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or Name
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Postmedia Network Canada Corp
Symbol PNC
Shares Issued 39,265,200
Close 2014-10-23 C$ 2.00
Market Cap C$ 78,530,400
Recent Sedar Documents

Postmedia Network loses $107.46-million in fiscal 2014

2014-10-24 11:18 ET - News Release

Mr. Paul Godfrey reports

POSTMEDIA NETWORK REPORTS FOURTH QUARTER RESULTS

Postmedia Network Canada Corp. has released financial information for the three months and year ended Aug. 31, 2014.

Fourth quarter operating results

Net loss in the quarter ended Aug. 31, 2014, was $49.8-million compared with a net loss of $47.9-million in the same period in the prior year.

Operating loss in the quarter was $28.1-million as compared with an operating loss of $24.5-million in the same period in the prior year.

Operating income before depreciation, amortization, impairment and restructuring of $15.7-million in the quarter represents a decrease of $7.4-million (32.1 per cent), relative to the same period in the prior year. The decrease was the result of revenue declines of $22.5-million, partially offset by decreases in operating expenses of $15.1-million.

Revenue for the quarter was $146.8-million compared with $169.3-million in the prior year, a decrease of 13.3 per cent. This decrease was primarily due to a decline in print advertising revenue of $19.8-million (21.0 per cent) with the declines occurring across all categories. Print circulation revenue decreased $1.4-million (2.7 per cent) as a result of declines in circulation volumes partially offset by price increases. Digital revenue decreased $1.1-million (5.3 per cent) relative to the same period in the prior year.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $15.1-million (10.3 per cent) relative to the same period in the prior year. Expense reductions occurred in most operating expense categories including compensation, newsprint, distribution and other operating expenses. Production expenses increased as a result of production of the Edmonton Journal and Calgary Herald being outsourced in the first quarter of fiscal 2014.

Full-year operating results

Net loss in the year ended Aug. 31, 2014, was $107.5-million compared with a net loss of $160.2-million in the prior year. The decrease in net loss was primarily the result of a $100.0-million non-cash impairment charge in fiscal 2013.

Operating loss was $35.5-million as compared with operating loss of $77.5-million in the prior year which included the non-cash impairment charge of $100.0-million.

Operating income before depreciation, amortization, impairment and restructuring was $109.5-million, a decrease of $20.4-million relative to the prior year. The decrease was due to revenue declines of $77.3-million, partially offset by decreases in operating expenses totalling $56.9-million.

Revenue for the 12 months ended Aug. 31, 2014, was $674.3-million, a decrease of $77.3-million (10.3 per cent) relative to the prior year. This decrease was primarily due to a decline in print advertising revenue of $70.1-million (15.7 per cent) with declines occurring across all categories. Print circulation revenue decreased $1.7-million (0.9 per cent) as a result of declines in circulation volumes partially offset by price increases. Digital revenue decreased $3.6-million (3.9 per cent) relative to the prior year as a result of decreases in local digital advertising revenue, digital classified revenue and national digital advertising revenue, partially offset by an increase in digital circulation revenue.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $56.9-million (9.2 per cent) relative to the prior year. Expense reductions occurred in most operating expense categories including compensation, newsprint, distribution and other operating expenses. Production expenses increased as a result of the outsourced production of the the Edmonton Journal and Calgary Herald.

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 per cent to 20 per cent. During the three months ended Aug. 31, 2014, the company implemented transformation initiatives which are expected to result in net annualized cost savings of approximately $3-million. This brings total net annualized cost savings, since the beginning of the program, to approximately $109-million representing approximately 16 per cent of operating costs at the time the program was announced.

The print outsourcing agreement for the production of the Vancouver newspapers is expected to commence in February, 2015. In July, 2014, the company reached an agreement with the union representing the employees impacted by the Vancouver newspapers outsourcing and made a payment of $17.5-million in trust to finance the restructuring payments. In addition, all conditions were waived related to an agreement to sell the Vancouver production facility for gross proceeds of $17.5-million with an expected closing of June 30, 2015. Net proceeds from the sale of the Vancouver facility will be offered to noteholders to redeem 8.25-per-cent senior secured notes at par in accordance with the terms and conditions of the relevant note indenture.

Acquisition of Sun Media's English-language newspapers and digital properties

On Oct. 6, 2014, Postmedia announced that it had entered into a definitive agreement with Quebecor Media Inc. (QMI) to purchase Sun Media Corp.'s stable of 175 English-language newspapers, specialty publications and digital properties, including the Sun chain of dailies, consisting of the Toronto Sun, the Ottawa Sun, the Winnipeg Sun, the Calgary Sun and the Edmonton Sun, as well as The London Free Press, and the free 24 Hours dailies in Toronto and Vancouver. The purchase price is $316-million in cash, less a $10-million adjustment related primarily to real estate properties to be disposed of by Sun Media prior to closing and other customary price adjustments to be determined subsequent to closing. The transaction also includes the acquisition of associated English-language digital properties, including the Canoe portal outside of Quebec, as well as QMI's Islington printing plant in Ontario, and 34 owned real estate properties in Ontario, Alberta and Manitoba.

Postmedia will finance the acquisition through a combination of debt and equity. The debt financing will be provided through the issuance of an additional $140-million principal amount of its currently outstanding 8.25-per-cent senior secured notes due 2017 to an existing noteholder. Postmedia intends to raise the balance of the funds required for the acquisition by way of a rights offering of subscription receipts for gross proceeds of $186-million, less net proceeds from real estate sales of up to $50-million, to the extent available, prior to the launch of the rights offering. The company has entered into agreements for the sale of real estate that it owns in Montreal and Calgary which, if completed, will be used for this purpose. The Montreal agreement is expected to close on Oct. 31, 2014, for gross proceeds of $12.5-million. The Calgary agreement is subject to certain conditions, including the completion of due diligence, and is expected to close in January, 2015.

The purchase agreement is subject to customary regulatory approvals, including from the Competition Bureau. During the regulatory review period, QMI will continue to operate the Sun Media properties.

Subsequent events

Subsequent to year-end, the company received certification from the Ontario Digital Media Corp. that digital media tax credits totalling a cash claim of $17.3-million for the year ended Aug. 31, 2012, were eligible to be claimed. The company intends to refile the tax return for the year ended Aug. 31, 2012, to reflect such claim and will be subject to audit by the Canada Revenue Agency. The digital media tax credits will be recognized as a recovery in the company's financial statements when there is reasonable assurance that the company has complied with the conditions attached to the claim.

On Oct. 16, 2014, the company entered into a new senior secured asset-based revolving credit facility (the new ABL facility) for an aggregate amount of up to $20.0-million. The new ABL facility will mature one year from the closing date.

Management commentary

"While we continue to see the impacts of a very challenging revenue environment, particularly with respect to declines in print advertising, we are focused on potential growth areas," said Paul Godfrey, president and chief executive officer. "Our four-platform strategy is bolstered by the recent launch of entirely new products on print, Web, tablet and smart phone platforms -- most recently in Montreal, to be followed soon by Calgary. Subject to regulatory approval, we believe the proposed acquisition of the Sun Media assets will strengthen the company and the future of the news media business in Canada, putting us in a better position to compete against non-traditional competitors including foreign-based digital giants."

Additional information

Additional information, including financial statements, and management's discussion and analysis, can be found on the company's website, on SEDAR or on the website maintained by the U.S. Securities and Exchange Commission.

                                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         (In thousands of Canadian dollars, except per-share amounts)

                                                               For the three months            For the years
                                                                      ended Aug. 31,           ended Aug. 31,
                                                                    2014       2013        2014         2013
                                                                           (revised)                (revised)
                                                                                 (1)                      (1)
Revenues
Print advertising                                                $74,192    $93,968    $375,457     $445,547
Print circulation                                                 48,009     49,359     194,176      195,899
Digital                                                           20,266     21,408      88,023       91,606
Other                                                              4,337      4,574      16,599       18,531
Total revenues                                                   146,804    169,309     674,255      751,583
Expenses
Compensation                                                      62,587     73,791     281,085      321,224
Newsprint                                                          6,660      8,791      30,770       40,902
Distribution                                                      24,804     25,806     101,794      107,905
Production                                                         9,383      6,474      37,671       28,270
Other operating                                                   27,669     31,326     113,430      123,356
Operating income before depreciation, amortization,
impairment and restructuring                                      15,701     23,121     109,505      129,926
Depreciation                                                      26,332      9,613      66,646       29,949
Amortization                                                       9,527     10,646      39,080       43,325
Impairments                                                            -      6,100           -       99,983
Restructuring and other items                                      7,934     21,255      39,285       34,171
Operating (loss)                                                 (28,092)   (24,493)    (35,506)     (77,502)
Interest expense                                                  14,777     15,133      61,914       61,900
Net financing expense related to employee benefit plans            1,404      1,868       5,617        7,458
(Gain) on disposal of property and equipment, and
intangible assets                                                    (26)       (16)       (257)      (1,005)
(Gain) loss on derivative financial instruments                    2,420      4,656      (1,590)       7,306
Foreign currency exchange losses                                   3,094      1,779       6,271        7,065
(Loss) before income taxes                                       (49,761)   (47,913)   (107,461)    (160,226)
Provision for income taxes                                             -          -           -            -
Net (loss) attributable to equityholders of the company          (49,761)   (47,913)   (107,461)    (160,226)
(Loss) per share
Basic                                                             $(1.24)    $(1.19)     $(2.67)      $(3.98)
Diluted                                                           $(1.24)    $(1.19)     $(2.67)      $(3.98)
(Loss) per share attributable to equityholders of the company
Basic                                                             $(1.24)    $(1.19)     $(2.67)      $(3.98)
Diluted                                                           $(1.24)    $(1.19)     $(2.67)      $(3.98)

(1) Results for the three months and year ended Aug. 31, 2013, have been revised from amounts previously 
    reported, as a result of the adoption of new and amended accounting standards on Sept. 1, 2013. See 
    note 2 of the company's consolidated financial statements for additional information.

We seek Safe Harbor.

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