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Press release from Business Wire

Postmedia Network Reports Fourth Quarter Results

Thursday, October 24, 2013

Postmedia Network Reports Fourth Quarter Results

11:55 EDT Thursday, October 24, 2013

TORONTO (Business Wire) -- 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 dollars, except per share amounts)  

For the three months
ended August, 31

 

For the years
ended August 31

    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 employee benefit plans 387 975 1,536 3,900
(Gain) loss on disposal of property and equipment and intangible assets (16) 180 (1,005) 258
(Gain) loss on derivative financial instruments 4,656 6,628 7,306 (8,632)
Foreign currency exchange (gains) losses   1,779   (8,651)   7,065   6,383
Loss before income taxes (35,805) (28,351) (153,829) (37,275)
Provision for income taxes   -   -   -   -
Net loss from continuing operations (35,805) (28,351) (153,829) (37,275)
Net earnings from discontinued operations, net of tax of nil   -   -   -   14,053

Net loss attributable to equity holders of the Company

  (35,805)   (28,351)   (153,829)   (23,222)
 
                 
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)

(In thousands of Canadian dollars)  

As at
August 31, 2013

 

 

As at
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 instruments 1,411 -
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 instruments - 6,069
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 dollars)  

For the three months
ended August 31,

 

For the years
ended August 31,

    2013   2012   2013   2012
     
Cash Generated (Utilized) by:
Operating Activities
Net loss attributable to equity holders of the Company (35,805) (28,351) (153,829) (23,222)
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 financial instruments 4,656 (3,673) 7,306 (22,414)
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 intangible assets (16) 180 (1,005) 258
Non-cash foreign currency exchange (gains) losses 1,651 (8,497) 6,879 5,721
Gain on sale of discontinued operations - - - (17,109)
Share-based compensation plans and other long-term incentive plan expense (recovery)

237

4

1,386

(2,459)

Net financing expense relating to employee benefit plans 387 975 1,536 3,907
Non-cash compensation expense of employee benefit plans - - 2,112 -
Employee benefit funding in excess of compensation expense (18) (9,268) - (24,856)
Settlement of foreign currency interest rate swap designated as a cash flow hedge

-

-

(8,976)

-

Net change in non-cash operating accounts   (9,657)   11,853   5,567   30,765
Cash flows from operating activities   (11,562)   (7,472)   38,347   42,541
 
Investing Activities
Net proceeds received on the sale of discontinued operations - - - 87,340
Net proceeds from the sale of property and equipment, intangible assets and asset held-for-sale

41

-

25,925

4

Additions to property and equipment (2,152) (2,592) (7,566) (8,227)
Additions to intangible assets   (1,995)   (1,573)   (5,932)   (6,732)
Cash flows from investing activities   (4,106)   (4,165)   12,427   72,385
 
Financing activities
Proceeds from the issuance of long-term debt - 250,000 - 250,000
Repayment of long-term debt on refinancing - (238,268) - (238,268)
Repayment of long-term debt - - (32,040) (108,310)
Debt issuance costs   -   (6,605)   (111)   (6,642)
Cash flows from financing activities   -   5,127   (32,151)   (103,220)
 
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

 

-

 

-

 

-

 

-

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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