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Postmedia Network Reports Second Quarter Results
Monday 11. April 2011 - Progress on the digital first strategy delivers 13% audience growth with digital revenue up 8% in the quarter. Operating profit before amortization and restructuring* is up 2%. Further advancement on cost reduction and debt repayment.
Postmedia Network Canada Corp. (“Postmedia” or “the Company”) today released financial information for the second quarter ended February 28, 2011.
Important Information
On July 13, 2010 Postmedia, through a wholly owned subsidiary, acquired substantially all of the assets, including all of the outstanding shares of National Post Inc. (“National Post”), and assumed certain liabilities of Canwest Limited Partnership (“Canwest LP”). All references to financial results for the three and six months ended February 28, 2010 and any comparisons in this release are references and comparisons to the financial results of Canwest LP, the predecessor company. The financial results of the predecessor company are being presented by the Company in accordance with the terms of the Companys 12.5% senior secured notes due 2018. The financial results of the predecessor company for the three and six months ended February 28, 2010 are in respect of a period during which the predecessor company, and not the Company, owned the assets underlying the business of the Company. Also, the financial statements of the predecessor are that of another entity and the Company is not a continuation of the predecessor. The financial information for the three and six months ended February 28, 2010 does not represent and is not purported to represent the results that would have been achieved had Postmedia owned the assets of Canwest LP and shares of National Post at that time. The prior year financial results are not comparable to our financial information. Readers are cautioned that the prior year financial results are not indicative of the future financial condition, results of operations, cash flows and future development our business.
Second Quarter Operating Results
Revenue for the quarter ended February 28, 2011 totaled $242.5 million, a decrease of $11.9 million relative to the same period in the prior year. This decline was primarily due to a decrease in print advertising revenue of $8.6 million (down 5.1%). Print circulation revenue declined approximately $1.7 million (down 2.9%) and other revenue declined $3.2 million due to the loss of a commercial print contract in the first quarter of the current fiscal year. These losses were partially offset by growth in digital revenue which increased 8.3% or $1.6 million relative to the same period in the prior year.
Operating expenses excluding amortization, restructuring of operations and other items declined $12.7 million or 6.0% relative to the same period in the prior year. This decrease was largely due to cost savings achieved through various restructuring initiatives implemented since completing the purchase of the Canwest LP assets on July 13, 2010.
For the three months ended February 28, 2011, operating profit before amortization, restructuring and other items (see “Non-GAAP Financial Measures”) increased $0.9 million, or 2% relative to the same period in the prior year. This increase was the result of reductions in operating expenses partially offset by the 4.7% decline in revenue.
Operating income declined $20.7 million relative to the prior year due to increases in amortization of $8.1 million and increases in restructuring of operations and other items of $13.5 million. The increase in amortization was due to the higher carrying value of assets resulting from the fair values ascribed on the acquisition. The net loss in the quarter was $12.3 million.
Year-to-Date Operating Results
Revenue for the six months ended February 28, 2011 was $529.6 million, a decrease of $11.2 million relative to the same period in the prior year. Print advertising revenue declined $5.4 million (a decrease of 1.5%), print circulation revenue declined $3.6 million (down 3%) and other revenue declined $4.9 million. The decline in other revenue was due to the loss of a commercial print contract in the first quarter of the current fiscal year. These losses were partially offset by growth in digital revenue which increased 6.3% or $2.7 million relative to the same period in the prior year.
Operating expenses excluding amortization, restructuring of operations and other items declined $17.1 million or 4% during the first six months of the fiscal year. This reduction more than offset a revenue decline of 2%, resulting in an increase in operating profit before amortization, restructuring and other items of $5.9 million, or 5.3% relative to the first six months of the prior year.
Operating income declined $45.6 million relative to the prior year due to increases in amortization of $17.3 million and increases in restructuring of operations and other items of $34.1 million. The net loss for the first six months of the fiscal year was $6.7 million.
Restructuring of Operations and Other Items
For the three months ended February 28, 2011, expenses related to restructuring of operations and other items totaled $13.4 million ($36.6 million for the six months ended February 28, 2011). In total, restructuring initiatives implemented to the end of February 2011 are expected to yield net annualized cost savings of $38 to $40 million, of which $30 to $32 million is expected to be realized in the current fiscal year. See “Forward-Looking Information”.
Debt Repayment
Also in the quarter, Postmedia made total debt repayments of $12.4 million including an optional principal repayment of US$10 million related to its US term loan credit facility. Debt repayments since completion of the acquisition of Canwest LP assets total approximately $58 million. After giving effect to this payment, outstanding credit facilities at February 28, 2011 consisted of a $107 million Canadian term loan, US$247 million term loan and US$275 million of 12.5% senior secured notes.
Amendment of Term Loan Credit Agreement
On April 4, 2011 the Company entered into an agreement with its lenders which amends certain terms of the term loan credit agreement entered into on July 13, 2010. The material amendments include the following: the Canadian and US Tranche from the original credit agreement are replaced with a new US Tranche (“Tranche C”). Tranche C totals US$365.0 million and was issued at a discount of 0.25% for net proceeds of $364.1 million, before financing fees and prepayment penalties of approximately $7 million. Tranche C bears interest at LIBOR (with a floor of 1.25%) plus 5% and certain financial maintenance covenants have been favorably modified. As at February 28, 2011 there were unamortized discounts and financing fees associated with the Canadian and US Tranche from the original credit agreement of $7.4 million and $19.0 million, respectively. As a result of the amendments described above non-cash charges of approximately $10 million relating to the unamortized discounts and financing fees will be expensed during the three months ended May 31, 2011.
In conjunction with the amendments to the term loan credit agreement, the Company has amended the existing foreign currency interest rate swap for the US tranche such that the interest rate on the notional Canadian principal amount has changed from bankers acceptance rates plus 9.25% to bankers acceptance rates plus 7.07%.
Management Commentary
Although this was a challenging quarter from the perspective of print revenue we are very pleased with the progress we have made so far,” said Paul Godfrey, President and Chief Executive Officer. “Our digital first strategy continues to advance throughout our operations, cost reduction efforts have been very successful and we are making consistent progress on debt reduction. We remain committed to the continuing transformation of Postmedia Network, positioning it to embrace the opportunities ahead while delivering value to all of our stakeholders.”
Note: All dollar amounts are expressed in Canadian dollars unless otherwise specified.
* see Non-GAAP Financial Measures