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Press release from Business Wire

Postmedia Network Reports First Quarter Results

Thursday, January 10, 2013

Postmedia Network Reports First Quarter Results11:20 EST Thursday, January 10, 2013 TORONTO (Business Wire) -- Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three months ended November 30, 2012. First Quarter Operating ResultsNet earnings in the quarter ended November 30, 2012 were $8.3 million compared to net earnings of $28.3 million in the same period in the prior year. The decrease in net earnings is primarily due to lower revenue partially offset by operating cost reductions and the gain on sale of the Times Colonist in Victoria and British Columbia based community newspaper assets in the same period in the prior year. Operating income of $26.7 million in the quarter decreased $7.5 million compared to operating income of $34.2 million in the same period in the prior year. Operating income before depreciation, amortization and restructuring of $49.1 million in the quarter represents a decrease of $5.5 million, relative to the same period in the prior year. Revenue for the quarter totaled $211.7 million, a decrease of $19.4 million (8.4%) relative to the same period in the prior year. This decrease was primarily due to a decrease in print advertising revenue of $16.6 million (11.1%) with declines occurring in classified, national, retail and insert advertising categories. Print circulation revenue decreased $5.0 million (9.2%) due to declines in circulation volumes. Digital revenue increased $2.2 million (9.7%) relative to the same period in the prior year. Total operating expenses excluding depreciation, amortization and restructuring decreased $13.9 million (7.9%) 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. Business Transformation InitiativesAs previously announced, the Company is implementing a three-year transformation program that is targeted to result in operating cost savings of 15%-20%. As of November 30, 2012 the Company has implemented initiatives which will result in net annualized cost savings of approximately $42 million. Redemption of NotesOn October 12, 2012, the Company completed the sale of 1450 Don Mills Road in Don Mills, Ontario for gross proceeds of approximately $24 million. On November 12, 2012, the net proceeds from the sale were used for a mandatory redemption of $23.2 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. Management Commentary“We are pleased with the progress of our transformation program and continued cost reductions remain a top priority,” said Paul Godfrey, President and Chief Executive Officer. “Our revenue outlook remains challenging; however, we are confident we can continue to evolve as an industry leader in multi-platform product and audience development and continue to deliver solid results and innovative programs for advertisers and marketers.” Note: All dollar amounts are expressed in Canadian dollars unless otherwise specified. Additional InformationAdditional 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.comor 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 InformationThis 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. 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, statements regarding the implementation and results of the Company's transformation initiatives, including the realization of anticipated cost savings; 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; possible damage to the reputation of the Company's brands or trademarks; possible labor disruptions; possible environmental liabilities, litigation and pension plan obligations; 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, 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 OperationsFor the three months ended November 30, 2012 and 2011(UNAUDITED) (In thousands of Canadian dollars, except per share amounts)   2012   2011   Revenues Print advertising 132,741 149,368 Print circulation 49,276 54,269 Digital 24,813 22,622 Other 4,842 4,831 Total revenues211,672231,090Expenses Compensation 82,948 87,121 Newsprint 12,108 14,634 Distribution 28,192 32,705 Other operating 39,318 41,983 Operating income before depreciation, amortization and restructuring49,10654,647 Depreciation 6,890 6,462 Amortization 10,734 11,021 Restructuring and other items 4,797 2,982 Operating income26,68534,182 Interest expense 16,167 16,837 Net financing expense related to employee benefit plans 383 975 Loss on disposal of property and equipment 268 - (Gain) loss on derivative financial instruments 697 -10,040 Foreign currency exchange losses 866 12,132 Earnings before income taxes8,30414,278 Provision for income taxes - - Net earnings from continuing operations8,30414,278 Net earnings from discontinued operations, net of tax of nil - 14,053 Net earnings attributable to equity holders of the Company8,30428,331   Earnings per share from continuing operations Basic $0.21 $0.35 Diluted $0.20 $0.34 Earnings per share from discontinued operations Basic $0.00 $0.35 Diluted $0.00 $0.34 Earnings per share attributable to equity holders of the Company Basic $0.21 $0.70 Diluted $0.20 $0.70 Postmedia Network Canada Corp.Consolidated Statements of Financial Position(UNAUDITED) (In thousands of Canadian dollars)   As at November 30, 2012   As at August 31, 2012   Assets Current Assets Cash 33,233 22,189 Accounts receivable 112,902 90,923 Inventory 3,264 3,829 Prepaid expenses and other assets 9,745 10,258 Total current assets159,144127,199Non-Current Assets Property and equipment 261,007 267,491 Asset held-for-sale 410 23,139 Derivative financial instruments 23,411 24,108 Other assets 1,345 1,549 Intangible assets 368,084 377,862 Goodwill 223,500 223,500 Total assets1,036,9011,044,848   Liabilities and Equity Current Liabilities Accounts payable and accrued liabilities 81,676 65,268 Provisions 25,890 29,888 Deferred revenue 24,655 25,915 Current portion of derivative financial instruments 2,671 6,069 Current portion of long-term debt 15,103 32,153 Total current liabilities149,995159,293Non-Current Liabilities Long-term debt 464,330 467,749 Derivative financial instruments 8,061 12,369 Other non-current liabilities 180,069 169,413 Provisions 970 1,588 Deferred income taxes 681 681 Total liabilities804,106811,093   Equity Capital stock 371,132 371,132 Contributed surplus 8,242 7,888 Deficit (138,538) (139,357) Accumulated other comprehensive loss (8,041) (5,908) Total equity232,795233,755Total liabilities and equity1,036,9011,044,848Postmedia Network Canada Corp.Consolidated Statements of Cash FlowsFor the three months ended November 30, 2012 and 2011(UNAUDITED) (In thousands of Canadian dollars)   2012   2011   Cash Generated (Utilized) by:Operating Activities Net earnings attributable to equity holders of the Company 8,304 28,331 Items not affecting cash: Depreciation 6,890 6,625 Amortization 10,734 11,076 (Gain) loss on derivative financial instruments 697 -11,029 Non-cash interest 1,331 8,688 Loss on disposal of property and equipment 268 - Non-cash foreign currency exchange losses 824 12,007 Gain on sale of discontinued operations - -17,109 Share-based compensation plans and other long-term incentive plan expense (recovery) 878 -1,250 Net financing expense relating to employee benefit plans 383 982 Non-cash compensation expense of employee benefit plans 1,909 - Employee benefit funding in excess of compensation expense - -9,440 Settlement of foreign currency interest rate swap designated as a cash flow hedge -8,976 - Net change in non-cash operating accounts -10,014 -18,959 Cash flows from operating activities13,2289,922   Investing Activities Net proceeds received on the sale of discontinued operations - 85,890 Net proceeds from the sale of property and equipment and asset held-for-sale 24,691 - Additions to property and equipment -2,636 -1,499 Additions to intangible assets -956 -1,500 Cash flows from investing activities21,09982,891   Financing activities Repayment of long-term debt -23,187 -90,825 Debt issuance costs -96 -37 Cash flows from financing activities-23,283-90,862   Net change in cash 11,044 1,951 Cash at beginning of period 22,189 10,483 Cash at end of period33,23312,434       Supplemental disclosure of operating cash flows Interest paid 1,222 5,879 Income taxes paid - - Media ContactPhyllise Gelfand, (416) 442-2936Vice President, Communicationspgelfand@postmedia.comorInvestor ContactDoug Lamb, (416) 383-2325Executive Vice President and Chief Financial Officerdlamb@postmedia.com