Exhibit 15.1




















POSTMEDIA NETWORK CANADA CORP.


CONSOLIDATED FINANCIAL STATEMENTS





FOR THE YEARS ENDED AUGUST 31, 2015, 2014 AND 2013


























Approved for issuance: October 21, 2015





1





Management’s Responsibility for Consolidated Financial Statements





The
 accompanying consolidated financial statements of Postmedia Network Canada Corp. (the “Company”) and its subsidiaries are the responsibility of management and have been approved by the Board of Directors of Postmedia Network Canada
Corp.





Management
 is responsible for the preparation of these consolidated financial statements in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board, the selection of accounting policies and making
significant accounting estimates, assumptions and judgements. Management is also responsible for establishing and maintaining adequate internal control over financial reporting which includes those policies and procedures that provide reasonable
assurance over the completeness, fairness and accuracy of the consolidated financial statements and other financial items.





The Board of Directors fulfills its responsibility for the consolidated financial statements principally through its Audit Committee, which is composed of
independent external directors. The Audit Committee reviews the Company’s annual consolidated financial statements and recommends their approval to the Board of Directors. The Audit Committee meets with the Company’s management and
external auditors to discuss internal controls over the financial reporting process, auditing matters and financial reporting issues, and formulates the appropriate recommendations to the Board of Directors. The auditor appointed by the shareholders
has full access to the Audit Committee, with or without management being present.





The
 external auditors appointed by the Company’s shareholders, PricewaterhouseCoopers LLP, conducted an independent audit of the consolidated financial statements in accordance with Canadian generally accepted auditing standards and express their
opinion thereon. Those standards require that the audit is planned and performed to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.








Paul Godfrey
Doug LambPresident and
Chief Financial Officer andChief Executive Officer
Executive Vice President








Toronto, Canada


October 21, 2015





2











Independent
 Auditor’s Report
 
 To
the Shareholders of
 Postmedia Network Canada Corp.
 
 
 We have audited the accompanying consolidated financial statements of Postmedia Network Canada Corp. and its subsidiaries, which comprise the consolidated statements of financial position
as at August 31,2015 and August 31, 2014 and the consolidated statements of operations, comprehensive loss, changes in equity (deficiency) and cash flows for each of the three years in the period ended
August 31, 2015, and the related notes, which comprise a summary of
significant accounting policies and other explanatory information.
 
 Management’s
 responsibility for the consolidated financial statements
 Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
 
 Auditor’s responsibility
 Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material misstatement. Canadian generally accepted auditing standards also
require that we comply with ethical requirements.
 
 An
 audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes evaluating
the appropriateness of accounting principles and policies used and the reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the consolidated financialstatements.
 
 
 
 PricewaterhouseCoopers LLP
 PwC Tower, 18 York Street,
Suite 2600, Toronto, Ontario, Canada M5J 0B2
 T: +1 416 863 1133, F: +1 416 365 8215
 
 “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
 
 3
 
 
 
 
 We believe that the audit evidence we have obtained in our audits is sufficient and
appropriate to provide a basis for our audit opinion.
 
 Opinion
 In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Postmedia Network Canada
Corp. and its subsidiaries as at August 31, 2015 and August 31,2014 and its financial performance and its cash flows for each of the three years in the period ended August 31, 2015 in accordance with International Financial Reporting Standards as issued
by the International Accounting Standards Board.
 
 
 
 Chartered Professional Accountants, Licensed Public
Accountants
 Toronto, Ontario
 October
 21, 2015







PricewaterhouseCoopers LLP


PwC Tower, 18 York Street,
Suite 2600, Toronto, Ontario, Canada M5J 0B2


T: +1 416 863 1133, F: +1 416 365 8215





“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.





4




POSTMEDIA NETWORK CANADA CORP.


CONSOLIDATED STATEMENTS OF OPERATIONS





FOR THE YEARS ENDED AUGUST 31, 2015, 2014 AND 2013


(In thousands of Canadian dollars, except per share amounts)





2015


2014


2013RevenuesPrint
advertising


404,685



375,457



445,547Print
circulation


221,969



194,176



195,899Digital


97,669



88,023



91,606Other


25,960



16,599



18,531Total
revenues


750,283



674,255



751,583ExpensesCompensation (note
6)


293,326



281,085



321,224Newsprint


37,015



30,770



40,902Distribution


122,863



101,794



107,905Production


58,908



37,671



28,270Other operating


126,759



113,430



123,356Operating
income before depreciation, amortization, impairment andrestructuring(note 3)


111,412



109,505



129,926Depreciation (note
9)


31,957



66,646



29,949Amortization (note
10)


40,146



39,080



43,325Impairments (notes 5, 9, 10
and 11)


153,043



-



99,983Restructuring and other items (notes 4, 13 and 15)


34,622



39,285



34,171Operating
loss


(148,356
)


(35,506
)


(77,502
)Interest expense


69,157



61,914



61,900Net financing expense relating
to employee benefit plans (note 15)


5,577



5,617



7,458Gain on disposal of property
and equipment and asset held-for-sale (note 9)


(1,157
)


(257
)


(1,005
)(Gain) loss on derivative
financial instruments (note 7)


18,389



(1,590
)


7,306Foreign currency exchange losses


61,764



6,271



7,065Loss before
income taxes


(302,086
)


(107,461
)


(160,226
)Recovery of income taxes (note 4)


(38,681
)


-



-Net loss attributable to equity holders of the Company


(263,405
)


(107,461
)


(160,226
)Loss per
share attributable to equity holders of the Company (note 16):Basic

$
(1.98
)

$
(2.67
)

$
(3.98
)Diluted

$
(1.98
)

$
(2.67
)

$
(3.98
)











The notes constitute an integral part of the consolidated financial statements.





5





POSTMEDIA NETWORK CANADA CORP.


CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS





FOR THE YEARS ENDED AUGUST 31, 2015, 2014 AND 2013


(In thousands of Canadian dollars)


2015


2014


2013Net loss
attributable to equity holders of the Company


(263,405
)


(107,461
)


(160,226
)Amounts
subsequently reclassified to the statement of operationsGain
on valuation of derivative financial instruments, net of tax of nil


-



3,994



1,914Amounts not
subsequently reclassified to the statement of operationsNet actuarial gains (losses) on employee benefits, net of tax of nil (note 15)


(1,444
)


(20,692
)


59,581Other comprehensive income (loss)


(1,444
)


(16,698
)


61,495Comprehensive loss attributable to equity holders of the Company


(264,849
)


(124,159
)


(98,731
)











The notes constitute an integral part of the consolidated financial statements.





6





POSTMEDIA NETWORK CANADA CORP.


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION





AS AT AUGUST 31, 2015 AND 2014


(In thousands of Canadian dollars)


2015


2014ASSETSCurrent
AssetsCash


43,813



30,490Restricted cash (notes 9 and 14)


25,373



-Accounts receivable


99,548



64,871Income taxes receivable (note 18)


3,700



-Inventory (note 8)


6,879



2,294Prepaid expenses and other assets


12,314



9,888Total
current assets


191,627



107,543Non-Current
AssetsProperty and equipment (notes 5 and 9)


274,511



155,007Asset
held-for-sale (note 9)


-



22,246Derivative financial instruments (note 7)


2,093



18,392Other
assets (note 4)


3,998



17Intangible assets (notes 5 and 10)


313,394



287,789Goodwill (notes 4, 5 and 11)


88,474



149,600Total assets


874,097



740,594LIABILITIES
AND EQUITYCurrent
LiabilitiesAccounts payable and accrued liabilities (note 12)


87,083



59,073Provisions (note 13)


18,546



15,629Deferred revenue


37,410



24,176Current portion of long-term debt (note 14)


25,996



12,500Total
current liabilities


169,035



111,378Non-Current
LiabilitiesLong-term debt (note 14)


646,336



473,800Employee benefit obligations and other liabilities (notes 15 and
17)


147,574



143,157Provisions (note 13)


442



634Deferred income taxes (note 18)


-



681Total liabilities


963,387



729,650Equity
(Deficiency)Capital stock (note 16)


535,468



371,132Contributed surplus (note 17)


10,169



9,890Deficit


(634,927
)


(370,078
)Total equity (deficiency)


(89,290
)


10,944Total liabilities and equity (deficiency)


874,097



740,594





Commitments (note 21), Subsequent events (note 25)





On October 21, 2015, the Board of Directors (the “Board”) approved the consolidated financial statements.





On behalf of the Board,





Signed
SignedPaul Godfrey
Rod PhillipsDirector
Chair








The notes constitute an integral part of the consolidated
financial statements.





7





POSTMEDIA NETWORK CANADA CORP.


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIENCY)








FOR THE YEARS ENDED AUGUST 31, 2015, 2014 AND 2013


(In thousands of Canadian dollars)





2015Capital  stock


Contributed  surplus


Deficit


Accumulated  other  comprehensive  loss


Total  EquityBalance as at August 31, 2014


371,132



9,890



(370,078
)


-



10,944Net loss attributable to
equity holders of the Company


-



-



(263,405
)


-



(263,405
)Other comprehensive loss


-



-



(1,444
)


-



(1,444
)Comprehensive loss attributable to equity holders of the
Company


-



-



(264,849
)


-



(264,849
)Share-based compensation plans
(note 17)


-



279



-



-



279Shares issued (note
4)


173,500



-



-



-



173,500Share issuance costs (note 4)


(9,164
)


-



-



-



(9,164
)Balance as at August 31, 2015


535,468



10,169



(634,927
)


-



(89,290
)
 2014Capital  stock


Contributed  surplus


Deficit


Accumulated  other  comprehensive  loss


Total  EquityBalance as at August 31, 2013


371,132



9,020



(241,925
)


(3,994
)


134,233Net loss attributable to
equity holders of the Company


-



-



(107,461
)


-



(107,461
)Other comprehensive income (loss)


-



-



(20,692
)


3,994



(16,698
)Comprehensive income (loss) attributable to equity
holders of theCompany


-



-



(128,153
)


3,994



(124,159
)Share-based compensation plans (note 17)


-



870



-



-



870Balance as at August 31, 2014


371,132



9,890



(370,078
)


-



10,944
 2013Capital  stock


Contributed  surplus


Deficit


Accumulated  other  comprehensive  loss


Total  EquityBalance as at August 31, 2012


371,132



7,888



(141,280
)


(5,908
)


231,832Net loss attributable to
equity holders of the Company


-



-



(160,226
)


-



(160,226
)Other comprehensive income


-



-



59,581



1,914



61,495Comprehensive loss attributable to equity holders of the
Company


-



-



(100,645
)


1,914



(98,731
)Share-based compensation plans (note 17)


-



1,132



-



-



1,132Balance as at August 31, 2013


371,132



9,020



(241,925
)


(3,994
)


134,233








The notes constitute an integral part of the consolidated financial statements.





8





POSTMEDIA NETWORK CANADA CORP.


CONSOLIDATED STATEMENTS OF CASH FLOWS





FOR THE YEARS ENDED AUGUST 31, 2015, 2014 AND 2013


(In thousands of Canadian dollars)





2015


2014


2013CASH GENERATED
(UTILIZED) BY:OPERATING
ACTIVITIESNet loss attributable to
equity holders of the Company


(263,405
)


(107,461
)


(160,226
)Items not affecting
cash:Depreciation (note
9)


31,957



66,646



29,949Amortization (note
10)


40,146



39,080



43,325Impairments (notes
5, 9, 10 and 11)


153,043



-



99,983(Gain) loss on
derivative financial instruments (note 7)


18,389



(1,590
)


7,306Non-cash
interest


3,905



5,587



4,114Gain on disposal
of property and equipment and asset held-for-sale


(1,157
)


(257
)


(1,005
)Non-cash foreign
currency exchange losses


61,494



6,323



6,879Share-based compensation plans and other long-term incentive plan expense (note 17)


102



1,376



1,386Deferred income
tax recovery


(38,681
)


-



-Net financing
expense relating to employee benefit plans (note 15)


5,577



5,617



7,458Non-cash
compensation expense of employee benefit plans (note 15)


-



-



2,587Employee benefit funding in
excess of compensation expense (note 15)


(2,573
)


(7,151
)


-Settlement of foreign currency interest rate swap designated as a cash flow hedge (note
14)


-



6,149



(8,976
)Net change in non-cash operating accounts (note 23)


17,185



907



5,567Cash flows from operating activities


25,982



15,226



38,347INVESTING
ACTIVITIESNet proceeds from the sale of property and equipment, intangible assets and assets held-for-sale
(note 10)


38,319



306



25,925Purchases of property and
equipment (note 9)


(4,206
)


(10,245
)


(7,566
)Purchases of intangible assets
(note 10)


(753
)


(3,109
)


(5,932
)Acquisition, net of cash acquired (note 4)


(303,458
)


-



-Cash flows from (used in) investing activities


(270,098
)


(13,048
)


12,427FINANCING
ACTIVITIESProceeds from issuance of
long-term debt (notes 4 and 14)


140,000



-



-Proceeds from issuance of
shares (note 4)


173,500



-



-Repayment of long-term debt
(note 14)


(15,983
)


(12,500
)


(32,040
)Restricted cash (note
9)


(25,373
)


-



-Debt issuance costs (notes 4
and 14)


(5,541
)


-



(111
)Share issuance costs (note 4)


(9,164
)


-



-Cash flows from (used in) financing activities


257,439



(12,500
)


(32,151
)Net change in
cash


13,323



(10,322
)


18,623Cash at beginning of period


30,490



40,812



22,189Cash at end of period


43,813



30,490



40,8122015



2014



2013Supplemental disclosure of operating cash
flowsInterest
paid


62,688



57,236



53,173Income taxes paid


47



-



-








The notes constitute an integral part of the consolidated financial statements.





9





POSTMEDIA NETWORK CANADA CORP.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 FOR THE
YEARS ENDED AUGUST 31, 2015, 2014 AND 2013
 (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 metro 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.comwebsites, 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 (formerly, the Newspaper segment). The Newsmedia segment’s revenue is primarily from advertising and circulation/subscription
revenue.
 
 2.     SIGNIFICANT ACCOUNTING POLICIES
 
 The significant accounting policies used in the preparation of these consolidated financial statements are
described below.
 
 (a)    Basis of presentation
 
 The
 Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.
 
 (b)    Basis of measurement
 
 These consolidated financial statements have been prepared under the historical cost convention, except for
the revaluation of derivative financial instruments to fair value, certain assets classified as held-for-sale which were recorded at fair value less costs of disposal and the deferred share unit plan which is recorded at fair
value.
 
 (c)   Principles of
consolidation
 
 These consolidated financial statements include the accounts of the Company and its subsidiaries.
Subsidiaries are all entities which the Company controls. For accounting purposes, control is established by an investor when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity. All intercompany transactions and balances have been eliminated on consolidation.
  10
 (d)   
 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 disclosures of contingent assets and liabilities. Although these estimates, assumptions and judgements are based upon management’s best
knowledge of the amount, event or actions; actual results could differ from those estimates, assumptions and judgements.
 
 The following significant areas require management to use assumptions and to make
estimates:
 
 Impairment of goodwill and long lived assets
 
 The Company tests goodwill and indefinite life intangible assets for impairment annually, or more frequently
if there are indicators that an impairment may have arisen. In testing for impairment, assets including indefinite life intangible assets and other long lived assets, are grouped into a cash generating unit ("CGU" or "CGUs") which represents the
lowest level for which there are separately identifiable cash inflows. For the purpose of goodwill impairment testing, goodwill is allocated to each CGU (or group of CGUs) based on the level at which management monitors goodwill, however not higher
than an operating segment. Accordingly, management has allocated its goodwill to its single operating segment, the Newsmedia operating segment, which is also at the entity level, and the level at which goodwill is monitored, herein referred to as
the Goodwill CGU. The recoverable amount of each CGU or group of CGUs is based on the higher of value in use and fair value less costs of disposal calculations. The Company has computed the fair value less costs of disposal of the Goodwill CGU and
each individual CGU using a discounted cash flow model that requires market participant assumptions about future cash flows and discount rates. The future cash flows are based on management’s best estimate considering historical and expected
operating plans, current strategies, economic conditions and the general outlook for the industry and markets in which the Company operates. The cash flow projections are based upon financial forecasts prepared by management covering a three year
period and cash flows after the three year period are extrapolated using industry growth rates. The after tax discount rate represents a weighted average cost of capital (“WACC”) for comparable companies operating in the Company’s
industry, based on publicly available information. The WACC is a market participant estimate of the overall required rate of return on an investment for both debt and equity owners and serves as the basis for developing an appropriate discount rate.
Determination of the WACC requires separate analysis of the cost of equity and debt, and considers a market participant risk premium based on an assessment of risks related to the projected cash flows. Refer to note 5 for more details about the
methods and assumptions used in estimating the recoverable amount.
 
 11
  Employee future benefits
 
 The
 cost of defined benefit pension benefit plans, post-retirement benefit plans and other long-term employee benefit plans and the present value of the defined benefit obligation are determined using actuarial valuations. An actuarial valuation
involves making various assumptions including the discount rate to measure the net defined benefit obligation and mortality rates, among others. Due to the complexity of the actuarial valuations and the long-term nature of employee future benefits,
the corresponding obligation is highly sensitive to changes in assumptions. Discount rates are reviewed at each reporting date and corresponding adjustments to the net defined benefit obligation are recognized in other comprehensive income and
deficit. Additional information on the Company’s employee benefit plans is contained in note 15.
 
 The following
 areas require management to use significant judgements apart from those involving estimates:
 
 Determination
 of useful lives for the depreciation and amortization of assets with finite lives
 
 For
 each class of assets with finite lives, management has to determine over which period the Company will consume the assets future economic benefits. The determination of such periods and if necessary, the subsequent revision of such periods,
involves judgement and has an impact on the depreciation and amortization recorded in the consolidated statements of operations. The Company takes into account industry trends and Company specific factors, including changing technologies and
expectations for the in-service period of assets, when determining their respective useful lives.
 
 Determination
 of fair value of the identifiable assets acquired and liabilities assumed
 
 For
 all identifiable assets acquired and liabilities assumed, management has to determine the fair value at acquisition. The determination of fair value involves judgement and has an impact on the property and equipment and intangible assets and the
related deferred income tax effect recorded in the consolidated statement of financial position.
 
 Determination
 of the recoverability of deferred tax assets
 
 Judgement
 is required in determining whether deferred tax assets are recognised.  Deferred tax assets, including those arising from unutilised tax losses require management to assess the likelihood that the Company will generate taxable earnings in
future periods, in order to utilize deferred tax assets. Deferred tax assets are reviewed at each reporting date based upon the likely timing and the level of the reversal of existing taxable temporary differences, future taxable income and future
tax planning strategies. Deferred tax assets are reduced to the extent that in management’s judgement it is no longer probable that the related tax benefit will be realized.
 
  12
  (e)   Disposals of non-current assets and discontinued operations
 
 Non-current assets are classified as held for sale if the carrying amount will be recovered principally through a sale transaction rather than through
continued use, they are available for sale in their present condition and such sale is considered highly probable. The criteria for a sale to be considered highly probable includes a firm decision by the appropriate level of management or the Board
to dispose of a business or a group of assets, such business or group of assets must be actively marketed for a price that is reasonable in relation to their current market value and there must be an expectation that such disposal will be completed
within a twelve month period. Assets held for sale are carried at the lower of their carrying amount or fair value less costs of disposal. Assets held for sale are classified as discontinued operations if the operations and cash flows can be clearly
distinguished, both operationally and for financial reporting purposes, from the rest of the Company and they represent a separate major line of business or geographical area of operations, or are part of a single coordinated plan to dispose of a
separate major line of business or geographical area of operations, or is a subsidiary acquired with the view to resell.
 
 (f)    Foreign currency translation
 
 These consolidated financial statements are presented in Canadian dollars, the Company’s functional and reporting currency. As at the date of the
statement of financial position, monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars using the foreign currency exchange rate in effect at that date. Revenues and expense items are translated at the
foreign currency exchange rate in effect when the transaction occurred. The resulting foreign currency exchange gains and losses are recognized in the statement of operations in foreign currency exchange (gains) losses.
 
 (g)   Cash
 
 Cash is composed of cash on hand and current balances with banks. Cash not available for immediate use is classified as restricted cash.
 
 (h)   Borrowing costs
 
 Borrowing costs consist of interest and other costs that the Company incurs in connection with the borrowing of funds. Borrowing costs directly attributable
to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the asset. All other borrowing costs are expensed in the
period they are incurred in interest expense in the statement of operations.
 
 (i)   
 Property and equipment
 
 Property
 and equipment are carried at cost less accumulated depreciation and impairment. Historical cost includes purchase cost, expenditures that are directly attributable to bringing the asset to the location and condition necessary for it to be capable
of operating in the manner intended by management, and borrowing costs if applicable.
 
  13
  Depreciation is provided for on a straight line basis over the following
useful lives:
 
 Assets
Estimated useful lifeBuildings
10 - 40 yearsLeaseholds
3 - 20 yearsComputer hardware
3 - 5 yearsMachinery and equipment
5 - 25 years
 The depreciation method estimates of useful lives and
residual values ascribed to property and equipment are reviewed at least at each financial year end and if necessary depreciation is adjusted for on a prospective basis.
 
 (j)    Intangible
assets
 
 Finite life intangibles
 
 (i) Software
 
 Costs of internally generated software are composed of all directly attributable costs necessary to create, produce and prepare the asset to be capable of
operating in the manner intended by management. Internally generated software consists primarily of internal costs in connection with the development of software to be used internally or for providing services to customers.All costs incurred during the research phase are expensed as incurred. Development costs that are attributable to the design and testing are
recognized as intangible assets if the asset can be separately identified, it is probable the asset will generate future economic benefits, the development cost can be measured reliably, the project is technically feasible and the project will be
completed with a view to use the asset.
 
 Software costs are amortized using the straight line method of amortization over their estimated useful lives, which range from 2 to 10 years. The
depreciation method and estimates of useful lives ascribed to software are reviewed at least at each financial year end and if necessary amortization is adjusted on a prospective basis.
 
 (ii) Other identifiable intangible assets
 
 Other identifiable intangible assets are recorded at cost
and are carried at cost less accumulated amortization and impairment. Other identifiable intangible assets with finite lives are amortized using the straight-line method of amortization over their estimated useful lives, as
follows:
 
 Other identifiable intangible assets with finite lives
Estimated useful lifeSubscribers
5 yearsCustomer
relationships
4-5 yearsDomain names
15 years
 
 The depreciation method and estimates of useful lives
ascribed to other identifiable intangible assets are reviewed at least at each financial year end and if necessary amortization is adjusted for on a prospective basis.
 
 Costs associated with purchasing and developing content are expensed as incurred, except for content development on the Company's website which is
capitalized when such costs meet the criteria for capitalization.
 
 14
 
 Indefinite life intangibles
 
 Intangible assets with indefinite lives are not amortized.
These include newspaper mastheads and certain domain names related to the newspaper online websites. The assessment of indefinite life is reviewed each period to determine whether the indefinite life assumption continues to be supportable. If it is
deemed unsupportable the change in useful life from indefinite to finite life is made and amortization is recognized on a prospective basis.
 
 (k)   Business combinations and
goodwill
 
 The Company uses the acquisition method of accounting to record business combinations. The acquisition method of accounting requires the Company to
recognize, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree measured at the acquisition-date fair values. The consideration transferred shall be measured at fair
value calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, the liabilities assumed by the Company and any equity interests issued by the Company. Contingent consideration is recognized as part of the
consideration transferred. Goodwill as of the acquisition date is measured as the excess of the consideration transferred and the amount of any non-controlling interest acquired over the net of the acquisition-date amounts of the identifiable assets
acquired and the liabilities assumed, measured at fair value. Goodwill acquired through a business combination is allocated to the CGU (or group of CGUs) that are expected to benefit from the synergies of the business combination. After initial
recognition, goodwill is measured at cost less any accumulated impairment losses. Acquisition related costs are expensed in the period they are incurred except for those costs to issue equity securities which are offset against the related equity
instruments and those costs to issue debt which are offset against the corresponding debt and amortized using the effective interest method. Acquisition related costs include advisory, legal, accounting, valuation and other professional or
consulting fees; and costs of registering and issuing debt and securities.
 
 (l)    Impairments
 
 Impairments are recorded when the recoverable amount of an
asset or CGU is less than its carrying amount. The recoverable amount is the higher of an assets or CGUs fair value less costs of disposal or its value in use, and is determined for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
Impairment losses, other than those relating to goodwill, are evaluated for potential reversals when events or changes in circumstances warrant such consideration.
 
 15
  (i) Non-financial assets
 
 The carrying values of non-financial assets with finite
lives, except inventories, deferred tax assets and employee benefits, are assessed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Additionally, intangible assets with
indefinite lives, composed of mastheads and newspaper domain names are included in their related CGU, and are tested annually for impairment or whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (CGUs). Any corporate assets and cash flows are allocated to the respective CGUs. Non-financial assets other
than goodwill that have incurred an impairment in previous periods are reviewed for the possible reversal of the impairment at each reporting date.
 
 (ii) Goodwill
 
 Goodwill is reviewed for impairment annually or more
frequently if there are indications that impairment may have occurred. For the purpose of impairment testing, goodwill is allocated to each CGU (or group of CGUs) based on the level at which management monitors goodwill, however not higher than an
operating segment. Impairment is determined by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. Accordingly, management has allocated its goodwill to its single operating segment, the Newsmedia operating
segment, which is at the entity level, and the level at which goodwill is monitored, herein referred to as the Goodwill CGU. Impairment losses relating to goodwill cannot be reversed in future periods.
 
 (m) Revenue recognition
 
 Revenue is measured at the fair value of the consideration
received or receivable net of any discounts, if applicable. The Company bases any estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
 
 Revenue from the sale of goods is recognized when the following criteria have been met:
 
 ●the significant risks and rewards of ownership are transferred to customers, and the Company retains neither managerial involvement nor effective
control,
 ●the amount of revenue can be measured reliably,
and
 ●the receipt of economic benefit is probable and the costs incurred can be measured reliably.
 
 Revenue from the rendering of services is recognized when the following criteria have been met:
 
 ●the amount of revenue can be measured reliably,
 ●the receipt of economic benefit is probable, and
 ●the stage of completion of the transaction and the costs incurred can be measured reliably.
  16
  Print advertising revenue is recognized when advertisements
are published. Print circulation revenue includes home-delivery subscriptions and single-copy sales at newsstands and vending machines. Print circulation revenue from subscriptions is recognized on a straight-line basis over the term of the
subscriptions. Print circulation revenue from single-copy sales at newsstands and vending machines, net of a provision for estimated returns based on historical rates of returns, is recognized when the newspapers are delivered. Digital revenue is
recognized when advertisements are placed on the Company’s websites or, with respect to certain online advertising, each time a user clicks on certain ads. Digital revenue also includes subscription revenue for business research and corporate
financial information services and is recognized on a straight-line basis over the term of the subscriptions or contracts. Other revenue is recognized when the related service or product has been delivered.
 
 Amounts received relating to services to be performed in future periods and sale of goods that require future performance are recorded as deferred revenue on
the statement of financial position.
 
 (n)   Inventory
 
 Inventory, consisting primarily of printing materials, is
valued at the lower of cost, using the first-in-first out cost formula, and net realizable value, where net realizable value is determined to be the estimated selling price in the ordinary course of business, less estimated costs of completion and
estimated costs necessary to make the sale. Reversals of previous write-downs to net realizable value are required when there is a subsequent increase in the value of inventories.
 
 (o)   Share-based compensation and other long-term
incentive plans
 
 The Company has a share option plan and a restricted share unit plan that will be settled through the issuance of shares of Postmedia or through cash at the
option of the Company and a deferred share unit plan that will be settled with cash. The Company uses the graded vesting method to calculate compensation expense for all share-based compensation plans.
 
 (i)    Share option plan
 
 The Company recognizes compensation expense for all share
options granted based on the fair value of the option on the date of grant, net of estimated forfeitures, using the Black-Scholes option pricing model. The fair value of the options is recognized as compensation expense over the vesting period of
the options, with a corresponding credit to contributed surplus. The contributed surplus balance is reduced as options are exercised through a credit to capital stock when the options are exercised.
 
 (ii)   Restricted share unit plan
 
 The Company recognizes compensation expense for all
restricted share units granted based on the fair value of the Company’s shares on the issuance date of each restricted share unit grant net of estimated forfeitures. The fair value of the restricted share units is recognized as compensation
expense, over the vesting period of each restricted share unit grant, with a corresponding credit to contributed surplus. Compensation expense is not adjusted for subsequent changes in the fair value of the Company’s shares. The contributed
surplus balance is reduced as units are exercised through a credit to capital stock.
  17
  (iii) Deferred share unit plan
 
 The Company recognizes compensation expense for its
deferred share unit plan based on the fair value of the Company’s shares. The deferred share units outstanding are re-measured at each reporting period until settlement, using the fair value of the shares of the Company. The fair value of the
deferred share units is recognized as compensation expense, over the vesting period of each deferred share unit grant, in operating expenses with a corresponding credit to other non-current liabilities.
 
 (p)   Financial instruments
 
 Financial instruments are classified as fair value through
profit or loss, loans and receivables or other financial liabilities.
 
 (i) Fair value through profit or loss
 
 Financial instruments are classified as fair value through
profit or loss if acquired principally for the purpose of selling in the short-term, or if so designated by management and it eliminates or significantly reduces a measurement or recognition inconsistency, or is managed and its performance is
evaluated on a fair value basis. Assets in this category principally include embedded derivatives and derivative financial instruments which do not qualify for hedge accounting. Financial instruments classified as fair value through profit or loss
are carried at fair value with changes recognized in the statement of operations.
 
 (ii) Loans and receivables
 
 Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in an active market. Assets in this category include accounts receivable and cash. Loans and receivables are initially recognized at fair value plus transaction costs and subsequently carried
at amortized cost using the effective interest method, less a provision for impairment. Loans and receivables are included in current assets, except for those with maturities greater than twelve months after the end of the reporting period, which
are classified as non-current assets.
 
 (iii) Other financial liabilities
 
 Other financial liabilities include accounts payable and
accrued liabilities and long-term debt. Other financial liabilities are recognized initially at fair value, net of any transaction costs incurred, and subsequently at amortized cost using the effective interest method. Other financial liabilities
are classified as current liabilities if payment is due within twelve months; otherwise, they are classified as non-current liabilities. Financing fees related to revolving debt arrangements are initially recognized as an other asset and amortized
over the term of the arrangement in interest expense.
 
 The effective interest rate is the rate that exactly discounts the estimated future cash flows through the expected life of the financial instrument to its
net carrying amount.
  18
  (q)   Derivative financial instruments and
hedging
 
 The Company uses derivative financial instruments to manage its exposure to fluctuations in foreign currency rates and interest rates. Derivative financial
instruments are initially recognized at fair value on the date a contract is entered into and are subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative financial
instrument is designated as a hedging instrument and the nature of the item being hedged. The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its strategy for using
hedges and its risk management objectives. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivative financial instruments that are used in hedging transactions are highly effective in
offsetting changes in fair values or cash flows of hedged items. Non-performance risk, including credit risk, is considered when determining the fair value of derivative financial instruments. The Company does not hold or use any derivatives
instruments for trading purposes.
 
 The Company enters into the following types of derivative financial instruments:
 
 Cash flow hedges
 
 Periodically, the Company uses cash flow hedges to hedge the foreign currency rate exposure on interest and principal payments on foreign currency
denominated debt and uses cash flow hedges to hedge foreign currency and interest rate exposure on variable interest rates and principal payments on foreign currency denominated debt. The effective portion of a cash flow hedge is reported in other
comprehensive income until it is recognized in the statement of operations during the same period in which the hedged item affects income, while the ineffective portion is immediately recognized in the statement of operations. When a hedged item
ceases to exist or cash flow hedge accounting is terminated, the amounts previously recognized in accumulated other comprehensive income are reclassified to the statement of operations when the variability in the cash flows of the hedged item affect
income. Cash flows associated with derivative contracts accounted for as hedges are classified in the same category in the statement of cash flows as the item being hedged.
 
 Derivative financial instruments that do not qualify for
hedge accounting
 
 Periodically, the Company uses derivative financial instruments that hedge the fair value exposure on certain debt resulting from changes in the US and
Canadian variable base rates and the foreign currency rate exposure on interest and principal payments on foreign currency denominated debt. These derivative financial instruments are not designated as hedges for accounting purposes and are measured
at fair value in the statement of financial position.
 
 Embedded derivatives
 
 An embedded derivative is a component of a hybrid
instrument that also includes a non-derivative host contract, with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. If certain conditions are met, an embedded derivative is
separated from the host contract and measured at fair value in the statement of financial position.
 
 Changes in the fair value of both derivative financial
instruments that do not qualify for hedge accounting and embedded derivatives are recorded in the statement of operations as gain or loss on derivative financial instruments.
  19
  (r) Provisions
 
 Provisions represent liabilities of the Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present legal
or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are measured at the current best estimate required to
settle the obligation and when necessary the use of estimation techniques are utilized. If the effect of the time value of money is material the provision is measured at the present value of the expected expenditures required to settle the
obligation using a discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as interest expense in the
statement of operations.
 
 (s) Employee benefits
 
 (i)Pension and post-retirement obligations
 
 The Company maintains a number of defined contribution and
defined benefit pension and defined benefit post-retirement plans. For defined benefit plans, the defined benefit obligation associated with pension and post-retirement benefits earned by employees is actuarially determined on an annual basis by
independent actuaries using the projected unit credit method. The determination of benefit expense requires assumptions such as the discount rate to measure the net defined benefit obligations, expected rate of future compensation increases,
retirement ages of employees, expected health care cost trend rate and other factors as applicable. The asset or liability recognized in the statement of financial position is the present value of the defined benefit obligation less the fair value
of plan assets at the end of the reporting period. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of Canadian corporate AA bonds that have terms to maturity
which are similar to the terms of the related liability. The estimate of the expected long-term rate of return on plan assets is based on the discount rate of the defined benefit obligation. All actuarial gains and losses that arise in calculating
the present value of the defined benefit obligation and the fair value of plan assets are recognized in other comprehensive income and then immediately transferred to deficit. Past service costs from plan amendments are recognized immediately in
compensation expense in the statement of operations. The current service cost and past service cost of employee benefits expense is recorded in compensation expense in the statement of operations. The financing expenses on the benefit obligations
are presented in net financing expense relating to employee benefit plans in the statement of operations. Gains and losses on curtailments or settlements are recognized in the period in which the curtailment or settlement occurs in restructuring and
other items in the statement of operations.
 
 The Company’s defined benefit pension plans are subject to minimum funding requirements. The liability in respect of minimum funding requirements is
determined using the projected minimum funding requirements based on management's best estimates of the actuarially determined funded status of the plan, market discount rates and salary escalation estimates. The liability related to the minimum
funding requirement and any subsequent re-measurement of that liability is recognized immediately in other comprehensive income and then immediately transferred to deficit without subsequent reclassification to the statement of
operations.
 20
 For defined contribution plans, the Company pays contributions to the plan on a contractual basis. The Company has no further payment obligations once the
contributions have been paid. The contributions are recognized as an expense in the period when they are earned by the employees.
 
 (ii) Other long-term benefits
 
 The Company maintains a number of other long-term employee benefit plans that are to be settled more than twelve months after the service was provided that
entitled the employee to the benefit. These plans are accounted for similarly to the defined benefit pension and post-retirement plans with the exception that actuarial gains and losses are recognized immediately in the statement of
operations.
 
 (iii) Termination benefits
 
 Termination benefits are payable when employment is
terminated by the Company before the normal retirement date, or whenever an employee accepts voluntary termination in exchange for these benefits. The Company recognises termination benefits when the Company has a detailed formal plan, approved by
management, to terminate the employment of current employees without possibility of withdrawal. In the case of an offer made to encourage voluntary termination, the termination benefits are measured based on the number of employees expected to
accept the offer. If the effect of the time value of money is material, benefits falling due more than twelve months after the end of the reporting period are discounted to present value.
 
 (t) Income taxes
 
 Current income taxes are recognized with respect to amounts
expected to be paid or recovered for current and prior periods under the tax rates and laws that have been enacted or substantively enacted as at the date of the statement of financial position.
 
 Deferred income taxes are accounted for using the liability method. Under this method, deferred income tax assets and liabilities are recognized for the
estimated tax consequences attributable to differences between the carrying amounts in the consolidated financial statements and the tax bases of assets and liabilities. However, deferred tax is not recognized if it arises from the initial
recognition of goodwill or the initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable income or loss. Deferred income tax assets
and liabilities are measured using enacted or substantively enacted tax rates, as at the date of the statement of financial position, in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of
a change in tax rates on deferred income tax assets and liabilities is recognized in income in the period that includes the substantive enactment date. A deferred tax asset is recognized initially when it is probable that future taxable income will
be sufficient to use the related tax benefits and may be subsequently reduced, if necessary, to an amount that is probable of being realized.
 In general, deferred tax is recognized in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts
in the consolidated financial statements.
 
 Tax expense or recovery is recognized in other comprehensive income or otherwise directly in equity to the extent that it relates to items that are
recognized in other comprehensive income or directly in equity.
 
 Deferred tax assets and liabilities are presented as non-current.
 
 21
 
 (u)  Government grants and tax credits
 
 Government grants and refundable tax credits related to
digital media development products are recognized when there is reasonable assurance that the Company has complied with the conditions associated with the relevant government program. These programs are recorded as either a reduction to the carrying
amount of the related asset or as a recovery in the statement of operations. Government grants and tax credits receivable are recorded and as accounts receivable in the statement of financial position.
 
 (v)  Leases
 
 Leasing agreements which transfer to the Company substantially all the benefits and risks of ownership of an asset are treated as finance
leases, as if the asset had been purchased outright. The assets are included in property and equipment and the related liabilities are shown as obligations under finance leases. Assets held under finance leases are depreciated on a basis consistent
with similar owned assets or the lease term if shorter. The interest element of the obligations under finance leases is included in the statement of operations within interest
expense.
 
 All other leases are operating leases and the rental costs are charged to the statement of operations on a straight-line basis over the lease
term.
 
 (w)  Earnings per
share
 
 Basic earnings per share are calculated using the daily weighted average number of shares outstanding during the period.
 
 Diluted earnings per share are calculated using the daily weighted average number of shares that would have been outstanding during the period had all
potential common shares been issued at the beginning of the period, or when the underlying options were granted, if later. The treasury stock method is employed to determine the incremental number of shares that would have been outstanding had the
Company used proceeds from the exercise of the options to acquire shares provided the shares are not anti-dilutive.
 
 Change in accounting
policy
 
 The Company has adopted the following new standard effective September 1, 2014.
 
 (i) IFRIC 21 - Levies
 
 The standard clarifies the timing for recognizing a liability that is imposed by governments should be based on the activity in the legislation that triggers
the payment. This standard is required to be applied retrospectively for annual periods beginning on or after January 1, 2014, with earlier adoption permitted. The adoption of this standard did not have an impact on the consolidated financial
statements.
 
 22
  Accounting standards issued but not yet
effective
 
 The Company has not early adopted the following new standards and the impacts on the consolidated financial statements have not yet been
determined:
 
 IFRS 9 - Financial Instruments
 
 The standard was issued in July 2014 and addresses
classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 – Financial Instruments – Recognition and Measurement for debt instruments with a new mixed measurement model having
only two categories: amortized cost and fair value through profit or loss. The new standard also addresses financial liabilities and they largely carry forward existing requirements in IAS 39, except that fair value changes to credit risk for
liabilities designated at fair value through profit and loss would generally be recorded in other comprehensive income. In addition, the new standard introduces a new hedge accounting model more closely aligned with risk management activities
undertaken by entities. The standard is required to be applied for annual periods beginning on or after January 1, 2018, with earlier adoption permitted.
 
 IFRS 15 – Revenue from Contracts with
Customers
 
 The standard was issued in May 2014 and is a new standard that specifies the steps and timing for entities to recognize revenue as well as requiring them to
provide more informative, relevant disclosures. The standard replaces IAS 11 - Construction Contracts and IAS 18 - Revenue, as well as various IFRIC and SIC interpretations regarding revenue. The standard is required to be applied for annual periods
beginning on or after January 1, 2018, with earlier adoption permitted.
 
 3.     OPERATING INCOME BEFORE DEPRECIATION, AMORTIZATION, IMPAIRMENT AND RESTRUCTURING
 
 The Company presents operating income before depreciation, amortization, impairment and restructuring, in the 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 IFRS measure and may not be comparable to similar measures presented by other companies.
 
 23
  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 receivable of $1.2 million which was received subsequent to August 31, 2015 (the “Sun
Acquisition”). During the year ended August 31, 2015, the Company incurred acquisition costs of $10.4 million and integration costs of $2.4 million, both of which are included in restructuring and other items in the consolidated statements 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 an additional $140.0 million of First-Lien Notes 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 which were automatically exchanged for the additional First-Lien Notes on April 13, 2015 (“Notes Subscription Receipts”). 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 year ended August 31, 2015, the Company recorded $5.2 million of interest expense related to the Notes Subscription Receipts in the
consolidated statement of operations and incurred $4.9 million of debt issuance costs which are included in the carrying value of long-term debt on the consolidated statement of financial position.
 
 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. As at August 31, 2015, the Company had a total of 281,181,845 Variable Voting Shares and Class C voting shares outstanding (August 31, 2014 –
40,209,619) (note 16). During the year ended August 31, 2015, the Company incurred $9.2 million of share issuance costs which are included in the carrying value of capital stock on the consolidated statement of financial
position.
 
 The remaining financing for the Sun Acquisition was provided through corporate cash and the net proceeds related to the sale of the Montreal Gazette
production facility. The sale closed on October 31, 2014 and the net proceeds of $12.4 million were used to fund a portion of the Sun Acquisition (note 9).
 
 24
  On April 13, 2015, the date of acquisition, the Company made the following payment in order to complete the Sun Acquisition:
 
 CashPayment of cash consideration


305,500Working
capitalWorking capital receivable


(1,208
)Acquisition Consideration


304,292
 
 The fair value of the identifiable assets acquired and
liabilities assumed as at April 13, 2015 were as follows:
 
 Assets
acquiredCash


2,042Accounts receivable (1)


49,526Inventory


5,497Prepaid expenses


2,870Income taxes receivable


3,653Other
assets (2)


3,900Property and equipment (3)


164,514Intangible assets (4)


135,698Total assets acquired


367,700Liabilities
assumedAccounts payable and accrued liabilities


27,263Provisions


123Deferred revenue


16,896Deferred income taxes (5)


38,000Total liabilities assumed


82,282Net assets acquired at fair value


285,418
 
 (1) The fair value of trade receivables was $49.5 million. The gross contractual amount for trade receivables was $52.5 million of which $3.0 million was
deemed not collectible.
 
 (2) As part of the Sun Acquisition, the Company has established four pension benefit plans which will provide 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 of $49.8 million contingent on the completion of an
asset transfer from the QMI pension plans. The Company has determined a preliminary asset transfer in the amount of $53.7 million as at April 13, 2015 subject to the approval of the Financial Services Commission of Ontario (“FSCO”). The
ultimate transfer amount will be based on the transfer amount as of April 13, 2015 adjusted for a net interest adjustment to the approved transfer date by FSCO.  As at April 13, 2015 the Company estimates the net defined benefit asset
acquired to be $3.9 million.
 
 (3)Of the $164.5 million of property and equipment acquired, $20.3 million was assigned to land, $71.3 million was assigned to buildings and leaseholds
with useful lives between 1 to 40 years, $5.3 million was assigned to hardware with useful lives between1 and 3 years and $67.6 million was assigned to machinery and equipment with useful lives between 1 and 25 years.
 
 (4)Of the $135.7 million of intangible assets acquired, $42.6 million was assigned to mastheads with indefinite lives, $4.1 million was assigned to domain names with indefinite lives, $22.0 million was assigned to software with useful lives
between 3 and 7 years, $60.5 million was assigned to subscribers with an estimated useful life of 5 years, $5.8 million was assigned to commercial print customers with an estimated useful life of 4 years and $0.7 million was assigned to domain names
with an estimated useful life of 15 years.
 
 (5)The deferred income taxes of $38.0 million were recognized based on the current taxable temporary differences of the net assets acquired (note
18).





25





Goodwill of $18.9 million has been recognized and consists of the assembled workforce, non-contractual customer relationships and future
synergies.





Acquisition
Consideration


304,292Net assets acquired at fair value


285,418Goodwill (1)


18,874


(1)The Company does not expect any goodwill to be deductible for tax purposes.





The revenue and net earnings of the properties acquired as part of the Sun Acquisition for the period from April 13, 2015 to August 31, 2015 was $157.1
million and $7.2 million, respectively. Had the Sun Acquisition occurred on September 1, 2014, the revenue and net loss of the combined Company for the year ended August 31, 2015, would have been $1,014.3 million (unaudited) and $217.1 million
(unaudited) (including impairment expense of $153.0 million), respectively.





5.      IMPAIRMENT OF GOODWILL AND LONG LIVED ASSETS





The Company’s impairments for the years ended August 31, 2015, 2014 and 2013 consist of the following:





2015


2014


2013Impairment
of goodwill and long lived assetsGoodwill


80,000



-



73,900Intangible assets - mastheads
(note 10)


64,750



-



15,100Intangible assets - domain
names (note 10)


5,213



-



1,300Intangible assets - subscriber
lists (note 10)


737



-



-Property and equipment -
machinery and equipment


-



-



3,600Other
impairmentsAsset held-for-sale - land and
building (note 9)


2,343



-



-Property and equipment - land and building (note 9)


-



-



6,083Impairments


153,043



-



99,983





The Company completed its annual impairment testing for goodwill and indefinite life intangible assets (the “Annual Impairment Test”) as at May
31, 2015 based on management's best estimates of market participant assumptions including WACC. The recoverable amounts, determined based on fair value less costs of disposal, of the Goodwill CGU and individual CGUs, which are primarily individual
newspapers, were determined by utilizing a discounted cash flow approach using cash flow projections based upon financial forecasts prepared by management covering a three year period. The future cash flows are based on management’s best
estimate using market participant assumptions considering historical and expected operating plans, current strategies, economic conditions, and the general outlook for the industry and markets in which the Goodwill CGU and individual CGUs operate.
Cash flows beyond the three year period are extrapolated using estimated growth rates.





26





The after tax discount rate and terminal growth rate used by the Company for the purpose of the Annual Impairment Test for the Goodwill CGU and each of the
individual CGUs was 12.7% and 0.0%, respectively (2014 - 13.2% and 0.0%, respectively) (2013 – 13.4% and 0.0%, respectively). The after tax discount rate represents a WACC for comparable companies operating in the Company’s industry,
based on publicly available information. The WACC is a market participant estimate of the overall required rate of return on an investment for both debt and equity owners and serves as the basis for developing an appropriate discount rate.
Determination of the WACC requires separate analysis of the cost of equity and debt, and considers a market participant risk premium based on an assessment of risks related to the projected cash flows of the Company’s CGUs. The terminal growth
rate does not exceed the long-term terminal growth rate for the business in which the Company’s CGUs operate. As a result of lower than anticipated long-term revenue projections due to economic and structural factors including the uncertainty
of the print advertising market and the rapidly evolving digital advertising market the Company concluded that certain of its assets were impaired. Based on the Annual Impairment Test the Company concluded the carrying value of the Goodwill CGU was
less than its recoverable amount and recorded an impairment charge relating to its goodwill of $80.0 million for the year ended August 31, 2015 (2014 – nil) (2013 $73.9 million). For the Goodwill CGU, any increase in the discount rate or
reduction in the terminal growth rate, assuming a constant cash flow margin, would result in the carrying amount exceeding the reasonable range for the recoverable amount. In addition, the Company concluded the carrying value of three of its
individual CGU’s were less than their recoverable amounts. Accordingly, the Company has recorded an impairment charge of $70.7 million pertaining to certain intangible assets of the three individual CGU’s for the year ended August 31,
2015 (2014 – nil) (2013 - $20.0 million, including an impairment of property and equipment of $3.6 million). As the recoverable amount of these three CGUs are equal to their carrying value any change in the discount rate or terminal growth
rate would impact the impairment recorded. If the terminal growth rate were to decline by 0.5% or if the discount rate were to increase by 0.5%, assuming a constant cash flow margin, the impairment would increase by $2.1 million and $2.9 million,
respectively. There were no tax impacts as a result of the impairment charges.





The Company considered the reasonability of the fair value less costs of disposal results, calculated using the discounted cash flow approach, by comparing
them to transaction multiples with other companies in the industry and found the results under the discounted cash flow approach to be reasonable. Management has developed certain cost saving initiatives which have been incorporated in the financial
forecasts noted above. If these initiatives are not successful the forecasted operating cash flows may be reduced which may result in an additional impairment and such impairment, if any, may be material.





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. During the year ended August 31, 2015 the Company recorded the tax credit as a recovery of compensation expense of $17.3 million as the claim primarily related to
previously recognized compensation expenses. The Company is in the process of completing its final claim under the program for the period of 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.





27





7.      DERIVATIVE FINANCIAL INSTRUMENTS





As at  August 31,  2015


As at  August 31,  2014AssetsEmbedded derivatives (notes 14 and 20)


2,093



18,392Non-current derivative financial instruments


2,093



18,392





The Company’s (gain) loss on derivative financial instruments for the years ended August 31, 2015, 2014 and 2013 consists of the
following:




2015


2014


2013(Gain) loss on embedded derivatives (notes 14 and 20)


18,389



(1,590
)


7,306(Gain) loss on derivative financial instruments


18,389



(1,590
)


7,306





The Company had a foreign currency interest rate swap designated as a cash flow hedge that matured on July 15, 2014 (note 14). The notional principal amount
outstanding on the foreign currency interest rate swap designated as a cash flow hedge as at August 31, 2013 was US$167.5 million. During the year ended August 31, 2014, foreign currency exchange gains of $2.9 million (2013 –$11.3 million)
were reclassified to the consolidated statements of operations from accumulated other comprehensive loss, representing foreign currency exchange gains on the notional amount of the cash flow hedging derivatives. These amounts were offset by foreign
currency exchange losses recognized on the US dollar denominated 12.50% Senior Secured Notes due 2018 (“Second-Lien Notes”) for the years ended August 31, 2014 and 2013. During the year ended August 31, 2014, losses of $4.8 million (2013
- $6.9 million) were reclassified from accumulated other comprehensive loss to interest expense in the consolidated statements of operations related to the effect of the derivative financial instruments on the Company’s interest expense.
During the years ended August 31, 2014 and 2013, no ineffectiveness was recognized in the consolidated statements of operations related to the Company’s cash flow hedges.





8.      INVENTORY





As at  August 31,  2015


As at  August 31,  2014Newsprint


3,251



1,748Other


3,628



546Total inventory


6,879



2,294





No inventories were carried at net realizable value at August 31, 2015 and 2014.





28





9.      PROPERTY AND EQUIPMENT





Land (1)


Buildings and leaseholds (1)


Computer  hardware


Machinery and equipment


TotalCostAugust 31, 2013


47,620



103,264



18,426



139,299



308,609Additions


-



2,940



4,093



3,212



10,245Disposals


-



(11
)


(2,099
)


(6,394
)


(8,504
)Transfer - asset held for sale (2)


(5,560
)


(6,440
)


-



(24,000
)


(36,000
)August 31, 2014


42,060



99,753



20,420



112,117



274,350Additions


-



464



3,363



379



4,206Acquisition (note 4)


20,327



71,285



5,323



67,579



164,514Disposals (3)


-



(12
)


(3,418
)


(5,418
)


(8,848
)Transfer - asset held for sale (3)


(11,050
)


(9,050
)


-



-



(20,100
)Other adjustments


-



-



(43
)


43



-August 31, 2015


51,337



162,440



25,645



174,700



414,122Accumulated depeciation and accumulated impairment lossesAugust 31, 2013


-



(20,933
)


(12,081
)


(52,422
)


(85,436
)Depreciation


-



(8,083
)


(2,738
)


(55,825
)


(66,646
)Disposals


-



11



2,098



6,346



8,455Transfer - asset held for sale (2)


-



634



-



23,650



24,284August 31, 2014


-



(28,371
)


(12,721
)


(78,251
)


(119,343
)Depreciation


-



(9,763
)


(3,875
)


(18,319
)


(31,957
)Disposals (3)


-



12



3,417



4,666



8,095Transfer - asset held for sale (3)


-



3,594



-



-



3,594Other adjustments


-



-



43



(43
)


-August 31, 2015


-



(34,528
)


(13,136
)


(91,947
)


(139,611
)Net carrying valueAugust 31, 2014


42,060



71,382



7,699



33,866



155,007August 31, 2015


51,337



127,912



12,509



82,753



274,511





(1)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 production facility with a carrying value of $10.5 million as held-for-sale in the consolidated statement of financial position. Upon classification of the Edmonton Journal production
facility from property and equipment to asset held-for-sale in the year ended August 31, 2013 the Company recorded an impairment of $6.1 million.  During the year ended August 31, 2015, the Company sold the land and building related to the
Edmonton Journal production facility for gross proceeds of $9.4 million. Based on the net proceeds, the recoverable amount, or fair value less costs of disposal, of the production facility was reduced to $8.2 million and as a result, during the year
ended August 31, 2015, the Company recorded an impairment of $2.3 million. Pursuant to the First-Lien Notes indenture, the net proceeds of $8.2 million from the sale are required to be reinvested in the business and are being held in trust by the
First-Lien noteholders and as a result are recorded as restricted cash on the consolidated statement of financial position. If the amount not reinvested in the business within the next year exceeds $5.0 million the Company will be required to make
an offer to redeem First-Lien Notes.


(2)As at August 31, 2014, due to the
outsourcing of the production of the Montreal Gazette, the production facility and equipment were no longer required, and as a result the Company classified the production facility and equipment with a carrying value of $11.7 million as
held-for-sale in the consolidated statement of financial position. During the year ended August 31, 2015, the Company sold the land, building and equipment related to the Montreal Gazette production facility for gross proceeds of $12.5 million and
realized a gain on sale of $0.7 million in the consolidated statement of operations.  The net proceeds of $12.4 million from the sale were used to fund a portion of the Sun Acquisition (note 4).


(3) Due to the outsourcing of the production of the Vancouver newspapers, which includes both The Vancouver Sun and The
Province, in February 2015 the production facility was no longer required and as a result the Company classified the production facility as held-for-sale in the consolidated statement of financial position.  During the year ended August
31, 2015, the Company sold the land and building related to the Vancouver newspapers production facility for gross proceeds of $17.6 million and realized a gain on sale of $0.4 million in the consolidated statements of operations. Net proceeds from
the sale of the Vancouver newspapers production facility of $17.2 million are recorded as restricted cash on the consolidated statement of financial position and pursuant to the First-Lien Notes indenture were used to make an offer to redeem an
equal amount of First-Lien Notes (note 14). In addition, during the year ended August 31, 2015, the related production equipment of the Vancouver newspapers production facility was sold for net proceeds of $0.8 million and the Company realized a
nominal gain.





29





10.   INTANGIBLE ASSETS





Finite Life

Indefinite LifeSoftware


Subscribers


Customer relationships


Domain names

Mastheads


Domain names


TotalCostAugust 31, 2013


54,477



145,700



11,834



6,947



229,100



27,447



475,505Additions


3,109



-



-



-



-



-



3,109Disposals


(819
)


-



-



-



-



-



(819
)August 31, 2014


56,767



145,700



11,834



6,947



229,100



27,447



477,795Additions


753



-



-



-



-



-



753Acquisition (note 4)


21,948



60,500



5,800



740



42,600



4,110



135,698Disposals


(3,015
)


-



-



-



-



-



(3,015
)August 31, 2015


76,453



206,200



17,634



7,687



271,700



31,557



611,231Accumulated amortization and accumulated impairment lossesAugust 31, 2013


(34,291
)


(91,456
)


(7,782
)


(1,816
)


(15,100
)


(1,300
)


(151,745
)Amortization


(7,199
)


(29,097
)


(2,351
)


(433
)


-



-



(39,080
)Disposals


819



-



-



-



-



-



819August 31, 2014


(40,671
)


(120,553
)


(10,133
)


(2,249
)


(15,100
)


(1,300
)


(190,006
)Amortization


(8,488
)


(28,949
)


(2,259
)


(450
)


-



-



(40,146
)Impairments (note 5)


-



(737
)


-



-



(64,750
)


(5,213
)


(70,700
)Disposals


3,015



-



-



-



-



-



3,015August 31, 2015


(46,144
)


(150,239
)


(12,392
)


(2,699
)


(79,850
)


(6,513
)


(297,837
)Net carrying valueAugust 31, 2014


16,096



25,147



1,701



4,698



214,000



26,147



287,789August 31, 2015


30,309



55,961



5,242



4,988



191,850



25,044



313,394





11.   GOODWILL


GoodwillAugust 31, 2013


149,600August 31, 2014


149,600Acquisition (note 4)


18,874Impairment (note 5)


(80,000
)August 31, 2015


88,474





12.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES





As at August 31, 2015


As at August 31, 2014Trade accounts payable


19,525



8,059Accrued liabilities


52,977



40,800Accrued interest on long-term debt


14,581



10,214Accounts payable and accrued liabilities


87,083



59,073


30





13.   PROVISIONS





Restructuring (a)


Other provisions (b)


TotalProvisions as at August 31, 2014


15,439



824



16,263Acquisition (note 4)


47



76



123Net charges (recoveries)


21,755



(279
)


21,476Payments


(18,849
)


(25
)


(18,874
)Provisions as at August 31, 2015


18,392



596



18,988Portion due within one year


(18,392
)


(154
)


(18,546
)Non-current provisions


-



442



442





(a) Restructuring





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 a series of 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 and incurred restructuring
expense that consists of a series of involuntary and voluntary buyouts. 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.





14. LONG-TERM DEBT





As at August 31, 2015


As at August 31, 2014Maturity

Principal


Financing fees, discounts and other


Carrying value of debt


Carrying value of debt8.25% Senior Secured Notes(1)
August 2017


328,780



(4,604
)


324,176



201,01312.5% Senior Secured Notes (US$268.6M)(2) (*)
July 2018



353,443



(5,287
)


348,156



285,287Senior Secured Asset-Based Revolving Credit Facility (3)
October 2015


-



-



-



N/ATotal long-term debt











672,332



486,300Portion due within one year











(25,996
)


(12,500
)Non-current long-term debt











646,336



473,800(*) - US$ principal translated to the Canadian equivalent based on the foreign exchange rate on August 31, 2015 of US$1:$1.3157 (August 31, 2014 -
US$1:$1.0873).


31





(1)8.25% Senior Secured Notes due 2017 (“First-Lien Notes”)





As at August 31, 2015, Postmedia Network has $328.8 million of First-Lien Notes outstanding (August 31, 2013 - $205.5 million). During the year ended August
31, 2015, the Company financed the Sun Acquisition in part through the issuance of additional First-Lien Notes (note 4). Accordingly, on April 13, 2015 the Company exchanged the Notes Subscription Receipts of $140.0 million, at a premium of 0.5% for
$139.3 million principal amount of First-Lien Notes. The effective interest rate of the First-Lien Notes which amortizes the aggregate initial financing fees, premium and embedded derivative based on the initial estimated future cash flows is 9.3%.
The First-Lien Notes are secured on a first priority basis by substantially all of the assets of Postmedia Network and the assets of the Company (“First-Lien Notes Collateral”), with the exception of those assets that comprised the ABL
Collateral (defined below) and, on a second-priority basis by the ABL Collateral). The First-Lien Notes are subject to minimum annual principal redemptions equal to 5% of the aggregate original principal amount of $389.3 million. The annual
principal redemptions are payable in semi-annual instalments of $9.7 million on April 30 and October 31 of each year, with the exception of the first instalment of $8.9 million which was paid on April 30, 2013. In addition, on November 12, 2012, the
Company redeemed $23.2 million aggregate principal amount of First-Lien Notes at par in accordance with the terms and conditions of the First-Lien Notes indenture with the net proceeds from the disposition of the land and building located at 1450
Don Mills Road in Don Mills, Ontario. During the year ended August 31, 2015, the proceeds from the sale of the Vancouver newspapers production facility of $17.2 million were used to make an offer to redeem an equal amount of First-Lien Notes (note
9). A total of $6.5 million aggregate principal amount of First-Lien Notes were tendered for repurchase and subsequent to August 31, 2015, the Company made a payment of $6.7 million (including accrued interest of $0.2 million) to redeem the notes
(note 25). The remaining restricted cash of $10.5 million is being held in trust by the Second-Lien noteholders and is required to be reinvested in the business within a year 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 Second-Lien Notes.





Interest will accrue from the date of issuance and is payable semi-annually in arrears on April 30 and October 31 of each year. After February 28, 2013, and
for each subsequent quarter ending February and August, if the consolidated First-Lien Notes leverage ratio exceeds 2:1, the Company is obligated to make a mandatory First-Lien Notes excess cash flow offer, calculated based on 50% of the
Company’s excess cash flow provided this amount is at least 1% of the original issuance. During the year ended August 31, 2015, the consolidated First-Lien Notes leverage ratio exceeded 2:1, however the excess cash flow did not meet the
minimum threshold.





Other than as described above, the Company is not required to make any other mandatory payments or offers with respect to the First-Lien Notes. The Company
may, at its option, redeem all or part of the First-Lien Notes at any time prior to August 16, 2015 at a make whole price, and at a premium of 6.188% for the twelve month period beginning on August 16, 2015, and a premium of 4.125% for the twelve
month period beginning on August 16, 2016. Additionally, under certain circumstances the Company may redeem up to 35% of the aggregate principal amount of the First-Lien Notes at a premium equal to 8.25%. Certain of the prepayment options represent
an embedded derivative that is accounted for separately at fair value. During the year ended August 31, 2015, the Company recognized an embedded derivative of $2.1 million related to the issuance of additional First-Lien Notes. As at August 31,
2015, the embedded derivative asset has a fair value of $2.0 million (August 31, 2014 - $3.6 million), which is recorded on the consolidated statement of financial position as a non-current asset in derivative financial instruments (note 7). During
the year ended August 31, 2015 the Company recorded a loss of $3.7 million (2014 – gain of $3.0 million) (2013 – loss of $0.2 million) in (gain) loss on derivative instruments in the consolidated statement of operations related to this
embedded derivative (note 7).





32





The First-Lien Notes are also subject to covenants that restrict the Company’s ability to incur additional indebtedness, pay dividends or make other
distributions or repurchase or redeem certain indebtedness or capital stock, make loans and investments, sell assets, incur certain liens, enter into certain transactions with affiliates, alter the businesses it conducts, enter into agreements
restricting its subsidiaries’ ability to pay dividends and consolidate, merge or sell all or substantially all of its assets.





(2)12.50% Senior Secured Notes due 2018 (“Second-Lien Notes”)





As at August 31, 2015, Postmedia Network has US$268.6 million (CDN$353.4 million) of Second-Lien Notes outstanding (August 31, 2014 - US$268.6 million
(CDN$292.1 million). The effective interest rate of the Second-Lien Notes which amortizes the initial financing fees, discounts and other based on the initial estimated future cash flows is 13.3%. The Second-Lien Notes are secured on a second
priority basis by the First-Lien Notes Collateral. There were no redemptions of Second-Lien Notes during the year ended August 31, 2015, 2014 and 2013.




The Second-Lien Notes have a variable prepayment option subject to a premium of 3.125% for the period July
15, 2015 to July 14, 2016 and nil thereafter. Certain of the prepayment options represent an embedded derivative that is accounted for separately at fair value. As at August 31, 2015, the embedded derivative asset has a fair value of $0.1 million
(August 31, 2014 - $14.8 million) which is recorded on the consolidated statement of financial position as a non-current asset in derivative financial instruments (note 7). During the year ended August 31, 2015 the Company recorded a loss of $14.7
million (2014 –$1.4 million) (2013 –$7.1 million) in (gain) loss on derivative financial instruments in the consolidated statement of operations related to this embedded derivative (note 7).




The Company had a foreign currency interest rate swap with a notional amount of US$167.5 million with a
fixed currency exchange rate of US$1:$1.035, a fixed interest rate of 14.78% that matured on July 15, 2014. On July 15, 2014, the Company net settled the notional amount of US$167.5 million of the foreign currency interest rate swap and received
cash consideration of $6.1 million related to the final exchange of principal. The Company designated this hedging arrangement as a cash flow hedge and was 100% effective to maturity on July 15, 2014.




The Second-Lien Notes are subject to covenants that restrict the Company’s ability to incur additional
indebtedness, pay dividends or make other distributions or repurchase or redeem certain indebtedness or capital stock, make loans and investments, sell assets, incur certain liens, enter into certain transactions with affiliates, alter the
businesses it conducts, enter into agreements restricting its subsidiaries’ ability to pay dividends and consolidate, merge or sell all or substantially all of its assets.





33





(3)Senior secured asset-based revolving credit facility





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 replaced the Company’s previous facility that matured on July 13, 2014. The ABL Facility matured on October 16, 2015 and 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. The ABL Facility calculated interest at either bankers acceptance rates plus 3.75% (reduced to 3.50% when the average availability
under the ABL Facility is greater than $10 million) or Canadian prime plus 2.75%(reduced to 2.50% when the average availability under the ABL Facility is greater than
$10 million).  During the year ended August 31, 2015, the Company incurred $0.6 million of debt issuance costs which will be amortized to interest expense in the consolidated statement of operations over the term of the ABL Facility.
Included in other assets on the consolidated statement of financial position as at August 31, 2015 were financing fees of $0.1 million with respect to the ABL Facility. Amortization expense in respect of the financing fees of the ABL Facilities for
the year ended August 31, 2015 was $0.6 million (2014 - $0.7 million) (2013 - $0.8 million). As at August 31, 2015, the Company had no amounts drawn and had availability of $20.0 million on the ABL Facility. Subsequent to August 31, 2015 the ABL
Facility matured and was not replaced (note 25).




Principal undiscounted minimum payments of long-term debt, based upon terms and conditions existing at August 31, 2015 are as follows:





2016


25,9962017


302,7842018


353,443Thereafter


-682,223





Aggregate interest expense relating to long-term debt for the year ended August 31, 2015 was $64.8 million (2014 - $61.5 million) (2013 - $61.2
million).





15.   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 as well as a defined contribution pension benefit plan. The defined benefit pension plans are registered under the Ontario Pension Benefits Act, 1987 and provide benefits upon retirement, termination or death based upon years of service and
final average salary. The post-retirement benefit plans are non-contributory and include health and life insurance benefits available to eligible retired employees. The other long-term benefit plans are non-contributory and include disability,
health and life insurance benefits available to eligible active employees. The Company pays contributions to the defined contribution pension benefit plan which provides benefits upon retirement to eligible employees.





34





The net defined benefit plan obligation related to the Company’s pension benefit plans, post-retirement benefit plans and other long-term employee
benefit plans recorded in other non-current liabilities on the consolidated financial position as at August 31, 2015 and 2014 are as follows:





As at August 31, 2015


As at August 31, 2014Pension benefits


56,653



52,978Post-retirement benefits


65,202



64,609Other long-term employee benefits


22,140



21,960Net defined benefit plan obligation


143,995



139,547





Changes to the Company’s pension benefit plans, post-retirement benefit plans and other long-term employee benefit plans benefit obligations and the
fair value of plan assets for the year ended August 31, 2015 and 2014 are as follows:





Pension benefits


Post-retirement benefits


Other long-term employee benefits2015 (1)


2014


2015


2014


2015


2014Change in benefit obligationsBenefit obligations, beginning
of year


495,912



433,126



64,609



55,691



39,460



20,632Current service
cost


13,066



10,704



1,465



1,215



3,388



3,020Interest cost


20,143



20,661



2,528



2,595



723



852Employee
contributions


3,118



3,625



-



-



-



-Actuarial losses
(gains)


(4,470
)


68,502



(875
)


7,325



(1,416
)


(101
)Benefits paid


(29,734
)


(40,706
)


(2,525
)


(2,217
)


(2,515
)


(2,443
)Settlement funds in trust (2)


-



-



-



-



(17,500
)


17,500Benefit obligations, end of year


498,035



495,912



65,202



64,609



22,140



39,460Change in fair value of plan assetsFair value of plan assets,
beginning of year


442,934



389,060



-



-



17,500



-Expected return on plan assets
(3)


17,817



18,491



-



-



-



-Actuarial gains
(losses)


(6,789
)


55,135



-



-



-



-Employer
contributions


14,779



18,217



2,525



2,217



2,515



2,443Employee
contributions


3,118



3,625



-



-



-



-Benefits paid


(29,734
)


(40,706
)


(2,525
)


(2,217
)


(2,515
)


(2,443
)Administration
costs


(743
)


(888
)


-



-



-



-Settlement funds in trust (2)


-



-



-



-



(17,500
)


17,500Fair value of plan assets, end of year


441,382



442,934



-



-



-



17,500Net defined benefit plan obligationsBenefit
obligations


498,035



495,912



65,202



64,609



22,140



39,460Fair value of plan assets


441,382



442,934



-



-



-



17,500Net defined benefit plan obligations (4)


56,653



52,978



65,202



64,609



22,140



21,960




(1) Pension benefits for the year ended August 31, 2015 include the benefits earned after April 13, 2015 for the four pension benefit plans created as part of the Sun Acquisition. 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 consolidated statement of financial position (note 4). The estimated fair value of plan assets and defined
benefit obligation related to these plans as at August 31, 2015 are $54 million and $52 million, respectively. Non-union members have been offered enrollment in the Company’s defined contribution plan as at April 13, 2015 and the Company has
not assumed any defined benefit obligation related to such employees.




35




(2) During the year ended August 31, 2014, the Company made a payment of $17.5 million in trust which was disbursed in February 2015 to fund the restructuring payments related to the outsourcing of the production of the Vancouver newspapers. The
Company accounted for this trust as an other long-term employee benefit plan.


(3) The actual return on plan assets for the year ended August 31, 2015 was $11.0 million (2014 - $73.6 million).


(4) As at August 31, 2015 and 2014, none of the Company’s pension benefit plans were fully
funded.





The investment strategy for pension plan assets is to utilize a balanced mix of equity and fixed income portfolios to earn a long-term investment return that
meets the Company’s pension plan obligations. Active management strategies and style diversification strategies are utilized for the equity portfolios in anticipation of realizing investment returns in excess of market indices. The
Compensation and Pension Committee, composed of certain members of the Company’s Board oversees and monitors the management and overall governance of the pension and retirement plans sponsored and administered by the Company. The Compensation
and Pension Committee, among other things, oversees the investment strategy for the pension plan assets, including adopting the Company’s investment policy and monitoring compliance with the policy, appoints the investment fund managers and
reviews their performance. The utilization of investment fund managers who adopt different style mandates allows the Company to achieve a diversified portfolio and reduce portfolio risks.


The Company's investment policy addresses the permitted and prohibited investments for the plan assets including restrictions on the fixed income quality,
and quantity of investments in various asset classes as follows:





●
The fixed income quality restrictions include a minimum rating of “BBB”
from the Dominion Bond Rating Services or equivalent for bonds and debentures; a minimum rating of “R-1” from the Dominion Bond Rating Services or equivalent for short-term investments; and a minimum rating of “P-1” or
equivalent for preferred stock.


●
The quantity of investments allowed in various asset classes ranges from 5% to 45%
and contains restrictions such that no single equity holding shall exceed 10% of the book value of plan assets, no single equity holding shall exceed 15% of the market value of an investment managers equity portfolio, no single equity holding will
exceed 30% of the voting shares of any such corporation, no more than 10% of any investment managers bond portfolio may be invested in bonds of any such company other than bonds of the federal government or bonds of any such provincial government
with a minimum rating of AA and no more than 15% of the market value of any investment managers bond portfolio may be invested in bonds with a rating of BBB or equivalent.


●
Investment managers are prohibited from making direct investments in resource
properties, mortgages, venture capital financing, bonds of foreign issuers, investing in companies for the purposes of managing them, purchasing securities on margin or making short sales.


●
The pension plans are not permitted to directly invest in debt or equity securities
of the Company.





The pension benefit plans of the Company have an asset mix as at August 31, 2015 and 2014, as follows:





As at August 31, 2015


As at August 31, 2014


Target

Fair value hierarchyCanadian equities


28
%


31
%


30
%
Level 2Foreign equities


32
%


30
%


30
%
Level 2Fixed income


40
%


39
%


40
%
Level 2Cash


0
%


0
%


0
%
Level 1


36





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 from continuing operations in the consolidated statements of operations for the years ended August 31, 2015, 2014 and 2013 are as follows:




Pension benefits


Post-retirement benefits


Other long-term employee benefits


Total2015


2014


2013


2015


2014


2013


2015


2014


2013


2015


2014


2013Current service
cost


13,066



10,704



12,095



1,465



1,215



1,790



3,388



3,020



2,328



17,919



14,939



16,213Administration
costs


743



888



723



-



-



-



-



-



-



743



888



723Net actuarial (gains)
losses


-



-



-



-



-



-



(1,416
)


(101
)


2,658



(1,416
)


(101
)


2,658Net financing expense


2,326



2,170



4,189



2,528



2,595



2,669



723



852



600



5,577



5,617



7,458Net defined benefit plan
expense (1)


16,135



13,762



17,007



3,993



3,810



4,459



2,695



3,771



5,586



22,823



21,343



27,052Employer
contributions to definedcontribution plans


4,304



3,715



3,833



-



-



-



-



-



-



4,304



3,715



3,833Total plan expense


20,439



17,477



20,840



3,993



3,810



4,459



2,695



3,771



5,586



27,127



25,058



30,885




(1) During the year ended August 31, 2013, there was an arbitrator’s ruling against the Company that resulted in a change to benefits provided under an other long-term employee benefit plan. As a result the Company recorded an expense for
the year ended August 31, 2013 of $2.3 million, consisting of actuarial losses of $1.8 million and cash costs of $0.5 million, which is included in restructuring and other items in the consolidated statement of operations. All other current service
costs, administration costs and net actuarial losses (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 and losses related to the Company’s pension benefit plans and post-retirement benefit plans recognized in the consolidated statements
of comprehensive loss for the years ended August 31, 2015, 2014 and 2013 are as follows:




Pension benefits


Post-retirement benefits


Total2015


2014


2013


2015


2014


2013


2015


2014


2013Net actuarial gains (losses) on employee benefits


(2,319
)


(13,367
)


51,816



875



(7,325
)


7,765



(1,444
)


(20,692
)


59,581Net actuarial gains (losses) recognized in other comprehensive income (loss)


(2,319
)


(13,367
)


51,816



875



(7,325
)


7,765



(1,444
)


(20,692
)


59,581


The cumulative actuarial losses related to the Company’s pension benefit plans and post-retirement benefit plans recognized directly in deficit in the
consolidated statement of financial position as at August 31, 2015 are as follows:




2014Cumulative actuarial losses
recognized directly in deficit as at August 31, 2014


(20,297
)Net actuarial losses recognized in other comprehensive income (loss) and deficit


(1,444
)Cumulative actuarial losses recognized directly in deficit as at August 31, 2015


(21,741
)





37





Significant actuarial assumptions in measuring the Company’s benefit obligations as at August 31, 2015 and 2014 and employee benefit plan expense for
the years ended August 31, 2015, 2014 and 2013, are as follows:


Pension benefits


Post-retirement benefits(1)


Other long-term employee benefits2015


2014





2015


2014





2015


2014Benefit obligations(2)Discount rate (3)


4.05
%


4.00
%





4.00
%


3.90
%





2.90
%


3.00
%Rate
of compensation increase


2.75
%


2.75
%





2.75
%


2.75
%





5.00
%


5.00
%2015



2014



2013



2015



2014



2013



2015



2014



2013Benefit
plan expenseDiscount rate


4.00
%


4.70
%


4.35
%


3.90
%


4.65
%


4.30
%


3.00
%


3.80
%


3.35
%Rate of compensation increase


2.75
%


2.75
%


2.75
%


2.75
%


2.75
%


2.75
%


5.00
%


5.00
%


2.75
%


(1)The assumed health care cost trend rates for the next year used
to measure the expected cost of benefits covered for the post-retirement benefit health and life plans were 7.5% for medical, with an ultimate rate of 4.5% over 12 years to 2027.


(2)As at August 31, 2015 and 2014, the duration of the pension,
post-retirement and other long term employee benefit obligation was 15, 14 and 6 years, respectively.


(3)A change in the discount rate used in the valuation of defined benefit obligations, affects the reported funded status of the Company’s plans as well
as the net benefit cost in subsequent years. As at August 31, 2015, a 50 basis-point decrease in the discount rate would increase the pension, post-retirement and other long-term employee benefit obligations by $38.2 million, $4.3 million and $0.7
million, respectively, and a 50 basis-point increase in the discount rate would decrease the pension, post-retirement and other long-term employee defined benefit obligations by $34.0 million, $3.8 million and $0.7 million,
respectively.





The most recently filed actuarial funding valuations for all of the pension benefit plans were as of December 31, 2013 and indicated they had an aggregate
going concern actuarial surplus of $24.6 million and a wind up deficiency (which assumes that the pension plans terminate on their actuarial valuation date) of $57.7 million. The Company expects to contribute $16.0 million (including special
payments of $10.6 million) to its defined benefit pension plans, $2.8 million to its post-retirement benefit plans and $2.6 million to its other long-term employee benefit plans for the year ending August 31, 2016. In addition, as part of the Sun
Acquisition the Company has agreed to reimburse QMI for any special payments made to the former QMI plans after April 12, 2015 up until the completion of the asset transfer estimated to be approximately $0.6 million on an annual basis. The
Company’s next required actuarial funding valuations for its existing defined benefit pension plans will be as at December 31, 2016 and must be complete by September 30, 2017 and upon approval of the asset transfer by FSCO, the Company will
perform actuarial funding valuations for the four defined benefit pension plans created as part of the Sun Acquisition (note 4).





16.   CAPITAL STOCK





The
 Company’s shares trade on the Toronto Stock Exchange (“TSX”) under the symbols PNC.A for its Class C voting shares (“Voting Shares”) and PNC.B for its Variable Voting Shares.




Authorized capital stock




The Company’s authorized capital stock consists of two classes; Voting Shares and Variable Voting
Shares. The Company is authorized to issue an unlimited number of Voting Shares and Variable Voting Shares.





38





Voting Shares





Holders of the Voting Shares shall be entitled to one vote at all meetings of shareholders of the Company. The Voting Shares and Variable Voting Shares rank
equally on a per share basis in respect of dividends and distributions of capital.




A Voting Share shall be converted into one Variable Voting Share automatically if a Voting Share becomes held or beneficially owned or controlled, by a
person who is a citizen or subject of a country other than Canada. In addition to the automatic conversion feature, a holder of Voting Shares shall have the option at any time to convert some or all of such shares into Variable Voting Shares on a
one-for-one basis and to convert those shares back to Voting Shares on a one-for-one basis.




Variable Voting Shares




The Variable Voting Shares have identical terms as the Voting Shares and rank equally with respect to
voting, dividends and distribution of capital, except that Variable Voting Shares shall not carry one vote per Variable Voting Share if:




(a)the number of issued and outstanding Variable Voting Shares exceeds 49.9% of the total number of all issued and outstanding shares;
or




(b)the total number of votes that may be cast by, or on behalf of, holders of Variable Voting Shares present at any meeting of holders of Shares exceeds 49.9%
of the total number of votes that may be cast by all holders of Shares present and entitled to vote at such meeting.




If either of the above-noted thresholds is surpassed at any time, the vote attached to each Variable Voting
Share will decrease automatically to equal the maximum permitted vote per Variable Voting Share.





Postmedia Rights Plan





Under the Postmedia Rights Plan, one right has been issued by Postmedia in respect of each Voting Share and Variable Voting Share. A right shall become
exercisable upon a person, including any party related to it, acquiring or attempting to acquire beneficial ownership of 20% or more of the outstanding shares of a class without complying with the “Permitted Bid” provisions of the
Postmedia Rights Plan. For purposes of determining beneficial ownership under the Postmedia Rights Plan, Variable Voting Shares beneficially owned or controlled by a person or subject of Canada are deemed to also include the Voting Shares into which
such Variable Voting Shares could be converted. Should such an acquisition occur or be announced, subject to all other provisions of the Postmedia Rights Plan, each right will entitle the holder to purchase from Postmedia additional shares at a 90%
discount to the prevailing market price. This purchase could cause substantial dilution to the person or group of persons attempting to acquire control of Postmedia, other than by way of a Permitted Bid. The Board has discretion to waive the
application of the Postmedia Rights Plan, and to amend the Postmedia Rights Plan at any time, or redeem the rights for $0.000001 per right.




The Postmedia Rights Plan was reapproved at the Annual Shareholder meeting during 2014 and will remain in
force until the earlier of the Termination Time (the time at which the right to exercise rights will terminate pursuant to the Postmedia Rights Plan) and the Annual Shareholder meeting of Postmedia three years thereafter unless at or prior to such
meeting the shareholders ratify the continued existence of the Postmedia Rights Plan.





39





Issued and outstanding capital stock




Voting Shares


Variable Voting Shares


Total SharesNumber


$ 000's


Number


$ 000's


Number


$ 000'sBalance as
of August 31, 2013


982,061



9,894



39,227,558



361,238



40,209,619



371,132Conversions


(37,342
)


(346
)


37,342



346



-



-Balance as
of August 31, 2014


944,719



9,548



39,264,900



361,584



40,209,619



371,132Conversions



95,434



185



(95,434
)


(185
)


-



-Shares issued (note
4)


-



-



240,972,226



173,500



240,972,226



173,500Share issuance costs (note 4)


-



-



-



(9,164
)


-



(9,164
)Balance as of August 31, 2015


1,040,153



9,733



280,141,692



525,735



281,181,845



535,468




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 years ended August 31, 2015, 2014 and 2013. No reconciling items in the computation of net loss exist.





2015


2014


2013Basic weighted average shares
outstanding during the period


133,297,520



40,209,619



40,239,796Dilutive effect of RSUs


-



-



-Diluted weighted average shares outstanding during the period


133,297,520



40,209,619



40,239,796Options and RSUs outstanding which are anti-dilutive


2,043,000



1,734,000



1,288,000




17.    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 maximum number of options available for issuance under the Option Plan is 3.0 million and shall not exceed 10% of the Company’s issued and
outstanding shares. The issued options entitle the holder to acquire one share of the Company at an exercise price no less than the fair value of a share at the date of grant, of which fair value is determined to be the volume-weighted average
trading price of the Voting Shares on the TSX for the five trading days immediately preceding the issuance of such options. The issued options vest as follows: 20% immediately with the remainder vesting evenly over 4 years on the anniversary date of
the date of grant. Each option may be exercised during a period not exceeding 10 years from the date of grant.





40





During the year ended August 31, 2015, the Company granted 0.7 million options under the Option Plan (2014 – 0.6 million). The fair value of the
underlying options was estimated using the Black-Scholes option pricing model. The weighted average fair value of the issued options and key assumptions used in applying the Black-Scholes option pricing model were as follows:




2015


2014Weighted average fair
value

$
0.61


$
0.94Key assumptionsExercise Price

$
1.81


$
2.02Risk-free interest rate (1)


0.66
%


1.38
%Dividend yield


-



-Volatility factor(2)


37.57
%


52.73
%Expected life of options(3)

5 years

5 years(1)Based on Bank of Canada five year benchmark bond yield in effect on the date of grant.(2)Based on the volatility of the Company's shares.(3)Based on contractual terms and a published academic study.




The following table provides details on the changes to the issued options, which are presented in whole
numbers, for the years ended August 31, 2015, 2014 and 2013:


2015


2014


2013Options


Weighted average exercise price


Options


Weighted average exercise price


Options


Weighted average exercise priceBalance beginning of year


1,710,000


$
6.66



1,208,000


$
8.69



1,480,000


$
8.74Granted


680,000


$
1.81



560,000


$
2.02



-


$
-Forfeited


(152,000
)

$
(3.16
)


(32,000
)

$
(3.12
)


(128,000
)

$
(8.57
)Cancelled


(9,000
)

$
(1.98
)


(26,000
)

$
(5.41
)


(144,000
)

$
(9.28
)Balance end of year


2,229,000


$
5.44



1,710,000


$
6.66



1,208,000


$
8.69Vested options at end of year - exercisable


1,443,000


$
7.26



1,134,000


$
8.43



808,000


$
9.14


During the year ended August 31, 2015, the Company recorded compensation expense relating to the Option Plan of $0.3 million (2014 - $0.6 million) (2013 -
$0.5 million), with an offsetting credit to contributed surplus.




Total unrecognized compensation expense is $0.3 million, which is expected to be recognized over the next four years.




Restricted share unit plan




The Company has a restricted share unit plan (the “RSU Plan”). The RSU Plan provides for the
grant of restricted share units (“RSUs”) to participants, being current, part-time or full-time officers, employees or consultants of the Company. The maximum aggregate number of RSUs issuable pursuant to the RSU Plan outstanding at any
time shall not exceed 0.6 million Voting Shares or Variable Voting Shares (“Shares”) of the Company. The RSU Plan is administered by the Board.





41





Each RSU will be settled for one Share, without payment of additional consideration, after such RSU has vested; however, at any time, a participant may
request in writing, upon exercising vested RSUs, subject to the consent of the Company, that the Company pay an amount in cash equal to the aggregate current fair market value of the Shares on the date of such exercise in consideration for the
surrender by the participant to the Company of the rights to receive Shares under such RSUs. The Board may in its sole discretion accelerate the vesting date for all or any RSUs for any participant at any time and from time to time. RSUs are
non-transferable. The terms and conditions of RSUs granted under the RSU Plan will be subject to adjustments in certain circumstances, at the discretion of the Board and contain certain conditions regarding the resignation, cessation and termination
of participants.




The Company has granted a tandem award in July 2010 that provides a choice to either exercise 0.6 million stock options or 0.6 million RSU’s. Of the
tandem award, 0.1 million vested immediately on the date of the grant with the remaining 0.5 million vesting evenly over a four year period on the anniversary date of the date of grant. As at August 31, 2015 and 2014, 0.6 million RSU’s had
vested. The fair value of the tandem award was estimated by using a grant date fair value per share of $9.26. The fair value of $9.26 per share was based on the per share proceeds received on the initial capitalization of the Company. The Company
granted no RSU’s during the years ended August 31, 2015, 2014 and 2013. During the year ended August 31, 2015, the Company recorded compensation expense relating to the tandem award of nil (2014 - $0.3 million) (2013 - $0.6 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.




Under the DSU Plan, non-employee directors of the Company are required to elect to receive at least 50% (and may irrevocably elect to receive up to 100%) of
their annual fees satisfied in the form of deferred share units (“DSUs”), and may receive additional grants of DSUs under the DSU Plan. The number of DSUs to be credited to a director will be calculated, on the date that fees are payable
to such director, by dividing the dollar amount elected by such director in respect of such fees by the value of a share. The value of a share will be the volume-weighted average trading price of the Voting Shares for the five trading days
immediately preceding the issuance of such DSU’s. As at August 31, 2015, the fair value per DSU was based on a fair value per share of $0.58 (August 31, 2014 – $1.92). The vesting conditions (which may include time restrictions,
performance conditions or a combination of both) of each DSU granted under the DSU Plan, will be determined by the Board, and on redemption (which would occur after the holder of the DSUs ceases to serve as a director and is not otherwise employed
by the Company) will be paid out in cash. The DSUs are generally non-transferable. Whenever cash dividends are paid on the shares of the Company, additional DSUs will be credited to directors. The Board may discontinue the DSU Plan at any time or,
subject to certain exceptions set out in the DSU Plan, may amend the DSU Plan at any time.





42





During the year ended August 31, 2015, the Company granted 980,474 DSUs under the DSU Plan (2014 – 140,543) (2013 - nil). All DSUs issued in the years
ended August 31, 2015 and 2014 vested immediately. During the year ended August 31, 2015, the Company recorded a recovery of $0.2 million to compensation expense relating to the DSU Plan (2014 – expense of $0.5 million) (2013 – expense
of $0.3 million), with an offset to other non-current liabilities. 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 year ended
August 31, 2015, there were no settlements or cancellations of DSUs (2014 – 19,797 DSUs settled for nominal consideration and 113,198 DSUs cancelled for no consideration) (2013 – 62,436 DSUs settled for $0.1 million and 41,624 DSUs
cancelled for no consideration).




The aggregate carrying value of the DSU Plan liability was $0.7 million as at August 31, 2015 (August 31, 2014 - $0.9 million) andis recorded in other non-current liabilities on the consolidated statement of financial position.




During the year ended August 31, 2015, the Company has recorded compensation expense of $0.1 million (2014 -
$1.4 million) (2013 - $1.4 million) relating to its share-based compensation and other long-term incentive plans.





18.    INCOME TAXES





Provision for income taxes




The provision for income taxes differs from the amount that would have resulted from applying the statutory
tax rate to loss before income taxes for the years ended August 31, 2015, 2014 and 2013 as follows:




2015


2014


2013Net loss before income
taxes


(302,086
)


(107,461
)


(160,226
)Statutory income tax rate based on combined federal and provincial rates


26.44
%


26.15
%


25.98
%Tax recovery based on
statutory tax rates


(79,872
)


(28,101
)


(41,627
)Effects
of:Non-taxable portion of net capital gains


-



-



(43
)Non-deductible expenses


14,542



1,569



3,743Non-deductible portion of impairments


14,711



-



13,542Tax
rate changes on deferred income taxes


(1,554
)


(247
)


(440
)Adjustments in respect of prior years


1



55



(1,244
)Change in unrecognized deferred income tax assets


52,281



26,705



26,069Recognition of previously unrecognized tax benefits(1)


(38,681
)


-



-Other


(109
)


19



-Recovery of income taxes


(38,681
)


-



-





(1) During the year ended August 31, 2015 the Company
recorded a recovery of $38.7 million to recognize a portion of existing tax loss carryforwards of Postmedia Network that have not been previously recognized as a deferred tax asset (note 4).




The Company’s applicable tax rate is the Canadian combined rates applicable in the jurisdictions in
which the Company operates. The increase in the Company’s effective tax rate is due to the change in allocation of income taxes to the various jurisdictions in which the Company operates.




No taxes have been recorded in other comprehensive income (loss) as the associated deferred tax assets have
not been recognized.





43





Deferred income tax




Certain of the Company’s intangible assets have indefinite lives and accordingly, as at August 31,
2015 a deferred income tax liability of nil is not expected to reverse until the assets are disposed of or become amortizable (August 31, 2014 - $0.7 million).




As at August 31, 2015 deferred income tax assets of $35.3 million have been recognized to offset other
deferred income tax liabilities, primarily related to property and equipment, intangible assets and goodwill (August 31, 2014 - $23.1 million).




As at August 31, 2015 and 2014, the Company has not recognized deferred tax assets in respect of the
following:




2015


2014Total tax loss carryforwards


285,836



260,456Other deductible temporary differences


223,720



159,636Total deductible temporary differences


509,556



420,092Deferred income tax rate


26.58
%


26.15
%Deferred income tax assets


135,440



109,854Deferred income tax liabilities


(35,320
)


(23,844
)Net deferred income tax assets not recognized


100,120



86,010





As at August 31, 2015, the total non-capital losses and net-capital losses with expiration dates are as follows:


Year

Tax losses2030


33,2172031


100,2912032


86,1242033


12,9462034


25,3472035


25,330Total non-capital losses


283,255Total net-capital losses (no expiry date)


2,581Total loss carryforwards


285,836





19.    CAPITAL MANAGEMENT





The Company’s capital management objective is to maximize shareholder returns by (a) prioritizing capital expenditures related to the development of
digital media products with growth potential, and (b) utilizing the majority of remaining free cash flow for the repayment of debt. There were no changes in the Company’s approach to capital management during the year ended August 31,
2015.





44





The Company’s capital structure is composed of equity and long-term debt, less assets related to derivative financial instruments, restricted cash and
cash. The capital structure as at August 31, 2015 and 2014 is as follows:




As at August 31, 2015


As at August 31, 2014Long-term debt (note 14)


672,332



486,300Net assets related to derivative financial instruments (note 7)


(2,093
)


(18,392
)Cash


(43,813
)


(30,490
)Restricted cash


(25,373
)


-Net liabilities


601,053



437,418Equity (deficiency)


(89,290
)


10,944Total capital


511,763



448,362




The Company’s capital structure increased $63.4 million in the year ended August 31, 2015, primarily
as a result of the issuance of long-term debt and capital stock partially offset by a comprehensive loss for the year ended August 31, 2015.





20.    FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT





The Company is exposed to credit risk, liquidity risk and market risks relating to foreign exchange and interest rate fluctuations. The enterprise risk
management process is managed by a risk oversight committee composed of senior executives of the Company. In order to manage foreign exchange and interest rate risks, the Company periodically uses derivative financial instruments to set in Canadian
dollars future payments on debts denominated in U.S. dollars (interest and principal). The Company had a foreign currency interest rate swap designated as a cash flow hedge that matured on July 15, 2014 (note 14). Provided there is no change to the
hedged items, the Company does not settle the derivative financial instruments prior to their maturity unless contractually obligated to do so. These instruments are not held or issued for speculative purposes.





(a)      Fair value of financial instruments





The carrying value and fair value of long-term debt and derivative financial instruments as at August 31, 2015 and 2014 are as follows:





As at August 31, 2015


As at August 31, 2014Carrying value


Fair value


Carrying value


Fair valueOther financial liabilitiesLong-term debt


672,332



693,977



486,300



519,856Derivative financial instrumentsAssetsEmbedded derivatives


2,093
(1)


2,093



18,392
(1)


18,392(1) Derivative financial instruments asset (Level 3) of $2.1 million (2014 - $18.4 million) are
reconciled in the table below.





45





The fair value of long-term debt is estimated based on quoted market prices (Level 1 inputs).





The Company has considered the following fair value hierarchy that reflects the significance of the inputs used in measuring its financial instruments
accounted for at fair value in the statement of financial position:





Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;





Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly
(i.e., derived from prices); and





Level 3: inputs that are not based on observable market data (unobservable inputs).





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, 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 year ended August 31, 2015 there were no transfers within the fair value hierarchy.





The changes to the fair value of derivative financial instruments (Level 3) for the years ended August 31, 2015 and 2014 are as follows:




2015


2014Asset as at beginning of year (note 7)


18,392



18,213Recognition of embedded derivative on issuance of First-Lien Notes (note
14)


2,090



-Gain (loss) on derivative financial instruments recognized in the
statementof operations (note 7)


(18,389
)


1,590Gain on cash flow swap recognized in statement of comprehensive
loss


-



3,994Foreign currency exchange gain on cash flow swaps reclassified from
accumulatedother comprehensive loss to the statement of operations (note 7)


-



2,917Loss on cash flow swap reclassified from accumulated other comprehensive
lossto the statement of operations


-



(2,173
)Cash settlements of derivative financial instruments


-



(6,149
)Asset as at end of year (note 7)


2,093



18,392




(b)      Credit risk management





Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial asset fails to meet its contractual
obligations.





The maximum credit exposure to credit risk at the reporting date is the carrying value of cash, restricted cash and accounts receivable in an asset position.
No collateral is held from any of the counterparties to the above financial assets.





46





Accounts receivable





In the normal course of business, the Company continuously monitors the financial condition of its customers and reviews the credit history of each new
customer. The Company’s sales are widely distributed and the largest amount due from any single customer as at August 31, 2015 is $3.5 million or 4% of receivables (August 31, 2014 – $2.7 million or 4%). The Company establishes an
allowance for doubtful accounts when collection is determined to be unlikely based on the specific credit risk of its customers and historical trends. The allowance for doubtful accounts amounted to $4.8 million as at August 31, 2015 (August 31,
2014 - $3.4 million). As at August 31, 2015, $45.8 million or 47% (2014 - $30.7 million or 48%) of trade accounts receivable is considered past due as per the contractual credit terms and not yet impaired, which is defined as amounts outstanding
beyond normal credit terms and conditions for respective customers. The amount past due relates to a number of independent customers for whom there is no recent history of default. The aging analysis of these trade receivables based on original
invoice terms as at August 31, 2015 and 2014 is as follows:


As at August 31, 2015


As at August 31, 201430 - 90 days


35,846



25,296Greater than 90 days


10,000



5,43145,846



30,727
 
 Changes to the allowance for doubtful accounts for the year ended August 31, 2015 and 2014 are as follows:





2015


2014Balance as at beginning of
year


3,406



3,337Provision for doubtful
accounts


1,430



614Write-offs


(662
)


(545
)Balance as at end of year


4,174



3,406





Derivative financial instruments





As a result of the use of derivative financial instruments, the Company is exposed to the risk of non-performance by a third-party. The Company used multiple
counterparties when entering into derivative contracts to minimize its concentration exposure. The Company also used counterparties that had an investment grade credit rating of no less than single “A”. No third party derivatives are
outstanding as at August 31, 2015 and 2014.





(c)      Liquidity risk management





Liquidity risk is the risk that the Company will encounter difficulties in meeting its financial obligations associated with financial liabilities that are
settled by delivering cash or another financial asset. The Company manages this exposure risk by using cash on hand, cash generated from operations, staggered maturities of long-term debt and derivative financial instruments, available borrowings
under the ABL Facility (note 14), cash flow forecasts and by deferring or eliminating discretionary spending.





47





Material contractual obligations related to financial instruments include debt repayments and interest on long-term debt. These contractual undiscounted
obligations and their maturities as at August 31, 2015 are as follows:


Total


Less than 1 year


1-3 years


3-5 years


5 years or moreAccounts payable


19,525



19,525



-



-



-Accrued
liabilities


52,977



52,977



-



-



-Finance lease


1,560



-



-



-



1,560Long-term debt(1)


682,223



25,996



656,227



-



-Interest payments(2)


190,318



70,562



119,756



-



-Total


946,603



169,060



775,983



-



1,560




(1)
Contractual principal payments of long-term debt are based on the foreign exchange rate as at August 31, 2015 of US$1:$1.3157.


(2) Interest to be paid on long-term debt is based on fixed contractual interest rates and the foreign exchange rate as
at August 31, 2015 of US$1:$1.3157.





(d)      Market risk management





Market risk is the risk that changes in market prices due to foreign exchange rates and interest rates will affect the value of the Company’s financial
instruments. The objective of market risk management is to mitigate and control exposures within acceptable parameters while optimizing the return on risk.





Foreign currency risk





As at August 31, 2015, approximately 52% of the outstanding principal on the Company’s long-term debt is payable in US dollars (August 31, 2014 –
59%). As at August 31, 2015 and 2014, the Company is exposed to foreign currency risk on the US$268.6 million of Second-Lien Notes outstanding. Based on long-term debt outstanding as at August 31, 2015, a $0.01 change in the period-end exchange rate
of a Canadian dollar per one US dollar, holding all other variables constant, would have resulted in a $2.7 million increase or decrease to foreign currency exchange losses in the statement of operations.





Interest rate risk





The Company’s ABL Facility matured on October 16, 2015 (note 25). The ABL Facility bore interest at floating rates while the First-Lien Notes and
Second-Lien Notes bear interest at fixed rates. Therefore, changes in interest rates only exposed the Company to interest rate risk on the portion of the ABL Facility that was drawn, if any, at the time of the interest rate change. As at August 31,
2015, The ABL Facility was undrawn, and as a result the Company was not subject to cash flow interest rate risk.





48





21.   COMMITMENTS





The Company has entered into various operating lease agreements for property, office equipment and vehicles and has various other commitments. Aggregate
future minimum payments under the terms of these commitments are as follows:





2016


31,7752017


25,6642018


18,5582019


13,8382020


10,154Thereafter


35,506





22.   RELATED PARTY TRANSACTIONS





Key management personnel include the Company’s senior management and all members of the Board. Key management personnel compensation for the years
ended August 31, 2015, 2014 and 2013 is as follows:





2015


2014


2013Salaries and short-term
benefits


5,543



4,307



4,332Share-based compensation


-



1,271



1,250Total compensation


5,543



5,578



5,582




As at August 31, 2015, GoldenTree Asset Management LP (“GoldenTree”) or its affiliates owned
146,694,259, or 52%, of the Company’s Variable Voting Shares  On October 6, 2014, the Company entered into a standby purchase agreement with GoldenTree, pursuant to which GoldenTree agreed to take up any subscription receipts not
otherwise subscribed for under the Rights Offering.  During the year ended August 31, 2015, GoldenTree was paid $7.1 million for acting as standby purchaser under the standby purchase agreement.





23.   STATEMENT OF CASH FLOWS





The following amounts compose the net change in non-cash operating accounts included in cash flows from operating activities in the consolidated statement of
cash flows for the years ended August 31, 2015, 2014 and 2013:





2015


2014


2013Accounts
receivable


16,057



17,744



8,308Income taxes
receivable


(47
)


-



-Inventory


912



940



595Prepaid expenses and other
assets


444



240



380Accounts payable, accrued
liabilities and provisions


3,541



(19,013
)


(1,441
)Deferred revenue


(3,662
)


(469
)


(1,270
)Employee benefit obligations and other liabilities and provisions


(60
)


1,465



(1,005
)Changes in non-cash operating accounts


17,185



907



5,567





49





24.   SEGMENT INFORMATION





The Company has one operating segment for financial reporting purposes, the Newsmedia segment. The Newsmedia segment publishes daily and non-daily newspapers
and operates digital media and online assets including the canada.com network, each newspaper’s online website and Infomart, the Company’s media monitoring service. Its revenue is primarily from advertising and circulation/subscription
revenue.




Included within digital revenue in the consolidated statements of operations during the year ended August 31, 2015 is advertising revenue of $65.5 million
(2014 - $58.7 million) (2013 - $63.7 million) and circulation/subscription revenue of $32.2 million (2014 - $29.3 million) (2013 - $27.9 million). Accordingly, aggregate print and digital revenue from advertising for the year ended August 31, 2015
was $470.1 million (2014 - $434.2 million) (2013 - $509.2 million) and aggregate print and digital revenue from circulation/subscription was $254.2 million (2014 - $223.5 million) (2013 - $223.8 million).





25.   SUBSEQUENT EVENTS





During the year ended August 31, 2015, the proceeds from the sale of the Vancouver newspapers production facility of $17.2 million were used to make an offer
to redeem an equal amount of First-Lien Notes. A total of $6.5 million aggregate principal amount of First-Lien Notes were tendered for repurchase and subsequent to August 31, 2015, the Company made a payment of $6.7 million (including accrued
interest of $0.2 million) to redeem the notes.





On October 16, 2015, the ABL Facility matured and was not replaced.