Postmedia Network Reports Fourth Quarter Results

  Postmedia Network Reports Fourth Quarter Results

Business Wire

TORONTO -- October 24, 2013

Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released
financial information for the three months and year ended August 31, 2013.

Fourth Quarter Operating Results
Net loss in the quarter ended August 31, 2013 was $35.8 million compared to a
net loss of $28.4 million in the same period in the prior year. The increase
in net loss was primarily the result of an $11.6 million increase in operating
losses, partially offset by a reduction in expenses related to long-term debt
and derivative financial instruments.

Operating loss in the quarter was $13.9 million as compared to an operating
loss of $2.3 million in the same period in the prior year primarily as a
result of revenue declines of $20.8 million and a non-cash impairment charge
of $6.1 million, partially offset by decreases in operating expenses.

Operating income before depreciation, amortization, impairment and
restructuring of $23.2 million in the quarter represents a decrease of $4.9
million (17.5%), relative to the same period in the prior year.

Revenue for the quarter was $169.3 million, a decrease of $20.8 million
(10.9%) relative to the same period in the prior year. This decrease was
primarily due to a decline in print advertising revenue of $18.2 million
(16.2%) with the declines occurring across all categories. Print circulation
revenue decreased $1.9 million (3.6%) as a result of declines in circulation
volumes partially offset by price increases. Digital revenue decreased $0.5
million (2.4%) relative to the same period in the prior year.

Total operating expenses excluding depreciation, amortization, impairment and
restructuring decreased $15.9 million (9.8%) relative to the same period in
the prior year. Expense reductions occurred in all operating expense
categories including compensation, newsprint, distribution and other operating
expenses.

In August 2013, the Company entered into a print outsourcing agreement for the
production of the Calgary Herald newspaper commencing in November, 2013. In
addition, on September 9, 2013, the Company announced its intention to sell
two of its real estate holdings: a printing facility in Surrey, BC and the
Calgary Herald building in Alberta.

Full Year Operating Results
Net loss in the year ended August 31, 2013 was $153.8 million compared to a
net loss of $23.2 million in the prior year. The decrease was primarily the
result of non-cash impairment charges of $100.0 million. Also contributing to
the decrease were lower revenues which were largely offset by operating cost
reductions, and a gain on sale of the Times Colonist in Victoria and British
Columbia-based community newspaper assets to Glacier Media Inc. in the prior
year.

Net loss from continuing operations, which includes non-cash impairment
charges of $100.0 million, was $153.8 million, compared to a net loss of $37.3
million in the prior year.

Operating loss was $77.0 million as compared to operating income of $39.3
million in the prior year primarily as a result of non-cash impairment
charges.

Operating income before depreciation, amortization, impairment and
restructuring was $130.4 million, a decrease of $13.9 million relative to the
prior year. Excluding non-cash share-based and other long-term incentive plan
compensation expense, operating income before depreciation, amortization,
impairment and restructuring declined $10.2 million (7.2%).

Revenue for the twelve months ended August 31, 2013 was $751.6 million, a
decrease of $80.3 million (9.7%) relative to the prior year. This decrease was
primarily due to a decline in print advertising revenue of $69.4 million
(13.5%) with the largest declines occurring in the classified and national
advertising categories. Print circulation revenue decreased $13.3 million
(6.3%) as a result of declines in circulation volumes partially offset by
price increases. Digital revenue increased $2.5 million (2.8%) relative to the
prior year as a result of increases in local digital advertising revenue
partially offset by declines in digital classified revenue.

Total operating expenses excluding depreciation, amortization, impairment and
restructuring decreased $66.4 million (9.7%) relative to the prior year.
Expense reductions occurred in all operating expense categories including
compensation, newsprint, distribution and other operating expenses. Excluding
non-cash share-based and other long-term incentive plan compensation expense,
operating expenses excluding depreciation, amortization, impairment and
restructuring declined $70.2 million (10.2%).

Business Transformation Initiatives
As announced in July 2012, the Company is implementing a three-year
transformation program that is targeted to result in operating cost savings of
15%-20%. During the three months ended August 31, 2013, the Company
implemented transformation initiatives which are expected to result in net
annualized cost savings of approximately $20 million. This brings total net
annualized cost savings, since the beginning of the program, to approximately
$82 million representing approximately 12% of operating costs at the time the
program was announced.

Management Commentary
“This past year was one of accelerated transformation for our industry and our
Company,” said Paul Godfrey, President and Chief Executive Officer. “We have
changed the overall design of our organization from local silos to a
functional reporting structure, had important conversations with various
stakeholders from unions and employees to advertisers and readers, and made
progress rationalizing our real estate portfolio. With significant progress
made on our structure, our teams are better equipped to focus on
differentiated product offerings, deepening relationships with our audiences
and effectively monetizing these offerings and insights.”

Also announced today that with Paul Godfrey acting as Interim Chairman, Peter
Sharpe has been appointed to the role of Lead Director of the boards of both
the Company and its subsidiary, Postmedia Network Inc. Mr. Sharpe has served
as a Director of both boards since the Company’s formation. Mr. Sharpe served
as President and CEO of Cadillac Fairview Corporation until his retirement in
2010, having served with the company for over 25 years. Mr. Sharpe is
currently a Director of Morguard Corporation, First Industrial REIT (US), and
Allied Property REIT.  Mr. Sharpe is also a past chairman and current trustee
of the International Council of Shopping Centers.

Note: All dollar amounts are expressed in Canadian dollars unless otherwise
specified.

Additional Information
Additional information, including financial statements and management’s
discussion and analysis can be found on the Company’s website at
www.postmedia.com/investors/financial-reports, on SEDAR at www.sedar.com  or
on the website maintained by the U.S. Securities and Exchange Commission (the
“SEC”) at www.sec.gov.

About Postmedia Network Canada Corp.
Postmedia Network Canada Corp. (TSX:PNC.A, PNC.B) is the holding company that
owns Postmedia Network Inc., the largest publisher by circulation of paid
English-language daily newspapers in Canada, representing some of the
country’s oldest and best known media brands. Reaching millions of Canadians
every week, Postmedia engages readers and offers advertisers and marketers
integrated solutions to effectively reach target audiences through a variety
of print, online, digital, and mobile platforms.

Forward-Looking Information
This news release may include information that is “forward-looking
information” under applicable Canadian securities laws and “forward-looking
statements” within the meaning of the U.S. Private Securities Litigation
Reform Act of 1995. The Company has tried, where possible, to identify such
information and statements by using words such as “believe,” “expect,”
“intend,” “estimate,” “anticipate,” “may,” “will,” “could,” “would,” “should”
and similar expressions and derivations thereof in connection with any
discussion of future events, trends or prospects or future operating or
financial performance. Forward-looking statements in this news release include
statements with respect to the implementation and results of the Company’s
transformation initiatives, the realization of anticipated cost savings, the
impact of the Company’s organizational redesign and the ability of the Company
to leverage future opportunities. By their nature, forward-looking information
and statements involve risks and uncertainties because they relate to events
and depend on circumstances that may or may not occur in the future. These
risks and uncertainties include, among others: competition from other
newspapers and alternative forms of media; the effect of economic conditions
on advertising revenue; the ability of the Company to build out its digital
media and online businesses; the failure to maintain current print and online
newspaper readership and circulation levels; the realization of anticipated
cost savings; possible damage to the reputation of the Company’s brands or
trademarks; possible labor disruptions; possible environmental liabilities,
litigation and pension plan obligations; not being able to refinance our ABL
Facility in July, 2014 on attractive terms or at all; fluctuations in foreign
exchange rates and the prices of newsprint and other commodities. For a
complete list of our risk factors please refer to the section entitled “Risk
Factors” contained in our annual management’s discussion and analysis for the
years ended August 31, 2013, 2012 and 2011. Although the Company bases such
information and statements on assumptions believed to be reasonable when made,
they are not guarantees of future performance and actual results of
operations, financial condition and liquidity, and developments in the
industry in which the Company operates, may differ materially from any such
information and statements in this news release. Given these risks and
uncertainties, undue reliance should not be placed on any forward-looking
information or forward-looking statements, which speak only as of the date of
such information or statements. Other than as required by law, the Company
does not undertake, and specifically declines, any obligation to update such
information or statements or to publicly announce the results of any revisions
to any such information or statements.

                        Postmedia Network Canada Corp.
                    Consolidated Statements of Operations
                                 (UNAUDITED)

(In thousands of Canadian          For the three months   For the years
dollars, except per share         ended August, 31      ended August 31
amounts)
                                 2013       2012      2013       2012
                                                                  
Revenues
Print advertising                  93,968      112,157    445,547     514,987
Print circulation                  49,359      51,223     195,899     209,177
Digital                            21,408      21,937     91,606      89,076
Other                             4,574      4,807     18,531     18,637
Total revenues                     169,309     190,124    751,583     831,877
Expenses
Compensation                       73,673      81,367     320,749     348,133
Newsprint                          8,791       11,717     40,902      52,628
Distribution                       25,806      29,218     107,905     123,872
Other operating                   37,800     39,649    151,626    162,908
Operating income before
depreciation, amortization,
impairment and restructuring       23,239      28,173     130,401     144,336


Depreciation                       9,613       6,593      29,949      26,157
Amortization                       10,646      10,881     43,325      43,566
Impairments                        6,100       -          99,983      -
Restructuring and other items     10,746     13,014    34,171     35,355
Operating income (loss)            (13,866)    (2,315)    (77,027)    39,258
Interest expense                   15,133      17,726     61,900      65,446
Loss on debt prepayment            -           9,178      -           9,178
Net financing expense related to   387         975        1,536       3,900
employee benefit plans
(Gain) loss on disposal of
property and equipment and         (16)        180        (1,005)     258
intangible assets
(Gain) loss on derivative          4,656       6,628      7,306       (8,632)
financial instruments
Foreign currency exchange         1,779      (8,651)   7,065      6,383
(gains) losses
Loss before income taxes           (35,805)    (28,351)   (153,829)   (37,275)
Provision for income taxes        -          -         -          -
Net loss from continuing           (35,805)    (28,351)   (153,829)   (37,275)
operations
Net earnings from discontinued    -          -         -          14,053
operations, net of tax of nil
Net loss attributable to equity   (35,805)   (28,351)  (153,829)  (23,222)
holders of the Company
                                                                      
                                                              
Loss per share from continuing
operations
Basic                              $(0.89)     $(0.70)    $(3.82)     $(0.92)
Diluted                           $(0.89)    $(0.70)   $(3.82)    $(0.92)
Earnings per share from
discontinued operations
Basic                              -           -          -           $0.35
Diluted                           -          -         -          $0.35
Loss per share attributable to
equity holders of the Company
Basic                              $(0.89)     $(0.70)    $(3.82)     $(0.58)
Diluted                           $(0.89)    $(0.70)   $(3.82)    $(0.58)

                        Postmedia Network Canada Corp.
                Consolidated Statements of Financial Position
                                 (UNAUDITED)

                                             As at             As at
(In thousands of Canadian dollars)          August 31, 2013  August 31, 2012

                                                              
                                                            
Assets
Current Assets
Cash                                         40,812            22,189
Accounts receivable                          82,615            90,923
Inventory                                    3,234             3,829
Current portion of derivative financial      1,411             -
instruments
Prepaid expenses and other assets           10,128           10,258
Total current assets                         138,200           127,199
Non-Current Assets
Property and equipment                       223,173           267,491
Asset held-for-sale                          10,530            23,139
Derivative financial instruments             16,802            24,108
Other assets                                 732               1,549
Intangible assets                            323,760           377,862
Goodwill                                    149,600          223,500
Total assets                                862,797          1,044,848
                                                               
Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities     67,618            65,268
Provisions                                   26,097            29,888
Deferred revenue                             24,645            25,915
Current portion of derivative financial      -                 6,069
instruments
Current portion of long-term debt           12,500           32,153
Total current liabilities                    130,860           159,293
Non-Current Liabilities
Long-term debt                               474,380           467,749
Derivative financial instruments             -                 12,369
Other non-current liabilities                120,142           169,413
Provisions                                   826               1,588
Deferred income taxes                       681              681
Total liabilities                           726,889          811,093
                                                               
Equity
Capital stock                                371,132           371,132
Contributed surplus                          9,020             7,888
Deficit                                      (240,250)         (139,357)
Accumulated other comprehensive loss        (3,994)          (5,908)
Total equity                                135,908          233,755
Total liabilities and equity                862,797          1,044,848

                        Postmedia Network Canada Corp.
                    Consolidated Statements of Cash Flows
                                 (UNAUDITED)

(In thousands of Canadian        For the three months  For the years
dollars)                          ended August 31,       ended August 31,
                                2013      2012       2013       2012
                                                                 
Cash Generated (Utilized) by:
Operating Activities
Net loss attributable to equity   (35,805)   (28,351)    (153,829)   (23,222)
holders of the Company
Items not affecting cash:
Depreciation                      9,613      6,593       29,949      26,320
Amortization                      10,646     10,881      43,325      43,621
Impairments                       6,100      -           99,983      -
(Gain) loss on derivative         4,656      (3,673)     7,306       (22,414)
financial instruments
Non-cash interest                 644        2,653       4,114       12,831
Non-cash loss on debt repayment   -          9,178       -           9,178
(Gain) loss on disposal of
property and equipment and        (16)       180         (1,005)     258
intangible assets
Non-cash foreign currency         1,651      (8,497)     6,879       5,721
exchange (gains) losses
Gain on sale of discontinued      -          -           -           (17,109)
operations
Share-based compensation plans
and other long-term incentive     237        4           1,386       (2,459)
plan expense (recovery)
Net financing expense relating    387        975         1,536       3,907
to employee benefit plans
Non-cash compensation expense     -          -           2,112       -
of employee benefit plans
Employee benefit funding in       (18)       (9,268)     -           (24,856)
excess of compensation expense
Settlement of foreign currency
interest rate swap designated     -          -           (8,976)     -
as a cash flow hedge
Net change in non-cash           (9,657)   11,853     5,567      30,765
operating accounts
Cash flows from operating        (11,562)  (7,472)    38,347     42,541
activities
                                                                     
Investing Activities
Net proceeds received on the      -          -           -           87,340
sale of discontinued operations
Net proceeds from the sale of
property and equipment,           41         -           25,925      4
intangible assets and asset
held-for-sale
Additions to property and         (2,152)    (2,592)     (7,566)     (8,227)
equipment
Additions to intangible assets   (1,995)   (1,573)    (5,932)    (6,732)
Cash flows from investing        (4,106)   (4,165)    12,427     72,385
activities
                                                                     
Financing activities
Proceeds from the issuance of     -          250,000     -           250,000
long-term debt
Repayment of long-term debt on    -          (238,268)   -           (238,268)
refinancing
Repayment of long-term debt       -          -           (32,040)    (108,310)
Debt issuance costs              -         (6,605)    (111)      (6,642)
Cash flows from financing        -         5,127      (32,151)   (103,220)
activities
                                                                     
Net change in cash                (15,668)   (6,510)     18,623      11,706
Cash at beginning of period      56,480    28,699     22,189     10,483
Cash at end of period            40,812    22,189     40,812     22,189
                                                             
Supplemental disclosure of
operating cash flows
Interest paid                     19,278     24,170      53,173      60,080
Income taxes paid                -         -          -          -

Contact:

Postmedia Network Canada Corp.
Media Contact
Phyllise Gelfand, (416) 442-2936
Vice President, Communications
pgelfand@postmedia.com
or
Investor Contact
Doug Lamb, (416) 383-2325
Executive Vice President and Chief Financial Officer
dlamb@postmedia.com
 
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