Canada, the Television Broadcasting segment includes the operation of the Global Television Network, Global Prime and various other conventional and specialty channels. The Canadian Publishing and Online segment includes the publication of a number of newspapers, including metropolitan daily newspapers, and the National Post as well as operation of the canada.com web portal and other web based operations. The Entertainment segment includes the operation of CanWest Entertainment, a producer and distributor of film and television programs. The New Zealand Television Broadcasting segment includes the operations of the TV3 and TV4 Television Networks. The New Zealand Radio Broadcasting segment includes the More FM and RadioWorks radio networks. The Irish Television Broadcasting segment includes the Company's 45% interest in the Republic of Ireland's TV3 Television Network. The Corporate and Other segment includes the Company's 57.2% economic interest (57.5% to February 27, 2003) in the TEN Group Pty Limited which owns and operates Australia's TEN Television Network ("Network TEN") and various portfolio investments in media operations, including a 29.9% equity interest in Northern Ireland's Ulster Television plc ("UTV"). The Company's broadcast customer base is comprised primarily of large advertising companies who place advertisements with the Company on behalf of their customers. Publishing revenues, include advertising, circulation and subscriptions which are derived from a variety of sources. The Company's advertising revenues are seasonal. Revenues and accounts receivable are highest in the first and third quarters, while expenses are relatively constant throughout the year. BASIS OF PRESENTATION The consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada for interim financial statements and reflect all adjustments which are, in the opinion of management, necessary for fair statement of the results of the interim periods presented. However, these interim financial statements do not include all the information and disclosures required for annual financial statements. The accounting policies used in the preparation of these interim financial statements are the same as those used in the most recent annual financial statements. These interim statements should be read in conjunction with the most recent annual financial statements of the Company. All amounts are expressed in thousands of Canadian dollars unless otherwise noted. 16 2. ACQUISITIONS AND DIVESTITURES a) On February 14, 2003 the Company sold it's interest in community newspapers and related assets in Southern Ontario for cash proceeds of $193.5 million. The accounting gain on this sale was $20.7 million; assets and liabilities disposed amounted to $179.6 million (including goodwill of $157.0 million) and $6.8 million, respectively. b) On August 8, 2002, the Company sold it's interest in community newspapers and related assets in Atlantic Canada and Saskatchewan for cash proceeds of $257.0 million. The accounting gain on the sale was $48.9 million; assets and liabilities disposed amounted to $227.3 million and $19.2 million, respectively. c) Effective March 31, 2002, the Company acquired the remaining 50% interest in The National Post not already owned. In September 2001, the Company assumed control of The National Post and, accordingly, changed its method of accounting for The National Post to a consolidation basis from an equity basis. d) On October 31, 2001, the Company completed the sale of CKVU Sub Inc. and received proceeds of $133.0 million. e) On September 12, 2001, the Company completed the sale of CF Television Inc. and received proceeds of $87.0 million. 3. INVESTMENT IN NETWORK TEN During the three months ended February 28, 2003 Network TEN issued 5.3 million shares for proceeds of $9.6 million as a result of the exercise of management stock options. This effectively diluted the Company's economic interest in Network TEN to 57.2% from 57.5% and resulted in an investment gain of $1.4 million. The Company owns approximately 14.8% (15% to February 27, 2003) of the issued ordinary shares and all of the convertible debentures and subordinated debentures of Network TEN, an Australian television broadcast network. The subordinated debentures have an aggregate principal amount of A$45.5 million and pay interest based on distributions to holders of ordinary shares. The convertible debentures have an aggregate principal amount of A$45,500 and pay a market linked rate of interest. The combination of ordinary shares and subordinated debentures yield distributions equivalent to approximately 57.2% (57.5% to February 27, 2003) of all distributions paid by Network TEN. The convertible debentures are convertible, upon payment of an aggregate of A$45.5 million, into a number of ordinary shares which would represent 49.7% (50% to February 27, 2003) of the issued and outstanding shares of Network TEN at the time of conversion. As a result of its contractual right to representation on Network TEN's board of directors and other factors, the Company accounts for its interest in Network TEN on the equity basis. The Company has appointed three of the thirteen members of the board of directors of Network TEN. The following selected consolidated financial information of Network TEN has been prepared in accordance with accounting principles generally accepted in Canada. The accounts have been translated to Canadian dollars using the current rate method. 17 Summary Consolidated Balance Sheets
AS AT ------------------------------- FEBRUARY 28 AUGUST 31 2003 2002 Assets Current assets 247,289 285,303 Other assets 2,141 4,825 Property, plant and equipment 83,034 71,875 Long term investments 7,348 2,188 Intangibles 259,461 246,305 Goodwill 52,606 49,304 ------- ------- 651,879 659,800 ======= ======= Liabilities and Shareholders' Equity Current liabilities 168,858 191,736 Long term liabilities 430,491 442,975 Subordinated debentures issued to the Company 40,154 40,154 Share capital 49,766 40,146 Deficit (37,760) (52,232) Cumulative foreign currency translation adjustment 370 (2,979) ------- ------- 651,879 659,800 ======= =======
Other Consolidated Financial Data
FOR THE SIX MONTHS ENDED FEBRUARY 28 ---------------------------- 2003 2002 Cash flow from operations (1) 85,700 80,800 ======= ======= Distributions paid 52,500 111,900 ======= ======= Capital expenditures 15,000 13,000 ======= =======
(1) Cash flow from operations before changes in non-cash operating accounts 18 Summary Consolidated Statements Of Earnings
FOR THE SIX MONTHS ENDED FEBRUARY 28 ------------------------- 2003 2002 Revenue 310,268 256,988 Operating expenses 210,735 177,202 ------- ------- 99,533 79,786 Amortization of property, plant, equipment and other 7,488 6,760 ------- ------- Operating income 92,045 73,026 Financing expenses (42,301) (12,298) ------- ------- 49,744 60,728 Provision for income taxes 13,785 18,601 ------- ------- Earnings before the following 35,959 42,127 Goodwill impairment loss - (20,905) Minority interests - 2,101 ------- ------- Net earnings for the period 35,959 23,323 Interest in respect of subordinated debentures held by the Company 32,091 2,455 ------- ------- Earnings for the period before interest in respect of subordinated debentures 68,050 25,778 ======= =======
Summary Statements Of Retained Earnings
FOR THE SIX MONTHS ENDED FEBRUARY 28 ------------------------- 2003 2002 Retained earnings (deficit) - beginning of year (52,232) 94,142 Earnings for the period before interest in respect of subordinated debentures 68,050 25,778 Distributions paid (53,578) (123,984) ------- -------- Deficit - end of period (37,760) (4,064) ======= ========
The Company's economic interest in Network TEN's earnings for the six months ended February 28, 2003 is $36.7 million (2002- $ 14.2 million). 19 4. LONG TERM DEBT In October 2002, Fireworks Entertainment Inc., a subsidiary of the Company, secured a stand alone credit facility with a syndicate of lenders. The facility is a three year revolving facility collateralized by certain assets of Fireworks Entertainment Inc. and bears interest at floating rates of LIBOR plus 2.25% to 3.5%. The US$110 million total commitment under this facility is based on acceptable receivables; as at February 28, 2003 total availability was US$64.5 million, of which US$60.8 million was advanced. 5. CAPITAL STOCK On December 18, 2002, the Company elected to redeem all of its outstanding Series 2 preference shares recorded at $50.0 million for an aggregate redemption price of $57.7 million. 6. EARNINGS PER SHARE The following table provides a reconciliation of the numerators and denominators used in computing basic and diluted earnings per share.
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED FEBRUARY 28 FEBRUARY 28 --------------------------------------------------------------------- 2003 2002 2003 2002 Net earnings (loss) 9,881 (21,660) 78,316 86,474 Excess of redemption price over carrying value of preferred shares (7,672) - (7,672) - ----------- ----------- ----------- ----------- Earnings available to common shareholders 2,209 (21,660) 70,644 86,474 =========== =========== =========== =========== Basic weighted average shares outstanding during the period 177,070,290 177,051,813 177,067,345 176,853,992 Dilutive effect of options 5,934 - 5,934 26,889 Dilutive effect of preference shares - - - 4,922,729 ----------- ----------- ----------- ----------- Diluted weighted average shares outstanding during the period 177,076,224 177,051,813 177,073,279 181,803,610 =========== =========== =========== =========== Options outstanding that would have been anti-dilutive 2,143,247 1,802,686 2,143,247 1,187,373 =========== =========== =========== ===========
20 7. STOCK BASED COMPENSATION The Company utilizes the intrinsic value approach to accounting for stock compensation expense. The following are the pro forma results as if the Company had applied the fair value based method of accounting for stock-based compensation. The fair value of options granted during the six months ended February 28, 2003 was estimated using the Black Scholes pricing model with the assumptions of no dividend yield (2002 - nil), an expected volatility of 54% (2002 - 40%), risk free interest rates of 4.5% to 4.9% (2002 - 4.8% to 5.4%) and an expected life of 7 to 9 years (2002 - 6 to 9 years). The fair value of 394,500 options that were granted by the Company was $1,502,224. The pro forma cost of stock option expense for the three and six months ended February 28, 2003 are $549,278 and $858,311 respectively (2002 - $1,046,047 and $1,335,963). A value of $5,191,913 will be charged to pro forma earnings in future periods according to the vesting terms of the outstanding options. The resulting pro forma net earnings and diluted earnings per share for the three months ended February 28, 2003 are $0.01 and $0.01 respectively (2002 - - ($0.13) and ($0.13)) and six months ended February 28, 2003 are $0.39 and $0.39, respectively (2002 - $0.48 and $0.47). 8. CONTINGENCY On March 5, 2001, a statement of claim was filed against the Company and certain of the Company's subsidiaries by CanWest Broadcasting Ltd.'s ("CBL's") former minority interests requesting, among other things, that their interests in CBL be purchased without minority discount. In addition, the claim alleges the Company wrongfully terminated certain agreements and acted in an oppressive and prejudicial manner towards the plaintiffs. The lawsuit seeks damages in excess of $345 million. The Company believes the allegations are substantially without merit and not likely to have a material adverse effect on its business, financial condition or results of operation. The Company intends to vigorously defend this lawsuit. 9. SUBSEQUENT EVENTS In April 2003, the Company issued US$200.0 million in 7.625% senior unsecured notes due April 15, 2013. The proceeds will be used to repay approximately $275.0 million of obligations under the 12.125% junior subordinated notes. 21 10. SEGMENTED INFORMATION The Company operates primarily within the publishing and online, broadcasting and entertainment industries in Canada, New Zealand, Ireland and Australia. Each segment reported below operates as a strategic business unit with separate management. Segment performance is measured primarily on the basis of operating profit. There are no significant inter-segment transactions. Segmented information in thousands of Canadian dollars is as follows:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED FEBRUARY 28 FEBRUARY 28 ------------------------------------------------------------------- 2003 2002 2003 2002 REVENUE TELEVISION Canada 171,320 155,443 385,826 356,211 New Zealand - TV3 and TV4 19,242 13,124 45,453 31,487 Ireland - TV3 7,863 6,402 17,964 14,934 ------- ------- --------- --------- 198,425 174,969 449,243 402,632 RADIO - NEW ZEALAND 19,165 15,037 37,010 30,341 ENTERTAINMENT - CANADA 35,179 41,098 83,223 98,626 PUBLICATIONS AND ONLINE - CANADA 279,541 299,546 599,437 644,010 INTER-SEGMENT REVENUE (1,070) (1,520) (4,110) (3,899) ------- ------- --------- --------- TOTAL REVENUE 531,240 529,130 1,164,803 1,171,710 ======= ======= ========= ========= OPERATING PROFIT TELEVISION Canada 42,492 31,904 123,889 107,387 New Zealand - TV3 and TV4 (270) (3,120) 6,973 (2,402) Ireland - TV3 1,928 1,413 5,915 4,713 ------- ------- --------- --------- 44,150 30,197 136,777 109,698 RADIO - NEW ZEALAND 5,393 4,116 10,747 8,386 ENTERTAINMENT - CANADA (1,032) 1,626 583 5,726 PUBLICATIONS AND ONLINE - CANADA 52,959 62,442 134,753 150,145 ------- ------- --------- --------- SEGMENT OPERATING PROFIT 101,470 98,381 282,860 273,955 CORPORATE EXPENSES 5,582 6,506 10,469 10,990 ------- ------- --------- --------- OPERATING PROFIT 95,888 91,875 272,391 262,965 ======= ======= ========= =========
22 11. U.S. GAAP RECONCILIATION These interim financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). In certain circumstances GAAP as applied in the United States ("U.S.") differs from Canadian GAAP. The principal differences affecting the Company are disclosed in the annual financial statements. CONSOLIDATED STATEMENTS OF EARNINGS The following is a reconciliation of net earnings reflecting the differences between Canadian and U.S. GAAP:
FOR THE SIX MONTHS ENDED FEBRUARY 28 2003 2002 $000 $000 Net earnings in accordance with Canadian GAAP 78,316 86,474 Pre-operating costs, net of tax of ($860) (2002 - $2,176) 1,957 (2,039) Realization of cumulative translation adjustments, net of tax of nil 900 1,000 Integration costs related to Can West Publications, net of tax of $109 (193) - Programming costs imposed by regulatory requirement, net of tax of $1,155 (2002 - $1,198) (1,530) (1,587) Equity accounted affiliates in trust, net of tax of nil - 3,375 -------- -------- Net earnings in accordance with U.S. GAAP before cumulative effect of adoption of new accounting policies 79,450 87,223 Cumulative effect of adoption of new accounting policies, net of tax of $2,500 - (45,269) -------- -------- Net earnings in accordance with U.S. GAAP 79,450 41,954 ======== ======== Earnings per share: Earnings before cumulative effect of adoption of new accounting policies Basic $ 0.41 $ 0.49 Diluted $ 0.41 $ 0.48 Earnings per share Basic $ 0.41 $ 0.24 Diluted $ 0.41 $ 0.23
23 The following financial information has been prepared on a combined basis to proportionately consolidate the Company's 57.2% (57.5% to February 27, 2003) interest in Network TEN. This financial information is supplemental to the Company's consolidated financial statements and is designed to provide more complete disclosure of the scope of the Company's operations. CANWEST GLOBAL COMMUNICATIONS CORP. COMBINED STATEMENTS OF EARNINGS (UNAUDITED) (IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT AS OTHERWISE NOTED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 2003 2002 2003 2002 Revenue 603,199 591,720 1,343,208 1,319,478 Operating expenses 482,392 476,378 1,003,117 999,646 ------- ------- --------- --------- Operating income before undernoted 120,807 115,342 340,091 319,832 Corporate and development expenses 5,582 6,506 10,469 10,990 ------- ------- --------- --------- Operating income before amortization (EBITDA) 115,225 108,836 329,622 308,842 Amortization of intangibles 4,375 4,375 8,750 8,750 Amortization of property, plant and equipment 20,597 20,553 41,825 39,497 Other amortization 2,561 1,950 4,032 3,792 ------- ------- --------- --------- OPERATING INCOME (EBIT) 87,692 81,958 275,015 256,803 Financing expenses (97,060) (95,892) (192,061) (203,339) Dividend income - - 1,533 1,358 ------- ------- --------- --------- (9,368) (13,934) 84,487 54,822 Investment gains 22,108 - 22,108 63,020 Interest rate swap loss (8,867) - (8,867) - ------- ------- --------- --------- Earnings (loss) before income taxes (EBT) 3,873 (13,934) 97,728 117,842 Provision for (recovery of) income taxes (7,357) (1,620) 17,733 23,512 ------- ------- --------- --------- Earnings (loss) before the following 11,230 (12,314) 79,995 94,330 Minority interests - 2,478 - 4,968 Goodwill impairment loss - (11,387) - (11,387) Interest in loss of equity accounted affiliates (449) (437) (779) (437) Realized currency translation adjustments (900) - (900) (1,000) ------- ------- --------- --------- Net earnings (loss) for the period 9,881 (21,660) 78,316 86,474 ======= ======= ========= ========= EARNINGS (LOSS) PER SHARE: (1) BASIC $ 0.01 ($ 0.12) $ 0.40 $ 0.49 DILUTED $ 0.01 ($ 0.12) $ 0.40 $ 0.48
(1) Earnings per share have been calculated on the basis of the weighted average number of shares outstanding during the six months of 177,067,345 (2002 - 176,853,992). 24 CANWEST GLOBAL COMMUNICATIONS CORP. COMBINED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS OF CANADIAN DOLLARS)
AS AT ----------------------------- FEBRUARY 28, AUGUST 31, 2003 2002 ASSETS CURRENT ASSETS Cash 75,755 66,904 Accounts receivable 571,929 527,475 Income taxes recoverable - 67,253 Inventory 15,290 19,836 Investment in film and television programs 192,950 161,771 Future income taxes 30,882 30,013 Other 14,307 19,654 --------- --------- 901,113 892,906 Other investments 171,595 163,619 Investment in film and television programs 332,663 317,176 Property, plant and equipment 712,344 734,499 Other assets 91,269 106,750 Intangibles and goodwill 3,742,860 3,870,526 --------- --------- 5,951,844 6,085,476 ========= ========= LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities 398,576 479,365 Income taxes payable 346 - Film and television program accounts payable 84,625 64,834 Deferred revenue 56,363 60,596 Current portion of long term debt 130,807 187,167 --------- --------- 670,717 791,962 Long term debt 3,466,638 3,566,116 Other accrued liabilities 129,125 100,259 Future income taxes 461,231 451,228 --------- --------- 4,727,711 4,909,565 --------- --------- SHAREHOLDERS' EQUITY Capital stock 846,814 896,422 Contributed surplus 3,647 3,647 Retained earnings 388,020 317,376 Cumulative foreign currency translation adjustments (14,348) (41,534) --------- --------- 1,224,133 1,175,911 --------- --------- 5,951,844 6,085,476 ========= =========
25 CANWEST GLOBAL COMMUNICATIONS CORP. COMBINED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) (IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 2003 2002 2003 2002 Retained earnings - beginning of period, as previously reported 385,811 412,492 317,376 475,053 Adjustment for adoption of new accounting pronouncements - - - (170,695) ------- ------- ------- -------- Retained earnings - beginning of period, as adjusted 385,811 412,492 317,376 304,358 Excess of redemption price over carrying value of preferred shares (7,672) - (7,672) - Net earnings (loss) for the period 9,881 (21,660) 78,316 86,474 ------- ------- ------- -------- Retained earnings - end of period 388,020 390,832 388,020 390,832 ======= ======= ======= ========
26 CANWEST GLOBAL COMMUNICATIONS CORP. COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT AS OTHERWISE NOTED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 FEBRUARY 28 2003 2002 2003 2002 CASH GENERATED (UTILIZED) BY: OPERATING ACTIVITIES Net earnings (loss) for the period 9,881 (21,660) 78,316 86,474 Items not affecting cash Amortization 29,902 29,285 59,419 56,869 Interest paid in kind 28,614 25,604 56,988 50,813 Future income taxes 3,992 20,061 6,084 24,268 Interest in loss of equity accounted affiliates 449 437 779 437 Minority interests - (2,478) - (4,968) Goodwill impairment loss - 11,387 - 11,387 Investment gains (22,108) - (22,108) (63,020) Interest rate swap loss 8,867 - 8,867 - Realized currency translation adjustments 900 - 900 1,000 -------- -------- -------- -------- 60,497 62,636 189,245 163,260 Investment in film and television programs (19,211) (26,254) (75,985) (104,705) Amortization of film and television programs 31,841 34,490 71,537 80,737 Other changes in non-cash operating accounts 81,853 2,236 (68,379) (184,507) -------- -------- -------- -------- 154,980 73,108 116,418 (45,215) -------- -------- -------- -------- INVESTING ACTIVITIES Other investments (3,913) - (4,473) - Proceeds from Network TEN dilution 5,499 - 5,499 - Proceeds from sale of other investments - - - 87,000 Proceeds from divestitures 193,500 - 193,500 133,039 Purchase of property, plant and equipment (12,874) (17,702) (20,902) (36,496) -------- -------- -------- -------- 182,212 (17,702) 173,624 183,543 -------- -------- -------- -------- FINANCING ACTIVITIES Issuance of long term debt 1,898 131,523 90,974 131,523 Repayment of long term debt (235,571) (115,107) (314,885) (190,967) Issuance of share capital 375 47 392 109 Preferred share redemption (57,672) - (57,672) - Net change in bank loans and advances (27,858) (20,905) - (28,999) -------- -------- -------- -------- (318,828) (4,442) (281,191) (88,304) -------- -------- -------- -------- Net change in cash 18,364 50,964 8,851 49,994 CASH - BEGINNING OF PERIOD 57,391 28,748 66,904 29,718 -------- -------- -------- -------- CASH - END OF PERIOD 75,755 79,712 75,755 79,712 ======== ======== ======== ======== CASH FLOW FROM OPERATIONS PER SHARE: (1) (2) $ 0.34 $ 0.35 $ 1.07 $ 0.92 BASIC DILUTED $ 0.34 $ 0.34 $ 1.07 $ 0.90
(1) Cash flow from operations per share has been calculated on the basis of the weighted average number of shares outstanding during the six months of 177,067,345 (2002 - 176,853,992). (2) Cash flow from operations is defined as cash flow from operations before investment in and amortization of film and television programs and other changes in non cash operating accounts. 27 CANWEST GLOBAL COMMUNICATIONS CORP. (1) COMBINED BUSINESS SEGMENT INFORMATION (IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED FEBRUARY 28 ----------------------------------------- 2003 2002 2002 ACTUAL ACTUAL PROFORMA (2) REVENUE TELEVISION Canada 171,320 155,443 155,443 Australia - Network TEN 63,703 54,016 54,016 New Zealand - TV3 and TV4 19,242 13,124 13,124 Ireland - TV3 7,863 6,402 6,402 ------- ------- ------- 262,128 228,985 228,985 RADIO - NEW ZEALAND 19,165 15,037 15,037 ENTERTAINMENT - CANADA 35,179 41,098 41,098 PUBLICATIONS AND ONLINE - CANADA 279,541 299,546 272,805 OUTDOOR - AUSTRALIA 8,256 8,574 8,574 Inter-segment revenue (1,070) (1,520) (1,520) ------- ------- ------- TOTAL REVENUE 603,199 591,720 564,979 ======= ======= ======= OPERATING PROFIT TELEVISION Canada 42,492 31,904 31,904 Australia - Network TEN 18,877 17,149 17,149 New Zealand - TV3 and TV4 (270) (3,120) (3,120) Ireland - TV3 1,928 1,413 1,413 ------- ------- ------- 63,027 47,346 47,346 RADIO - NEW ZEALAND 5,393 4,116 4,116 ENTERTAINMENT - CANADA (1,032) 1,626 1,626 PUBLICATIONS AND ONLINE - CANADA 52,959 62,442 55,489 OUTDOOR - AUSTRALIA 460 (188) (188) ------- ------- ------- SEGMENT OPERATING PROFIT 120,807 115,342 108,389 Corporate expenses 5,582 6,506 6,506 ------- ------- ------- OPERATING PROFIT (EBITDA) 115,225 108,836 101,883 ======= ======= =======
(1) Combined results include the Company's 57.5% (57.2% from February 28, 2003) economic interest in Network TEN. (2) Proforma results exclude the results of community newspapers sold on August 8, 2002. 28 CANWEST GLOBAL COMMUNICATIONS CORP. (1) COMBINED BUSINESS SEGMENT INFORMATION (IN THOUSANDS OF CANADIAN DOLLARS)
FOR THE SIX MONTHS ENDED FEBRUARY 28 ----------------------------------------------- 2003 2002 2002 ACTUAL ACTUAL PROFORMA (2) REVENUE TELEVISION Canada 385,826 356,211 356,211 Australia - Network TEN 159,942 128,554 128,554 New Zealand - TV3 and TV4 45,453 31,487 31,487 Ireland - TV3 17,964 14,934 14,934 --------- --------- --------- 609,185 531,186 531,186 RADIO - NEW ZEALAND 37,010 30,341 30,341 ENTERTAINMENT - CANADA 83,223 98,626 98,626 PUBLICATIONS AND ONLINE - CANADA 599,437 644,010 590,940 OUTDOOR - AUSTRALIA 18,463 19,214 19,214 Inter-segment revenue (4,110) (3,899) (3,899) --------- --------- --------- TOTAL REVENUE 1,343,208 1,319,478 1,266,408 ========= ========= ========= OPERATING PROFIT TELEVISION Canada 123,889 107,387 107,387 Australia - Network TEN 55,902 44,792 44,792 New Zealand - TV3 and TV4 6,973 (2,402) (2,402) Ireland - TV3 5,915 4,713 4,713 --------- --------- --------- 192,679 154,490 154,490 RADIO - NEW ZEALAND 10,747 8,386 8,386 ENTERTAINMENT - CANADA 583 5,726 5,726 PUBLICATIONS AND ONLINE - CANADA 134,753 150,145 134,585 OUTDOOR - AUSTRALIA 1,329 1,085 1,085 --------- --------- --------- SEGMENT OPERATING PROFIT 340,091 319,832 304,272 Corporate expenses 10,469 10,990 10,990 --------- --------- --------- OPERATING PROFIT (EBITDA) 329,622 308,842 293,282 ========= ========= =========
(1) Combined results include the Company's 57.5% (57.2% from February 28, 2003) economic interest in Network TEN. (2) Proforma results exclude the results of community newspapers sold on August 8, 2002. 29 -----END PRIVACY-ENHANCED MESSAGE-----