Postmedia Network Reports First Quarter Results

  Postmedia Network Reports First Quarter Results

Business Wire

TORONTO -- January 9, 2014

Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released
financial information for the three months ended November 30, 2013.

First Quarter Operating Results
Net loss in the quarter ended November 30, 2013 was $11.8 million compared to
net earnings of $6.7 million in the same period in the prior year. The
increase in net loss was largely due to a $15.3 million increase in
restructuring expenses, primarily associated with print production
outsourcing, an increase in depreciation expense and a modest decline in
operating income before depreciation, amortization and restructuring, all as
compared to the same period in the prior year.

Operating income before depreciation, amortization and restructuring of $46.0
million in the quarter represents a decrease of $3.0 million (6.1%), relative
to the same period in the prior year. This drop is the result of revenue
declines of $17.7 million, partially offset by decreases in compensation,
newsprint, distribution and other expenses totaling $14.7 million. Excluding
non-cash compensation expense, related to option and other long-term incentive
plans, operating income before depreciation, amortization and restructuring
decreased $3.7 million (7.4%).

Operating income in the quarter was $2.3 million as compared to $26.6 million
in the same period in the prior year. The decrease was primarily as a result
of increased depreciation ($6.4 million increase) and restructuring expenses
($15.3 million increase) and a modest decline in operating income before
depreciation, amortization and restructuring.

Revenue for the quarter was $194.0 million, a decrease of $17.7 million (8.4%)
relative to the same period in the prior year. This decrease was primarily due
to a decline in print advertising revenue of $16.1 million (12.2%) with the
declines occurring across all categories. Print circulation revenue increased
$0.3 million (0.6%) relative to the same period in the prior year as a result
of price increases in excess of volume declines. Digital revenue decreased
$1.3 million (5.1%) relative to the same period in the prior year as a result
of declines in local digital advertising revenue and digital classified
revenue, partially offset by increases in digital circulation revenue.

Total operating expenses excluding depreciation, amortization and
restructuring decreased $14.7 million (9.0%) 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. Excluding non-cash compensation expense, operating
expenses excluding depreciation, amortization and restructuring decreased
$14.0 million (8.6%).

Business Transformation Initiatives
In November 2013, the Company outsourced the production of the Calgary Herald
and committed to third party outsourcing contracts for the production of both
The Vancouver Sun and The Province. These initiatives are key elements of the
three year transformation program announced in July 2012 and are expected to
result in significant operating cost savings. In addition, our production
outsourcing program enables the sale of production related real estate in
Vancouver, Calgary and Edmonton. Future proceeds from these potential sales
will be used to accelerate repayment of our debt.

As announced in July 2012, the Company is implementing a three-year
transformation program that is targeted to result in net operating cost
savings of 15%-20%. During the three months ended November 30, 2013, the
Company implemented transformation initiatives which are expected to result in
an additional $5 million of net annualized cost savings. In total, the Company
has implemented net annualized cost savings of approximately $87 million, or
12.5% of operating costs since the program was announced.

Management Commentary
"We continue to face significant revenue challenges as a result of a rapidly
changing advertising market," said CEO Paul Godfrey. "In spite of these
challenges, however, we are very pleased with the progress we have made in
stabilizing circulation revenue, deepening insights into our audiences across
multiple platforms, and transforming our cost structure to match the realities
of the business. As the newspaper industry continues to transform, we are
confident that we are positioning the company for future success."

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 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)

            For the three months ended November 30, 2013 and 2012

(In thousands of Canadian dollars, except per share  2013      2012
amounts)
                                                               (revised)^(1)
Revenues
Print advertising                                     116,605    132,741
Print circulation                                     49,588     49,276
Digital                                               23,554     24,813
Other                                                4,231     4,842
Total revenues                                        193,978    211,672
Expenses
Compensation                                          73,958     83,067
Newsprint                                             9,120      12,108
Distribution                                          26,308     28,192
Other operating                                      38,581    39,318
Operating income before depreciation, amortization    46,011     48,987
and restructuring
Depreciation                                          13,227     6,890
Amortization                                          10,412     10,734
Restructuring and other items                        20,113    4,797
Operating income                                      2,259      26,566
Interest expense                                      15,733     16,167
Net financing expense related to employee benefit     1,404      1,864
plans
(Gain) loss on disposal of property and equipment     (14)       268
(Gain) loss on derivative financial instruments       (4,054)    697
Foreign currency exchange losses                     995       866
Earnings (loss) before income taxes                   (11,805)   6,704
Provision for income taxes                           -         -
Net earnings (loss) attributable to equity holders   (11,805)  6,704
of the Company
Earnings (loss) per share attributable to equity
holders of the Company
Basic                                                 $(0.29)    $0.17
Diluted                                              $(0.29)   $0.16

^(1) Results for the three months ended November 30, 2012 have been revised
from amounts previously reported as a result of the adoption of new and
amended accounting standards on September 1, 2013. See note 2 of our interim
condensed consolidated financial statements for additional information.

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

                                           As at               As at
(In thousands of Canadian dollars)        November 30, 2013  August 31, 2013

                                                              
                                                             (revised)^(1)
Assets
Current Assets
Cash                                       35,113              40,812
Accounts receivable                        104,141             82,615
Inventory                                  2,791               3,234
Current portion of derivative financial    3,577               1,411
instruments
Prepaid expenses and other assets         10,031             10,128
Total current assets                       155,653             138,200
Non-Current Assets
Property and equipment                     212,934             223,173
Asset held-for-sale                        10,530              10,530
Derivative financial instruments           20,856              16,802
Other assets                               528                 732
Intangible assets                          314,046             323,760
Goodwill                                  149,600            149,600
Total assets                              864,147            862,797
                                                               
Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities   73,482              67,618
Provisions                                 34,468              26,097
Deferred revenue                           24,416              24,645
Current portion of long-term debt         12,500             12,500
Total current liabilities                  144,866             130,860
Non-Current Liabilities
Long-term debt                             471,204             474,380
Other non-current liabilities              114,401             121,817
Provisions                                 778                 826
Deferred income taxes                     681                681
Total liabilities                         731,930            728,564
                                                               
Equity
Capital stock                              371,132             371,132
Contributed surplus                        9,178               9,020
Deficit                                    (245,376)           (241,925)
Accumulated other comprehensive loss      (2,717)            (3,994)
Total equity                              132,217            134,233
Total liabilities and equity              864,147            862,797

^(1) The consolidated statement of financial position as at August 31, 2013
has been revised from amounts previously reported as a result of the adoption
of new and amended accounting standards on September 1, 2013. See note 2 of
our interim condensed consolidated financial statements for additional
information.

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

            For the three months ended November 30, 2013 and 2012

(In thousands of Canadian dollars)                   2013      2012
                                                               (revised)^(1)
CASH GENERATED (UTILIZED) BY:
OPERATING ACTIVITIES
Net earnings (loss) attributable to equity holders    (11,805)   6,704
of the Company
Items not affecting cash:
Depreciation                                          13,227     6,890
Amortization                                          10,412     10,734
(Gain) loss on derivative financial instruments       (4,054)    697
Non-cash interest                                     1,485      1,331
(Gain) loss on disposal of property and equipment     (14)       268
Non-cash foreign currency exchange losses             916        824
Share-based compensation plans and other long-term    143        878
incentive plan expense
Net financing expense relating to employee benefit    1,404      1,864
plans
Non-cash compensation expense of employee benefit     -          2,028
plans
Employee benefit funding in excess of compensation    (381)      -
expense
Settlement of foreign currency interest rate swap     -          (8,976)
designated as a cash flow hedge
Net change in non-cash operating accounts            (7,110)   (10,014)
Cash flows from operating activities                 4,223     13,228
                                                                 
INVESTING ACTIVITIES
Net proceeds from the sale of property and            14         24,691
equipment and asset held-for-sale
Additions to property and equipment                   (2,988)    (2,636)
Additions to intangible assets                       (698)     (956)
Cash flows from investing activities                 (3,672)   21,099
                                                                 
FINANCING ACTIVITIES
Repayment of long-term debt                           (6,250)    (23,187)
Debt issuance costs                                  -         (96)
Cash flows from financing activities                 (6,250)   (23,283)
                                                                 
Net change in cash                                    (5,699)    11,044
Cash at beginning of period                          40,812    22,189
Cash at end of period                                35,113    33,233
Supplemental disclosure of operating cash flows
Interest paid                                         9,142      1,222
Income taxes paid                                    -         -

^(1) Cash flows for the three months ended November 30, 2012 have been revised
from amounts previously reported as a result of the adoption of new and
amended accounting standards on September 1, 2013. See note 2 of our interim
condensed consolidated financial statements for additional information.

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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