July 7, 2016 Last Updated 1:35 pm

Postmedia Network reports third quarter earnings, reaches debt restructuring deal with creditors

The Canadian newspaper publisher, burdened by debt and rising interest costs, reaches a deal with debt holders, sells 98 percent of its shares to NYC-based GoldenTree Asset Management

The earnings season will soon be upon us, and while most news sites focus on Apple, Google and Facebook, I will be very interested to see the reports from The New York Times Co, Time Inc., tronc and other media companies, some of which have been promising better results, yet still trimming staff.

NatlPost-front-500The Canadian newspaper chain Postmedia Network reported their third quarter results today, a quarter that ended at the end of May.

At first glance it looks like good news: ad revenue was up slightly, and losses were way down. Of course, if only it were that simple.

Revenue for the quarter was $218.3 million as compared to $205.1 million a year ago. But Postmedia acquired the Sun newspapers from Quebecor Media a little over a year ago, and when those properties are taken out one sees that revenue actually fell just slightly less than 13 percent.

The operating loss reported in the quarter was $18.3 million. That compared to $149.8 million loss a year ago in the same quarter, also seemingly good news. But last year the company took a massive $151 million impairment charge.

All-in-all, the Q3 report shows that Postmedia remains a slightly unprofitable company. But there is seemingly some real good news today, as well.

The company announced that they have completed a recapitalization transaction that will reduce Postmedia’s outstanding debt and annual interest costs. First lien holder notes have been renegotiated, and the publisher is trading its $268 million (US) in debt to second lien holder New York-based distressed debt investor GoldenTree Asset Management for 98 percent of its shares.

“We are tremendously pleased with the outcome of our strategic review and the proposed recapitalization transaction announced today,” said Paul Godfrey, President and CEO. “With the strong show of support from our stakeholders and the hard work and commitment of our management team and board of directors, this will put Postmedia on a stronger footing into the future, and allow us to continue to pursue our business strategy.”

The company said it will now look to sell its real estate holdings, worth between $40 to $50 million (CAD), according the company. It also will raise about $110 million (CAD) through a new capital offering. Existing shareholders will be left owning 2 percent of the company.

To me, this looks desperate, but I am glad that I am not in anyway involved with the company. To have your company essentially owned by a foreign hedge fund… yikes.

Well, good luck to all involved. In the meantime, here is the Q3 earnings statement:


TORONTO, Ontario – July 7, 2016 — Postmedia Network Canada Corp. today released financial information for the three and nine months ended May 31, 2016. The results for the three and nine months ended May 31, 2016 include the results of the English language newspapers and specialty publications, as well as digital properties, acquired from Quebecor Media Inc. on April 13, 2015.

Third Quarter Operating Results

Net loss in the quarter ended May 31, 2016 was $23.7 million, as compared to $140.8 million in the same period in the prior year. The decrease in net loss was primarily the result of a decrease in non-cash impairment charges of $131.2 million and an increase in non-cash foreign currency exchange gains related to the carrying value of the Company’s US dollar denominated debt.

Operating loss in the quarter was $18.3 million, as compared to $149.8 million for the same period in the prior year. The increase in operating loss was primarily the result of the decrease in non-cash impairment charges, and decreases in restructuring and other items expense and amortization expense.

Operating income before depreciation, amortization, impairment and restructuring of $19.8 million in the quarter represents a decrease of $10.9 million (35.4%) relative to the same period in the prior year. The decrease is due to revenue declines in excess of operating cost savings related to the ongoing cost saving initiatives, partially offset by the operating income before depreciation, amortization and restructuring of the properties acquired in the Sun Acquisition. In addition, during the three months ended May 31, 2015, a compensation expense recovery of $3.5 million was recorded related to the Company’s Ontario Digital Media Tax Credit claim (“Tax Credit”). If the Tax Credit is excluded from the prior year results, operating income before depreciation, amortization, impairment and restructuring would have decreased $7.4 million (27.1%).

Revenue for the quarter was $218.3 million as compared to $205.1 million in the prior year, an increase of $13.2 million (6.4%). Excluding the impact of the Sun Acquisition, revenue for the quarter was $128.8 million, a decrease of $19.1 million (12.9%) relative to the same period in the prior year. The revenue decline excluding the impact of the Sun Acquisition was primarily due to decreases in print advertising revenue of $14.7 million (19.4%), print circulation revenue of $3.1 million (6.8%) and digital revenue of $0.5 million (2.4%).

Total operating expenses excluding depreciation, amortization, impairment and restructuring increased $24.1 million for the quarter, relative to the same period in the prior year. The increase primarily relates to the impact of the properties acquired in the Sun Acquisition. Partially offsetting these increases were decreases in operating expenses excluding depreciation, amortization, impairment and restructuring related to ongoing cost reduction initiatives.

Year-to-Date Operating Results

Net loss in the nine months ended May 31, 2016 was $253.0 million, as compared to $209.3 million in the same period in the prior year. The increase in net loss was the result of an increase of $54.0 million related to non-cash impairment charges and an increase in interest expense, partially offset by non-cash foreign currency exchange gains related to the carrying value of the Company’s US dollar denominated debt.

Operating loss in the nine months ended May 31, 2016 was $195.3 million, as compared to $142.7 million for the same period in the prior year. The increase in operating loss was the result of the increase in non-cash impairment charges, a decrease in operating income before depreciation, amortization, impairment and restructuring, and an increase in restructuring and other items expense, partially offset by decreases in depreciation and amortization expense.

Operating income before depreciation, amortization, impairment and restructuring for the nine months ended May 31, 2016 was $75.0 million, a decrease of $14.1 million (15.9%) relative to the same period in the prior year. The decrease is due to the Tax Credit recorded in the prior year as discussed above, partially offset by the operating income before depreciation, amortization and restructuring of the properties acquired in the Sun Acquisition. During the nine months ended May 31, 2015, a compensation expense recovery totaling $17.3 million was recorded related to the Tax Credit. If the Tax Credit is excluded from prior year results, operating income before depreciation, amortization, impairment and restructuring would have increased $3.2 million (4.4%).

Revenue for the nine months ended May 31, 2016 was $678.5 million as compared to $520.1 million in the prior year, an increase of $158.4 million. Excluding the impact of the Sun Acquisition, revenue for the nine months ended May 31, 2016 was $402.2 million, a decrease of $60.7 million (13.1%) relative to the same period in the prior year. The revenue decline excluding the impact of the Sun Acquisition was primarily due to decreases in print advertising revenue of $45.0 million (18.4%), print circulation revenue of $9.9 million (7.1%) and digital revenue of $3.1 million (4.6%).

Total operating expenses excluding depreciation, amortization, impairment and restructuring increased $172.6 million for the nine months ended May 31, 2016, relative to the same period in the prior year. The increase primarily relates to the impact of the properties acquired in the Sun Acquisition, increases in production expenses as a result of the outsourcing of production of The Vancouver Sun and The Province in February 2015 and the fact that there was no Tax Credit in the nine months ended May 31, 2016 compared to a recovery of $17.3 million relating to the Tax Credit in the nine months ended May 31, 2015. Partially offsetting these increases were decreases in operating expenses excluding depreciation, amortization and restructuring related to ongoing cost reduction initiatives.

Business Transformation Initiatives

In July 2015, the Company announced it would undertake cost reduction initiatives targeted to deliver $50 million in annualized operating cost savings by the end of fiscal 2017 (the “Transformation Program”). In January 2016, the operating cost savings target was updated to $80 million.

These cost reductions are expected to come from a combination of acquisition synergies and further reorganization of the Company’s operations. During the three months ended May 31, 2016, the Company implemented initiatives which are expected to result in an additional $9 million of net annualized cost savings under the Transformation Program. In total, the Company has implemented net annualized cost savings of approximately $64 million of operating costs since the program was announced in July 2015.

Debt Repayment

During the three and nine months ended May 31, 2016, the Company made mandatory principal repayments of $9.7 million and $26.0 million, respectively, in accordance with terms of the Company’s First-Lien Notes indenture. The mandatory principal repayments in the nine months ended May 31, 2016 includes $6.5 million tendered in response to the Company’s offer to repurchase First-Lien Notes as a result of the sale of the Vancouver production facility in the fourth quarter of fiscal 2015.

Independent Special Committee

On April 7, 2016, the Company announced that management, as overseen by an independent special board committee, was reviewing alternatives to improve its operations, capital structure and financial liquidity. The Company announced today in a separate press release a proposed recapitalization transaction that will significantly reduce Postmedia’s outstanding indebtedness and annual interest costs, improve its capital structure and liquidity, and result in an enhanced financial foundation for Postmedia.

Postmedia-Q2-16

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