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Press release from Business Wire

Postmedia Network Reports First Quarter Results

Thursday, January 09, 2014

Postmedia Network Reports First Quarter Results

10:39 EST Thursday, January 09, 2014

TORONTO (Business Wire) -- 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 amounts)   2013   2012
   

(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 and restructuring 46,011 48,987
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 plans 1,404 1,864
(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 of the Company   (11,805)   6,704

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)

(In thousands of Canadian dollars)  

As at
November 30, 2013

 

 

As at
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 instruments 3,577 1,411
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 of the Company (11,805) 6,704
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 incentive plan expense

143

878

Net financing expense relating to employee benefit plans 1,404 1,864
Non-cash compensation expense of employee benefit plans - 2,028
Employee benefit funding in excess of compensation expense (381) -
Settlement of foreign currency interest rate swap designated as a cash flow hedge

-

(8,976)

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 equipment and asset held-for-sale

14

24,691

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.

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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