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Postmedia Reports Third Quarter Results

TORONTO--(BUSINESS WIRE)--Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three and nine months ended May 31, 2014.

“This quarter we took a big step into reimagining our product offerings across our local markets with the launch of four all new products in Ottawa”

Third Quarter Operating Results
Net loss in the quarter ended May 31, 2014 was $20.6 million compared to $103.3 million in the same period in the prior year. The decrease in net loss was primarily the result of a $93.9 million non-cash impairment charge in the prior year.

Operating loss was $5.6 million as compared to $85.3 million in the same period in the prior year which included non-cash impairment charges of $93.9 million.

Operating income before depreciation, amortization, impairment and restructuring of $25.7 million in the quarter represents a decrease of $7.1 million (21.6%), relative to the same period in the prior year. This decrease is the result of revenue declines of $20.8 million, partially offset by net decreases in compensation, newsprint, distribution and other expenses totaling $13.7 million.

Revenue for the quarter was $171.0 million, a decrease of $20.8 million (10.8%) relative to the same period in the prior year. This decrease was primarily due to a decline in print advertising revenue of $18.7 million (16.5%) with the declines occurring across all categories. Print circulation revenue decreased $0.4 million (0.8%) and digital revenue decreased $1.0 million (4.3%) relative to the same period in the prior year.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $13.7 million (8.6%) relative to the same period in the prior year. Expense reductions occurred in most operating expense categories including compensation, newsprint, and distribution expenses.

Year-to-Date Operating Results
Net loss in the nine months ended May 31, 2014 was $57.7 million compared to $112.3 million in the same period in the prior year. The decrease in net loss was primarily the result of a $93.9 million non-cash impairment charge in the third quarter of fiscal 2013.

Operating loss for the nine months ended May 31, 2014 was $7.4 million as compared to $53.0 million in the same period in the prior year which included non-cash impairment charges of $93.9 million.

Operating income before depreciation, amortization, impairment and restructuring for the nine months ended May 31, 2014 was $93.8 million, a decrease of $13.0 million relative to the prior year. This decrease is the result of revenue declines of $54.8 million, partially offset by net decreases in compensation, newsprint, distribution and other expenses totalling $41.8 million.

Revenue for the nine months ended May 31, 2014 was $527.5 million, a decrease of $54.8 million (9.4%) relative to the same period in the prior year. This decrease was primarily due to a decline in print advertising revenue of $50.3 million (14.3%) with the declines occurring across all categories. Print circulation revenue decreased $0.4 million (0.3%) and digital revenue decreased $2.4 million (3.5%) relative to the same period in the prior year.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $41.8 million (8.8%) in the nine months ended May 31, 2014, relative to the same period in the prior year. Expense reductions occurred in most operating expense categories including compensation, newsprint, and distribution expenses.

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 May 31, 2014, the Company implemented transformation initiatives which are expected to result in net annualized cost savings of approximately $8 million. This brings total net annualized cost savings to approximately $106 million or 15% of operating costs since the program was announced.

Redemption of Notes
On April 30, 2014, the Company completed a mandatory redemption of $6.3 million aggregate principal amount of 8.25% Senior Secured Notes due 2017 (“First-Lien Notes”) at par in accordance with the terms and conditions of the First-Lien Notes indenture.

Subsequent Event
On July 9, 2014 the Company signed a commitment letter for a new senior secured asset-based revolving credit facility (the “New ABL Facility”) for an aggregate amount of up to $20.0 million, subject to completion of definitive documentation. The New ABL Facility will mature one year from the closing date and will replace the Company’s existing facility that will terminate on July 13, 2014.

Management Commentary
“This quarter we took a big step into reimagining our product offerings across our local markets with the launch of four all new products in Ottawa,” said Paul Godfrey, President and Chief Executive Officer. “While we continue to face the same challenges as our industry peers with respect to our traditional business, we believe that Postmedia’s four platform strategy, our focus on engaging our audiences and delivering targeted results to advertisers holds tremendous excitement around the opportunities ahead.”

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 labour 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 press 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 dollars, except per share amounts)  

For the three months
ended May, 31

 

For the nine months
ended May 31

    2014   2013   2014   2013
 

(revised)(1)

   

(revised)(1)

Revenues
Print advertising 94,716 113,395 301,265 351,579
Print circulation 49,029 49,401 146,167 146,540
Digital 23,067 24,093 67,757 70,198
Other   4,177   4,895   12,262   13,957
Total revenues 170,989 191,784 527,451 582,274
Expenses
Compensation 72,492 83,075 218,498 247,433
Newsprint 7,588 10,147 24,110 32,111
Distribution 25,978 27,542 76,990 82,099
Other operating   39,264   38,268   114,049   113,826
Operating income before depreciation, amortization, impairment and restructuring

25,667

32,752

93,804

106,805

Depreciation 15,918 6,706 40,314 20,336
Amortization 9,542 11,111 29,553 32,679
Impairments - 93,883 - 93,883
Restructuring and other items   5,813   6,305   31,351   12,916
Operating loss (5,606) (85,253) (7,414) (53,009)
Interest expense 15,799 14,994 47,137 46,767
Net financing expense related to employee benefit plans 1,405 1,863 4,213 5,590
Gain on disposal of property and equipment (244) (202) (231) (989)
(Gain) loss on derivative financial instruments 691 760 (4,010) 2,650
Foreign currency exchange (gains) losses   (2,652)   588   3,177   5,286
Loss before income taxes (20,605) (103,256) (57,700) (112,313)
Provision for income taxes   -   -   -   -
Net loss attributable to equity holders of the Company   (20,605)   (103,256)   (57,700)   (112,313)
 
                 
Loss per share attributable to equity holders of the Company
Basic $(0.51) $(2.57) $(1.43) $(2.79)
Diluted   $(0.51)   $(2.57)   $(1.43)   $(2.79)

(1) Results for the three and nine months ended May 31, 2013 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)

         
(In thousands of Canadian dollars)  

As at
May 31, 2014

 

 

As at
August 31, 2013

 

   

(revised)(1)

Assets
Current Assets
Cash 48,583 40,812
Accounts receivable 80,304 82,615
Inventory 2,473 3,234
Current portion of derivative financial instruments 8,078 1,411
Prepaid expenses and other assets   8,371   10,128
Total current assets 147,809 138,200
Non-Current Assets
Property and equipment 191,809 223,173
Asset held-for-sale 10,530 10,530
Derivative financial instruments 20,812 16,802
Other assets 405 732
Intangible assets 297,027 323,760
Goodwill   149,600   149,600
Total assets   817,992   862,797
 
Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities 72,610 67,618
Provisions 31,559 26,097
Deferred revenue 25,284 24,645
Current portion of long-term debt   12,500   12,500
Total current liabilities 141,953 130,860
Non-Current Liabilities
Long-term debt 472,271 474,380
Other non-current liabilities 125,212 121,817
Provisions 682 826
Deferred income taxes   681   681
Total liabilities   740,799   728,564
 
Equity
Capital stock 371,132 371,132
Contributed surplus 9,757 9,020
Deficit (303,001) (241,925)
Accumulated other comprehensive loss   (695)   (3,994)
Total equity   77,193   134,233
Total liabilities and equity   817,992   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)

         
(In thousands of Canadian dollars)  

For the three months
ended May 31,

 

For the nine months
ended May 31,

    2014   2013   2014   2013
 

(revised)(1)

   

(revised)(1)

Cash Generated (Utilized) by:
Operating Activities
Net loss attributable to equity holders of the Company (20,605) (103,256) (57,700) (112,313)
Items not affecting cash:
Depreciation 15,918 6,706 40,314 20,336
Amortization 9,542 11,111 29,553 32,679
Impairments - 93,883 - 93,883
(Gain) loss on derivative financial instruments 691 760 (4,010) 2,650
Non-cash interest 1,511 672 4,476 3,470
Gain on disposal of property and equipment (244) (202) (231) (989)
Non-cash foreign currency exchange (gains) losses (2,363) 550 3,179 5,228
Share-based compensation plans and other long-term incentive plan expense

306

214

1,052

1,149

Net financing expense relating to employee benefit plans 1,405 1,863 4,213 5,590
Non-cash compensation expense of employee benefit plans - 1,197 - 2,487
Employee benefit funding in excess of compensation expense (2,194) - (4,711) -
Settlement of foreign currency interest rate swap designated as a cash flow hedge

-

-

-

(8,976)

Net change in non-cash operating accounts   8,961   2,477   15,675   4,715
Cash flows from operating activities   12,928   15,975   31,810   49,909
 
Investing Activities
Net proceeds from the sale of property and equipment, intangible assets and asset held-for-sale

245

262

279

25,884

Additions to property and equipment (2,823) (1,108) (8,998) (5,414)
Additions to intangible assets   (864)   (1,314)   (2,820)   (3,937)
Cash flows from investing activities   (3,442)   (2,160)   (11,539)   16,533
 
Financing activities
Repayment of long-term debt (6,250) (8,853) (12,500) (32,040)
Debt issuance costs   -   -   -   (111)
Cash flows from financing activities   (6,250)   (8,853)   (12,500)   (32,151)
 
Net change in cash 3,236 4,962 7,771 34,291
Cash at beginning of period   45,347   51,518   40,812   22,189
Cash at end of period   48,583   56,480   48,583   56,480
                 

Supplemental disclosure of operating cash flows

Interest paid 8,879 13,399 37,987 33,895
Income taxes paid   -   -   -   -

(1) Cash flows for the three and nine months ended May 31, 2013 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 or interim condensed consolidated financial
statements for additional information.

Contacts

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