Postmedia Network Reports Third Quarter Results

Postmedia Network 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, 2013.

Third Quarter Operating Results


Net loss in the quarter ended May 31, 2013 was $112.2 million compared to a net loss of $12.1 million in the same period in the prior year. The increase in net loss was primarily the result of a $93.9 million non-cash impairment charge. Also contributing to the increased net loss were lower revenues which were largely offset by operating cost reductions.

Operating loss was $95.6 million as compared to operating income of $4.1 million in the same period in the prior year primarily as a result of a $93.9 million non-cash impairment charge.

Operating income before depreciation, amortization, impairment and restructuring of $32.9 million in the quarter represents a decrease of $3.4 million (9.3%), relative to the same period in 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 $1.8 million (5.1%).

Revenue for the quarter was $191.8 million, a decrease of $20.2 million (9.5%) relative to the same period in the prior year. This decrease was primarily due to a decline in print advertising revenue of $17.7 million (13.5%) with the declines occurring across all categories. Print circulation revenue decreased $3.1 million (5.9%) as a result of declines in circulation volumes partially offset by price increases. Digital revenue increased $0.5 million (2.2%) relative to the same period in the prior year.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $16.9 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. Excluding non-cash share-based compensation and other long-term incentive plan expense, operating expenses excluding depreciation, amortization, impairment and restructuring declined $18.5 million, or 10.4%.

During the three months ended May 31, 2013, the Company recorded asset impairments totaling $93.9 million. This total includes an impairment loss of $6.1 million with respect to a production facility that was reclassified from property and equipment to asset held-for-sale, and goodwill and intangible asset impairments totaling $87.8 million as a result of revisions to the long-term financial forecast to reflect greater revenue uncertainty.

Year-to-Date Operating Results

Net loss in the nine months ended May 31, 2013 was $118.0 million compared to net earnings of $5.1 million in the same period in the prior year. The decrease was primarily the result of a $93.9 million non-cash impairment charge. 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 same period in the prior year.

Net loss from continuing operations, which includes non-cash impairment charges of $93.9 million, was $118.0 million, compared to net loss of $8.9 million in the same period in the prior year.

Operating loss was $63.2 million as compared to operating income of $41.6 million in the same period in the prior year primarily as a result of a non-cash impairment charge of $93.9 million.

Operating income before depreciation, amortization, impairment and restructuring was $107.2 million, a decrease of $9.0 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 $5.4 million (4.7%).

Revenue for the nine months ended May 31, 2013 was $582.3 million, a decrease of $59.5 million (9.3%) relative to the same period in the prior year. This decrease was primarily due to a decline in print advertising revenue of $51.3 million (12.7%) with the largest declines occurring in the classified and national advertising categories. Print circulation revenue decreased $11.4 million (7.2%) as a result of declines in circulation volumes partially offset by price increases. Digital revenue increased $3.1 million (4.6%) 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, impairment and restructuring decreased $50.5 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. Excluding non-cash share-based and other long-term incentive plan compensation expense, operating expenses excluding depreciation, amortization, impairment and restructuring declined $54.1 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 May 31, 2013, the Company implemented transformation initiatives which are expected to result in net annualized cost savings of approximately $4 million. This brings total net annualized cost savings, since the beginning of the program, to approximately $62 million.

Management Commentary

"The transformation of Postmedia continued this quarter with the roll out of our paid content model to all of our newspapers, traction on our cost savings initiatives and the completion of our organizational redesign to a functional operating model," said Paul Godfrey, President and Chief Executive Officer. "We will continue on this path, transforming a traditional media company into one that leverages future opportunities with a structure that supports a new model."

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. 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; 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 interim management's discussion and analysis for the three and nine months ended May 31, 2013 and 2012 and 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 May, 31

For the nine months

ended May 31

2013

2012

2013

2012

Revenues

Print advertising

113,395

131,077

351,579

402,830

Print circulation

49,401

52,484

146,540

157,954

Digital

24,093

23,584

70,198

67,139

Other

4,895

4,876

13,957

13,830

Total revenues

191,784

212,021

582,274

641,753

Expenses

Compensation

82,956

89,469

247,076

266,766

Newsprint

10,147

13,644

32,111

40,911

Distribution

27,542

31,456

82,099

94,654

Other operating

38,268

41,224

113,826

123,259

Operating income before depreciation, amortization, impairment and

restructuring

32,871

36,228

107,162

116,163

Depreciation

6,706

6,585

20,336

19,564

Amortization

11,111

10,828

32,679

32,685

Impairments

93,883

-

93,883

-

Restructuring and other items

16,814

14,730

23,425

22,341

Operating income (loss)

(95,643)

4,085

(63,161)

41,573

Interest expense

14,994

16,084

46,767

47,720

Net financing expense related to employee benefit plans

383

975

1,149

2,925

(Gain) loss on disposal of property and equipment and intangible assets

(202)

43

(989)

78

(Gain) loss on derivative financial instruments

760

(9,836)

2,650

(15,260)

Foreign currency exchange losses

588

8,956

5,286

15,034

Loss before income taxes

(112,166)

(12,137)

(118,024)

(8,924)

Provision for income taxes

-

-

-

-

Net loss from continuing operations

(112,166)

(12,137)

(118,024)

(8,924)

Net earnings from discontinued operations, net of tax of nil

-

-

-

14,053

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

(112,166)

(12,137)

(118,024)

5,129

Loss per share from continuing operations

Basic

$(2.79)

$(0.30)

$(2.93)

$(0.22)

Diluted

$(2.79)

$(0.30)

$(2.93)

$(0.22)

Earnings per share from discontinued operations

Basic

-

-

-

$0.35

Diluted

-

-

-

$0.35

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

Basic

$(2.79)

$(0.30)

$(2.93)

$0.13

Diluted

$(2.79)

$(0.30)

$(2.93)

$0.13

Postmedia Network Canada Corp.

Consolidated Statements of Financial Position

(UNAUDITED)

(In thousands of Canadian dollars)

As at

May 31, 2013

As at

August 31, 2012

Assets

Current Assets

Cash

56,480

22,189

Accounts receivable

91,082

90,923

Inventory

3,072

3,829

Prepaid expenses and other assets

9,291

10,258

Total current assets

159,925

127,199

Non-Current Assets

Property and equipment

234,255

267,491

Asset held-for-sale

10,530

23,139

Derivative financial instruments

21,458

24,108

Other assets

936

1,549

Intangible assets

334,915

377,862

Goodwill

149,600

223,500

Total assets

911,619

1,044,848

Liabilities and Equity

Current Liabilities

Accounts payable and accrued liabilities

77,575

65,268

Provisions

32,895

29,888

Deferred revenue

24,806

25,915

Current portion of derivative financial instruments

2,279

6,069

Current portion of long-term debt

12,500

32,153

Total current liabilities

150,055

159,293

Non-Current Liabilities

Long-term debt

470,194

467,749

Derivative financial instruments

-

12,369

Other non-current liabilities

162,352

169,413

Provisions

874

1,588

Deferred income taxes

681

681

Total liabilities

784,156

811,093

Equity

Capital stock

371,132

371,132

Contributed surplus

8,695

7,888

Deficit

(246,775)

(139,357)

Accumulated other comprehensive loss

(5,589)

(5,908)

Total equity

127,463

233,755

Total liabilities and equity

911,619

1,044,848

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,

2013

2012

2013

2012

Cash Generated (Utilized) by:

Operating Activities

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

(112,166)

(12,137)

(118,024)

5,129

Items not affecting cash:

Depreciation

6,706

6,585

20,336

19,727

Amortization

11,111

10,828

32,679

32,740

Impairments

93,883

-

93,883

-

(Gain) loss on derivative financial instruments

760

(10,726)

2,650

(18,741)

Non-cash interest

672

1,467

3,470

10,178

(Gain) loss on disposal of property and equipment and intangible assets

(202)

43

(989)

78

Non-cash foreign currency exchange losses

550

9,016

5,228

14,218

Gain on sale of discontinued operations

-

-

-

(17,109)

Share-based compensation plans and other long-term incentive plan

expense (recovery)

214

(1,380)

1,149

(2,463)

Net financing expense relating to employee benefit plans

383

975

1,149

2,932

Non-cash compensation expense of employee benefit plans

1,078

-

2,130

-

Employee benefit funding in excess of compensation expense

-

(2,741)

-

(15,588)

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

hedge

-

-

(8,976)

-

Net change in non-cash operating accounts

12,986

22,116

15,224

18,912

Cash flows from operating activities

15,975

24,046

49,909

50,013

Investing Activities

Net proceeds received on the sale of discontinued operations

-

1,450

-

87,340

Net proceeds from the sale of property and equipment, intangible assets and