Exhibit 99.1
POSTMEDIA NETWORK CANADA CORP.
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2015 AND 2014
(UNAUDITED)
Approved for issuance: January 13, 2016
POSTMEDIA NETWORK CANADA CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2015 AND 2014
(In thousands of Canadian dollars, except per share amounts)
| | | 2015 | | | 2014 | |
| Revenues | | | | | | |
| Print advertising | | | 142,142 | | | | 93,127 | |
| Print circulation | | | 67,910 | | | | 47,434 | |
| Digital | | | 30,168 | | | | 24,269 | |
| Other | | | 10,860 | | | | 4,684 | |
| Total revenues | | | 251,080 | | | | 169,514 | |
| Expenses | | | | | | | | |
| Compensation (note 6) | | | 94,739 | | | | 54,149 | |
| Newsprint | | | 13,798 | | | | 7,175 | |
| Distribution | | | 42,193 | | | | 24,464 | |
| Production | | | 17,946 | | | | 11,362 | |
| Other operating | | | 39,896 | | | | 26,742 | |
Operating income before depreciation, amortization, impairment and restructuring (note 3) | | | 42,508 | | | | 45,622 | |
| Depreciation | | | 5,647 | | | | 12,032 | |
| Amortization | | | 5,656 | | | | 9,535 | |
| Impairment (note 7) | | | - | | | | 1,843 | |
| Restructuring and other items (note 4 and 9) | | | 11,795 | | | | 4,224 | |
| Operating income | | | 19,410 | | | | 17,988 | |
| Interest expense (note 4) | | | 18,720 | | | | 15,311 | |
| Net financing expense relating to employee benefit plans (note 11) | | | 1,449 | | | | 1,428 | |
| Gain on disposal of property and equipment and asset held-for-sale (note 4) | | | (61 | ) | | | (733 | ) |
| Gain on derivative financial instruments (note 14) | | | (1,844 | ) | | | (3,235 | ) |
| Foreign currency exchange losses | | | 5,377 | | | | 15,472 | |
| Loss before income taxes | | | (4,231 | ) | | | (10,255 | ) |
| Provision for income taxes | | | - | | | | - | |
| Net loss attributable to equity holders of the Company | | | (4,231 | ) | | | (10,255 | ) |
| | | | | | | | | |
| | | | | | | | | |
| Loss per share attributable to equity holders of the Company (note 12): | | | | | | | | |
| Basic | | $ | (0.02 | ) | | $ | (0.26 | ) |
| Diluted | | $ | (0.02 | ) | | $ | (0.26 | ) |
POSTMEDIA NETWORK CANADA CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2015 AND 2014
(In thousands of Canadian dollars)
| | | 2015 | | | 2014 | |
| | | | | | | |
| Net loss attributable to equity holders of the Company | | | (4,231 | ) | | | (10,255 | ) |
| | | | | | | | | |
| Amounts not subsequently reclassified to the statement of operations | | | | | | | | |
| Net actuarial gains on employee benefits, net of tax of nil (note 11) | | | 16,620 | | | | 8,782 | |
| Other comprehensive income | | | 16,620 | | | | 8,782 | |
| Comprehensive income (loss) attributable to equity holders of the Company | | | 12,389 | | | | (1,473 | ) |
POSTMEDIA NETWORK CANADA CORP.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
(In thousands of Canadian dollars)
| | | As at November 30, 2015 | | | As at August 31, 2015 | |
| ASSETS | | | | | | |
| Current Assets | | | | | | |
| Cash | | | 32,363 | | | | 43,813 | |
| Restricted cash (note 5) | | | 18,187 | | | | 25,373 | |
| Accounts receivable | | | 123,280 | | | | 99,548 | |
| Income taxes receivable | | | 3,700 | | | | 3,700 | |
| Inventory | | | 6,652 | | | | 6,879 | |
| Prepaid expenses and other assets | | | 12,125 | | | | 12,314 | |
| Total current assets | | | 196,307 | | | | 191,627 | |
| Non-Current Assets | | | | | | | | |
| Property and equipment | | | 269,569 | | | | 274,511 | |
| Derivative financial instruments | | | 3,937 | | | | 2,093 | |
| Other assets (note 11) | | | 3,917 | | | | 3,998 | |
| Intangible assets | | | 307,963 | | | | 313,394 | |
| Goodwill | | | 88,474 | | | | 88,474 | |
| Total assets | | | 870,167 | | | | 874,097 | |
| | | | | | | | | |
| LIABILITIES AND EQUITY | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable and accrued liabilities (note 8) | | | 92,064 | | | | 87,083 | |
| Provisions (note 9) | | | 23,025 | | | | 18,546 | |
| Deferred revenue | | | 37,757 | | | | 37,410 | |
| Current portion of long-term debt (note 10) | | | 19,465 | | | | 25,996 | |
| Total current liabilities | | | 172,311 | | | | 169,035 | |
| Non-Current Liabilities | | | | | | | | |
| Long-term debt (note 10) | | | 642,835 | | | | 646,336 | |
| Employee benefit obligations and other liabilities (notes 11 and 13) | | | 130,849 | | | | 147,574 | |
| Provisions (note 9) | | | 1,007 | | | | 442 | |
| Total liabilities | | | 947,002 | | | | 963,387 | |
| | | | | | | | | |
| Deficiency | | | | | | | | |
| Capital stock | | | 535,468 | | | | 535,468 | |
| Contributed surplus (note 13) | | | 10,235 | | | | 10,169 | |
| Deficit | | | (622,538 | ) | | | (634,927 | ) |
| Total deficiency | | | (76,835 | ) | | | (89,290 | ) |
| Total liabilities and deficiency | | | 870,167 | | | | 874,097 | |
POSTMEDIA NETWORK CANADA CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIENCY)
(UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2015 AND 2014
(In thousands of Canadian dollars)
| | | | | | 2015 | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Capital | | | Contributed | | | | | | Total | |
| | | Stock | | | Surplus | | | | | | Equity | |
| Balance as at August 31, 2015 | | | 535,468 | | | | 10,169 | | | | (634,927 | ) | | | (89,290 | ) |
| Net loss attributable to equity holders of the Company | | | - | | | | - | | | | (4,231 | ) | | | (4,231 | ) |
| Other comprehensive income | | | - | | | | - | | | | 16,620 | | | | 16,620 | |
| Comprehensive income attributable to equity holders of the Company | | | - | | | | - | | | | 12,389 | | | | 12,389 | |
| Share-based compensation plans (note 13) | | | - | | | | 66 | | | | - | | | | 66 | |
| Balance as at November 30, 2015 | | | 535,468 | | | | 10,235 | | | | (622,538 | ) | | | (76,835 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | 2014 | | | | | |
| | | Capital | | | Contributed | | | | | | | Total | |
| | | Stock | | | Surplus | | | | | | | Equity | |
| Balance as at August 31, 2014 | | | 371,132 | | | | 9,890 | | | | (370,078 | ) | | | 10,944 | |
| Net loss attributable to equity holders of the Company | | | - | | | | - | | | | (10,255 | ) | | | (10,255 | ) |
| Other comprehensive income | | | - | | | | - | | | | 8,782 | | | | 8,782 | |
| Comprehensive loss attributable to equity holders of the Company | | | - | | | | - | | | | (1,473 | ) | | | (1,473 | ) |
| Share-based compensation plans (note 13) | | | - | | | | 80 | | | | - | | | | 80 | |
| Balance as at November 30, 2014 | | | 371,132 | | | | 9,970 | | | | (371,551 | ) | | | 9,551 | |
POSTMEDIA NETWORK CANADA CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2015 AND 2014
(In thousands of Canadian dollars)
| | | | | | | |
| | | 2015 | | | 2014 | |
| CASH GENERATED (UTILIZED) BY: | | | | | | |
| OPERATING ACTIVITIES | | | | | | |
| Net loss attributable to equity holders of the Company | | | (4,231 | ) | | | (10,255 | ) |
| Items not affecting cash: | | | | | | | | |
| Depreciation | | | 5,647 | | | | 12,032 | |
| Amortization | | | 5,656 | | | | 9,535 | |
| Impairment (note 7) | | | - | | | | 1,843 | |
| Gain on derivative financial instruments | | | (1,844 | ) | | | (3,235 | ) |
| Non-cash interest | | | 1,046 | | | | 780 | |
| Gain on disposal of property and equipment and asset held-for-sale | | | (61 | ) | | | (733 | ) |
| Non-cash foreign currency exchange losses | | | 5,274 | | | | 15,268 | |
| Share-based compensation plans and other long-term incentive plan expense (recovery) (note 13) | | | (123 | ) | | | 255 | |
| Net financing expense relating to employee benefit plans (note 11) | | | 1,449 | | | | 1,428 | |
| Non-cash compensation expense of employee benefit plans (note 11) | | | - | | | | 424 | |
| Employee benefit funding in excess of compensation expense (note 11) | | | (1,347 | ) | | | - | |
| Net change in non-cash operating accounts (note 15) | | | (14,178 | ) | | | (24,702 | ) |
| Cash flows from (used in) operating activities | | | (2,712 | ) | | | 2,640 | |
| INVESTING ACTIVITIES | | | | | | | | |
| Net proceeds from the sale of property and equipment and asset held-for-sale (note 4) | | | 61 | | | | 12,449 | |
| Purchases of property and equipment | | | (705 | ) | | | (1,824 | ) |
| Purchases of intangible assets | | | (225 | ) | | | (134 | ) |
| Receipt of working capital adjustment (note 4) | | | 1,208 | | | | - | |
| Cash flows from investing activities | | | 339 | | | | 10,491 | |
| FINANCING ACTIVITIES | | | | | | | | |
| Repayment of long-term debt | | | (16,263 | ) | | | (6,250 | ) |
| Restricted cash (notes 4 and 5) | | | 7,186 | | | | (12,442 | ) |
| Debt issuance costs (note 4) | | | - | | | | (2,170 | ) |
| Share issuance costs (note 4) | | | - | | | | (2,529 | ) |
| Cash flows used in financing activities | | | (9,077 | ) | | | (23,391 | ) |
| Net change in cash for the period | | | (11,450 | ) | | | (10,260 | ) |
| Cash at beginning of period | | | 43,813 | | | | 30,490 | |
| Cash at end of period | | | 32,363 | | | | 20,230 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | 2015 | | | | 2014 | |
| Supplemental disclosure of operating cash flows | | | | | | | | |
| Interest paid | | | 13,498 | | | | 8,485 | |
| Income taxes paid | | | - | | | | - | |
POSTMEDIA NETWORK CANADA CORP.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2015 AND 2014
(In thousands of Canadian dollars, except as otherwise noted)
1. DESCRIPTION OF BUSINESS
Postmedia Network Canada Corp. (“Postmedia” or the “Company”) is a holding company that has a 100% interest in its subsidiary Postmedia Network Inc. (“Postmedia Network”). The Company was incorporated on April 26, 2010, pursuant to the Canada Business Corporations Act. The Company’s head office and registered office is 365 Bloor Street East, 12th Floor, Toronto, Ontario.
The Company’s operations consist of both news and information gathering and dissemination operations, with products offered in local, regional and major metropolitan markets in Canada through a variety of print, web, tablet and smartphone platforms, and digital media and online assets including the canada.com and canoe.com websites, each newspaper’s online website and Infomart, the Company’s media monitoring service. The Company supports these operations through a variety of centralized shared services.
The Company has one operating segment for financial reporting purposes, the Newsmedia segment. The Newsmedia segment’s revenue is primarily from advertising and circulation/subscription revenue. The Company’s advertising revenue is seasonal. Historically, advertising revenue and accounts receivable are typically highest in the first and third fiscal quarters, while expenses are relatively constant throughout the fiscal year.
2. BASIS OF PRESENTATION
These interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board applicable to the preparation of interim financial statements, including International Accounting Standard (“IAS”) 34 – Interim Financial Reporting. The accounting policies applied in the preparation of these interim condensed consolidated financial statements are the same as those used in the Company’s annual consolidated financial statements. In addition, these interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements and accordingly should be read in conjunction with the Company’s consolidated financial statements for the years ended August 31, 2015, 2014 and 2013.
These interim condensed consolidated financial statements were approved by the Board of Directors (the “Board”) on January 13, 2016.
Critical accounting estimates
The preparation of financial statements in accordance with IFRS requires management to make estimates, assumptions and judgements that affect the reported amounts of assets and liabilities, related amounts of revenues and expenses, and disclosure of contingent assets and liabilities. Although these estimates, assumptions and judgements are based upon management’s knowledge of the amount, event or actions; actual results could differ from those estimates, assumptions and judgements. The critical accounting estimates are not materially different from those disclosed in the Company’s consolidated financial statements for the years ended August 31, 2015, 2014 and 2013.
3. OPERATING INCOME BEFORE DEPRECIATION, AMORTIZATION, IMPAIRMENT AND RESTRUCTURING
The Company presents operating income before depreciation, amortization, impairment and restructuring, in the condensed consolidated statement of operations, to assist users in assessing financial performance. The Company’s management and Board use this measure to evaluate consolidated operating results and to assess the ability of the Company to incur and service debt. In addition, this measure is used to make operating decisions as it is an indicator of how much cash is being generated by the Company and assists in determining the need for additional cost reductions, evaluation of personnel and resource allocation decisions. Operating income before depreciation, amortization, impairment and restructuring is referred to as an additional subtotal and may not be comparable to similar measures presented by other companies.
4. BUSINESS ACQUISITION
On October 6, 2014, the Company entered into a purchase agreement with Quebecor Media Inc. (“QMI”) to purchase all of the outstanding shares of 7717415 Canada Inc. (previously known as Quebecor Media Printing Inc.) (“QMPI”). As at the acquisition date of April 13, 2015, QMPI owned Sun Media Corporation’s stable of more than 170 English-language newspapers and specialty publications as well as digital properties. The purchase price consisted of cash consideration of $305.5 million, less a final closing working capital adjustment of $1.2 million. During the three months ended November 30, 2014, the Company incurred acquisition costs of $1.6 million which are included in restructuring and other items in the condensed consolidated statement of operations. Upon acquisition, QMPI and its subsidiary amalgamated to form a new corporation which subsequently amalgamated with Postmedia Network. The Company financed the purchase price and transaction costs associated with the Sun Acquisition through the issuance of 8.25% Senior Secured Notes due 2017 (“First-Lien Notes”), the issuance of Class NC variable voting shares of the Company (“Variable Voting Shares”) pursuant to a rights offering of subscription receipts (the “Rights Offering”), net proceeds related to the sale of the Montreal Gazette production facility and corporate cash all as described below.
The debt financing for the Sun Acquisition was provided through the issuance of additional First-Lien Notes for proceeds of $140.0 million to an existing noteholder, Canso Investment Counsel Ltd. (“Canso”), acting on behalf of certain accounts that it manages. On October 31, 2014, pursuant to a subscription agreement with Canso, the Company issued subscription receipts (“Notes Subscription Receipts”) which were automatically exchanged for the additional First-Lien Notes on April 13, 2015. The Notes Subscription Receipts bore interest at the same rate as the First-Lien Notes with interest commencing as of November 1, 2014. During the three months ended November 30, 2014, the Company recorded $1.0 million of interest expense related to the Notes Subscription Receipts in the condensed consolidated statement of operations.
The equity financing for the Sun Acquisition was provided pursuant to the Rights Offering for proceeds of $173.5 million. Under the terms of the Rights Offering, shareholders of the Company as of February 17, 2015 received one right for each share held to subscribe for 5.9929 subscription receipts (“Equity Subscription Receipts”). On March 18, 2015, the Rights Offering closed, with a total of 240,972,226 Equity Subscription Receipts issued at a subscription price of $0.72, which represented a significant discount to the market price of the Variable Voting Shares at the time. On April 13, 2015, each Equity Subscription Receipt was automatically exchanged for one Variable Voting Share without additional consideration.
The remaining financing for the Sun Acquisition was provided through the net proceeds related to the sale of the Montreal Gazette production facility and corporate cash. The sale closed during the three months ended November 30, 2014, and the Company realized a gain on sale of $0.7 million in the condensed consolidated statement of operations. The net proceeds of $12.4 million were used to fund a portion of the Sun Acquisition and prior to closing, were classified as restricted cash on the consolidated statement of financial position.
For more information on the Sun Acquisition, including the detail of the net assets acquired and the goodwill recognized see the consolidated financial statements for the years ended August 31, 2015, 20014 and 2013.
5. RESTRICTED CASH
During the year ended August 31, 2015, the net proceeds of $17.2 million and $8.2 million related to the sales of the Vancouver newspapers and Edmonton Journal production facilities, respectively, were recorded as restricted cash on the consolidated statement of financial position. Pursuant to the First-Lien Notes indenture, any net proceeds from an asset disposition in excess of $10.0 million shall be deemed Mandatory Offer Collateral Proceeds and would be used to make an offer to redeem an equal amount of First-Lien Notes while any net proceeds from an asset disposition of more than $5.0 million but less than $10.0 million are available to be reinvested in the business.
| | | Restricted Cash | |
| August 31, 2015 | | | 25,373 | |
First-Lien Notes payment (1) | | | (6,717 | ) |
Purchases of property and equipment (2) | | | (487 | ) |
| Interest earned | | | 18 | |
| November 30, 2015 | | | 18,187 | |
| (1) | During the three months ended November 30, 2015, $6.7 million of restricted cash related to the Vancouver newspapers production facility was used to redeem $6.5 million aggregate principal amount of First-Lien Notes and pay accrued interest of $0.2 million. The remaining restricted cash of $10.5 million is being held in trust by the 12.50% Senior Secured Notes due 2018 (“Second-Lien Notes”) noteholders and is available to be reinvested in the business by July 30, 2016, and if not, would constitute Excess Collateral Proceeds per the terms of the Second-Lien Notes indenture. If the Excess Collateral Proceeds exceed $25.0 million the Company will be required to make an offer to redeem an equal amount of Second-Lien Notes. |
| (2) | During the three months ended November 30, 2015, $0.5 million of restricted cash related to the Edmonton Journal production facility was reinvested in the business through the purchase of property and equipment. The remaining restricted cash of $7.7 million is being held in trust by the First-Lien noteholders and is available to be reinvested in the business by July 9, 2016, and if not, would constitute Excess Collateral Proceeds per the terms of the First-Lien notes indenture. If the Excess Collateral Proceeds exceeds $5.0 million the Company will be required to make an offer to redeem an equal amount of First-Lien Notes and if the Excess Collateral Proceeds is less than $5.0 million it becomes Excess Collateral Proceeds per the terms of the Second-Lien Notes indenture. |
6. ONTARIO INTERACTIVE DIGITAL MEDIA TAX CREDIT
In October 2014, the Company received certification from the Ontario Digital Media Corporation that digital media tax credits totaling a cash claim of $17.3 million for the years ended August 31, 2011 and 2012 were eligible to be claimed. The Company refiled the tax return for the year ended August 31, 2012 to reflect the digital media tax credits and during the year ended August 31, 2015 received $17.8 million (including accrued interest of $0.5 million), related to this claim. The claim primarily related to previously recognized compensation expenses, and as a result the Company recorded the tax credit as a recovery of compensation expense, including an initial recovery of $13.8 million in the three months ended November 30, 2014 due to the estimation uncertainty associated with the claim process.
On April 23, 2015, the Ontario Minister of Finance announced changes to the eligibility rules for the Ontario Interactive Digital Media Tax Credit that will restrict the eligibility requirements in the future. As a result the Company is in the process of completing its final claim under the program for the period from September 1, 2012 to April 23, 2015, and will record the tax credit receivable when there is reasonable assurance the Company has complied with the conditions of the program.
7. IMPAIRMENT
During the three months ended November 30, 2015, no impairments were recorded. Due to the outsourcing of the production of the Edmonton Journal in August 2013, the production facility was no longer required, and as a result the Company classified the Edmonton Journal production facility as held-for-sale. As at November 30, 2014, the estimated fair value less costs of disposal of the production facility was reduced to $8.7 million based on the estimated net proceeds. As a result, during the three months ended November 30, 2014, the Company recorded an impairment loss of $1.8 million in the condensed consolidated statement of operations.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| | | As at November 30, 2015 | | | As at August 31, 2015 | |
| Trade accounts payable | | | 18,325 | | | | 19,525 | |
| Accrued liabilities | | | 54,776 | | | | 52,977 | |
| Accrued interest on long-term debt | | | 18,963 | | | | 14,581 | |
| Accounts payable and accrued liabilities | | | 92,064 | | | | 87,083 | |
9. PROVISIONS
| | | Restructuring (a) | | | Unoccupied leases (a) | | | Other provisions (b) | | | Total | |
| Provisions as at August 31, 2015 | | | 18,392 | | | | - | | | | 596 | | | | 18,988 | |
| Charges (recoveries) | | | 8,452 | | | | 3,343 | | | | (48 | ) | | | 11,747 | |
| Payments | | | (6,691 | ) | | | - | | | | (12 | ) | | | (6,703 | ) |
| Provisions as at November 30, 2015 | | | 20,153 | | | | 3,343 | | | | 536 | | | | 24,032 | |
| Portion due within one year | | | (20,153 | ) | | | (2,730 | ) | | | (142 | ) | | | (23,025 | ) |
| Non-current provisions | | | - | | | | 613 | | | | 394 | | | | 1,007 | |
(a) Restructuring and unoccupied leases
During the year ended August 31, 2015, the Company completed a three year business transformation program aimed at significantly reducing legacy newspaper infrastructure costs. The restructuring expense consisted of severance costs which include both involuntary and voluntary buyouts and included initiatives such as the outsourcing of the Company’s production at certain newspapers. During the year ended August 31, 2015 the Company began new initiatives which include the integration of the properties acquired as part of the Sun Acquisition that target an estimated $80 million in cost savings and incurred restructuring expense in the three months ended November 30, 2015 that consists of severance costs of $8.5 million, which include both involuntary and voluntary buyouts, as well as a provision for onerous leases related to unoccupied property of $3.3 million. The new integration initiative is expected to be completed by the year ending August 31, 2017.
(b) Other provisions
Other provisions include unfavorable lease contracts, as well as provisions for certain claims and grievances which have been asserted against the Company.
10. LONG-TERM DEBT
| | | | | | | | | | As at November 30, 2015 | | | As at August 31, 2015 | |
| | Maturity | Principal | | | Financing fees, discounts and other | | | Carrying value of debt | | | Carrying value of debt | |
| | | | | | | | | | | | | | |
| 8.25% Senior Secured Notes | August 2017 | | | 312,517 | | | | (4,020 | ) | | | 308,497 | | | | 324,176 | |
12.5% Senior Secured Notes (US$268.6M) (1) | July 2018 | | | 358,708 | | | | (4,905 | ) | | | 353,803 | | | | 348,156 | |
| Senior Secured Asset-Based Revolving Credit Facility | October 2015 | | | N/A | | | | N/A | | | | N/A | | | | - | |
| Total long-term debt | | | | | | | | | | | | 662,300 | | | | 672,332 | |
| Portion due within one year | | | | | | | | | | | | (19,465 | ) | | | (25,996 | ) |
| Non-current long-term debt | | | | | | | | | | | | 642,835 | | | | 646,336 | |
| (1) | US$ principal translated to the Canadian equivalent based on the foreign exchange rate on November 30, 2015 of US$1:$1.3353 (August 31, 2015 - US$1:$1.3157). |
The terms and conditions of long-term debt are the same as disclosed in the consolidated financial statements for the years ended August 31, 2015, 2014 and 2013, except as described below.
On October 16, 2014 the Company entered into a new senior secured asset-based revolving credit facility (the “ABL Facility”) for an aggregate amount of up to $20.0 million. The ABL Facility matured on October 16, 2015 and was not replaced. The ABL Facility was secured on a first-priority basis by accounts receivable, cash and inventory and any related assets of the Company and on a third priority basis by the First-Lien Notes collateral. During the three months ended November 30, 2014, the Company incurred $0.6 million of debt issuance costs which were amortized to interest expense in the consolidated statement of operations over the term of the ABL Facility. Amortization expense in respect of the financing fees of the ABL Facilities for the three months ended November 30, 2015 was $0.1 million (2014 - $0.1 million).
11. EMPLOYEE BENEFIT PLANS
The Company has a number of funded and unfunded defined benefit plans that include pension benefits, post-retirement benefits, and other long-term employee benefits. The net employee benefit plan costs related to the Company’s pension benefit plans, post-retirement benefit plans and other long-term employee benefit plans reported in net loss in the condensed consolidated statements of operations for the three months ended November 30, 2015 and 2014 are as follows:
| | | Pension benefits | | Post-retirement benefits | | Other long-term employee benefits | | | Total | |
| | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | | 2014 | | | 2015 | | | 2014 | |
| Current service cost | | 3,470 | | 3,036 | | 374 | | 366 | | 446 | | | 847 | | | 4,290 | | | 4,249 | |
| Administration costs | | 227 | | 222 | | - | | - | | - | | | - | | | 227 | | | 222 | |
| Net actuarial gains | | - | | - | | - | | - | | (335 | ) | | (135 | ) | | (335 | ) | | (135 | ) |
| Net financing expense | | 632 | | 615 | | 653 | | 632 | | 164 | | | 181 | | | 1,449 | | | 1,428 | |
Net defined benefit plan expense (1) | | 4,329 | | 3,873 | | 1,027 | | 998 | | 275 | | | 893 | | | 5,631 | | | 5,764 | |
| (1) | All current service costs, administration costs and net actuarial gains related to other long-term employee benefits are included in compensation expense in the consolidated statements of operations. Net financing expense is included in net financing expense relating to employee benefit plans in the consolidated statements of operations. |
Actuarial gains related to the Company’s pension benefit plans and post-retirement benefit plans recognized in other comprehensive income of the condensed consolidated statements of comprehensive income (loss) for the three months ended November 30, 2015 and 2014 are as follows:
| | | Pension benefits | | | Post-retirement benefits | | | Total | |
| | | 2015 | | | 2014 | | | 2015 | | | 2014 | | | 2015 | | | 2014 | |
| Net actuarial gains on employee benefits | | | 14,857 | | | | 7,905 | | | | 1,763 | | | | 877 | | | | 16,620 | | | | 8,782 | |
| Net actuarial gains recognized in other comprehensive income | | | 14,857 | | | | 7,905 | | | | 1,763 | | | | 877 | | | | 16,620 | | | | 8,782 | |
Changes to the net defined benefit plan obligations related to the Company’s pension benefit plans, post-retirement benefit plans and other long-term employee benefit plans for the three months ended November 30, 2015 are as follows:
| | | Pension benefits (1) | | | Post-retirement benefits | | | Other long- term employee benefits | | | | |
| | | | | | | | | | | | | |
| Net defined benefit plan obligation as at August 31, 2015 | | 56,653 | | | 65,202 | | | 22,140 | | | 143,995 | |
| Amounts recognized in the statement of operations | | 4,329 | | | 1,027 | | | 275 | | | 5,631 | |
| Amounts recognized in other comprehensive income | | (14,857 | ) | | (1,763 | ) | | - | | | (16,620 | ) |
| Contributions to the plans | | (4,262 | ) | | (662 | ) | | (605 | ) | | (5,529 | ) |
| Net defined benefit plan obligation as at November 30, 2015 | | 41,863 | | | 63,804 | | | 21,810 | | | 127,477 | |
| (1) | Pension benefits include the benefits earned after April 13, 2015 for four pension benefit plans created as part of the Sun Acquisition which provides defined benefit pension benefits to union members from April 13, 2015 in accordance with the terms of the former QMI plans. The Company has agreed to assume the defined benefit obligation accrued by union members prior to April 13, 2015 contingent on the completion of an asset transfer from the QMI pension plans which is subject to the approval of the Financial Services Commission of Ontario. The net defined benefit plan asset related to the benefits accrued to union members prior to April 13, 2015, estimated to be $3.9 million, are excluded from above and recorded in other assets in the condensed consolidated statement of financial position. |
| | |
| (2) | As at August 31, 2015 and November 30, 2015, the net defined benefit plan obligations are recorded in employee benefit obligations and other liabilities on the condensed consolidated statements of financial position. |
12. LOSS PER SHARE
The following table provides a reconciliation of the denominators, which are presented in whole numbers, used in computing basic and diluted loss per share for the three months ended November 30, 2015 and 2014. No reconciling items in the computation of net loss exist.
| | | For the three months ended November 30, | |
| | | 2015 | | | 2014 | |
| Basic weighted average shares outstanding during the period | | | 281,181,845 | | | | 40,209,619 | |
| Dilutive effect of RSUs | | | - | | | | - | |
| Diluted weighted average shares outstanding during the period | | | 281,181,845 | | | | 40,209,619 | |
| | | | | | | | | |
| Options and RSUs outstanding which are anti-dilutive | | | 1,844,000 | | | | 1,840,000 | |
13. SHARE-BASED COMPENSATION PLANS AND OTHER LONG-TERM INCENTIVE PLANS
Share option plan
The Company has a share option plan (the “Option Plan”) for its employees and officers to assist in attracting, retaining and motivating officers and employees. The Option Plan is administered by the Board.
The following table provides details on the changes to the issued options, which are presented in whole numbers, for the three months ended November 30, 2015:
| | | Options | | | Weighted average exercise price | |
| Balance, August 31, 2015 | | | 2,229,000 | | | $ | 5.44 | |
| Cancelled | | | (199,000 | ) | | $ | (5.64 | ) |
| Balance, November 30, 2015 | | | 2,030,000 | | | $ | 5.42 | |
During the three months ended November 30, 2015, the Company recorded compensation expense related to the Option Plan of $0.1 million (2014 – $0.1 million), with an offsetting credit to contributed surplus.
Deferred share unit plan
The Company has a deferred share unit plan (the “DSU Plan”) for the benefit of its non-employee directors. The DSU Plan is administered by the Board.
During the three months ended November 30, 2015, the Company granted 669,643 deferred share units (“DSUs”) under the DSU Plan (2014 – nil). During the three months ended November 30, 2015, the Company recorded a recovery of $0.2 million (2014 – expense of $0.2 million) to compensation expense, with an offset to employee benefit obligations and other liabilities. All DSUs issued in the three months ended November 30, 2015 vested immediately. Future changes in the fair value of the DSUs will be reflected through adjustments to compensation expense until such a date as the DSUs are settled in cash. During the three months ended November 30, 2015 and 2014, there were no settlements or cancellations of DSUs.
The aggregate carrying value of the DSU Plan liability was $0.6 million as at November 30, 2015 (August 31, 2015 - $0.7 million) and is based on 1,948,876 DSUs (August 31, 2015 – 1,279,233 DSUs) at a fair value per share of $0.29 (August 31, 2015 - $0.58). The DSU Plan liability is recorded in employee benefit obligations and other liabilities on the condensed consolidated statement of financial position.
14. FINANCIAL INSTRUMENTS
Financial instruments measured at fair value
The financial instruments measured at fair value in the condensed consolidated statement of financial position, categorized by level according to the fair value hierarchy that reflects the significance of the inputs used in making the measurements, as at November 30, 2015 are as follows:
| | | As at November 30, 2015 | | | Quoted prices in active markets for identical assets (Level 1) | | | Significant other observable inputs (Level 2) | | | Significant unobservable inputs (Level 3) | |
| Financial assets | | | | | | | | | | | | |
| Embedded derivatives | | 3,937 | | | - | | | - | | | 3,937 | |
The fair value of early prepayment options recognized as embedded derivatives is determined by option pricing models using Level 3 market inputs, including entity-specific credit risk, interest rate volatility, and discount factors.
The Company’s policy is to recognize transfers in and out of the fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. During the three months ended November 30, 2015 there were no transfers within the fair value hierarchy.
The changes to the fair value of financial instruments (Level 3) for the three months ended November 30, 2015 are as follows:
| | | 2015 | |
| Asset as at August 31, 2015 | | | 2,093 | |
| Gain on derivative financial instruments recognized in the statement of operations | | | 1,844 | |
| Asset as at November 30, 2015 | | | 3,937 | |
