Postmedia Network Reports Second Quarter Results

Postmedia Network Reports Second Quarter Results

TORONTO--(BUSINESS WIRE)-- Postmedia Network Canada Corp. ("Postmedia" or the "Company") today released financial information for the three and six months ended February 28, 2013.

Second Quarter Operating Results
Net loss in the quarter ended February 28, 2013 was $14.2 million compared to a net loss of $11.1 million in the same period in the prior year. The increase was primarily the result of foreign currency exchange losses partially offset by decreased losses on derivative financial instruments. Lower revenues in the quarter were offset by operating cost reductions.


Operating income of $5.8 million in the quarter increased $2.5 million compared to operating income of $3.3 million in the same period in the prior year.

Operating income before depreciation, amortization and restructuring of $25.2 million in the quarter represents a decrease of $0.1 million, relative to the same period in the prior year.

Revenue for the quarter was $178.8 million, a decrease of $19.8 million (10.0%) relative to the same period in the prior year. This decrease was primarily due to a decline in print advertising revenue of $16.9 million (13.8%) with the largest declines occurring in the classified and national advertising categories. Print circulation revenue decreased $3.3 million (6.5%) as a result of declines in circulation volumes partially offset by price increases. Digital revenue increased $0.4 million (1.7%) relative to the same period in the prior year.

Total operating expenses excluding depreciation, amortization and restructuring decreased $19.7 million (11.4%) 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.

Year-to-Date Operating Results
Net loss in the six months ended February 28, 2013 was $5.9 million compared to net earnings of $17.3 million in the same period in the prior year. The decrease was due in part to the gain on sale of the Times Colonist in Victoria and British Columbia-based community newspaper assets to Glacier Media Inc. recorded in the same period of the previous year.

Net loss from continuing operations was $5.9 million, compared to net earnings of $3.2 million in the same period in the prior year.

Operating income was $32.5 million, a decrease of $5.0 million relative to the same period in the prior year due to a decrease in revenue partially offset by lower operating expenses.

Operating income before depreciation, amortization and restructuring was $74.3 million, a decrease of $5.6 million relative to the prior year.

Revenue for the six months ended February 28, 2013 was $390.5 million, a decrease of $39.2 million (9.1%) relative to the same period in the prior year. This decrease was primarily due to a decline in print advertising revenue of $33.6 million (12.4%) with the largest declines occurring in the classified and national advertising categories. Print circulation revenue decreased $8.3 million (7.9%) as a result of declines in circulation volumes partially offset by price increases. Digital revenue increased $2.6 million (5.9%) relative to the same period in 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 and restructuring decreased $33.6 million (9.6%) 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 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 February 28, 2013 the Company implemented transformation initiatives which will result in net annualized savings of approximately $16 million. This brings total net annualized cost savings, since the beginning of the program, to approximately $58 million.

Management Commentary
"As has been noted by several of our industry peers, the outlook remains unpredictable with respect to traditional revenue streams," said Paul Godfrey, President and Chief Executive Officer. "We are pleased, however, with the substance of our transformation program which to date has exceeded expectations not only on the cost savings front but also the overall workings of our organization. We expect to continue that transformation and accelerate our initiatives in new areas of revenue generation including paid content."

Also announced today, Jane Peverett has been appointed to the boards of both the Company and its subsidiary, Postmedia Network Inc.

"We are very pleased to welcome Ms. Peverett to our Boards of Directors," said Paul Godfrey, President and CEO. "Postmedia Network will benefit from Ms. Peverett's impressive financial and governance expertise."

Ms. Peverett currently serves as a director on various corporate boards including: Encana Corporation, Northwest Natural Gas Company, Canadian Imperial Bank of Commerce, the B.C. Ferry Authority, and Associated Electric & Gas Insurance Services Limited. Ms. Peverett was President & Chief Executive Officer of BC Transmission Corporation from April 2005 to January 2009, and was previously Vice-President, Corporate Services and Chief Financial Officer. In addition, Ms. Peverett was the President of Union Gas Limited from April 2002 to May 2003 after serving in various senior roles within Westcoast Energy Inc.

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.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 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. 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 Operations
(UNAUDITED)

(In thousands of Canadian dollars, except per share amounts)

For the three months ended

For the six months ended

February 28, 2013

February 29, 2012

February 28, 2013

February 29, 2012

Revenues

Print advertising

105,443

122,385

238,184

271,753

Print circulation

47,863

51,201

97,139

105,470

Digital

21,292

20,933

46,105

43,555

Other

4,220

4,123

9,062

8,954

Total revenues

178,818

198,642

390,490

429,732

Expenses

Compensation

81,172

90,176

164,120

177,297

Newsprint

9,856

12,633

21,964

27,267

Distribution

26,365

30,493

54,557

63,198

Other operating

36,240

40,052

75,558

82,035

Operating income before depreciation, amortization and restructuring

25,185

25,288

74,291

79,935

Depreciation

6,740

6,517

13,630

12,979

Amortization

10,834

10,836

21,568

21,857

Restructuring and other items

1,814

4,629

6,611

7,611

Operating income

5,797

3,306

32,482

37,488

Interest expense

15,606

14,799

31,773

31,636

Net financing expense related to employee benefit plans

383

975

766

1,950

(Gain) loss on disposal of property and equipment

(1,055)

35

(787)

35

(Gain) loss on derivative financial instruments

1,193

4,616

1,890

(5,424)

Foreign currency exchange (gains) losses

3,832

(6,054)

4,698

6,078

Earnings (loss) before income taxes

(14,162)

(11,065)

(5,858)

3,213

Provision for income taxes

-

-

-

-

Net earnings (loss) from continuing operations

(14,162)

(11,065)

(5,858)

3,213

Net earnings from discontinued operations, net of tax of nil

-

-

-

14,053

Net earnings (loss) attributable to equity holders of the Company

(14,162)

(11,065)

(5,858)

17,266

Earnings (loss) per share from continuing operations

Basic

$(0.35)

$(0.27)

$(0.15)

$0.08

Diluted

$(0.35)

$(0.27)

$(0.15)

$0.08

Earnings per share from discontinued operations

Basic

-

-

-

$0.35

Diluted

-

-

-

$0.35

Earnings (loss) per share attributable to equity holders of the Company

Basic

$(0.35)

$(0.27)

$(0.15)

$0.43

Diluted

$(0.35)

$(0.27)

$(0.15)

$0.42



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

(In thousands of Canadian dollars)

As at

February 28, 2013

As at

August 31, 2012

Assets

Current Assets

Cash

51,518

22,189

Accounts receivable

88,895

90,923

Inventory

3,747

3,829

Prepaid expenses and other assets

10,060

10,258

Total current assets

154,220

127,199

Non-Current Assets

Property and equipment

256,471

267,491

Asset held-for-sale

-

23,139

Derivative financial instruments

22,218

24,108

Other assets

1,166

1,549

Intangible assets

358,612

377,862

Goodwill

223,500

223,500

Total assets

1,016,187

1,044,848

Liabilities and Equity

Current Liabilities

Accounts payable and accrued liabilities

73,550

65,268

Provisions

21,872

29,888

Deferred revenue

25,466

25,915

Current portion of derivative financial instruments

3,209

6,069

Current portion of long-term debt

15,103

32,153

Total current liabilities

139,200

159,293

Non-Current Liabilities

Long-term debt

475,178

467,749

Derivative financial instruments

766

12,369

Other non-current liabilities

155,791

169,413

Provisions

922

1,588

Deferred income taxes

681

681

Total liabilities

772,538

811,093

Equity

Capital stock

371,132

371,132

Contributed surplus

8,442

7,888

Deficit

(128,920)

(139,357)

Accumulated other comprehensive loss

(7,005)

(5,908)

Total equity

243,649

233,755

Total liabilities and equity

1,016,187

1,044,848



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

(In thousands of Canadian dollars)

For the three months ended

For the six months ended

February
28, 2013

February
29, 2012

February
28, 2013

February
29, 2012

Cash Generated (Utilized) by:

Operating Activities

Net earnings (loss) attributable to equity holders of the Company

(14,162)

(11,065)

(5,858)

17,266

Items not affecting cash:

Depreciation

6,740

6,517

13,630

13,142

Amortization

10,834

10,836

21,568

21,912

(Gain) loss on derivative financial instruments

1,193

3,014

1,890

(8,015)

Non-cash interest

1,467

23

2,798

8,711

(Gain) loss on disposal of property and equipment

(1,055)

35

(787)

35

Non-cash foreign currency exchange (gains) losses

3,854

(6,805)

4,678

5,202

Gain on sale of discontinued operations

-

-

-

(17,109)

Share-based compensation plans and other long-term incentive plan expense (recovery)

57

167

935

(1,083)

Net financing expense relating to employee benefit plans

383

975

766

1,957

Non-cash compensation expense of employee benefit plans

-

-

1,052

-

Employee benefit funding in excess of compensation expense

(857)

(3,407)

-

(12,847)

Settlement of foreign currency interest rate swap designated as a cash flow hedge

-

-

(8,976)

-

Net change in non-cash operating accounts

12,252

15,755

2,238

(3,204)

Cash flows from operating activities

20,706

16,045

33,934

25,967

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

931

-

25,622

-

Additions to property and equipment

(1,670)

(2,441)

(4,306)

(3,940)

Additions to intangible assets

(1,667)

(2,122)

(2,623)

(3,622)

Cash flows from investing activities

(2,406)

(4,563)

18,693

78,328

Financing activities

Repayment of long-term debt

-

(9,856)

(23,187)

(100,681)

Debt issuance costs

(15)

-

(111)

(37)

Cash flows from financing activities

(15)

(9,856)

(23,298)

(100,718)

Net change in cash

18,285

1,626

29,329