Canwest 2nd quarter financial report filed on SEDAR

CANWEST GLOBAL COMMUNICATIONS CORP.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2010 AND 2009
(UNAUDITED)
April 13, 2010
To the Audit Committee of Canwest Global Communications Corp.
In accordance with our engagement letter dated August 25, 2009, we have reviewed the accompanying
interim consolidated balance sheet of Canwest Global Communications Corp. (the Company) as at
February 28, 2010 and the related interim consolidated statements of earnings (loss), comprehensive
earnings (loss), deficit and cash flows for the three and six month periods ended February 28, 2010 and
February 28, 2009 (the interim financial statements). 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 Canwest Global Communications Corp. 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.
Chartered Accountants
“PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the
PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.
PricewaterhouseCoopers LLP
Chartered Accountants
One Lombard Place, Suite 2300
Winnipeg, Manitoba
Canada R3B 0X6
Telephone +1 (204) 926 2400
Facsimile +1 (204) 944 1020
CANWEST GLOBAL COMMUNICATIONS CORP.
(Under Creditor Protection Proceedings as of October 6, 2009 – Notes 1 and 4)
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(UNAUDITED)
(In thousands of Canadian dollars except as otherwise noted)
For the three months ended
February 28,
For the six months ended
February 28,
2010 2009
(Revised notes
19 and 25)
2010 2009
(Revised notes
19 and 25)
Revenue 478,680 493,434 1,049,345 1,127,778
Operating expenses 384,987 434,591 781,319 932,298
Restructuring expenses (reversals) (note 15) (120) 18,189 1,722 32,695
Broadcast rights write-downs - 29,620 - 29,620
Settlement of regulatory fees (note 25) - - (29,416) -
93,813 11,034 295,720 133,165
Amortization of intangible assets 1,608 1,607 5,116 3,215
Amortization of property and equipment 19,081 21,059 38,045 40,541
Other amortization 77 93 155 188
Operating income (loss) 73,047 (11,725) 252,404 89,221
Interest expense (48,685) (66,650) (101,168) (136,625)
Accretion of long-term liabilities (33,091) (9,829) (65,843) (38,062)
Interest income 173 223 1,004 351
Interest rate and foreign currency swap gains
(losses) - (1,731) - 40,698
Foreign currency exchange gains (losses) (note
18) 20,604 (15,878) 86,036 (83,379)
Investment gains, losses and write-downs (43) (2,353) 670 (3,516)
Impairment loss on property and equipment - (10,333) - (10,333)
Impairment loss on intangible assets (note 14) - (185,108) (3,142) (185,108)
Impairment loss on goodwill (note 14) - (895,110) - (895,110)
12,005 (1,198,494) 169,961 (1,221,863)
Reorganization items Canwest Media entities
(note 6) (25,713) (1,599) (87,734) (1,599)
Reorganization items Canwest LP entities (note
7) (30,940) - (40,076) -
(44,648) (1,200,093) 42,151 (1,223,462)
Provision for (Recovery of) income taxes (note
16) (2,023) 150,044 2,243 174,467
Earnings (Loss) before the following (42,625) (1,350,137) 39,908 (1,397,929)
Minority interest (3,647) (3,644) (11,599) (9,586)
Interest in earnings of equity accounted
affiliates 194 340 94 555
Realized foreign currency translation
adjustments - (216) - (216)
Net earnings (loss) from continuing
operations (46,078) (1,353,657) 28,403 (1,407,176)
Gain from sale of discontinued operations (note
19) - - 578,059 -
Loss from discontinued operations (note 19) - (81,857) - (65,282)
Net earnings (loss) from discontinued
operations - (81,857) 578,059 (65,282)
Net earnings (loss) for the period (46,078) (1,435,514) 606,462 (1,472,458)
Earnings (Loss) per share from continuing
operations (note 21):
Basic ($0.26) ($7.62) $0.16 ($7.92)
Diluted ($0.26) ($7.62) $0.16 ($7.92)
Earnings (Loss) per share (note 21):
Basic ($0.26) ($8.08) $3.41 ($8.29)
Diluted ($0.26) ($8.08) $3.40 ($8.29)
The notes constitute an integral part of the consolidated financial statements.
CANWEST GLOBAL COMMUNICATIONS CORP.
(Under Creditor Protection Proceedings as of October 6, 2009 – Notes 1 and 4)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands of Canadian dollars)
As at
February 28,
2010
As at
August 31,
2009
(Revised notes
3 and 19)
ASSETS
Current Assets
Cash and cash equivalents 245,023 101,130
Restricted cash (note 13) 10,934 16,402
Accounts receivable 368,954 322,591
Inventory 5,360 6,618
Future income taxes 15,113 16,273
Other current assets 21,118 19,221
Assets of discontinued operations (note 19) - 268,230
666,502 750,465
Other investments 6,716 6,594
Broadcast rights (note 14) 384,020 362,502
Property and equipment 526,468 557,708
Other assets 37,563 36,518
Intangible assets (note 14) 1,221,547 1,229,447
Goodwill 1,016,430 1,017,975
Assets of discontinued operations (note 19) - 705,760
3,859,246 4,666,969
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities 196,730 400,066
Income taxes payable 37,904 39,112
Broadcast rights payable 118,548 95,297
Deferred revenue 31,961 34,651
Current portion of long-term debt and obligations under capital leases (note 17) 8,236 2,339,562
Current portion of hedging derivative instruments 23,280 21,803
Liabilities of discontinued operations (note 19) - 233,305
416,659 3,163,796
Liabilities subject to compromise Canwest Media entities (note 8) 547,919 -
Liabilities subject to compromise Canwest LP entities (note 9) 1,489,591 -
Long-term debt (note 17) 788,667 827,410
Hedging derivative instruments 36,860 19,788
Obligations under capital leases 2,925 3,872
Other long-term liabilities 160,280 192,833
Future income taxes 141,814 159,827
Puttable interest in subsidiary 706,839 645,216
Minority interest 56,462 58,007
Liabilities of discontinued operations (note 19) - 694,664
4,348,016 5,765,413
Going concern (note 1)
SHAREHOLDERS’ DEFICIENCY
Capital stock 852,375 852,375
Contributed surplus 18,554 17,239
Deficit (1,321,449) (1,927,911)
Accumulated other comprehensive loss (note 20) (38,250) (40,147)
(1,359,699) (1,968,058)
(488,770) (1,098,444)
3,859,246 4,666,969
The notes constitute an integral part of the consolidated financial statements.
CANWEST GLOBAL COMMUNICATIONS CORP.
(Under Creditor Protection Proceedings as of October 6, 2009 – Notes 1 and 4)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(UNAUDITED)
(In thousands of Canadian dollars)
For the three months ended
February 28,
For the six months ended
February 28,
2010 2009 2010 2009
Net earnings (loss) for the period (46,078) (1,435,514) 606,462 (1,472,458)
Other comprehensive income (loss)
Unrealized foreign currency translation
gains (losses) on net assets of selfsustaining
foreign operations - (441) 469 2,950
Realized foreign currency translation gains
(losses) on net assets of self-sustaining
foreign operations - 216 (2,999) 216
Foreign currency translation adjustment
(note 20) - (225) (2,530) 3,166
Change in fair value of hedging derivative
instruments designated as cash flow
hedges net of tax of $2.1 million and nil for
the three and six months ended February
28, 2010, respectively (2009 - $5.7 and
$10.1 million) (note 20) 6,193 1,099 50 (38,274)
Reclassification of change in fair value of
hedging derivative instruments designated
as cash flow hedges realized in net loss
for the period net of tax of $1.9 million
(note 20) - - 4,377 -
6,193 1,099 4,427 (38,274)
Unrealized gain (loss) on available-for-sale
investment net of tax of nil (2009 – nil)
(note 20) - 3,578 - (7,285)
Reclassification of impairment loss on
available for sale investments realized in
net loss for the period net of tax of nil
(2009 – nil) (note 20) - 7,285 - 7,285
- 10,863 - -
Comprehensive income (loss) for the
period (39,885) (1,423,777) 608,359 (1,507,566)
CONSOLIDATED STATEMENTS OF DEFICIT
(UNAUDITED)
(In thousands of Canadian dollars)
For the three months ended
February 28,
For the six months ended
February 28,
2010 2009
(Revised note
25)
2010 2009
(Revised note
25)
Deficit – beginning of period (1,275,371) (271,499) (1,927,911) (234,555)
Net earnings (loss) for the period (46,078) (1,435,514) 606,462 (1,472,458)
Deficit – end of period (1,321,449) (1,707,013) (1,321,449) (1,707,013)
The notes constitute an integral part of the consolidated financial statements.
CANWEST GLOBAL COMMUNICATIONS CORP.
(Under Creditor Protection Proceedings as of October 6, 2009 – Notes 1 and 4)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands of Canadian dollars)
For the three months ended
February 28,
For the six months ended
February 28,
2010 2009
(Revised notes
19 and 25)
2010 2009
(Revised notes
19 and 25)
CASH GENERATED (UTILIZED) BY:
OPERATING ACTIVITIES
Net earnings (loss) for the period (46,078) (1,435,514) 606,462 (1,472,458)
Reorganization items Canwest Media Entities 25,713 1,599 87,734 1,599
Reorganization items Canwest LP Entities 30,940 - 40,076 -
Net earnings from discontinued operations - 81,857 (578,059) 65,282
Items not affecting cash
Amortization 20,766 22,759 43,316 43,944
Net non-cash interest expense 11,439 15,062 13,198 30,407
Accretion of long-term liabilities 33,091 9,829 65,843 38,062
Future income taxes (recovery) (3,956) 144,344 (13,489) 162,646
Realized foreign currency translation adjustments - 216 - 216
Interest rate and foreign currency swap gains, net
of settlements - (3,076) - (56,719)
Broadcast rights write-downs - 29,620 1,737 29,620
Impairment loss on property and equipment,
intangible assets, and goodwill - 1,090,551 3,142 1,090,551
Investment gains, losses and write-downs 43 2,353 (670) 3,516
Pension expense less than employer contributions (3,941) (6,728) (12,640) (7,022)
Minority interest 3,647 3,644 11,599 9,586
Earnings of equity accounted affiliates (194) (340) (94) (555)
Foreign exchange (gains) losses (21,113) 14,727 (85,114) 79,974
Stock based compensation expense 575 163 1,315 1,358
50,932 (28,934) 184,356 20,007
Changes in non-cash operating accounts 79,678 38,441 (62,801) (52,317)
Cash flows from operating activities of continuing
operations before Reorganization items 130,610 9,507 121,555 (32,310)
Reorganization items Canwest Media Entities (note 6) (14,737) (1,599) (29,883) (1,599)
Reorganization items Canwest LP Entities (note 7) (14,539) - (21,198) -
Cash flows from operating activities of discontinued
operations (note 19) - 5,990 - 35,247
Cash flows from operating activities 101,334 13,898 70,474 1,338
INVESTING ACTIVITIES
Other investments (2,668) - (2,734) (100)
Restricted cash (note 13) (4,488) - (8,434) -
Proceeds from sale of discontinued operations - - 617,819 -
Proceeds from sales of property and equipment - 12,966 - 12,983
Purchase of property and equipment (3,886) (16,292) (10,302) (38,090)
Reorganization items Canwest Media Entities 3,000 - 3,000 -
Investing activities of discontinued operations - (6,426) - (13,215)
(8,042) (9,752) 599,349 (38,422)
FINANCING ACTIVITIES
Repayment of long-term debt (note 17) (1,187) (2,437) (499,935) (4,875)
Advances (repayments) of revolving facilities, net of
financing costs (note 17) 1,889 25,941 (13,075) 74,902
Swap recouponing receipts - 5,000 - 5,000
Payments of capital leases (236) (242) (1,740) (1,695)
Payment of distributions to minority interest (6,580) (682) (11,180) (2,811)
Financing activities from discontinued operations - 1,417 - (19,228)
(6,114) 28,997 (525,930) 51,293
Net change in cash and cash equivalents 87,178 33,143 143,893 14,209
Cash and cash equivalents – beginning of period 157,845 26,381 101,130 45,315
Cash and cash equivalents – end of period 245,023 59,524 245,023 59,524
The notes constitute an integral part of the consolidated financial statements.
CANWEST GLOBAL COMMUNICATIONS CORP.
(Under Creditor Protection Proceedings as of October 6, 2009 – Notes 1 and 4)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2010 AND 2009
(UNAUDITED)
(In thousands of Canadian dollars except as otherwise noted)
1. BASIS OF PRESENTATION AND GOING CONCERN
Creditor Protection
On October 6, 2009, Canwest Global Communications Corp. (“Canwest Global” or the “Company”)
and certain of its subsidiaries applied for and obtained an order (as amended, the “Canwest Media
Initial Order”) from the Ontario Superior Court of Justice (Commercial List) (the “Court”), granting
creditor protection under the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”). The
Canwest Media Initial Order applies to Canwest Global, Canwest Media Inc. (“Canwest Media”),
Canwest Television Limited Partnership, The National Post Company and certain non-operating
subsidiaries (collectively, the “Canwest Media Applicants”). Canwest (Canada) Inc., Canwest
Limited Partnership (“Canwest LP”) and its subsidiaries including Canwest Publishing Inc. and
National Post Inc., and CW Investments Co. (“CW Media”) and its subsidiaries including CW Media
Holdings Inc., are not included in this filing. The Canwest Media Initial Order provided for a general
stay of proceedings in respect of the Canwest Media Applicants for an initial period of 30 days,
which was subsequently extended to June 15, 2010 and is subject to further extensions by the
Court. The Canwest Media Initial Order may be further amended by the Court throughout the
CCAA proceedings (the “Canwest Media CCAA Proceedings”) based on motions from the Canwest
Media Applicants, their creditors and other interested parties. On October 6, 2009, certain of the
Canwest Media Applicants, through their Court-appointed Monitor, also made a concurrent petition
for recognition and ancillary relief under Chapter 15 of the U.S. Bankruptcy Code in the United
States Bankruptcy Court (“US Court”). On November 3, 2009, the US Court granted formal
recognition of the Canwest Media CCAA proceedings. For additional information, see note 2,
“Significant Accounting Policies” and note 4, “Canwest Media Creditor Protection and Amended
Recapitalization Agreement.”
On January 8, 2010, Canwest (Canada) Inc., Canwest Publishing Inc. and Canwest Books Inc.
(collectively, the “Canwest LP Applicants”) together with Canwest LP (the “Canwest LP Entities”),
applied for and obtained an order (as amended, the “Canwest LP Initial Order”) from the Court
granting creditor protection under the CCAA. The Canwest LP Initial Order applies to the Canwest
LP Entities. National Post Inc. is not included in the filing. For additional information, see note 5,
“Canwest LP Creditor Protection and Plan.” The Canwest LP Initial Order provided for a general
stay of proceedings against the Canwest LP Applicants for an initial period of 30 days, which was
subsequently extended to June 30, 2010 and is subject to further extensions by the Court. The
Canwest LP Initial Order may be further amended by the Court throughout the CCAA proceedings
based on motions from the Canwest LP Applicants, their creditors and other interested parties. For
additional information, see note 2, “Significant Accounting Policies” and note 5, “Canwest LP
Creditor Protection and Plan.”
Basis of presentation and going concern issues
The Company is a Canadian media company with interests in conventional television, specialty
television channels, publishing and websites. The Company’s operating segments include
television and publishing. The television segment includes the operations of Canwest Television
Limited Partnership, which operates the Global Television Network and six Canadian specialty
television channels. The CW Media television segment includes CW Media, which operates 18
Canadian specialty television channels. The publishing segment includes the operations of
Canwest LP which publishes a number of newspapers and magazines, including metropolitan daily
newspapers and The National Post, as well as operation of the canada.com web portal and other
web-based operations. In September 2009, the Company sold its interest in Ten Network Holdings
Limited (“Ten Holdings”) and its subsidiaries. The operations that comprised the Australian
television and Out-of-home advertising segments have been classified as discontinued operations
(see note 19).
The Company’s television broadcast revenue includes advertising revenue from a customer base
that is comprised primarily of large advertising agencies, which place advertisements with the
Company on behalf of their customers. In addition, the Company’s specialty television revenue
includes subscription revenue which is derived from subscribers of our specialty television
channels. Publishing revenue includes advertising, circulation and subscriptions which are derived
from a variety of sources. The Company’s advertising revenue is seasonal. Revenue and accounts
receivable are highest in the first and third quarters, while expenses are relatively constant
throughout the year.
Going Concern
During its 2009 fiscal year and the three and six months ended February 28, 2010, the Company’s
operating results and cash flows were impacted by the effects of the significant and sudden
declines in advertising revenue for its operations reflecting the weakened economic environment.
The significantly reduced advertising revenue reduced cash flows from operations. These
conditions and other factors contributed to the defaults related to certain of the Company’s credit
facilities, note indentures and derivative financial instruments.
These consolidated financial statements have been prepared on a going concern basis in
accordance with Canadian generally accepted accounting principles (“GAAP”) which assumes that
the Company will continue in operation for the foreseeable future and be able to realize its assets
and discharge its liabilities and commitments in the normal course of business. While the
Company, along with the other Canwest Media Applicants, is under creditor protection, it believes
a plan of compromise and arrangement can be developed and implemented which will allow it to
continue to operate as a going concern (note 4). There is uncertainty as to whether the
reorganization transactions will be structured as a reorganization of the Company. The
Subscription Agreement (as defined below) between the Company and Shaw Communications Inc.
(“Shaw”) contemplates that a restructured and recapitalized Canwest Global will emerge or that
alternatively, a new company may be created and the restructuring may include transfers of assets
or shares of subsidiaries of Canwest Global and Canwest Media. If the transaction involves a
newly created company and transfers of assets or shares of subsidiaries of Canwest Global and
Canwest Media, the Company may not be able to continue to use the going concern basis of
presentation. Because there is a reasonable possibility that the Company will be reorganized, the
Company considers the going concern basis of presentation to be appropriate. There is uncertainty
related to the completion and implementation of the plans and the outcome of such plans which
raise substantial doubt about whether the Company will continue as a going concern.
There can be no assurance that a financial reorganization will be completed such that the
Company will continue as a going concern. If the going concern basis is not appropriate,
adjustments to the carrying value of assets and liabilities may be required. Such adjustments could
be material.
Canwest Media Entities Events
In March and September 2009, Canwest Media did not make interest payments totaling in the
aggregate US$60.8 million which were due on its 8% senior subordinated unsecured notes (“8%
Notes”) and is in default under the terms of the 8% Notes indenture. The guarantors under the
Canwest Media debt obligations include Canwest Global, Canwest Media, Canwest Television
Limited Partnership, the National Post Company and other wholly owned subsidiaries (collectively,
the “Canwest Media Entities”) but exclude Canwest (Canada) Inc., Canwest LP and its subsidiaries
including Canwest Publishing Inc. and National Post Inc., and CW Media and its subsidiaries
including CW Media Holdings Inc.
In May 2009, Canwest Media entered into a new $75 million senior secured asset based loan
facility (the “ABL facility”) (note 17) and issued $105 million (US$94 million) 12% secured notes
(note 17) for cash proceeds of $100 million to certain holders of its 8% Notes. The proceeds were
used to pay, in full, amounts owing under Canwest Media’s previous senior secured credit facilities
and certain secured hedging derivatives, as well as to finance operations.
On September 22, 2009, the Canwest Media Entities entered into a Use of Cash Collateral and
Consent Agreement with an ad hoc committee of holders of 8% Notes representing over 70% of
the 8% Notes (the “Ad Hoc Committee”). On October 1, 2009, the Company sold its interest in Ten
Holdings for net proceeds of $618 million (see notes 12 and 19). In accordance with the Use of
Cash Collateral and Consent Agreement the proceeds were advanced to Canwest Media by its
wholly-owned Irish subsidiary which held the investment in Ten Holdings and were utilized as
follows: $102 million to repay obligations under the 12% secured notes, $85 million to repay the
ABL facility and to provide operating liquidity and $431 million to reduce its obligations under its 8%
Notes indenture.
On October 5, 2009, the Canwest Media Entities entered into a CCAA Support Agreement with the
Ad Hoc Committee pursuant to which they are pursuing a proposed recapitalization transaction
related to the Canwest Media Entities (note 4). The proposed terms of the recapitalization
transaction were set out in a Recapitalization Term Sheet incorporated into the CCAA Support
Agreement (together with the CCAA Support Agreement, the “Recapitalization Agreement”).
On October 6, 2009, as set out in the terms of the Recapitalization Agreement, the Canwest Media
Applicants applied for and obtained creditor protection under the CCAA and the Court approved
the conversion of the ABL facility into a debtor-in-possession (“DIP”) financing arrangement (notes
4 and 17). On October 14, 2009, the Court approved a claims procedure, which sets out the
process for identifying and valuing claims against the Canwest Media Applicants and the directors
and officers of the Canwest Media Applicants by the creditors affected by the CCAA filing. The
claims procedure was amended on November 30, 2009 by the Court.
On October 30, 2009, the Court granted an order approving the orderly transition and subsequent
termination of certain shared services arrangements between the Canwest Media Applicants and
other subsidiaries of the Company. The new shared services arrangement provides for the orderly
termination of shared services on dates ranging from February 28, 2010 to February 28, 2011 and
addresses certain employee-related matters including pensions and revises amounts payable for
such services. In addition, substantially all of the assets and certain liabilities of the National Post
were transferred from The National Post Company, a subsidiary of Canwest Media, to National
Post Inc., a wholly owned subsidiary of Canwest LP for consideration of $2.5 million.
The terms of the Recapitalization Agreement required that an equity investment in a restructured
and recapitalized Canwest Global (“Restructured Canwest”) by one or more Canadian investors be
completed on or prior to the completion of a restructuring transaction. An extensive equity
investment solicitation process was carried out by a financial advisor retained by the Company to
identify potential new investors. On February 11, 2010, the Company entered into, among other
agreements, a subscription agreement (the “Subscription Agreement”) with Shaw which became
effective on February 19, 2010 upon receipt of an order of the Court (the “Shaw Approval Order”).
Under the Subscription Agreement, Shaw agreed to acquire a minimum 20% equity interest and an
80% voting interest in Restructured Canwest upon its successful emergence from CCAA
protection. On March 9, 2010, GS Capital Partners VI Fund L.P. and certain of its affiliates
(collectively, the “Goldman Sachs Parties”) brought a motion in the Ontario Court of Appeal for
leave to appeal the Shaw Approval Order, which has yet to be adjudicated and which has been
resisted by the Company. In the event that the motion for leave to appeal is granted, the Goldman
Sachs Parties’ appeal would be permitted to proceed.
In connection with the Subscription Agreement the Canwest Media Entities and the Ad Hoc
Committee amended the terms of the recapitalization transaction pursuant to an amendment of the
Recapitalization Agreement. In addition, Canwest Global, Shaw and the Ad Hoc Committee
entered into a related support agreement pursuant to which, among other things, the Ad Hoc
Committee members agreed to support the amended terms of the recapitalization transaction
including the equity subscription by Shaw. The terms of the Subscription Agreement, the related
support agreement and the amended terms of the Recapitalization Agreement are described in
more detail in note 4.
The Canwest Media CCAA Proceedings, discussed in note 4, “Canwest Media Creditor Protection
and Recapitalization Plan”, provide the Canwest Media Applicants with temporary relief from their
creditors by preventing all secured and unsecured creditors from proceeding against the Canwest
Media Applicants. The DIP financing arrangement provides funding for operations during the
course of the filing. Under the Canwest Media CCAA Proceedings, the Canwest Media Applicants
intend to prepare and file a formal plan of compromise and arrangement which will set out, among
other things, how the Canwest Media Applicants propose to deal with their creditors affected by the
plan (the “Recapitalization Plan”). The Recapitalization Plan will be subject to a vote by the
affected creditors and must be approved by a requisite majority of affected creditors and
sanctioned by the Court.
Upon the implementation of the Recapitalization Plan there may be a substantial realignment of the
non-equity and equity interests. The Company may be required to comprehensively revalue its
assets and liabilities based on the reorganization value resulting from the Recapitalization Plan,
referred to as “fresh-start” accounting. These financial statements do not give effect to any
adjustments that may be required as a result of fresh-start accounting.
2. SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies followed in the preparation of these consolidated
financial statements is as follows:
Basis of presentation
The interim consolidated financial statements are prepared in accordance with accounting
principles generally accepted in Canada for interim financial statements applicable to a going
concern 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 consolidated
financial statements do not include all of the information and disclosures required for annual
consolidated financial statements. The accounting policies used in the preparation of these interim
consolidated financial statements are the same as those used in the most recent annual
consolidated financial statements except for the accounting changes disclosed below and in note
3. The accounting policies for the recognition, de-recognition and measurement of assets and
liabilities have not changed as a result of the CCAA filings by the Canwest Media Applicants and
Canwest LP Applicants. These interim consolidated financial 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.
Claims during the CCAA proceedings
All claims that become known during the CCAA proceedings are recognized in accordance with the
accounting policies of the Company based on the best estimate of the expected amounts of the
allowed claims. If a reasonable estimate of the amount of the claim cannot be made, the amount
claimed by the creditor or potential creditor has been disclosed.
The Company accounts for its financial liabilities using the amortized cost method. In light of the
CCAA filing pre-filing liabilities that may be impacted by the reorganization process are classified
on the consolidated balance sheets as liabilities subject to compromise. For all financial liabilities
that are subject to compromise, the Company adjusts the carrying amount to the amount allowed
under the claim. Any adjustments arising from differences between the carrying amount of the
financial liabilities and the allowed claims are presented as operating expenses if the amount
relates to a change in estimate for the cost of goods and services received by the companies
under the CCAA; otherwise the change has been presented as Reorganization Items.
Interest expense
For periods subsequent to the CCAA filing, interest expense on financial liabilities which have been
stayed by the Court is recognized only to the extent the amounts will be paid during the CCAA
proceedings or it is probable that the amounts will be allowed as a claim in the CCAA proceedings.
Interest expense recognized, including interest and fees related to the DIP financing, are presented
as interest expense and not as Reorganization Items.
Reorganization items
Incremental costs directly related to the CCAA proceedings are presented as Reorganization
items. These costs include professional fees paid to external parties for legal, financial consulting
and appraisal services incurred during the period the Canwest Media Applicants were developing
their financial reorganization plans and employee related costs for the retention of employees
essential to the operations during the CCAA proceedings. Cash flows related to Reorganization
items are disclosed in the Consolidated Statements of Cash Flows.
Gains and losses realized on the disposal of any assets approved during the CCAA proceedings
and any provisions for losses related to restructuring, exit or disposal activities (including
repudiation of contracts) are presented as Reorganization items. Interest income earned that would
not have been earned except for the proceeding is recorded as Reorganization items.
These costs, gains, losses and provisions are recognized and measured in accordance with the
respective accounting policies for such items.
3. ACCOUNTING CHANGES
Goodwill and Intangible Assets
The Accounting Standards Board (the “AcSB”) issued CICA Handbook Section 3064, “Goodwill
and Intangible Assets”, which establishes standards for the recognition, measurement,
presentation and disclosure of goodwill and intangible assets. CICA 3064 expands on the criteria
for recognition of intangible assets that can be recognized. CICA 3064 applies to internally
generated intangible assets such as research and development activities and rights under
licencing agreements. The section also indicates that expenditures not meeting the recognition
criteria of intangible assets are expensed as incurred. The Company adopted this new standard
effective September 1, 2009 in accordance with the transitional provisions which required
application of the standard on a retrospective basis. As a result of adopting this standard, the
Company has classified its broadcast rights as intangible assets. As a result of classifying
broadcast rights as intangible assets, these assets are classified as non-current assets whereas
previously they were classified as current and non-current depending on timing of expected usage
of the programs. Amortization of broadcast rights is recorded as operating expenses in the
consolidated statement of earnings. As a result of the adoption of this section, total current assets
as at August 31, 2009 were reduced by $154.7 million with a corresponding increase in total noncurrent
assets. In addition, other current assets as at August 31, 2009 were reduced by $14.7
million for program advances with a corresponding increase in broadcast rights. Under this section
broadcast rights are reviewed and tested for impairment in accordance with the impairment
provisions for long-lived assets or assets to be disposed of by other than sale and are no longer
carried at the lower of cost and net realizable value. In addition, the Company increased broadcast
rights payable by $33.2 million with a corresponding decrease to accounts payable and accrued
liabilities.
Proposed Accounting Changes
Business Combinations and Non-Controlling Interests
The AcSB issued CICA Handbook Section 1582, "Business Combinations" and entities adopting
CICA 1582 will also be required to adopt CICA Handbook Sections 1601, "Consolidated Financial
Statements”, and 1602, "Non-Controlling Interests". These sections replace the former CICA
Handbook Sections 1581, "Business Combinations" and 1600, "Consolidated Financial
Statements" and establish a new section for accounting for a non-controlling interest in a
subsidiary. CICA 1582 will require additional use of fair value measurements, recognition of
additional assets and liabilities and increased disclosure. CICA 1601 and 1602 will require a
change in the measurement of non-controlling interest and will require the change to be presented
as part of shareholders’ equity. These standards will become effective for business combinations
for which the acquisition date is on or after September 1, 2011. The Company is currently
considering the impacts of the adoption of such standard.
Multiple Deliverable Revenue Arrangements
In December 2009, the Emerging Issues Committee of the CICA issued EIC 175, “Multiple
Deliverable Revenue Arrangements”. EIC 175 which replaces EIC 142, “Revenue Arrangements
with Multiple Deliverables” addresses some aspects of the accounting by a vendor for
arrangements under which it will perform multiple revenue-generating activities. This new standard
is effective for the Company’s interim and annual consolidated financial statements commencing
September 1, 2011 with earlier adoption permitted. The Company is assessing the impact of the
new standard on its consolidated financial statements.
4. CANWEST MEDIA CREDITOR PROTECTION AND RECAPITALIZATION PLAN
Recapitalization Agreement and Related Agreements
On October 5, 2009, the Canwest Media Entities entered into the Recapitalization Agreement with
the Ad Hoc Committee pursuant to which they intend to pursue a recapitalization transaction
related to the Canwest Media Entities. The Recapitalization Agreement was the result of extensive
arm’s length discussions between the Company and the Ad Hoc Committee. Under the terms of
the Recapitalization Agreement, among other things, the Ad Hoc Committee agreed to vote in
favour of the Recapitalization Plan and not to transfer their interests in the 8% Notes except to
other members of the Ad Hoc Committee and the Canwest Media Entities agreed to use
reasonable efforts to complete the Recapitalization Plan upon the terms set out in the
Recapitalization Agreement.
The terms of the Recapitalization Agreement require that an equity investment in Restructured
Canwest by one or more Canadian investors be completed on or prior to the completion of a
restructuring transaction. On February 11, 2010, the Company entered into the Subscription
Agreement with Shaw pursuant to which Shaw agreed to make an equity investment in
Restructured Canwest, a support agreement with Shaw and the Ad Hoc Committee (the “Shaw
Support Agreement”), and an amendment of the Recapitalization Agreement with the Ad Hoc
Committee (the “Amended Recapitalization Agreement”). On February 19, 2010, the Court granted
an order sanctioning these agreements, upon which they became effective.
Together, these agreements set out the amended terms and conditions of the proposed
recapitalization of the Canwest Media Entities. The support of the proposed recapitalization by the
Ad Hoc Committee and by Shaw is subject to the satisfaction of a number of conditions, and the
agreements may be terminated under certain circumstances.
Under the Subscription Agreement, Shaw has agreed to purchase $95 million in voting shares of
Restructured Canwest, representing a 20% equity interest and an 80% voting interest upon its
emergence from the Canwest Media CCAA Proceedings.
The amended terms of the Recapitalization Plan, as set out in the Amended Recapitalization
Agreement, contemplate that the affected creditors of the Canwest Media Applicants whose claims
are compromised under the Recapitalization Plan, including the holders of the 8% Notes, will
receive either an equity interest in Restructured Canwest or cash payments in amounts equal to
the value of the equity interest that they would otherwise have received. Affected creditors
(including members of the Ad Hoc Committee) who would otherwise be entitled to receive at least
5% of the equity of Restructured Canwest may elect to receive equity or cash in full satisfaction of
their claims. All other affected creditors, including those eligible to receive shares of Restructured
Canwest, but which have elected not to receive shares, will receive cash payments to extinguish
their claims, in amounts equal to the value of the equity that they would have otherwise received
under the Recapitalization Plan. Existing shareholders of Canwest Global will receive cash
payments in exchange for their shares equivalent in the aggregate to 2.3% of the implied equity
value of Restructured Canwest. Shaw has agreed to fund certain of these cash payments to
affected creditors and shareholders in exchange for additional voting shares of Restructured
Canwest which would result in Shaw’s equity interest increasing above the initial 20%. Members of
the Ad Hoc Committee have the right to participate with Shaw in the funding of this additional
commitment.
Based on the Shaw equity subscription, Restructured Canwest has an implied equity value of $475
million. The implied equity value of Restructured Canwest attributable to affected creditors other
than the holders of the 8% Notes is not to exceed 18.5% of the total outstanding equity of
Restructured Canwest on its emergence from the CCAA protection.
The terms of the Amended Recapitalization Agreement, the Subscription Agreement and the Shaw
Support Agreement contemplate that, upon its emergence from the CCAA protection, Restructured
Canwest would be a private company and that all existing equity settled stock based compensation
plans would be terminated without compensation. Following successful completion of the
recapitalization transaction, Restructured Canwest would be de-listed from the TSX Venture
Exchange and would apply to cease to be a reporting issuer under Canadian securities laws.
Restructured Canwest would be managed and operated as a stand-alone business with its own
board of directors.
The Subscription Agreement contains an exclusivity covenant in favour of Shaw and sets out
liquidity mechanisms to provide equity holders with the ability to divest of their equity interests in
Restructured Canwest. It also sets out the principal terms of a shareholders’ agreement to be
entered into by the shareholders of Restructured Canwest upon its emergence from the CCAA
protection with respect to capital structure, governance, shareholder rights and other matters. The
Subscription Agreement may be terminated in certain circumstances, including by Canwest Global
in the event that the Shaw Support Agreement between the Company, Shaw and the members of
the Ad Hoc Committee is terminated.
Under the Amended Recapitalization Agreement, the Subscription Agreement and the Shaw
Support Agreement, there are a number of conditions which must be satisfied in order for the
Recapitalization Plan to be completed, including that, among other things, the resulting equity
structure of Restructured Canwest must comply with the Canadian ownership and control
requirements of the Canadian Radio-television and Telecommunications Commission (the
”CRTC”), the amended and restated shareholders’ agreement concerning CW Media must be
amended and restated or otherwise addressed in a manner agreed to by the Company, Shaw and
the Ad Hoc Committee or disclaimed in accordance with the CCAA, the Company must maintain at
least a 35.33% ownership interest in the equity of CW Media, the Company must be able to secure
financing, the Company must receive the necessary creditor and Court approval of the
Recapitalization Plan to be able to emerge from the Canwest Media CCAA Proceedings, and the
Company must use $85 million of the proceeds from Shaw’s equity subscription to reduce amounts
due under the 8% Notes. The Amended Recapitalization Agreement and the Subscription
Agreement may be terminated by the Company, Shaw or the members of the Ad Hoc Committee,
as applicable, upon the occurrence of certain events, including a material adverse change in the
financial condition of the Company, regulatory impediments that would make the completion of the
Recapitalization Plan unlikely or unsatisfactory to the parties, a default under the terms of the DIP
financing or the CW Media debt, absence of the creditor approval of the Recapitalization Plan by
April 15, 2010 (unless such date is extended) and non-completion of the transactions set out in the
Recapitalization Plan by August 11, 2010. The Canwest Media Applicants are currently in
negotiations with the Ad Hoc Committee with respect to the extension of certain of the milestones
set out in the Amended Recapitalization Agreement.
The Subscription Agreement, the Amended Recapitalization Agreement and the Shaw Support
Agreement contain a number of representations, warranties and covenants of the parties. In
certain circumstances, Canwest would be required to pay Shaw a termination fee in the amount of
$5 million and reimburse Shaw for its costs and expenses up to a maximum amount of $2.5 million.
On closing, the Company is required to reimburse Shaw for its costs and expenses up to a
maximum amount of $2.5 million.
The Recapitalization Agreement, the Amended Recapitalization Agreement, the Subscription
Agreement and the Shaw Support Agreement have been filed on the System for Electronic
Document Analysis and Retrieval (SEDAR) and are available at www.sedar.com.
On March 9, 2010, the Goldman Sachs Parties brought a motion in the Ontario Court of Appeal for
leave to appeal the Shaw Approval Order, which has yet to be adjudicated and has been resisted
by the Company. In the event that the motion for leave to appeal is granted, the Goldman Sachs
Parties’ appeal would be permitted to proceed.
There is uncertainty related to the completion of the recapitalization transactions as described
above as a result of the number and complexity of the conditions that must be satisfied.
Creditor Protection
As contemplated by the Recapitalization Agreement, on October 6, 2009, the Canwest Media
Applicants applied for and obtained an order from the Court providing creditor protection under the
CCAA. The Canwest Media Initial Order provided for a general stay of proceedings for an initial
period of 30 days, which was subsequently extended to June 15, 2010 and is subject to further
extension by the Court. The Canwest Media Initial Order may be further amended by the Court
throughout the Canwest Media CCAA Proceedings based on motions from the Canwest Media
Applicants, their creditors or other interested parties. On October 6, 2009, certain of the Canwest
Media Applicants, through their Court-appointed Monitor, also made a concurrent petition for
recognition and ancillary relief under Chapter 15 of the U.S. Bankruptcy Code in the US Court. On
November 3, 2009, the US Court granted formal recognition of the Canwest Media CCAA
Proceedings.
On October 14, 2009, and amended on November 30, 2009, the Court authorized the Canwest
Media Applicants to conduct a claims procedure for the identification, resolution and barring of
claims against the Canwest Media Applicants. This procedure together with the current status of
the claims are described in note 8.
The stay of proceedings generally precludes parties from taking any action against the Canwest
Media Applicants for breach of contractual or other obligations. The purpose of the stay is to
provide the Canwest Media Applicants with the opportunity to stabilize operations and business
relationships with customers, vendors, employees and creditors and to allow the Company to
implement an orderly consensual recapitalization transaction while continuing its day-to-day
operations.
Under the terms of the Canwest Media Initial Order, FTI Consulting Canada Inc. was appointed as
the monitor (the “Monitor”) for the Canwest Media CCAA Proceedings. The Monitor has been
reporting and will continue to report to the Court from time to time on the Canwest Media
Applicants’ financial and operational position and any other matters that may be relevant to the
Canwest Media CCAA Proceedings. In addition, the Monitor may advise the Canwest Media
Applicants on their development of a restructuring plan and, to the extent required, assist the
Canwest Media Applicants with a restructuring.
Business Operations
During the Canwest Media CCAA Proceedings, the Canwest Media Applicants continue to operate
with the assistance of the Monitor and under the supervision of the Court. Pursuant to the Canwest
Media Initial Order, and subject to the conditions set out therein and the requirements set out in the
CCAA, the Canwest Media Applicants are required to pay all amounts due to governmental entities
related to employee deductions, sales taxes, and other taxes and assessments. The Canwest
Media Applicants are permitted to pay outstanding and future employee wages, salaries and
employee benefits and other employee obligations; pay outstanding amounts for goods and
services from suppliers considered critical to the ongoing operations of the Canwest Media
Applicants; and pay future expenses and capital expenditures reasonably necessary to carry on
the operations of the Canwest Media Applicants. The Canwest Media Initial Order also allows the
Canwest Media Applicants, subject to the provisions of the CCAA, to disclaim any arrangement or
agreement. Claims may be allowed related to damages of counterparties arising as a result of such
disclaimers. These claims will be recognized in accordance with the accounting policies of the
Company.
Financial Restructuring/Recapitalization
The Canwest Media Applicants are undertaking a financial and corporate restructuring and intend
to propose a Recapitalization Plan as contemplated by the Amended Recapitalization Agreement
which must be approved by the requisite majority of affected creditors and sanctioned by the Court.
There can be no assurance that the Recapitalization Plan will be supported by the affected
creditors and sanctioned by the Court, or that the Recapitalization Plan will be implemented
successfully.
DIP Financing
On October 6, 2009, the Court approved the conversion of Canwest Media’s existing secured
revolving credit facility (see note 17) into a DIP financing arrangement in accordance with the
terms set out in the credit facility entered into in May 2009. The DIP financing arrangement
increased the maximum borrowings available under the facility from $75 million to $100 million.
The availability under the facility is determined based on the value of the assets which secure the
facility measured on a weekly basis. On October 6, 2009, no amounts were drawn on the facility
and $10.9 million of the availability was utilized by letters of credit issued under the facility. The
facility matures on the earlier of October 6, 2010 and the date on which the Recapitalization Plan is
implemented, but is subject to an earlier maturity date under certain circumstances including
certain events of default as defined in the agreement. The facility sets out certain milestones
including a requirement to have creditor approval of the Recapitalization Plan by April 15, 2010.
The Company is currently in discussion with its DIP lender related to the extension of that
milestone. Interest, principal and fees payable under the facility are not affected by the Canwest
Media CCAA Proceedings. All cash receipts of the Canwest Media Entities are required to be
applied to reduce amounts outstanding under the facility.
Priority of Charges
The Canwest Media Initial Order created a number of new charges against substantially all of the
current and future assets of the Canwest Media Applicants which, subject to the terms of the
Canwest Media Initial Order, may rank in priority to certain other security interests, trusts, liens,
charges and encumbrances. Certain employee and commodity tax obligations are also subject to a
super priority claim under bankruptcy legislation. These charges, in order of priority, include an
administration charge to secure amounts owing to certain restructuring advisors, up to maximum of
$15 million; a DIP Charge to the extent of any obligations outstanding under the DIP financing
arrangement described above; a directors’ charge to secure the indemnity created under the
Canwest Media Initial Order in favour of the directors of the Canwest Media Applicants and a key
employee retention plan (“KERP”) charge, with equal priority, to a maximum of $20 million and $5.9
million, respectively, and an investor charge to secure the Company’s obligation to pay Shaw the
termination fee and to reimburse Shaw’s costs and expenses in certain circumstances, up to a
maximum of $7.5 million. The directors’ charge and the KERP charge are postponed in right of
payment to the extent of the first $85 million payable under the senior secured promissory note
issued to a wholly-owned Irish subsidiary in relation to the receipt of proceeds on the sale of Ten
Holdings.
5. CANWEST LP CREDITOR PROTECTION AND PLAN
Canwest LP has not been in compliance with the financial covenants of its senior secured credit
facilities (“Canwest LP Secured Credit Facilities”) since May 31, 2009. From May 2009 to August
2009 Canwest LP did not make interest and principal payments on its senior secured credit facility
and the associated hedging derivative instruments or in respect of its senior subordinated
unsecured credit facility (“Canwest LP Senior Subordinated Credit Facility”) or its senior
subordinated unsecured notes (“Canwest LP Senior Subordinated Notes”). These payments were
not made in order to preserve cash to fund operations while Canwest LP worked to negotiate a
potential recapitalization transaction. As a result of the payment default under the Canwest LP
Secured Credit Facilities, the hedging derivative instrument counterparties terminated the hedging
arrangements and demanded immediate payment of an aggregate of $68.9 million (the “Canwest
LP Secured Hedge Obligations”).
Effective August 31, 2009, the Canwest LP Entities entered into a forbearance agreement with the
administrative agent under the Canwest LP Secured Credit Facilities (the “Administrative Agent”)
under which the lenders agreed to not take any steps with respect to the defaults under the
Canwest LP Secured Credit Facilities and to work with management of Canwest LP to develop and
implement a consensual pre-packaged restructuring, recapitalization, or reorganization of Canwest
LP and its subsidiaries. In accordance with the terms of the forbearance agreement, the lenders
cancelled all undrawn amounts under the revolving credit facility. Canwest LP agreed to pay the
interest owing and the continuing interest on its Canwest LP Secured Credit Facilities and the
interest amounts outstanding under the Canwest LP Secured Hedge Obligations. The forbearance
agreement was subject to a number of conditions and required the achievement of certain
milestones. The forbearance agreement, as extended, expired on November 9, 2009. Canwest LP
continued to pay the interest on the Canwest LP Secured Credit Facilities and the Canwest LP
Secured Hedge Obligations. Canwest LP was also in default under the terms of its Canwest LP
Senior Subordinated Credit Facility and Canwest LP Senior Subordinated Notes and did not enter
into any forbearance arrangements with these unsecured lenders or note holders thereunder.
Canwest LP Support Agreement
On January 8, 2010, the Canwest LP Entities entered into a support agreement with the
Administrative Agent (the “Canwest LP Support Agreement”) which was approved by the Court on
January 8, 2010. The Administrative Agent acts on behalf of the lenders under the Canwest LP
Secured Credit Facilities and the Canwest LP Secured Hedge Obligations (collectively, the
“Canwest LP Senior Lenders”). The Canwest LP Support Agreement requires the Canwest LP
Entities, among other things, (a) to commence CCAA proceedings; (b) to implement and make
effective a plan of compromise and arrangement under the CCAA (the “Canwest LP Senior
Lenders CCAA Plan”); (c) to conduct a sale and investor solicitation process (“SISP”) with a view to
obtaining proposals from prospective purchasers or investors to acquire all or substantially all of
the assets of the Canwest LP Entities or to invest in the Canwest LP Entities or their business; (d) if
the SISP is not successful, to use their best efforts to implement the agreement for a newly
established corporation (“Acquireco”) capitalized by the Canwest LP Senior Lenders to acquire the
operations and substantially all of the assets of the Canwest LP Entities and to assume certain
liabilities of the Canwest LP Entities (the “Credit Acquisition”); and (e) to pay interest on Canwest
LP Secured Credit Facilities and Canwest LP Secured Hedge Obligations, expenses of the
Administrative Agent and its advisors, certain investment banking fees and consent fees to
Canwest LP Senior Lenders committing to the Canwest LP Senior Lenders CCAA Plan.
The Canwest LP Support Agreement may be terminated by the Administrative Agent if there is a
breach by the Canwest LP Entities of any of the terms and conditions of the agreement, or if the
following milestones are not met: (a) a sanction order has not been obtained in respect of the
Credit Acquisition by May 15, 2010; or (b) the Credit Acquisition has not been completed by June
30, 2010. The Canwest LP Support Agreement automatically terminates upon the closing of the
Credit Acquisition or the closing of an offer accepted under the SISP.
The Canwest LP Support Agreement provides that the Canwest LP Senior Lenders CCAA Plan
may be amended or extended prior to its completion. There is uncertainty related to its completion
as a result of the number and complexity of the conditions that must be satisfied.
Creditor Protection
As contemplated by the Canwest LP Support Agreement, on January 8, 2010, the Canwest LP
Applicants commenced CCAA proceedings (the “Canwest LP CCAA Proceedings”) by applying for
and obtaining the Canwest LP Initial Order. The Canwest LP Initial Order, among other provisions,
provides for a general stay of proceedings that has been extended to June 30, 2010 and may be
further extended by the Court. The Canwest LP Initial Order can be further amended by the Court
throughout the Canwest LP CCAA Proceedings based on motions from the Canwest LP
Applicants, their creditors and other interested parties.
On January 8, 2010, the Court appointed FTI Consulting Canada Inc. as the monitor (the “Canwest
LP Monitor”). The Canwest LP Monitor will monitor the activities of the Canwest LP Entities, report
to the Court from time to time on the Canwest LP Entities’ financial and operational position and
any other matters that may be relevant to the Canwest LP CCAA Proceedings, advise the Canwest
LP Entities on various matters, assist the Chief Restructuring Advisor to the Canwest LP Entities
(the “CRA”), and supervise the SISP. CRS Inc. was appointed as the CRA. The CRA is responsible
for formulating and implementing the restructuring and/or recapitalization of all or part of the
business and/or capital structure of the Canwest LP Entities. The Court also approved the
engagement of RBC Dominion Securities Inc. (the “Financial Advisor”) to provide investment
banking services to the Canwest LP Entities related to the SISP.
Pursuant to the Canwest LP Initial Order, and subject to the conditions set out therein and the
requirements set out in the Canwest LP Support Agreement, the Canwest LP Entities are (a)
required to provide and pay for the shared services between the Canwest LP Entities and Canwest
Media Entities; (b) permitted to pay outstanding and future employee wages, salaries and
employee benefits, employee related obligations and employee incurred expenses; (c) permitted to
pay outstanding amounts for goods and services from suppliers considered critical to the ongoing
operations of the Canwest LP Entities, sales taxes, certain amounts due to governmental bodies
and agencies, and amounts due under sales representation agreements; (d) permitted to pay
future expenses and capital expenditures reasonably necessary to carry on the operations of the
Canwest LP Entities; and (e) permitted to make available to National Post Inc., secured revolving
loans to a maximum of $12.9 million. The Canwest LP Initial Order also allows the Canwest LP
Entities, subject to the provisions of the CCAA, to disclaim any arrangement or agreement.
The stay of proceedings provided for in the Canwest LP Initial Order generally precludes parties
from taking any action against the Canwest LP Entities for breach of contractual or other
obligations. The purpose of the stay is to provide the Canwest LP Entities with the opportunity to
stabilize operations and business relationships with customers, vendors, employees and creditors
and to allow Canwest LP to implement an orderly restructuring while continuing its day-to-day
operations.
On April 12, 2010, the Court authorized the Canwest LP Entities to conduct a claims procedure for
the identification, resolution and barring of certain specified claims, other than claims of the
Canwest LP Senior Lenders, against the Canwest LP Entities. The claims procedure requires trade
creditors and other parties wishing to assert a claim against one or more of the Canwest LP
Entities for any indebtedness, liability or obligation arising on or before January 8, 2010, to submit
a proof of claim with the Monitor on or before May 7, 2010. Claims arising after January 8, 2010,
will be required to provide a proof of claim to the Monitor twenty-one business days after being
provided a claim notice form.
Canwest LP Senior Lenders CCAA Plan
On January 8, 2010, the Court accepted for filing the Canwest LP Senior Lenders CCAA Plan,
authorized the Canwest LP Entities to seek approval of the Canwest LP Senior Lenders CCAA
Plan (which approval was obtained at the meeting of Canwest LP Senior Lenders held on January
27, 2010), and established the claims process for Canwest LP Senior Lenders.
The Canwest LP Senior Lenders CCAA Plan does not compromise or affect any claims other than
the claims of the Canwest LP Senior Lenders. The Canwest LP Senior Lenders CCAA Plan
requires repayment in full of all claims related to the Canwest LP DIP Facility (as defined below) on
the implementation date of the Canwest LP Senior Lenders CCAA Plan unless consent is received
from the lenders under the Canwest LP DIP Facility for such facility to be assumed in the Credit
Acquisition or a transaction under the SISP. The Canwest LP Senior Lenders CCAA Plan also
addressed the manner in which certain priority claims would be dealt with as further described
under the Credit Acquisition and SISP below. Under the Canwest LP Senior Lenders CCAA Plan,
the claims for the Canwest LP Secured Credit Facility and the Canwest LP Secured Hedge
Obligations are subject to a discount of $25 million.
Under the Canwest LP Senior Lenders CCAA Plan, Canwest LP Senior Lenders are entitled to (a)
receive debt and equity of Acquireco in exchange for their claims less a discount of $25 million and
have unpaid interest either paid on the implementation date or assumed by Acquireco or (b)
repayment of their claims less a discount of $25 million if a transaction is completed under the
SISP.
The claims process under the Senior Lenders CCAA Plan was completed on January 22, 2010 and
confirmed the amount of Canwest LP Secured Claims in the amount of $925.4 million as discussed
in note 9. The Canwest LP Secured Lenders CCAA Plan was approved by the Canwest LP Senior
Lenders in a meeting held on January 27, 2010.
Sales and Investor Solicitation Process
On January 8, 2010, the Court approved the SISP to determine whether a successful bid could be
obtained by the Canwest LP Entities to sell substantially all of their assets or to obtain an
investment in the Canwest LP Entities’ business. If a successful bid is not obtained, the Credit
Acquisition, as described below, would proceed. A successful bid is either (a) a credible,
reasonably certain and financially viable offer that would result in a cash distribution to the
Canwest LP Senior Lenders in an aggregate amount equal to the amount of their claims less a
discount of $25 million (“Superior Cash Offer”) or (b) a credible, reasonably certain and financially
viable offer for the purchase of substantially all of the property of the Canwest LP Entities
(including an offer where the cash component of the offer is less than the discounted amount of
Canwest LP Senior Lenders’ claims as determined in (a)) or a reorganization of the Canwest LP
Entities (“Superior Alternative Offer”), in each case as approved by a formal vote of the Canwest
LP Secured Lenders in which at least 66.7% in value of the secured debt under the Canwest LP
Secured Credit Facilities and the Canwest LP Secured Hedge Obligations and at least an absolute
majority in number of the Canwest LP Secured Lenders that participate in such vote approve such
transaction.
If a Superior Cash Offer or a Superior Alternative Offer (collectively, the “Superior Offer”) is
received, the Canwest LP Monitor, after consultation with the financial advisor and CRA, will
recommend to the Special Committee of the board of directors of Canwest Global (the “Canwest
Global Special Committee”) the most favourable Superior Offer be selected and that a definitive
agreement be negotiated and settled, conditional upon Court approval and conditional on the
Superior Offer closing within 60 days after April 30, 2010. If the Canwest Global Special Committee
accepts the Superior Offer, the Canwest LP Monitor, in consultation with the financial advisor and
the CRA, will negotiate and settle a definitive agreement. If the Canwest Global Special Committee
does not wish to proceed with the Superior Offer, the Canwest LP Monitor will seek advice and
direction from the Court with respect to the SISP.
If a Superior Cash Offer is accepted, each of the Canwest LP Senior Lenders will receive its pro
rata share of the claims for the Canwest LP Secured Credit Facilities and the Canwest LP Secured
Hedge Obligations less a discount of $25 million in aggregate. Certain unaffected claims including
the Canwest LP DIP Facility, certain employee benefit claims, cash management obligations and
any secured claims ranking in priority will be paid. If a Superior Alternative Offer is accepted, the
Canwest LP Senior Lenders CCAA Plan will be terminated unless otherwise provided in such
Superior Alternative Offer.
On March 5, 2010, the initial phase of the SISP was completed with potential bidders submitting
non-binding indications of interest. In accordance with the SISP procedures, and following a review
of the non-binding indications of interest, the Canwest LP Monitor determined that there was a
reasonable prospect of obtaining a Superior Offer and on March 12, 2010, made a
recommendation to the Canwest Global Special Committee that the SISP continue for a further
seven weeks (“Phase 2”). The Canwest Global Special Committee accepted the Canwest LP
Monitor’s recommendation, and Phase 2 of the SISP commenced on March 12, 2010. During
Phase 2, qualified bidders will be able to conduct due diligence and, in accordance with the SISP
procedures, may deliver final, binding proposals to the financial advisor on or before April
30, 2010, following which a determination as to whether a Superior Offer has been proposed will
be made in accordance with the terms of the SISP.
Acquisition and Assumption Agreement
If a Superior Offer is not obtained through the SISP, then, under the terms of the Canwest LP
Senior Secured Plan, the Canwest LP Entities are required to use all commercially reasonable
efforts to complete the Credit Acquisition. In connection with the Credit Acquisition, the Canwest
LP Senior Lenders would assign their claims under the Canwest LP Secured Credit Facilities and
Canwest LP Secured Hedge Obligations to Acquireco for a pro rata share of debt and equity to be
issued by Acquireco. Acquireco would enforce its security on the assets of the Canwest LP Entities
and acquire substantially all of the assets of the Canwest LP Entities, including the shares of
National Post Inc., and assume certain liabilities and claims of the Canwest LP Entities, unpaid
fees due to the Administrative Agent and unpaid interest due to the Canwest LP Senior Lenders.
Following the completion of the Credit Acquisition, Acquireco will continue to hold an unsecured
claim against the Canwest LP Entities equal to the $25.0 million discount amount described under
the SISP. The Credit Acquisition, if approved, does not provide for any recovery for any equity
holders of any of the Canwest LP Entities. Prior to the transfer of the assets to Acquireco, the
Canwest LP Entities, Acquireco and the Canwest LP Monitor will agree upon (or the Court will
determine) the amount of cash to be reserved to pay certain priority charges, post-filing accounts
payable, certain employment related obligations of the Canwest LP Entities, certain claims of
government entities and the fees and costs of any trustee in bankruptcy of the Canwest LP
Entities.
DIP Financing
On January 8, 2010, certain of the Canwest LP Senior Lenders agreed to extend to the Canwest
LP Entities a senior secured debtor-in-possession revolving credit facility (the “Canwest LP DIP
Facility”) in the maximum amount of $25 million, including a letter of credit sub-facility of up to $5
million. On January 8, 2010, the Court approved the Canwest LP DIP Facility and authorized the
Canwest LP Entities to execute definitive agreements related to the Canwest LP DIP Facility. The
definitive agreements were executed on February 5, 2010.
The Canwest LP DIP Facility is secured by substantially all of the current and future assets of the
Canwest LP Entities, subject only to a priority as listed in the priority of charges created in the
Canwest LP Initial Order. The Canwest LP DIP Facility is guaranteed by the Canwest LP Entities.
Under the Canwest LP DIP Facility, the availability of funds is determined by a borrowing base
based on accounts receivable of the Canwest LP Entities and the fair value of eligible real property
less certain reserves. Canwest LP has not drawn on the Canwest LP DIP Facility, and had the full
Canwest LP DIP Facility available to draw on based on the borrowing base calculations as at
February 28, 2010.
The Canwest LP DIP Credit Agreement places certain restrictions on the use of the financing and
contains certain financial and reporting covenants.
The DIP Facility matures, subject to acceleration under certain circumstances, on the earliest of; (i)
July 31, 2010; (ii) the date of a plan of arrangement under CCAA has been implemented by the
Canwest LP Entities; or (iii) the date on which the Canwest LP Initial Order expires without being
extended or on which the Canwest LP CCAA Proceedings are dismissed or converted into
bankruptcy proceedings. In addition, the Canwest LP DIP Facility is to be repaid with the net cash
proceeds of assets sales by the Canwest LP Entities. The Canwest LP DIP Facility will not be
affected by any plan of compromise or arrangement filed by the Canwest LP Entities under the
CCAA or any other restructuring.
Priority of Charges
The Canwest LP Initial Order created a number of new charges against substantially all of the
current and future assets of the Canwest LP Entities which in accordance with the Canwest LP
Initial Order may rank in priority to certain other security interests, trusts, liens, charges and
encumbrances. These charges, in order of priority, include (i) an administration charge to secure
amounts owing to the Canwest LP Monitor and certain restructuring and financial advisors, up to a
maximum of $3.0 million; (ii) a DIP charge to the extent of any obligations outstanding under the
Canwest LP DIP Facility and the existing security interest granted by the Canwest LP Entities to
secure obligations under the Canwest LP Entities’ centralized cash management system up to $7.5
million, ranked on pari passu basis; (iii) a charge to secure fees payable to the financial advisor
engaged to conduct the SISP, up to a maximum of $10.0 million; and (iv) a directors’ charge to
secure the indemnity created under the Canwest LP Initial Order in favour of the directors and
officers of the Canwest LP Entities and a management incentive plan (“Canwest LP MIP”) charge,
each with equal priority, to a maximum of $35.0 million and $3.0 million, respectively (the MIP
charge was subsequently increased to $4.3 million on March 26, 2010).
6. REORGANIZATION ITEMS CANWEST MEDIA APPLICANTS
These reorganization items represent revenues, expenses, gains and losses, and provisions for
losses that are directly related to the Canwest Media CCAA Proceedings. Reorganization items
that have been included in net earnings (loss) for the three and six months ended February 28,
2010 are as follows:
For the three months ended For the six months ended
February 28,
2010
February 28,
2009
February 28,
2010
February 28,
2009
Professional fees 10,356 1,599 25,502 1,599
Contract repudiation - - 46,276 -
Provisions for contingencies 12,460 - 17,838 -
Other expenses 2,808 - 6,610 -
Foreign exchange gains (1,324) - (9,905) -
Losses on asset disposals 1,413 - 1,413 -
25,713 1,599 87,734 1,599
Professional fees are related to developing the Recapitalization Plan and ongoing monitoring and
activities related to the Canwest Media CCAA Proceedings.
Contract repudiation includes management’s estimate of allowed claims related to provisions for
contracts that have been disclaimed.
During the three and six months ended February 28, 2010, the Company recorded a provision for
$14 million for certain contingencies representing the Company’s estimate of the probable
settlement amount in respect of certain litigation claims. The provision has been recorded in
Reorganization items in the statement of earnings (loss), and is included in liabilities subject to
compromise.
Other expenses include amounts accrued under the Canwest Media KERP and other costs related
to the Canwest Media CCAA Proceedings. The cost of the Canwest Media KERP is shared by
Canwest LP.
Foreign exchange gains result from changes in currency translation rates on liabilities subject to
compromise.
7. REORGANIZATION ITEMS CANWEST LP ENTITIES
These reorganization items represent revenues, expenses, gains and losses, and provisions for
losses that are directly related to the CCAA Proceedings of the Canwest LP entities.
Reorganization items that have been included in net earnings (loss) for the three and six months
ended February 28, 2010 are as follows:
For the three
months ended
For the six
months ended
February 28, 2010
Professional fees 12,633 19,292
Other expenses 2,106 4,583
Foreign exchange losses 16,201 16,201
30,940 40,076
Professional fees include amounts paid to advisors relating to the Canwest LP CCAA Proceedings
and the ongoing recapitalization process.
Other expenses include amounts accrued under the Canwest Media KERP and Canwest LP MIP.
Foreign exchange losses result from changes in currency translation rates on liabilities subject to
compromise.
8. LIABILITIES SUBJECT TO COMPROMISE - CANWEST MEDIA APPLICANTS
These liabilities subject to compromise are liabilities incurred prior to the CCAA filing date that may
be dealt with as affected claims under a Recapitalization Plan in the Canwest Media CCAA
Proceedings, contingent liabilities incurred prior to the CCAA filing that are likely to be accepted as
claims in the Canwest Media CCAA Proceedings as well as claims arising on or after the CCAA
filing date relating to repudiated or disclaimed leases, contracts, and other arrangements.
Generally actions to enforce or cause payment of pre-filing liabilities are stayed by the court order.
The liabilities subject to compromise are based on amounts expected to be allowed for known
claims or potential claims to be resolved through the Canwest Media CCAA Proceedings. The
liabilities subject to compromise do not include amounts for contracts repudiated or disclaimed
subsequent to February 28, 2010, as such amounts are recognized under generally accepted
accounting principles when the contracts are repudiated or disclaimed, or amounts related to
claims for employee benefits which represent actuarial gains or losses which are recognized in
accordance with accounting policies for employee benefit plans. It is reasonably possible that the
amount of liabilities subject to compromise will change in the near term due to negotiated
settlements, actions of the Courts, further developments with respect to disputed claims,
repudiation of contracts, other restructuring plans or other events. Such adjustments may be
material.
Claims Procedure
On October 14, 2009, and as amended on November 30, 2009, the Court authorized the Canwest
Media Applicants to conduct a claims procedure for the identification, resolution and barring of
claims against the Canwest Media Applicants. The claims procedure contemplated that known
creditors and including employees who received claims packages from the Canwest Media
Applicants were required to submit disputes or revisions by November 19, 2009 (the “Claims Bar
Date”) or December 17, 2009 (the “Extended Claims Bar Date”) depending on when their claims
package was issued. Unknown creditors were required to submit a proof of claim on or before the
Claims Bar Date. The Court approved claims procedure provides that claims denominated in a
foreign currency are to be translated into Canadian dollars using a ten day average exchange rate
for the period preceding the filing of a plan or compromise or arrangement and that interest and
penalties that would otherwise accrue during the post filing period would not be allowed. The
claims procedure order of the Court sets out certain processes to be followed by the Canwest
Media Applicants in disclaiming or resiliating any contracts or agreements and in the resolution of
disputed claims.
As part of the Canwest Media CCAA claims process, claims totaling $1.0 billion were filed against
Canwest Media by certain senior and subordinate lenders to Canwest LP related to debt owing by
Canwest LP to the senior and subordinate lenders. The claim alleges that Canwest Media took part
in the control of the business of Canwest LP and is therefore liable for the indebtedness of
Canwest LP as a general partner of it. The Company believes that the allegations in the Proof of
Claim filed by certain senior and subordinate lenders of Canwest LP 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 currently determinable.
As of February 28, 2010, a total of 1,765 claims (“Total Claims”) have been received and either
have been accepted, resolved or are pending resolution. The Total Claims filed amount to $17.9
billion including intercompany claims of $0.7 billion (“Intercompany Claims”).
The Canwest Media Applicants have identified that certain creditors have filed identical claims
against two or more of the Canwest Media Applicants ("Duplicate Claims") when the claimant
believes that multiple Canwest Media Applicants are jointly and severally liable for a single
obligation or one or more of the Canwest Media Applicants have guaranteed another applicant’s
indebtedness. The estimated amount of Duplicate Claims is $14.7 billion.
The Total Claims filed less Duplicate Claims and Intercompany Claims amount to $2.4 billion. Of
this amount, the Company has recorded $0.5 billion as liabilities subject to compromise on the
consolidated balance sheet as at February 28, 2010. The difference between the recorded
liabilities subject to compromise and the amount of Total Claims filed less Duplicate Claims and
Intercompany Claims amounts to $1.9 billion, and consists of $1.0 billion related to the Canwest LP
senior and subordinated lender claim, $0.8 billion related to legal claims for which the Company
recorded a provision of $14 million during the three and six months ended February 28, 2010 (note
6), and $0.1 billion of other differences. The Canwest Media Applicants continue to investigate
these other differences. Additional claims may be recognized by the Canwest Media Applicants as
a result of this process and such additional claims may be material. The Recapitalization Plan, if
approved, will determine how each class of affected claims will be settled, including payment
terms, if applicable.
Liabilities subject to compromise do not include: (i) any liabilities of the Canwest LP Entities, the
National Post Inc., or other entities not subject to the Canwest Media CCAA Proceedings; (ii)
liabilities incurred after the date of the CCAA filing by the Canwest Media Applicants, except for
liabilities related to repudiated or disclaimed contracts or restructuring provisions incurred after the
CCAA filing and (iii) liabilities that the Canwest Media Applicants expect to pay either before or on
emergence from the Canwest Media CCAA Proceedings.
The liabilities subject to compromise as at February 28, 2010 are as follows:
2010
Trade payables and accrued liabilities 94,082
Restructuring liabilities 4,500
Long-term debt and accrued interest 449,337
547,919
Intercompany assets and liabilities (note 10) are eliminated in the preparation of the consolidated
financial statements. Certain intercompany liabilities may be subject to compromise and the related
intercompany assets may be impaired. These amounts may be material. The status of these
assets and liabilities will be determined in the Recapitalization Plan and is not currently known.
9. LIABILITIES SUBJECT TO COMPROMISE - CANWEST LP ENTITIES
These liabilities subject to compromise are liabilities that have been stayed under the Canwest LP
CCAA Proceedings that may be compromised under the Canwest LP CCAA Proceedings. The
liabilities subject to compromise are recognized at management’s best estimate of the amount
expected to be allowed under a claims process, but these amounts may change, and such
changes may be material. It is also possible that items not currently classified as liabilities subject
to compromise in these interim consolidated financial statements will be added or reclassified to
this category of liabilities at a later date. It is also possible that items currently classified as
liabilities subject to compromise will be reclassified out of this category should they be proven to be
fully secured. Further, under the Canwest LP CCAA Proceedings, certain contracts may be
disclaimed and claims may be recognized for such contracts. Any adjustments to this category may
prove to be material and, depending on their nature, may be recorded as Reorganization Items.
The liabilities subject to compromise as at February 28, 2010 are as follows:
2010
Trade payables and accrued liabilities (1) 59,844
Senior secured credit facilities and related hedging
obligation (2) 933,747
Senior subordinated unsecured notes (1) 421,000
Senior subordinated unsecured credit facility (1) 75,000
1,489,591
(1) These liabilities are not affected by the Senior Lenders CCAA Plan. On April 12, 2010 the Court
approved a claims process for certain of the unsecured creditors of the Canwest LP Entities
see note 5.
(2) As described in note 5, under the Canwest LP Senior Lenders CCAA Plan, the claims under
the Canwest LP Secured Credit Facility and Canwest LP Hedging Obligations have been
determined to be $925.4 million. The provisions of the SISP and the Credit Acquisition, provide
that the Canwest LP Secured Lenders would receive proceeds of $900.4 million plus, in the
case of the Credit Acquisition only, an unsecured claim against the Canwest LP Entities of $25
million. Because the Canwest LP Secured Claims are not expected to be fully satisfied due to
the $25 million discount, these obligations have been presented as liabilities subject to
compromise. The Secured Claim of $925.4 million differs from the recorded amount of $933.8
million due to foreign exchange fluctuations on the US denominated debt from January 8, 2010
to February 28, 2010.
10. CONDENSED COMBINED FINANCIAL INFORMATION CANWEST MEDIA ENTITIES
Presented below is the Condensed Combined Financial Information of the Canwest Media
Applicants as at and for the three and six months ending February 28, 2010, including the amount
of intercompany receivables and payables between the Canwest Media Applicants and other
entities included in the unaudited consolidated financial statements. The intercompany balances
have been reflected net of any allowance for non-collectability.
CONDENSED COMBINED STATEMENT OF EARNINGS
For the three
months
ended
For the six
months
ended
February 28, 2010
Revenue 114,853 284,967
Operating expenses 114,351 250,230
Restructuring expense (reversal) (557) (743)
Settlement of regulatory fees - (21,871)
1,059 57,351
Amortization of property and equipment 6,927 14,089
Other amortization 25 50
Operating income (loss) (5,893) 43,212
Interest expense, net 214 (8,637)
Foreign exchange gains (losses) (2,331) 13,789
Investment gains, losses and write-downs 1,777 3,808
Reorganization items (25,713) (87,734)
(31,946) (35,562)
Provision for (recovery of) income taxes 7,864 (3,256)
Loss before the following (39,810) (32,306)
Interest in loss of equity accounted affiliates (112) (284)
Net loss for the period (39,922) (32,590)
CONDENSED COMBINED BALANCE SHEET
As at February 28, 2010
ASSETS
Current Assets
Cash and cash equivalents 115,355
Restricted cash 10,934
Accounts receivable 117,991
Income taxes recoverable 1,260
Other current assets 3,475
249,015
Other investments 1,318,808
Broadcast rights 103,754
Property and equipment 154,341
Other assets 23,857
1,849,775
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities 41,216
Broadcast rights payable 86,994
Deferred revenue 113
128,323
Other long-term liabilities 24,859
Future income taxes 16,770
Amounts due to related parties 684,645
Liabilities subject to compromise 547,919
1,402,516
SHAREHOLDERS’ EQUITY 447,259
1,849,775
CONDENSED COMBINED STATEMENT OF CASH FLOWS
For the three
months
ended
For the six
months
ended
February 28, 2010
CASH GENERATED (UTILIZED) BY:
OPERATING ACTIVITIES
Net loss for the period (39,922) (32,590)
Reorganization items 25,713 87,734
Items not affecting cash
Amortization 6,952 14,139
Net non-cash interest expense - 1,301
Future income tax recovery (856) (3,173)
Broadcast rights write-downs - 1,737
Investment gains, losses and write-downs 43 (668)
Pension expense less than employer
contributions (950) (2,143)
Losses of equity accounted affiliates 112 284
Foreign exchange gains - (16,844)
Stock based compensation expense 347 916
(8,561) 50,693
Changes in non-cash operating accounts 59,940 (20,645)
Reorganization items (14,737) (29,883)
Cash flows from operating activities 36,642 165
INVESTING ACTIVITIES
Other investments (668) 211
Reorganization items 3,000 3,000
Restricted cash (4,488) (8,434)
Advances from related parties - 617,819
Purchase of property and equipment (1,484) (4,106)
(3,640) 608,490
FINANCING ACTIVITIES
Repayment of long-term debt - (497,560)
Repayments of revolving facilities, net of
financing costs - (14,964)
- (512,524)
Net change in cash and cash equivalents 33,002 96,131
Cash and cash equivalents – beginning of
period 82,353 19,224
Cash and cash equivalents – end of period 115,355 115,355
11. CONDENSED COMBINED FINANCIAL INFORMATION CANWEST LP ENTITIES
Presented below are the Condensed Combined Financial Information of the Canwest LP Entities
as at and for the three and six months ending February 28, 2010.
CONDENSED COMBINED STATEMENT OF EARNINGS
For the three
months
ended
For the six
months
ended
February 28, 2010
Revenue 236,073 500,751
Operating expenses 193,783 390,115
Restructuring expenses (reversal) (80) 2,465
42,370 108,171
Amortization of intangibles 1,608 3,216
Amortization of property and equipment 9,815 19,160
Other amortization 47 95
Operating income 30,900 85,700
Interest expense (29,629) (50,537)
Foreign exchange gains 19,030 53,859
Investment gains - 2
Reorganization items (30,630) (39,766)
(10,329) 49,258
Recovery of income taxes (15,338) (6,480)
Net earnings for the period 5,009 55,738
CONDENSED COMBINED BALANCE SHEET
As at February 28, 2010
ASSETS
Current Assets
Cash and cash equivalents 85,282
Accounts receivable 125,153
Inventory 5,360
Income taxes recoverable 4,756
Other current assets 13,757
234,308
Property and equipment 354,294
Other assets 8,791
Goodwill and intangible assets 891,268
1,488,661
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities 93,675
Deferred revenue 29,208
Obligations under capital leases 3,345
126,228
Other long-term liabilities 58,428
Obligations under capital leases 1,969
Future income taxes 64,776
Amounts due to related parties 939
Liabilities subject to compromise 1,489,591
1,741,931
SHAREHOLDERS’ DEFICIENCY (253,270)
1,488,661
CONDENSED COMBINED STATEMENT OF CASH FLOWS
For the three
months
ended
For the six
months
ended
February 28, 2010
CASH GENERATED (UTILIZED) BY:
OPERATING ACTIVITIES
Net earnings for the period 5,009 55,738
Reorganization items 30,630 39,766
Items not affecting cash
Amortization 11,470 22,471
Net non-cash interest expense 14,885 15,462
Future income tax recovery (4,039) (6,480)
Investment gains - (2)
Pension expense less than employer
contributions (2,991) (10,497)
Foreign exchange gains (20,085) (53,892)
34,879 62,566
Changes in non-cash operating accounts 26,559 6,307
Reorganization items (14,539) (21,198)
Cash flows from operating activities 46,899 47,675
INVESTING ACTIVITIES
Other investments - 2
Purchase of property and equipment (1,990) (5,355)
(1,990) (5,353)
FINANCING ACTIVITIES
Repayments of revolving facilities, net of
financing costs 1,889 1,889
Payments of capital leases (1,519) (1,519)
370 370
Net change in cash and cash equivalents 45,279 42,692
Cash and cash equivalents – beginning of
period 40,003 42,590
Cash and cash equivalents – end of period 85,282 85,282
12. DIVESTITURES
On October 1, 2009, the Company sold its controlling interest in Ten Holdings, consisting of the
Company’s Australian television and Out-of-home operating segments (note 19). The Company
recorded a disposition of goodwill, intangible assets, other assets, long-term debt, and other
liabilities of $124.5 million, $233.0 million, $616.5 million, $366.4 million, and $561.6 million,
respectively.
The net proceeds received from the sale of Ten Holdings were advanced to Canwest Media in the
form of a $187.3 million senior secured promissory note secured by all property, assets and
undertakings of Canwest Media and certain guarantors, and a $430.6 million unsecured
promissory note, in each case by a wholly owned subsidiary (which is not a Canwest Media
Applicant) that previously held the shares in Ten Holdings. Advances under the senior secured
promissory note were used to repay outstanding principal and interest of the 12% secured notes,
repay all outstanding advances and interest on the secured revolving credit facility, and to provide
additional operating liquidity. Advances under the unsecured promissory note were deposited with
The Bank of New York Mellon, as trustee (the “Trustee”) for the 8% Notes, in a cash collateral
account for the benefit of the holders of the 8% Notes pursuant to a cash deposit agreement (the
“Cash Deposit Agreement”) between Canwest Media and the Trustee. Pursuant to the instructions
of a majority of the holders of the senior subordinated unsecured notes, amounts outstanding
under such notes were accelerated on September 30, 2009, and the funds held by the Trustee
pursuant to the Cash Deposit Agreement were applied by the Trustee to a reduction of such
outstanding amounts. Following the application of such funds and pursuant to further instructions
from a majority of the holders of the senior subordinated unsecured notes, the senior subordinated
unsecured notes were reinstated with an aggregate outstanding principal amount of US$393.2
million.
During 2009, the Company completed a review of five television stations that make up the E!
Network which was included in the Canadian television segment. As a result of this review, in
August 2009, the Company sold certain of the net assets of two of the E! Network television
stations, CHCH-TV in Hamilton and CJNT-TV in Montreal and recorded a disposition of assets of
$3.5 million and liabilities of $1.2 million. On September 4, 2009, the Company completed the sale
of CHEK-TV in Victoria and recorded a disposition of liabilities of $0.2 million and recorded a gain
of $0.7 million on the sale of this station. Of the remaining stations, CHBC-TV in Kelowna was
rebranded as a Global Television Network affiliate and CHCA-TV in Red Deer was closed effective
August 31, 2009. The Company has determined that the E! Network did not meet the criteria for
classification as a discontinued operation. The loss from the operations of the E! Network for the
three and six months ended February 28, 2009 is summarized as follows:
For the three
months
ended
For the six
months
ended
February 28, 2009
Revenue 18,300 43,734
Operating expenses 28,356 63,658
Restructuring expenses (reversal) (357) 3,925
Broadcast rights write-downs 29,620 29,620
(39,319) (53,469)
Amortization of property and equipment 712 1,399
Operating loss (40,031) (54,868)
Financing expense (4) (6)
Impairment loss on property and equipment (10,377) (10,377)
Net loss (50,412) (65,251)
In May 2009, the Company sold its Turkey radio segment (note 19). The Company recorded a
disposition of broadcast licences, other assets, and liabilities of $13.3 million, $14.6 million, and
$1.0 million, respectively.
In March 2009, the Company sold The New Republic which was included in the Publishing
segment (note 19). The Company recorded a disposition of assets of $0.6 million and liabilities of
$2.7 million.
13. RESTRICTED CASH
In May 2009, Canwest Media deposited cash of $2.5 million to secure its banking and cash
management services with the provider of those services. In November 2009, Canwest LP
deposited funds into a trust for the purposes of satisfying its obligation to Canwest Media. for the
Canwest Media KERP, the amount remaining as at February 28, 2010 was $2.9 million. In October
2009, Canwest Media transferred the assets and liabilities of the National Post Company, a
general partnership, to National Post Inc., a subsidiary of Canwest LP, for cash consideration of
$2.5 million. In December 2009, Canwest Television Limited Partnership sold the land and building
of CHCA-TV in Red Deer for proceeds of $3.0 million. Pursuant to the terms of the Approval and
Vesting Orders granted by the Court in respect of each such transaction, the net sale proceeds
from each transaction remain subject to the charges, mortgages, liens, claims, liabilities,
restrictions, security interests, trusts, deemed trusts and other encumbrances (collectively, the
“Claims”) that attached to the respective assets disposed of by the Canwest Media Applicants, with
the same priority as such Claims had with respect to the disposed assets immediately prior to their
sale. The Claims include the claims of CIBC Mellon Trust Company, as collateral agent under the
DIP financing arrangement, as well as the various charges provided for in the Canwest Media
Initial Order. As at February 28, 2010, the total restricted cash was $10.9 million.
14. GOODWILL AND INTANGIBLE ASSETS
Broadcast Rights
The Company’s broadcast rights consist of the following:
Canadian
Television
CW Media
Television Total
Net book value as at August 31, 2008 121,255 229,208 350,463
Additions for the year 367,811 152,459 520,270
Amortization for the year (348,114) (121,937) (470,051)
Impairment (38,180) - (38,180)
Net book value as at August 31, 2009 102,772 259,730 362,502
Additions for the period 157,156 57,866 215,022
Amortization for the period (137,294) (54,473) (191,767)
Impairment (1,737) - (1,737)
Net book value as at February 28, 2010 120,897 263,123 384,020
Goodwill and Intangibles
During the six months ended February 28, 2010, the CW Media television segment acquired
broadcast licences for $0.3 million and recorded an impairment loss of $3.1 million on brands as a
result of the rebranding of a specialty television channel.
During the three and six months ended February 28, 2009, the Company recorded goodwill
impairment charges in its Publishing segment of $895.1 million. In addition, the Company recorded
impairment charges of $99.1 million for mastheads in its Publishing segment and $86.0 million for
broadcast licences in its Canadian television segment.
15. RESTRUCTURING EXPENSES
The Company is centralizing certain functions including developing four state of the art broadcast
centres to support the production needs of its local television stations and enable the transition to
high definition. This initiative was conducted in three phases over the period from September 2007
to December 2009 and resulted in a net reduction in its workforce of 277 jobs. The total cost
associated with this initiative was $12.1 million of which a reversal of nil and $0.2 million was
recorded during the three and six months ended February 28, 2010, respectively.
During 2009, the Company initiated certain cost containment initiatives in its Canadian television
segment, including the restructuring of its news operations at the E! Network. These initiatives
resulted in a workforce reduction of 149 positions. The total cost associated with this initiative was
$7.8 million of which a reversal of nil and $0.5 million was recorded during the three and six
months ended February 28, 2010, respectively.
During 2009, the Company initiated certain cost containment initiatives in its Publishing segment,
which are expected to result in a workforce reduction of 632 positions. These current initiatives are
expected to be complete by August 31, 2010 with total costs estimated in the range of $30 to $32
million. During the three and six months ended February 28, 2010, the Company accrued nil and
$2.5 million, respectively, related to these initiatives.
During 2009, the Company completed certain cost containment initiatives in its CW Media
television segment, with a workforce reduction of 30 positions and total employee termination costs
of $0.9 million.
The restructuring liability, which consists of termination benefits, is summarized by operating
segment as follows:
Publishing
Canadian
television
CW Media
television Other Total
Balance – August 31, 2008 2,376 6,088 939 - 9,403
Accrued during the year 28,805 10,662 852 737 41,056
Payments made during the year (21,758) (11,324) (1,736) - (34,818)
Balance – August 31, 2009 9,423 5,426 55 737 15,641
Accrued (reversed) during the period
2,465 (743) - - 1,722
Payments made during the period (2,539) (477) (55) (110) (3,181)
Balance – February 28, 2010 9,349 4,206 - 627 14,182
16. 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
February 28,
For the six months ended
February 28,
2010 2009
(Revised notes
19 and 25)
2010 2009
(Revised notes
19 and 25)
Income taxes at combined Canadian statutory
rate of 30.02% (2009 – 31.08 %) (13,386) (372,990) 12,654 (380,252)
Non-taxable portion of capital (gains) losses (2,069) 3,274 (11,837) 14,152
Increase (decrease) in valuation allowance on
future tax assets 8,689 197,110 (15,245) 207,606
Effect of foreign income tax rates differing
from Canadian income tax rates 57 214 35 313
Change in expected future tax rates 1,354 3,830 13,105 3,750
Non-deductible accretion expense 9,204 2,340 18,499 10,398
Non-deductible expenses 2,869 1,054 5,449 1,750
Partnership net earnings allocated to minority
interests (236) (518) (919) (1,107)
Effect of intangible impairment - 312,430 - 312,430
Effect of uncertain tax positions (7,267) 3,298 (18,990) 4,350
Other (1,238) 2 (508) 1,077
Provision for (recovery of) income taxes (2,023) 150,044 2,243 174,467
The recognition and measurement of the current and future tax assets and liabilities involves
dealing with uncertainties in the application of complex tax regulations in a number of jurisdictions
and in the assessment of the recoverability of future tax assets. Actual income taxes could vary
from these estimates as a result of future events, including changes in income tax laws or the
outcome of tax reviews by tax authorities and related appeals. To the extent that the final tax
outcome is different from the amounts that were initially recorded, such differences, which could be
significant, will impact the income tax provision in the period in which the determination is made.
17. LONG-TERM DEBT
Maturity
(fiscal year)
Principal
Outstanding
February 28,
2010
(millions)
As at
February 28,
2010
As at August
31, 2009
Canwest Media Inc.:
Secured revolving credit facility(1) 2011 - - 12,756
Secured notes (net of debt issuance costs
of nil (August 31, 2009 - $3 million))(2) 2010 - - 99,924
Senior subordinated notes (net of debt
issuance costs of nil (August 31, 2009 - $1
million))(3) 2012 US$393 413,840 838,507
Canwest LP:
Senior secured credit facilities – Canwest
LP DIP facility (4) 2010 - - -
Senior secured credit facilities - revolver 2012 $118 117,889 116,000
Senior secured credit facilities - credit C
(net of debt issuance costs of nil (August
31, 2009 -$2 million)) 2012 $265 265,000 262,692
Senior secured credit facilities - credit D
(net of debt issuance costs of nil (August
31, 2009 - $4 million)) 2014 US$458 482,089 497,311
Senior subordinated unsecured credit
facility (net of debt issuance costs of nil
(August 31, 2009 -$1 million)) 2015 $75 75,000 74,235
Senior subordinated unsecured notes (net
of debt issuance costs of nil (August 31,
2009 -$8 million)) 2015 US$400 421,000 429,856
CW Media Holdings Inc.:
Senior secured revolving credit facility 2013 - - -
Senior secured credit facility
(net of debt issuance costs of $9 million
(August 31, 2009 - $11 million)) 2015 US$436 449,900 469,760
Senior unsecured notes including accrued
interest (net of debt issuance costs of $7
million (August 31, 2009 -$8 million))(5) 2015 US$338 343,465 362,538
2,568,183 3,163,579
Less long-term debt subject to compromise
Canwest Media entities (note 8) (413,840) -
Less long-term debt subject to compromise
Canwest LP entities (note 9) (1,360,978) -
793,365 3,163,579
Less portion due within one year (4,698) (2,336,169)
Long-term portion 788,667 827,410
The terms and conditions of the long-term debt are the same as disclosed in the August 31, 2009
audited consolidated financial statements, except as disclosed below.
(1) In October 2009, on commencement of Canwest Media CCAA Proceedings the Canwest
Media revolving $75 million secured credit facility was converted to a DIP loan facility and the
maximum availability was increased to $100 million. The facility bears interest at the greater of
prime rate and 2.25% plus an applicable margin. The capacity available under the facility is
calculated based upon the value of certain assets that secure the facility including accounts
receivable and property and equipment, capped at $100 million. As at February 28, 2010, there
was an additional $63 million available under the facility net of letters of credit of $11 million.
The facility is secured by all current and future assets of Canwest Media and its wholly owned
Canadian television operations but excludes the restricted cash securing its banking and cash
management services (see note 13). The facility is guaranteed by Canwest Global, Canwest
Media and substantially all of the wholly owned subsidiaries of Canwest Media, excluding
Canwest LP and its subsidiaries. All receipts of the Canwest Media Entities are applied against
amounts outstanding under the revolving facility daily. This facility is not subject to compromise.
(2) On October 1, 2009, Canwest Media repaid its US$94 million secured notes for $101 million.
The notes carried interest at 12% and were secured by a first charge against the shares held in
Ten Holdings and a second charge on all assets that secure the secured revolving credit facility
of Canwest Media as described in (1). The notes were guaranteed by the Company, Canwest
Media and substantially all of the wholly owned subsidiaries of Canwest Media excluding
Canwest LP and its subsidiaries.
(3) On October 1, 2009, Canwest Media repaid $396 million (US$368 million) senior subordinated
notes and accrued interest of $34 million (US$32 million). Canwest Media is in default under
the terms of the 8% Notes indenture as a result of not making interest payments that were due
in September 2009. Canwest Media and the Ad Hoc Committee agreed to a forbearance
agreement and a series of extensions under which the 8% Note holders would not exercise
their rights to demand payment thereby allowing sufficient time for a recapitalization of the
Company. On October 5, 2009, the Company entered into the Recapitalization Agreement with
the Ad Hoc Committee setting out the principal terms of the proposed recapitalization of the
Company, which terms were subsequently amended pursuant to the Amended Recapitalization
Agreement. The Amended Recapitalization Agreement sets out a number of conditions and
milestones and expires in August 2010 or earlier if certain conditions are not met. The 8%
Notes are subject to compromise and have been classified as liabilities subject to compromise.
The Company ceased accruing interest on these notes effective on the date of the Canwest
Media CCAA Proceedings. The interest which would have accrued from October 6, 2009 to
February 28, 2010 was $14.4 million (US$13.7 million).
(4) Canwest LP entered into a $25 million senior secured debtor-in-possession credit facility of
which nil was drawn at February 28, 2010. The facility is secured by substantially all of the
current and future assets of the Canwest LP Entities and matures subject to acceleration under
certain circumstances on the earliest of (i) July 31, 2010; (ii) the date on which a plan of
arrangement under the CCAA has been implemented by the Canwest LP Entities; or (iii) the
date on which the Canwest LP Initial Order expires without being extended or on which the
Canwest LP CCAA Proceedings are dismissed or converted into bankruptcy proceedings.
(5) The senior unsecured notes have a variable prepayment option at a premium of 106.75 in 2011
which declines on a straight line basis to par in 2013. The prepayment option represents an
embedded derivative that is to be accounted for separately at fair value. As at February 28,
2010, the estimated fair value of the prepayment option is $5.1 million (August 31, 2009 – nil).
During the three months and six months ended February 28, 2010 the Company recorded a
recovery of $3.7 million and $5.1 million, respectively (2009 – nil) in interest expense in the
statement of earnings (loss) related to the prepayment option.
18. FINANCIAL INSTRUMENTS AND FINANCIAL INSTRUMENTS RISK MANAGEMENT
The financial instruments and financial instruments risk management are the same as disclosed in
the August 31, 2009 audited consolidated financial statements, except as disclosed below.
Foreign exchange risk
The Company has exposure on US dollar denominated debt of US$1,589.5 million. As at February
28, 2010, if the Canadian dollar had weakened or strengthened by 1% against the US dollar with
all other variables held constant, after tax net earnings (loss) for the year would have been $13.5
million higher or lower, respectively, as a result of foreign exchange gains (losses) on translation of
US dollar denominated debt.
Interest rate risk
The Company’s interest rate risk arises from borrowings issued at variable rates which expose the
Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the Company to
fair value interest rate risk. Refer to Notes 1, 4 and 5 above for the impacts on the Company’s
interest rate risk since August 31, 2009 as a result of the CCAA proceedings.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated
with its financial liabilities and other contractual obligations. Refer to Notes 1, 4 and 5 above for the
impacts on the Company’s liquidity risk since August 31, 2009 as a result of the CCAA
proceedings.
At February 28, 2010, the Company had cash on hand of $245 million including $87 million of
Canwest LP cash, $39 million at CW Media and $119 million of Canwest Media cash.
19. DISCONTINUED OPERATIONS
In November 2009, the Company abandoned its non-operating, former film and entertainment
subsidiary, Canwest Entertainment Inc., which was previously reported in discontinued operations,
and placed it into bankruptcy proceedings. As of the date of the bankruptcy filing, the Company
ceased to have control or significant influence over the subsidiary as the ability to determine
strategic, operating, investing and financing policies was transferred to the trustee appointed in the
bankruptcy proceeding. Accordingly, the Company ceased consolidation of the subsidiary. The
Company recorded a disposition of assets and liabilities of $1 million and $9 million, respectively
and gains from discontinued operations of $8 million. The Company had outstanding intercompany
loans receivable from Canwest Entertainment Inc. and its subsidiaries in the amount of $421
million. The Company does not expect to receive payments related to these loans which had been
previously provided for.
In October 2009, the Company sold its controlling interest in Ten Holdings (note 12). The Company
recorded a gain of $570 million on the sale of these shares, including a gain on realization of
foreign currency translation adjustments of $3 million. The results of these operations were
classified as a discontinued operation in the consolidated statements of earnings (loss), 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, the results of Ten Holdings were reported
within the Australian television and Out-of-home operating segments. The classification of Ten
Holdings as a discontinued operation increased earnings from continuing operations by $38 million
and $21 million for the three and six months ended February 28, 2009, respectively. Cash flows
from operating activities of continuing operations decreased by $14 million and $41 million for the
three and six months ended February 28, 2009.
In May 2009, the Company sold its Turkish radio stations. The Company had previously concluded
that the expectations for these assets were not consistent with the Company’s long-term growth
strategy. The Company recorded a loss of $12 million on the sale of these stations. The results of
this operation were classified as a discontinued operation in the consolidated statements of
earnings (loss), 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, the results of the
Turkish radio stations were reported within the Turkey radio segment. The classification of the
Turkey radio stations as a discontinued operation increased earnings from continuing operations
by $42 million and $41 million for the three and six months ended February 28, 2009, respectively.
Cash flows from operating activities of continuing operations decreased by $1 million and $4
million for the three and six months ended February 28, 2009, respectively.
In February 2009, the Company sold The New Republic. The Company had previously concluded
that the expectations for this asset were not consistent with the Company’s long-term growth
strategy. The Company recorded a gain of $3 million on the sale of this asset. The results of this
operation were classified as a discontinued operation in the consolidated statements of earnings
(loss), 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, the results of The New Republic
were reported within the Publishing segment. The classification of The New Republic as a
discontinued operation increased earnings from continuing operations by $3 million for both the
three and six months ended February 28, 2009. Cash flows from operating activities of continuing
operations increased by $1 million for both the three and six months ended February 28, 2009.
The earnings from discontinued operations excluding the gain on sale of discontinued operations
are summarized as follows:
For the three months ended February
28, 2009
Ten
Holdings Other Total
Revenue 143,561 2,940 146,501
Loss from discontinued operations
before tax (67,654) (55,342) (122,996)
Income tax recovery (1,033) (11,064) (12,097)
Minority interest (29,042) - (29,042)
Loss from discontinued operations (37,579) (44,278) (81,857)
Loss from discontinued operations per
share:
Basic ($0.46)
Diluted ($0.46)
For the six months ended February 28,
2009
Ten
Holdings Other Total
Revenue 384,939 7,309 392,248
Loss from discontinued operations
before tax (25,262) (55,187) (80,449)
Income tax expense (recovery) 11,912 (10,871) 1,041
Minority interest (16,208) - (16,208)
Loss from discontinued operations (20,966) (44,316) (65,282)
Loss from discontinued operations per
share:
Basic ($0.37)
Diluted ($0.37)
The carrying value of net assets related to discontinued operations are as follows:
February 28,
2010
August 31,
2009
Current assets - 268,230
Goodwill - 124,456
Non-current assets - 581,304
Current liabilities - (233,305)
Long-term debt - (366,372)
Other long-term liabilities - (328,292)
Net assets - 46,021
20. ACCUMULATED OTHER COMPREHENSIVE LOSS
Foreign
currency
translation
adjustment
Hedging
derivative
instruments
designated
as cash flow
hedges Total
Balance – August 31, 2009 2,530 (42,677) (40,147)
Other comprehensive income (loss) (2,530) 4,427 1,897
Balance – February 28, 2010 - (38,250) (38,250)
The unrealized loss on foreign currency interest rate swaps that is expected to be realized and
recognized in interest expense over the next twelve months is approximately $17.5 million, net of
tax of $5.8 million.
During the three and six months ended February 28, 2010, $1.3 million and $18.6 million foreign
exchange losses, respectively (2009 – gains of $51.4 million and $307.1 million, respectively) were
reclassified to net earnings (loss) from accumulated other comprehensive loss, representing
foreign exchange losses on the notional amounts of the cash flow hedging derivatives. These
amounts were offset by foreign exchange gains recognized on the related U.S. dollar denominated
long-term debt. During the three months and six months ended February 28, 2010 and 2009, there
were no amounts recorded in net earnings (loss) which represented hedge ineffectiveness
associated with cash flow hedging instruments.
During the three and six months ended February 28, 2010, the Company reclassified $6.0 million
and $11.6 million, respectively (2009 – $8.8 million and $13.2 million, respectively) from
accumulated other comprehensive loss to net earnings (loss). This amount has been recorded as a
charge to interest expense and represents the effect of the hedging derivative instruments on the
Company’s interest expense.
During the three and six months ended February 28, 2010, due to the sale of Ten Holdings (note
19), the Company eliminated $6.3 million gains from accumulated other comprehensive loss as a
result of eliminating the related Ten Holdings' derivatives and reclassified $3.0 million gain from
accumulated other comprehensive loss related to deferred foreign currency adjustments.
During the three and six months ended February 28, 2009, the Company recorded an unrealized
gain of $3.6 million and unrealized loss of $7.3 million on an available-for-sale investment,
respectively. The Company concluded that the net unrealized loss was other than temporary based
on the sale of the investment in March 2009, and accordingly reclassified $7.3 million to net
earnings (loss).
21. EARNINGS PER SHARE
The following table provides a reconciliation of the numerators and denominators used in
computing basic and diluted earnings per share from continuing operations. No reconciling items in
the computation of net loss from continuing operations exist:
For the three months ended
February 28,
For the six months ended
February 28,
2010 2009 2010 2009
Basic weighted average shares outstanding
during the period 177,646,539 177,646,539 177,646,539 177,646,539
Dilutive effect of restricted share units - - 547,700 -
Diluted weighted average shares outstanding
during the period 177,646,539 177,646,539 178,194,239 177,646,539
Options outstanding that would have been
anti-dilutive 4,819,233 5,491,327 4,271,533 5,491,327
22. OTHER LONG-TERM INCENTIVE PLANS
The Company has long-term incentive plans for eligible Canadian television and CW Media
employees. Under the Broadcast Share Appreciation Rights Plan (“Broadcast SAR Plan”) and the
Broadcast RSU Plan, a notional share value is computed based on a formula which is not
representative of the fair value of the respective business.
Broadcast SAR Plan
Eligible participants receive grants of Broadcast SARs which entitle them to participate in the
growth in the notional share value of the broadcast operations. Regular share appreciation rights
(“Regular SARs”) vest at a rate of 25% per year. Performance threshold share appreciation rights
(“Performance Threshold SARs”) vest at a rate of 25% per year if certain EBITDA growth rates, as
set by the Board, have been met. At the grant date the recipients can opt to have the SARs settled
at each vesting date or at the end of the four year term.
In November 2009, the Company issued 66,300 regular SARs and 17,600 Performance Threshold
SARs. At the time of issuance, the notional share value was $15.01. In November 2008, the
Company issued 66,900 regular SARs and 17,600 Performance Threshold SARs. At the time of
issuance, the notional share value was $12.76.
Operating expenses related to the Broadcast SAR plan was a recovery of $0.4 million for the six
months ended February 28, 2010 (2009 – a nominal expense).
Broadcast RSU Plan
Eligible participants receive grants of Broadcast RSUs which are settled at the end of a three year
term provided that specified performance goals or other factors as determined by the Board have
been met. The vested RSUs are settled through a cash payment equal to the notional share value
at the end of the most recently completed quarter prior to the settlement date times the number of
RSUs held.
In November 2009, the Company issued 36,200 Broadcast RSUs. At the time of issuance the
notional share value was $15.01. In November 2008, the Company issued 37,200 Broadcast
RSUs. At the time of issuance the notional share value was $12.76.
Operating expenses related to the Broadcast RSU plan was $0.6 million for the six months ended
February 28, 2010 (2009 – a nominal expense).
23. RELATED PARTY TRANSACTIONS
A company affiliated with the Company’s controlling shareholders owns Canwest Place in
Winnipeg, Manitoba, a building in which the Company is a tenant. During the three and six months
ended February 28, 2010, rent paid to this company amounted to $0.3 million and $0.6 million,
respectively (2009 - $0.2 million and $0.5 million, respectively) and is included in operating
expenses. The annual obligations under these operating leases of $0.7 million and $0.4 million
continue until August 2010 and May 2018, respectively.
All related party transactions have been recorded at the exchange amounts, which are
representative of market rates.
24. PENSION, POST RETIREMENT AND POST EMPLOYMENT BENEFITS
The Company has a number of funded and unfunded defined benefit plans, as well as defined
contribution plans, that provide pension, post retirement and post employment benefits to its
employees. Its defined benefit pension plans are based on years of service and final average
salary.
Information regarding the components of net periodic benefit cost for the Company’s defined
benefit plans is presented below:
Pension benefits
For the three months
ended February 28,
Post
retirement/employment
benefits
For the three months
ended February 28,
2010 2009 2010 2009
Current service cost 3,578 4,398 1,133 589
Accrued interest on benefits 7,550 7,963 1,153 879
Expected return on plan assets (6,831) (7,251) - -
Amortization of transitional obligation (asset) (65) 110 75 76
Amortization of past service costs 43 354 169 170
Amortization of net actuarial loss (gain) 1,035 431 (88) (176)
Settlement loss 989 - - -
Changes in valuation allowance (1) (8) - -
Total pension and post
retirement/employment benefit expense 6,298 5,997 2,442 1,538
Pension benefits
For the six months
ended February 28,
Post
retirement/employment
benefits
For the six months
ended February 28,
2010 2009 2010 2009
Current service cost 7,156 8,797 2,266 1,179
Accrued interest on benefits 15,100 15,927 2,306 1,757
Expected return on plan assets (13,662) (14,501) - -
Amortization of transitional obligation (asset) (130) 220 150 152
Amortization of past service costs 86 709 338 339
Amortization of net actuarial loss (gain) 2,070 861 (176) (351)
Settlement loss 1,506 - - -
Changes in valuation allowance (2) (17) - -
Total pension and post
retirement/employment benefit expense 12,124 11,996 4,884 3,076
25. SEGMENT INFORMATION
The Company operates primarily within the Canadian publishing and television advertising
industries. Segment information has been retroactively revised to reflect the Company’s current
reportable segment structure due to the sale of Australia television and out-of-home segments, the
Turkey radio segment and The New Republic.
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 intersegment revenue as if the revenue was to third parties.
Segment information and a reconciliation from segment operating profit to earnings (loss) before
income taxes are presented below:
Revenue(1) (2)
For the three months ended
February 28,
Segment operating profit
For the three months ended
February 28,
Revenue(1) (2)
For the six months ended
February 28,
Segment operating profit
For the six months ended
February 28,
2010 2009
(Revised note 19)
2010 2009
(Revised note 19)
2010 2009
(Revised note 19)
2010 2009
(Revised note 19)
Operating Segments
Publishing 254,418 257,729 41,358 32,432 540,835 592,704 111,154 106,284
Television
Canada(4) 125,946 148,795 6,648 2,240 296,942 342,694 51,753 27,946
CW Media 98,928 87,459 49,846 31,830 213,026 193,558 114,181 76,113
Total television 224,874 236,254 56,494 34,070 509,968 536,252 165,934 104,059
Intersegment
revenue (612) (549) - - (1,458) (1,178) - -
Corporate and other - - (4,159) (7,659) - - (7,325) (14,863)
478,680 493,434 93,693 58,843 1,049,345 1,127,778 269,763 195,480
Restructuring
expenses - - 120 (18,189) - - (1,722) (32,695)
Broadcast rights
write-downs - - - (29,620) - - (1,737) (29,620)
Settlement of
regulatory fees(3) - - - - - - 29,416 -
478,680 493,434 93,813 11,034 1,049,345 1,127,778 295,720 133,165
Amortization of intangible assets 1,608 1,607 5,116 3,215
Amortization of property and equipment 19,081 21,059 38,045 40,541
Other amortization 77 93 155 188
Operating income (loss) 73,047 (11,725) 252,404 89,221
Interest expense (48,685) (66,650) (101,168) (136,625)
Accretion of long-term liabilities (33,091) (9,829) (65,843) (38,062)
Interest income 173 223 1,004 351
Interest rate and foreign currency swap gains (losses) - (1,731) - 40,698
Foreign exchange gains (losses) 20,604 (15,878) 86,036 (83,379)
Investment gains, losses and write-downs (43) (2,353) 670 (3,516)
Impairment loss on property and equipment - (10,333) - (10,333)
Impairment loss on intangible assets - (185,108) (3,142) (185,108)
Impairment loss on goodwill - (895,110) - (895,110)
12,005 (1,198,494) 169,961 (1,221,863)
Reorganization items Canwest Media entities (25,713) (1,599) (87,734) (1,599)
Reorganization items Canwest LP entities (30,940) - (40,076) -
Earnings (loss) before income taxes and other items (44,648) (1,200,093) 42,151 (1,223,462)
(1) Represents revenue from third parties. In addition, the following segments recorded
intersegment revenue: Publishing - $0.4 million and $0.9 million for the three and six months
ended February 28, 2010, respectively (2009 – $0.3 million and $0.8 million, respectively)
Canadian television – $0.1 million and $0.3 million for the three and six months ended February
28, 2010, respectively (2009 – nil and nil, respectively), and CW Media television – $0.1 million
and $0.3 million for the three and six months ended February 28, 2010, respectively (2009 –
$0.3 million and $0.4 million, respectively).
(2) Revenue consists of advertising revenue of $363 million and $816 million for the three and six
months ended February 28, 2010, respectively (2009 – $373 million and $896 million,
respectively) and subscriber revenue of $116 million and $234 million for the three and six
months ended February 28, 2010, respectively (2009 – $114 million and $232 million,
respectively).
(3) On October 7, 2009, the Government of Canada and the Canadian Association of
Broadcasters reached a settlement regarding the legal dispute over the validity of the Part II
Licence fees payable annually to the CRTC by television and radio broadcasters. As a result of
the settlement, during the six months ended February 28, 2010 the Company reversed into
earnings unpaid Part II Licence fees of $23.0 million and $6.4 million related to the Canadian
television and CW Media television segment, respectively, which were accrued as at August
31, 2009.
(4) Revenue for fiscal 2009 has been restated to reverse accruals related to retransmission fees
as the amounts were not determinable. The effect of this restatement for the three months
ended February 28, 2009 was to increase segment revenue and segment operating profit by
$2.5 million and to increase the provision for future income taxes by $1.6 million resulting in a
$0.8 million decrease in net loss for the Company. The effect of this restatement for the six
months ended February 28, 2009 was to decrease segment revenue and segment operating
profit by $3.5 million resulting in a $3.5 million increase in net loss for the Company. The
adjustment decreased the loss per share by less than $0.01 and increased the loss per share
by $0.02 for the three and six months ended February 28, 2009, respectively.