Exhibit 15.2









































POSTMEDIA NETWORK CANADA
CORP.


MANAGEMENT’S DISCUSSION AND
ANALYSIS





FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012




























































































Issued: October 24, 2014




1




OCTOBER 24, 2014







MANAGEMENT’S DISCUSSION AND ANALYSIS





This management’s discussion and analysis of financial condition and results of operations of Postmedia Network Canada Corp. and its subsidiary
Postmedia Network Inc. (collectively, “we”, “our”, “us”, or “Postmedia”) should be read in conjunction with the annual audited consolidated financial statements and related notes of Postmedia for the
years ended August 31, 2014, 2013 and 2012. The audited consolidated financial statements of Postmedia for the years ended August 31, 2014, 2013, and 2012 are available on SEDAR at www.sedar.com and on the EDGAR system maintained by the U.S. Securities and Exchange Commission at www.sec.gov.





This discussion contains statements that are not
historical facts and are forward-looking statements.  These statements are subject to a number of risks described in the section entitled “Risk Factors”.  Risks and uncertainties may cause actual results to differ
materially from those contained in such forward-looking statements.  Such statements reflect management’s current views and are based on certain assumptions.  They are only estimates of future developments, and actual
developments may differ materially from these statements due to a number of factors.  Investors are cautioned not to place undue reliance on such forward-looking statements.  No forward-looking statement is a guarantee of future
results.  We have tried, where possible, to identify such statements by using words such as “believe”, “expect”, “estimate”, “anticipate”, “will”, “could” and similar
expressions in connection with any discussion of future operating or financial performance.  Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements or information, whether written
or oral, that may be as a result of new information, future events or otherwise.





All amounts are expressed in Canadian dollars unless
otherwise noted. The audited consolidated financial statements of Postmedia for the years ended August 31, 2014, 2013 and 2012 have been prepared in accordance with International Financial Reporting Standards (“IFRS”).





This management’s discussion and analysis is dated October 24, 2014 and does not reflect changes or information subsequent to this date.  Additional information in respect of Postmedia is
available on SEDAR atwww.sedar.comand EDGAR atwww.sec.gov.




2





Additional IFRS Measures





We use operating income before depreciation, amortization,
impairment and restructuring, as presented in the audited consolidated financial statements for the years ended August 31, 2014, 2013 and 2012 and described in note 3 thereto, to assist in assessing our financial performance.  Management
and the Board of Directors of Postmedia use this measure to evaluate consolidated operating results and to assess Postmedia’s ability 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 Postmedia 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.




Overview and Background




We are the largest publisher by circulation of paid English-language
daily newspapers in Canada, according to Newspapers Canada’s 2013 Circulation Data Report. We have the highest weekly print readership of paid English-language daily newspapers in Canada, based on the NADbank 2013 survey data.  Our
business consists of news and information gathering and dissemination operations, with products offered in major Canadian markets and a number of regional and local markets in Canada through a variety of print, web, tablet and smartphone platforms.
The combination of these distribution platforms provides readers with a variety of mediums through which to access and interact with our content. The breadth of our reach and the diversity of our content enable advertisers to reach their target
audiences on a local, regional or national scale through the convenience of a single provider.




For financial reporting purposes we have one operating segment, the
Newspaper segment, which publishes daily and non-daily newspapers and operates digital media and online assets including the canada.com website, each newspaper’s online website and Infomart, our media monitoring service.





Recent Developments




In August 2013, we outsourced the production of the Edmonton Journal and
entered into a print outsourcing agreement for the production of the Calgary Herald, which began in November 2013.  In addition, in November 2013 and May 2014, we committed to third party outsourcing contracts for the production of our
Vancouver newspapers, which includes both The Vancouver Sun and The Province, and the Montreal Gazette, respectively.  The print outsourcing agreement for the production of the Vancouver newspapers is expected to commence in February
2015.  In July 2014, we reached an agreement with the union representing the employees impacted by the Vancouver newspapers outsourcing and made a payment of $17.5 million in trust to fund the restructuring payments.  In
addition, all conditions were waived related to an agreement to sell the Vancouver newspapers production facility for gross proceeds of $17.5 million with an expected closing of June 30, 2015.  The print outsourcing agreement for the
production of the Montreal Gazette began in August, 2014 and subsequent to August 31, 2014, all conditions were waived related to an agreement to sell the Montreal Gazette production facility for gross proceeds of $12.5 million which is expected to
close on October 31, 2014.  We have also reached a conditional agreement for the sale of the Calgary Herald facility.  The net proceeds from the sale of the Montreal Gazette production facility and the potential sale of the
Calgary Herald facility will be used to reduce the amount of the Rights Offering, as defined below.  The net proceeds from the sale of the Vancouver newspapers production facility will be used to make an offer to redeem an equal
amount of our 8.25% Senior Secured Notes due 2017 (“First-Lien Notes”).




3





On October 6,
2014, we entered into a definitive agreement (the “Purchase Agreement”) with Quebecor Media Inc. (“QMI”) to purchase Sun Media Corporation’s 175 English language newspapers, specialty publications and digital properties
(“Sun Media”) for cash consideration of approximately $316 million, less a $10 million adjustment primarily related to certain real estate properties to be disposed of by Sun Media prior to closing, and other customary adjustments to be
determined subsequent to closing (the “Sun Acquisition”). We have not completed the valuation of assets acquired and liabilities assumed. We will finance the Sun Acquisition through a combination of debt and equity. The debt financing
will be provided through the issuance of an additional $140 million principal amount of First-Lien Notes to an existing Noteholder. We have entered into a subscription agreement with this existing Noteholder in which it has agreed to purchase
subscription receipts representing the entire amount of the additional First-Lien Notes. The subscription receipts will bear interest at the same rate as the First-Lien Notes and will automatically be exchanged for the additional First-Lien Notes on
completion of the Sun Acquisition, for no additional consideration.  See “Risk Factors – Risks Relating to the Sun Acquisition and Related Financings.”





We intend to
raise the balance of the funds required for the Sun Acquisition by way of a rights offering of subscription receipts (the “Rights Offering”) for gross proceeds of $186 million less net proceeds from real estate sales of up to $50
million, to the extent available, prior to the launch of the Rights Offering. Postmedia has entered into a standby purchase agreement with its largest shareholder, GoldenTree Asset Management LP (“GoldenTree”), pursuant to which
GoldenTree has agreed to take up any subscription receipts not otherwise subscribed for under the Rights Offering. In connection with its backstop of the rights offering, GoldenTree will enter into a voting restriction agreement with Postmedia that
will limit the number of votes that GoldenTree will be entitled to cast at any meeting of Postmedia’s shareholders to 33 1/3%, less one share, of the total number of outstanding voting rights in respect of all of the issued and outstanding
shares at such time, regardless of how many shares GoldenTree owns at such time.  The Rights Offering will be subject to regulatory approval.  Under the terms of the Rights Offering, Postmedia Network Canada Corp.’s
shareholders as of a record date, which is yet to be determined, will receive rights to subscribe for our subscription receipts. Each subscription receipt will be automatically exchanged for one Class NC variable voting share (“Variable Voting
Share”) on completion of the Sun Acquisition, without additional consideration. The subscription price under the Rights Offering will be not more than $1.10 and at a significant discount to the market price of the Variable Voting Shares at the
time the Rights Offering. See “Risk Factors – Risks Relating to the Sun Acquisition and Related Financings.”





On October 16, 2014 we entered into a new senior secured
asset-based revolving credit facility (the “New ABL Facility”) for an aggregate amount of up to $20.0 million. The New ABL Facility will replace our ABL Facility that matured on July 13, 2014. The New ABL Facility will mature one year
from the closing date and will be secured on a first-priority basis by accounts receivable, cash and inventory of Postmedia and on a third priority basis by the First-Lien Notes collateral (note 24).




Subsequent to August 31, 2014, we received certification from the Ontario Digital Media Corporation that digital media tax credits totaling a cash claim of $17.3 million for the
year ended August 31, 2012 were eligible to be claimed. We intend to refile the tax return for the year ended August 31, 2012 to reflect such claim and will be subject to audit by the Canada Revenue Agency. The digital media tax credits are subject
to estimation uncertainty and have not been recorded in the consolidated statement of financial position as at August 31, 2014.  We will record the digital media tax credits as a recovery in the statement of operations when there is
reasonable assurance that we have complied with the conditions attached to the claim.




4




For the years ended August 31,2014

2013

2012(revised) (1)

(revised) (1)Revenue


674,255



751,583



831,877Net loss from continuing
operations


(107,461
)


(160,226
)


(39,556
)Net loss per share from
continuing operationsBasic

$
(2.67
)

$
(3.98
)

$
(0.98
)Diluted

$
(2.67
)

$
(3.98
)

$
(0.98
)Net loss attributible to
equity holders of the Company


(107,461
)


(160,226
)


(26,033
)Net loss per share
attributible to equity holders of the CompanyBasic

$
(2.67
)

$
(3.98
)

$
(0.65
)Diluted

$
(2.67
)

$
(3.98
)

$
(0.65
)Total assets


740,594



862,797



1,044,848Total long-term financial liabilities


473,800



474,380



480,118




(1)See “Other Factors – Changes in accounting policies”.
 
 
 Key Factors Affecting Operating Results
 
 Revenue is earned primarily from advertising, circulation and digital
sources. Print advertising revenue is a function of the volume, or linage, of advertising sold and rates charged. Print circulation revenue is derived from home-delivery subscriptions for newspapers, including All Access subscriptions (across the
four platforms of print, web, tablet and smartphone), single copy sales at retail outlets and vending machines and is a function of the number of newspapers sold and the price per copy. Digital revenue consists of revenue from national and local
display advertising on our newspaper and other websites, including canada.com, revenue from e-Papers and Digital Access subscriptions, as well as subscription revenue generated through
Infomart, our media monitoring service.
  Print advertising revenue was $74.2 million for the three months ended
August 31, 2014, representing 50.5% of total revenue.  The following chart summarizes our print advertising revenue by category for the three months ended August 31, 2014 ($ in millions):
  
  5




Print advertising revenue was $375.5 million for the year ended August
31, 2014, representing 55.7% of total revenue.  The following chart summarizes our print advertising revenue by category for the year ended August 31, 2014 ($ in millions):
  
  Print advertising is influenced by both the overall strength of the economy and significant structural changes in the newspaper industry and media in general.  The
continuing shift in advertising dollars from print advertising to advertising in other formats, particularly online and other digital platforms including search and social media websites, combined with periods of economic uncertainty have resulted
in significant declines in print advertising.  This shift is expected to continue and appears to be permanent.  We anticipate the print advertising market to remain challenging and expect current trends to continue into fiscal
2015.  During the three months and year ended August 31, 2014, we experienced print advertising revenue declines of 21.0% and 15.7%, respectively, as compared to the same periods in the prior year.  The decline in print
advertising revenue in the three months and year ended August 31, 2014 relates to weakness in all major advertising categories including classified, retail and national.
  Print circulation revenue was $48.0 million and $194.2 million for the three months and year ended August 31, 2014, representing 32.7% and 28.8% of total revenue for such
periods, respectively.  Declines in circulation volumes have been experienced over the last few years and this trend continued in the three months and year ended August 31, 2014 however volume declines have been offset by price increases.
During the three months and year ended August 31, 2014, we experienced circulation revenue declines of 2.7% and 0.9%, respectively, as compared to the same period in the prior year.  We expect print circulation revenue to remain stable in
fiscal 2015.
  Digital revenue was $20.3 million and $88.0 million for the three months and year ended August 31, 2014, representing 13.8% and 13.1% of total revenue for such periods,
respectively.  Digital revenues decreased 5.3% and 3.9% in the three months and year ended August 31, 2014, respectively, as compared to the same periods in the prior year.  The decreases are as a result of decreases in local and
national digital advertising revenue and digital classified revenue.  We continue to believe digital revenue represents a future growth opportunity for Postmedia and as a result we are focused on various new products and initiatives in
this area.
  6
  Our principal expenses consist of compensation, newsprint, distribution, and production.  These comprised 47.7%, 5.1%, 18.9% and 7.2%, respectively, of total operating
expenses excluding depreciation, amortization and restructuring for the three months ended August 31, 2014 and 49.8%, 5.4%, 18.0% and 6.7%, respectively, of total operating expenses excluding depreciation, amortization and restructuring for the year
ended August 31, 2014.  We experienced declines in compensation, newsprint and distribution expenses of 15.2%, 24.2% and 3.9%, respectively, and an increase in production expenses of 44.93% in the three months ended August 31, 2014. We
experienced declines in compensation, newsprint and distribution expenses of 12.5%, 24.8% and 5.7%, respectively, and an increase in production expenses of 33.3% in the year ended August 31, 2014, as compared to the same periods in the prior
year.
  We are in the process of implementing a three year business transformation program which was announced in July 2012 (“Transformation Program”) that will focus on the
development of our digital products and is targeted to result in operating cost savings of 15% to 20%.  During the three months ended August 31, 2014 as part of our Transformation Program we implemented initiatives which are expected to
result in an additional $3 million of net annualized cost savings.  In total, we have implemented net annualized cost savings of approximately $109 million, or 16% of operating costs, since the Transformation Program was announced. The net
annualized costs savings primarily relate to decreases in compensation expenses partially offset by increases in production expenses as a result of outsourced newspaper production described earlier in “Recent Developments”.
  Our operating results are affected by variations in the cost and availability of newsprint.  Newsprint is the principal raw material used in the production of our daily
newspapers and other print publications.  It is a commodity that is generally subject to price volatility.  We take advantage of the purchasing power that comes with the large volume of newsprint we purchase, as well as our
proximity to paper mills across Canada, to minimize our total newsprint expense.  Changes in newsprint prices can significantly affect our operating results.  A $50 per tonne increase or decrease in the price of newsprint would
be expected to affect our newsprint expense by approximately $2.6 million on an annualized basis.  We don’t expect a material change in newsprint prices in fiscal 2015.
  Our distribution is primarily outsourced to third party suppliers.  The key drivers of our distribution expenses are fuel costs and circulation and insert
volumes.  Our distribution expenses have decreased during the three months and year ended August 31, 2014 primarily as a result of a reduction in newspaper circulation volumes and cost reduction initiatives.
  Our production costs include the costs related to outsourced production of our newspapers as well as ink and other production supplies.  Our production expenses have
increased during the three months and year ended August 31, 2014 primarily as a result of the outsourcing of production of certain newspapers as described earlier in “Recent Developments”.  We expect production costs to
increase in fiscal 2015 as a result of the outsourcing of the Montreal Gazette and our Vancouver newspapers.
 
 Other Factors
  Seasonality
  Revenue has experienced, and is expected to continue to experience, significant seasonality due to seasonal advertising patterns and seasonal influences on media consumption
habits.  Typically, our advertising revenue is highest in the first and third fiscal quarters, while expenses are relatively constant throughout the fiscal year.  These seasonal variations may lead to increased borrowing needs at
certain points within the fiscal year.
  7
  Critical accounting estimates
  The preparation of financial statements in accordance with IFRS requires management to make estimates, assumptions and judgements that affect the reported amounts of assets and
liabilities, related amounts of revenues and expenses, and disclosure of contingent assets and liabilities.  Although these estimates, assumptions and judgements are based upon management’s best knowledge of the amount, event or
actions; actual results could differ from those estimates, assumptions and judgements.
 
 We have identified the following significant areas that require
management to use estimates, assumptions and judgements.  These accounting estimates, assumptions and judgements are considered critical as changes in such estimates, assumptions and judgements have the potential to materially impact the
audited consolidated financial statements.  For a summary of our significant accounting policies please refer to note 2 of our audited consolidated financial statements for the years ended August 31, 2014, 2013 and 2012.
 
 The following
significant areas require management to use assumptions and to make estimates:
 
 Impairment of goodwill and indefinite life intangible assets
 
 We test 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, are grouped into a cash generating unit ("CGU" or "CGUs") which
represent 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 Newspaper operating segment, which is 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 cost to sell calculations.  We have computed the fair value less cost to sell
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 we operate.  The discounted cash flow calculations use cash flow projections which are based
upon financial forecasts prepared by management covering a three year period.  Cash flows after the three year period are extrapolated using industry growth rates.  Refer to note 4 of our audited consolidated financial statements
for the years ended August 31, 2014, 2013 and 2012 for more details about the methods and assumptions used in estimating the recoverable amount.
  8
 
 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.  A change in the discount rate used in the valuation of net defined benefit obligations, affects the reported funded status of our plans as well as the net benefit cost in subsequent fiscal years.  As at August 31, 2014
a 50 basis-point decrease in the discount rate would increase our defined benefit obligations by $43.1 million and a 50 basis-point increase in the discount rate would decrease our defined benefit obligations by $38.9 million.  Discount
rates and the expected return on plan assets compared to the actual return on plan assets are reviewed at each reporting date and corresponding adjustments are recognized in other comprehensive income and deficit.  In addition, during the
year ended August 31, 2014, the Canadian Institute of Actuaries issued new mortality tables for use in the valuation of Canadian pension and benefit plans.  As a result, during the year ended August 31, 2014, we modified the mortality
tables used to value the defined benefit pension benefit and post-retirement benefit obligations which resulted in an actuarial loss of $15.6 million recorded in other comprehensive income.  The change in the mortality rate assumptions is
expected to result in increased funding valuation obligations as well as increased defined benefit plan expense in future years.  Refer to note 13 of our audited
consolidated financial statements for the years ended August 31, 2014, 2013 and 2012 for more details about the methods and assumptions used in estimating the cost of our defined benefit pension benefit plans, post-retirement benefit plans and other
long-term employee benefit plans.
  The following area requires 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 we 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. We take into account industry trends and industry specific factors, including changing technologies and expectations for the in-service period of assets when determining their
respective useful lives.
 
 Changes in accounting policies
  We have adopted the following new and amended standards effective September 1, 2013.  The comparative audited consolidated financial statements have been revised as
applicable to reflect the adopted standards as described below.
  (i) IFRS 10 – Consolidated Financial
Statements
 
 IFRS 10 – Consolidated Financial Statements replaces SIC-12 Consolidation – Special Purpose Entities and parts of IAS 27 – Consolidated and Separate Financial
Statements and introduces a new definition of control that is intended to provide more consistent guidance in the determination of whether control exists and whether or not an entity should be included within the consolidated financial
statements.  The adoption of this standard did not have an impact on our consolidated financial statements.
  9
 
 (ii) IFRS 13 – Fair Value Measurement
 
 IFRS 13 – Fair Value Measurement establishes a single source of
guidance for fair value measurement across all IFRS standards.  IFRS 13 defines fair value, provides guidance on measurement and introduces certain disclosure requirements.  We adopted IFRS 13 on September 1, 2013 on a
prospective basis.  The adoption of IFRS 13 did not result in any measurement adjustments or changes to the valuation techniques used.  We have included the required disclosures in note 18 of our audited consolidated financial
statements for the years ended August 31, 2014, 2013 and 2012.
 
 (iii) IAS 19 – Employee Benefits (Amended)
 
 IAS 19 – Employee Benefits (Amended) includes a number of changes
related to the recognition and measurement of defined benefit employee benefit plans and termination benefits. The amendments introduce a net interest approach that replaces the expected return on plan assets and interest costs on the defined
benefit obligation with a single net interest component which will be determined based on the application of the discount rate on the net defined benefit obligation.  As a result the discount rate previously used to calculate the interest
costs on plan obligations is now also being used to calculate the expected return on plan assets.  The amendments also require the recognition of all past service costs in profit or loss when the employee benefit plan is
amended.  We adopted IAS 19 on September 1, 2013 on a retrospective basis back to September 1, 2011.  The adoption of IAS 19 has resulted in an adjustment to the opening deficit as at September 1, 2011 to reflect previously
unrecognized past service costs.  Additionally, the comparative figures in the audited consolidated financial statements for the years ended August 31, 2014, 2013 and 2012 have been revised as illustrated in the tables below to reflect the
new standard.
 
 The amended standard also clarifies when an employer offers voluntary termination benefits that the obligating event under such termination benefits is deemed to have occurred
when an entity can no longer withdraw the offer.  This resulted in a decrease to restructuring and other items of $10.5 million in the three months ended May 31, 2013 and a corresponding increase to restructuring and other items of $10.5
million in the three months ended August 31, 2013.
  10
 
 The following tables provide the impact of the IAS 19 changes described
above on the comparative financial information in the audited consolidated financial statements for the years ended August 31, 2014, 2013 and 2012.
 Effect on comprehensive loss attributable to equity
holders of the Company


2013

2012Net loss
attributable to equity holders of the Company as previously reported


(153,829
)


(23,222
)IAS 19 amendments increasing
reported net lossCompensation


(475
)


(475
)Net
financing expense relating to employee benefit plans


(5,922
)


(1,806
)Net earnings from discontinued operations, net of tax of nil


-



(530
)Total IAS 19 amendments increasing reported net loss


(6,397
)


(2,811
)Net loss attributable to equity holders of the Company revised (1)


(160,226
)


(26,033
)Comprehensive loss attributable to equity holders of the
Company as previously reported


(98,979
)


(83,811
)IAS 19 amendments decreasing
reported comprehensive incomeImpact of IAS 19 amendments to net loss


(6,397
)


(2,811
)Net
actuarial gains on employee benefits


6,645



2,529Net actuarial losses on employee benefits net of tax of nil


-



530Total IAS 19 amendments decreasing reported comprehensive loss


248



248Comprehensive loss attributable to equity holders of the Company revised


(98,731
)


(83,563
)





(1) These adjustments increased basic and diluted net loss per share attributable to
equity holders of the Company for the years ended August 31, 2013 and 2012 by $0.16 per share and $0.07 per share, respectively.


Effect on the consolidated statements of financial position
 Increase

August 31, 2013

August 31, 2012

September 1, 2011Other non-current
liabilities


1,675



1,923



2,171Deficit


1,675



1,923



2,171




11




The following table provides our fiscal 2013
quarterly and full year consolidated statements of operations, revised for the adoption of IAS 19:




Fiscal 2013 (revised)Q1

Q2

Q3

Q4

TotalRevenuesPrint
advertising


132,741



105,443



113,395



93,968



445,547Print
circulation


49,276



47,863



49,401



49,359



195,899Digital


24,813



21,292



24,093



21,408



91,606Other


4,842



4,220



4,895



4,574



18,531Total
revenues


211,672



178,818



191,784



169,309



751,583ExpensesCompensation


83,067



81,291



83,075



73,791



321,224Newsprint


12,108



9,856



10,147



8,791



40,902Distribution


28,192



26,365



27,542



25,806



107,905Production


8,078



6,100



7,618



6,474



28,270Other operating


31,240



30,140



30,650



31,326



123,356Operating
income before depreciation, amortization, impairment and restructuring


48,987



25,066



32,752



23,121



129,926Depreciation


6,890



6,740



6,706



9,613



29,949Amortization


10,734



10,834



11,111



10,646



43,325Impairments



-



-



93,883



6,100



99,983Restructuring and other items


4,797



1,814



6,305



21,255



34,171Operating
income (loss)


26,566



5,678



(85,253
)


(24,493
)


(77,502
)Interest expense


16,167



15,606



14,994



15,133



61,900Net financing expense relating
to employee benefit plans


1,864



1,863



1,863



1,868



7,458(Gain) loss on disposal of
property and equipment and intangible assets


268



(1,055
)


(202
)


(16
)


(1,005
)Loss on derivative financial
instruments


697



1,193



760



4,656



7,306Foreign currency exchange losses


866



3,832



588



1,779



7,065Earnings
(loss) before income taxes


6,704



(15,761
)


(103,256
)


(47,913
)


(160,226
)Provision for income taxes


-



-



-



-



-Net earnings (loss) attributable to equity holders of the Company


6,704



(15,761
)


(103,256
)


(47,913
)


(160,226
)




12




Operating Results
  Postmedia’s operating results for the three months ended August 31, 2014 as compared to the three months ended August 31, 2013
 2014

2013(revised) (1)RevenuesPrint
advertising


74,192



93,968Print
circulation


48,009



49,359Digital


20,266



21,408Other


4,337



4,574Total revenues


146,804



169,309ExpensesCompensation


62,587



73,791Newsprint


6,660



8,791Distribution


24,804



25,806Production


9,383



6,474Other operating


27,669



31,326Operating
income before depreciation, amortization, and restructuring


15,701



23,121Depreciation


26,332



9,613Amortization


9,527



10,646Impairments



-



6,100Restructuring and other items


7,934



21,255Operating
loss


(28,092
)


(24,493
)Interest expense


14,777



15,133Net financing expense relating
to employee benefit plans


1,404



1,868Gain on disposal of property
and equipment and intangible assets


(26
)


(16
)Loss on derivative financial
instruments


2,420



4,656Foreign currency exchange losses


3,094



1,779Loss before
income taxes


(49,761
)


(47,913
)Provision for income taxes


-



-Net loss attributable to equity holders of the Company


(49,761
)


(47,913
)
 (1) See “Other Factors – Changes in accounting
policies”.
  Revenue
  Print advertising
  Print advertising revenue decreased $19.8 million, or 21.0%, to $74.2 million for the three months ended August 31, 2014, as compared to the same period in the prior
year.  A decrease was experienced in all of our major categories of print advertising revenue, including decreases from national advertising of 25.4%, retail advertising of 24.4%, classified advertising of 23.5%, and insert advertising of
3.6%. The total print advertising linage and average line rate decreased 21.3% and 4.3%, respectively, during the three months ended August 31, 2014, as compared to the same period in the prior year.
  Print circulation
  Print circulation revenue decreased $1.4 million, or 2.7%, to $48.0
million for the three months ended August 31, 2014 as compared to the same period in the prior year.  Paid circulation volume decreased 5.5% during this period, as compared to the same period in the prior year, but this volume decrease was
largely offset by price increases.
  13
  Digital
  Digital revenue decreased $1.1 million, or 5.3% to $20.3 million for the
three months ended August 31, 2014, as compared to the same period in the prior year.  The decline in digital revenue is primarily a result of decreases in digital classified revenue of $0.7 million and national digital advertising revenue
of $0.6 million, partially offset by an increase in digital circulation revenue of $0.2 million.
  Other
  Other revenue decreased $0.2 million, or 5.2%, to $4.3 million for the three months ended August 31, 2014, as compared to the same period in the prior year.  The
decline in other revenue is primarily a result of declines in commercial printing revenue.
  Expenses
  Compensation
  Compensation expenses decreased $11.2 million, or 15.2%, to $62.6 million
for the three months ended August 31, 2014, as compared to the same period in the prior year.  The decrease is primarily due to lower salary and benefits expense of $7.7 million as a result of a reduction in employees due to the
Transformation Program initiative, a decrease in short-term incentive plan awards of $1.7 million and a decrease of $1.6 million in employee benefit plan expense as a result of an increase in the discount rate used to measure the employee benefit
plan cost of our defined benefit pension plans.
  Newsprint
 
 Newsprint
expenses decreased $2.1 million, or 24.2%, to $6.7 million for the three months ended August 31, 2014, as compared to the same period in the prior year.  Newsprint expense decreases are primarily a result of consumption decreases of 20.5%
due to continued usage reduction efforts including reduced newspaper sizes and lower newspaper circulation volumes, combined with a decrease in newsprint cost per tonne of 4.7%.  Newsprint expenses include newsprint purchased for
production at both our owned and outsourced production facilities.
  Distribution
  Distribution expenses decreased $1.0 million, or 3.9%, to $24.8 million for the three months ended August 31, 2014, as compared to the same period in the prior
year.  Decreases in distribution expenses are primarily a result of a reduction in newspaper circulation volumes and cost reduction initiatives.
  Production
  Production expenses increased $2.9 million, or 44.9%, to $9.4 million for
the three months ended August 31, 2014, as compared to the same period in the prior year. Increases in production expenses are primarily a result of the outsourced newspaper production described earlier in “’Recent
Developments”.
  Other operating
  Other operating expenses decreased $3.7 million, or 11.7%, to $27.7
million for the three months ended August 31, 2014, as compared to the same period in the prior year.  Other operating expense decreases are as a result of ongoing cost savings initiatives.
  14
  Operating income before depreciation, amortization, impairment and restructuring
  Operating income before depreciation, amortization, impairment and restructuring decreased $7.4 million, or 32.1%, to $15.7 million for the three months ended August 31, 2014, as
compared to the same period in the prior year.  The decrease relates to decreases in revenue, partially offset by decreases in expenses as discussed above.
  Depreciation
  Depreciation expense increased $16.7 million to $26.3 million for the
three months ended August 31, 2014, as compared to the same period in the prior year.  The increase relates primarily to a change in the estimate of the useful lives of the production assets of our Vancouver newspapers, which include both
the The Vancouver Sun and The Province, and the Montreal Gazette as a result of outsourced newspaper production.
  Amortization
  Amortization expense decreased $1.1 million, or 10.5%, to $9.5 million for the three months ended August 31, 2014, as compared to the same period in the prior
year.  The decrease relates primarily to software that has been fully amortized.
  Impairments
  We completed our annual impairment testing of goodwill and indefinite life intangible assets as at May 31, 2014, and during the three months ended August 31, 2014, there were no
impairments recorded. During the three months ended August 31, 2013, we completed our annual impairment testing of goodwill and indefinite life intangible assets as at June 30, 2013. As a result of the impairment analysis we recorded an impairment
loss of $6.1 million which consisted of $2.5 million related to indefinite life intangible assets and $3.6 million related to property and equipment. The impairments were 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.
  Restructuring and other items
  Restructuring and other items expense decreased $13.3 million to $7.9
million for the three months ended August 31, 2014 as compared to the same period in the prior year.  Restructuring and other items expense for the three months ended August 31, 2014 consists of severance costs of $6.2 million, which
include both involuntary terminations and voluntary buyouts, and acquisition costs of $1.7 million related to the Sun Acquistion described earlier in “Recent
Developments”.  Restructuring and other items expense for the three months ended August 31, 2013 consisted of $21.3 million of severance costs, which included both involuntary terminations and voluntary buyouts.
 
 Operating loss
 
 Operating loss
was $28.1 million for the three months ended August 31, 2014, as compared to $24.5 million for the same period in the prior year.  The increase relates primarily to decreased operating income before depreciation, amortization, impairment
and restructuring, and increased depreciation expense, partially offset by a decrease in restructuring and other items, all as discussed above.
  15
  Interest expense
 
 Interest expense decreased $0.4 million to $14.8 million for the three
months ended August 31, 2014, as compared to the same period in the prior year. Interest expense primarily relates to interest on our long-term debt that is recognized using the effective interest rate method, which amortizes the initial debt
issuance costs and includes both cash and non-cash interest. The decrease in interest expense relates to a decrease in cash interest of $0.8 million due to lower outstanding First-Lien Notes, partially offset by an increase in non-cash interest
expense of $0.4 million during the three months ended August 31, 2014, as compared to the same period in the prior year.
 
 Net financing expense relating to employee benefit
plans
  Net financing expense relating to employee benefit plans decreased $0.5 million to $1.4 million for the three months ended August 31, 2014, as compared to the same period in the
prior year.  The decrease relates primarily to a reduction in our employee benefit plan liabilities.
  Gain on disposal of property and
equipment
  During the three months ended August 31, 2014 we disposed of property and equipment and realized a nominal gain.  During the three months ended August 31, 2013, we
disposed of property and equipment and intangible assets and realized a nominal gain.
  Loss on derivative financial instruments
  Loss on derivative financial instruments for the three months ended August 31, 2014 was $2.4 million as compared to $4.7 million during the same period in the prior
year.  The losses relate to the change in fair value of our variable prepayment option embedded derivatives on the First-Lien Notes and 12.5% Senior Secured Notes due 2017
(“Second-Lien Notes”).
  Foreign currency exchange losses
  Foreign currency exchange losses for the three months ended August 31, 2014 were $3.1 million as compared to $1.8
million during the same period in the prior year.Foreign currency exchange losses consist primarily of unrealized losses related to the non-swapped portion of the Second-Lien Notes. On July 15, 2014 the foreign currency interest
rate swap with a notional amount of US$167.5 million related to the Second-Lien Notes matured, exposing us to foreign currency gains and losses on the entire US$268.6 million of Second-Lien Notes outstanding.   .
 
 Loss before income taxes
  Loss before income taxes for the three months ended August 31, 2014 was $49.8 million, as compared to $47.9 million for the same period in the prior year.  The increase
in loss before income taxes is primarily the result of increased operating loss, partially offset by a decrease in losses on derivative financial instruments, both as discussed above.
  Provision for income taxes
  We have not recorded a current or deferred tax expense or recovery for
the three months ended August 31, 2014 or 2013.  Current taxes payable or recoverable result in a decrease or increase, respectively, to our tax loss carryforward balances.  The cumulative tax loss carryforward balances have not
been recognized as a net deferred tax asset on the consolidated statement of financial position.
 
 Net loss attributable to equity
holders of the Company
  Net loss for the three months ended August 31, 2014 was $49.8 million as compared to $47.9 million for the same period in the prior year, as a result of the factors described
above in loss before income taxes.
  16
  Operating Results
  Postmedia’s operating results for the year ended
August 31, 2014 as compared to the year ended August 31, 2013
 2014

2013(revised) (1)RevenuesPrint
advertising


375,457



445,547Print
circulation


194,176



195,899Digital


88,023



91,606Other


16,599



18,531Total
revenues


674,255



751,583ExpensesCompensation


281,085



321,224Newsprint


30,770



40,902Distribution


101,794



107,905Production


37,671



28,270Other operating


113,430



123,356Operating
income before depreciation, amortization, impairment and restructuring


109,505



129,926Depreciation


66,646



29,949Amortization


39,080



43,325Impairments



-



99,983Restructuring and other items


39,285



34,171Operating
loss


(35,506
)


(77,502
)Interest expense


61,914



61,900Net financing expense relating
to employee benefit plans


5,617



7,458Gain on disposal of property
and equipment and intangible assets


(257
)


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


(1,590
)


7,306Foreign currency exchange losses


6,271



7,065Loss before
income taxes


(107,461
)


(160,226
)Provision for income taxes


-



-Net loss attributable to equity holders of the Company


(107,461
)


(160,226
)
 (1) See “Other
Factors – Changes in accounting policies”.
  Revenue
  Print advertising
  Print advertising revenue decreased $70.1 million, or 15.7%, to $375.5 million for the year ended August 31, 2014, as compared to the same period in the prior year.  A
decrease was experienced in all of our major categories of print advertising revenue, including decreases from national advertising of 16.7%, retail advertising of 18.9%, classified advertising of 22.2%, and insert advertising of 1.1%. The total
print advertising linage and average line rate decreased 15.6% and 3.5%, respectively, during the year ended August 31, 2014, as compared to the same period in the prior year.
  Print circulation
  Print circulation revenue decreased $1.7 million, or 0.9%, to $194.2
million for the year ended August 31, 2014 as compared to the same period in the prior year.  Paid circulation volume decreased 9.9% during this period, as compared to the same period in the prior year, but this volume decrease was largely
offset by price increases.
  17
  Digital
  Digital revenue decreased $3.6 million, or 3.9%, to $88.0 million for the
year ended August 31, 2014, as compared to the same period in the prior year.  The decline in digital revenue is primarily a result of decreases in local digital advertising revenue of $1.2 million, digital classified revenue of $2.4
million and national digital advertising revenue of $1.4 million, partially offset by an increase in digital circulation revenue of $1.4 million.
  Other
  Other revenue decreased $1.9 million, or 10.4%, to $16.6 million for the
year ended August 31, 2014, as compared to the same period in the prior year.  The decline in other revenue is primarily a result of declines in commercial printing revenue.
  Expenses
  Compensation
  Compensation expenses decreased $40.1 million, or 12.5%, to $281.1 million for the year ended August 31, 2014, as compared to the same period in the prior year.  The
decrease is primarily due to lower salary and benefits expense of $35.8 million as a result of a reduction in employees due to the Transformation Program initiatives, a decrease in short-term incentive plan awards of $2.5 million and a decrease of
$2.0 million in employee benefit plan expense as a result of an increase in the discount rate used to measure the employee benefit plan cost of our defined benefit pension plans.
  Newsprint
  Newsprint expenses decreased $10.1 million, or 24.8%, to $30.8 million
for the year ended August 31, 2014, as compared to the same period in the prior year.  Newsprint expense decreases are primarily a result of consumption decreases of 22.2% due to continued usage reduction efforts including reduced
newspaper sizes and lower newspaper circulation volumes, combined with a decrease in newsprint cost per tonne of 3.3%.  Newsprint expenses include newsprint purchased for production at both our owned and outsourced production
facilities.
  Distribution
  Distribution expenses decreased $6.1 million, or 5.7%, to $101.8 million
for the year ended August 31, 2014, as compared to the same period in the prior year.  Decreases in distribution expenses are primarily a result of a reduction in newspaper circulation volumes and cost reduction initiatives.
  Production
  Production expenses increased $9.4 million, or 33.3%, to $37.7 million
for the year ended August 31, 2014, as compared to the same period in the prior year. Production expenses increased as a result of the outsourced newspaper production described earlier in “Recent Developments”.
  Other operating
  Other operating expenses decreased $9.9 million, or 8.0%, to $113.4
million for the year ended August 31, 2014, as compared to the same period in the prior year. Other operating expense decreases are as a result of ongoing cost savings initiatives.
  18
  Operating income before depreciation, amortization, impairment and restructuring
  Operating income before depreciation, amortization, impairment and restructuring decreased $20.4 million, or 15.7%, to $109.5 million for the year ended August 31, 2014, as
compared to the same period in the prior year.  The decrease relates to decreases in revenue, partially offset by decreases in expenses as discussed above.
  Depreciation
  Depreciation expense increased $36.7 million to $66.6 million for the
year ended August 31, 2014, as compared to the same period in the prior year.  The increase relates primarily to a change in the estimate of the useful lives of the production assets of our Vancouver newspapers, which includes both The
Vancouver Sun and The Province, and the Montreal Gazette as a result of outsourced newspaper production.
  Amortization
  Amortization expense decreased $4.2 million, or 9.8%, to $39.1 million for the year ended August 31, 2014, as compared to the same period in the prior year.  The
decrease relates primarily to software that has been fully amortized.
  Impairments
  During the year ended August 31, 2014, we completed our annual impairment testing of goodwill and indefinite life intangible assets as at May 31, 2014 and there were no
impairments recorded. During the year ended August 31, 2013 as a result of interim and annual impairment testing of our goodwill and indefinite life intangible assets we recorded an impairment loss of $93.9 million which consisted of $73.9 million
related to goodwill, $16.4 million related to indefinite life intangible assets and $3.6 million related to property and equipment.  The impairments were 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.  In addition, during the year ended August 31, 2013, we recorded an impairment loss of $6.1 million with
respect to a production facility upon reclassification of the asset from property and equipment to asset held-for-sale.
  Restructuring and other items
  Restructuring and other items expense increased $5.1 million, or 15.0%, to $39.3 million for the year ended August 31, 2014 as compared to the same period in the prior
year.  Restructuring and other items expense for the year ended August 31, 2014 consists of severance costs of $37.6 million, which include both involuntary terminations and voluntary buyouts, and acquisition costs of $1.7 million related
to the Sun Acquisition described earlier in “Recent Developments”. Restructuring and other items expense for the year ended August 31, 2013 includes an expense of $2.3
million related to changes made to an employee benefit plan as a result of an arbitrator’s ruling.  Additionally, included in restructuring and other items is $31.9 million of severance costs, which include both involuntary
terminations and voluntary buyouts.
 
 Operating loss
 
 Operating loss was $35.5 million for the year ended August 31, 2014, as
compared to $77.5 million for the same period in the prior year.  The decrease relates primarily to impairments recorded in the year ended August 31, 2013, partially offset by decreased operating income before depreciation, amortization,
impairment and restructuring, and increased depreciation and restructuring expenses, all as discussed above.
  19
  Interest expense
 
 Interest expense increased by a nominal amount, to $61.9 million for the
year ended August 31, 2014, as compared to the same period in the prior year.  Interest expense primarily relates to interest on our long-term debt that is recognized using the effective interest rate method, which amortizes the initial
debt issuance costs and includes both cash and non-cash interest.  The increase in interest expense relates to an increase in non-cash interest expense of $1.5 million during the year ended August 31, 2014, as compared to the same period
in the prior year, offset by a decrease in cash interest of $1.5 million due to lower outstanding First-Lien Notes.
 
 Net financing expense relating to employee benefit
plans
  Net financing expense relating to employee benefit plans decreased $1.8 million to $5.6 million for the year ended August 31, 2014, as compared to the same period in the prior
year.  The decrease relates primarily to a reduction in the employee benefit plan liabilities.
  Gain on disposal of property and
equipment
  During the year ended August 31, 2014, we disposed of property and equipment and realized a gain of $0.3 million.  During the year ended August 31, 2013, we disposed of
property and equipment and intangible assets and realized a gain of $1.0 million.
  (Gain) loss on derivative financial
instruments
  Gain on derivative financial instruments for the year ended August 31, 2014 was $1.6 million as compared to a loss of $7.3 million during the same period in the prior
year.  The gainand lossboth relate to the change in fair value of our variable prepayment option
embedded derivatives on the First-Lien Notes and Second-Lien Notes.
  Foreign currency exchange losses
  Foreign currency exchange losses for the year ended August 31, 2014 were $6.3 million as compared to $7.1 million
during the same period in the prior year.Foreign currency exchange losses consist primarily of unrealized losses related to the non-swapped portion of the Second-Lien Notes. On July 15, 2014 the foreign currency interest rate swap with a
notional amount of US$167.5 million related to the Second-Lien Notes matured, exposing us to foreign currency gains and losses on the entire US$268.6 million of Second-Lien Notes outstanding.
 
 Loss before income taxes
  Loss before income taxes for the year ended August 31, 2014 was $107.5 million, as compared to $160.2 million for the same period in the prior year.  The decrease in
loss before income taxes is primarily the result of decreased operating loss and a gain on derivative financial instruments in the year ended August 31, 2014, both as discussed above.
  Provision for income taxes
  We have not recorded a current or deferred tax expense or recovery for
the year ended August 31, 2014 or 2013.  Current taxes payable or recoverable result in a decrease or increase, respectively, to our tax loss carryforward balances.  The cumulative tax loss carryforward balances have not been
recognized as a net deferred tax asset on the consolidated statement of financial position.
 
 Net loss attributable to equity
holders of the Company
  Net loss for the year ended August 31, 2014 was $107.5 million as compared to $160.2 million for the same period in the prior year, as a result of the factors described above in
loss before income taxes.
  20
  Postmedia’s operating results for the year ended August 31, 2013 as compared to the year ended August 31, 2012
 2013

2012(revised) (1)

(revised) (1)RevenuesPrint
advertising


445,547



514,987Print
circulation


195,899



209,177Digital


91,606



89,076Other


18,531



18,637Total
revenues


751,583



831,877ExpensesCompensation


321,224



348,608Newsprint


40,902



52,628Distribution


107,905



123,872Production


28,270



29,989Other operating


123,356



132,919Operating
income before depreciation, amortization, impairment and restructuring


129,926



143,861Depreciation


29,949



26,157Amortization


43,325



43,566Impairments



99,983



-Restructuring and other items


34,171



35,355Operating
income (loss)


(77,502
)


38,783Interest expense


61,900



65,446Loss on debt
repayment


-



9,178Net financing expense relating
to employee benefit plans


7,458



5,706(Gain) loss on disposal of
property and equipment and intangible assets


(1,005
)


258(Gain) loss on derivative
financial instruments


7,306



(8,632
)Foreign currency exchange losses


7,065



6,383Loss before
income taxes


(160,226
)


(39,556
)Provision for income taxes


-



-Net loss
from continuing operations


(160,226
)


(39,556
)Net earnings from discontinued operations, net of tax of nil


-



13,523Net loss attributable to equity holders of the Company


(160,226
)


(26,033
)
 (1)See “Other Factors – Changes in accounting
policies”.
 
  Revenue
 
 Print advertising
 
 Print advertising revenue decreased $69.4 million, or 13.5%, to $445.5 million for the year ended August 31, 2013, as compared to the same period in the
prior year.  This decrease related to most of our major categories of print advertising revenue, including decreases from national advertising of 15.7%, retail advertising of 9.3%, classified advertising of 18.9%, and insert advertising of
7.3%.  The total print advertising linage and average line rate decreased 9.3% and 5.9%, respectively, during the year ended August 31, 2013, as compared to the same period in the prior year.
 
 21
 
 Print circulation
 
 Print circulation revenue decreased $13.3 million, or 6.3%, to $195.9 million for the year ended August 31, 2013, as compared to the same period in the prior
year.  Net paid circulation decreased 12.7% for the year ended August 31, 2013, as compared to the same period in the prior year and was partially offset by price increases.  A portion of the print circulation revenue decrease
related to the implementation of initiatives which included the elimination of unprofitable publishing days and circulation.
 
 Digital
 
 Digital revenue increased $2.5 million, or 2.8%, to $91.6 million for the year ended August 31, 2013, as compared to the same period in the prior
year.  Growth in digital revenue was primarily a result of increases in local digital advertising revenue of $7.1 million partially offset by declines of $4.5 million in digital classified revenue.
 
 Other
 
 Other revenue decreased $0.1 million for the year ended August 31, 2013, as compared to the same period in the prior year.
 
 Expenses
 
 Compensation
 
 Compensation expenses decreased $27.4 million, or 7.9%, to $321.2 million for the year ended August 31, 2013, as compared to the same period in the prior
year.  This decrease was primarily due to lower salary and benefits expense of $33.8 million as a result of a reduction in employees due to the Transformation Program, partially offset by increased share-based and other long-term incentive
plan compensation expense of $3.8 million as a result of changes in the share price of our Class C voting shares (“Voting Shares”) which was used to compute the fair value of our other long-term incentive plan and an increase in employee
benefit plan expense of $2.3 million.  Excluding non-cash share-based and other long-term incentive plan compensation expense, compensation expense decreased $31.2 million, or 8.9%.
 
 Newsprint
 
 Newsprint expenses decreased $11.7 million, or 22.3%, to $40.9 million for the year ended August 31, 2013, as compared to the same period in the prior
year.  Newsprint expense decreases were primarily a result of consumption decreases of 20.1% due to continued usage reduction efforts, reduced publishing days and lower newspaper circulation volumes, combined with a decrease in newsprint
cost per tonne of 2.8%.
 
 Distribution
 
 Distribution expenses decreased $16.0 million, or 12.9%, to $107.9 million for the year ended August 31, 2013, as compared to the same period in the prior
year.  Decreases in distribution expenses were primarily a result of a reduction in newspaper circulation volumes, the elimination of unprofitable publishing days and circulation and other cost reduction initiatives.
 
 Production
 
 Production expenses decreased $1.7 million, or 5.7%, to $28.3 million for the year ended August 31, 2013, as compared to the same period in the prior
year.  Decreases in production expenses are primarily a result of a reduction in newspaper circulation volumes.
 
 22
 
 Other operating
 
 Other operating expenses decreased $9.6 million, or 7.2%, to $123.4 million for the year ended August 31, 2013, as compared to the same period in the prior
year.  Decreases in other operating expenses were primarily a result of ongoing cost savings initiatives.  Partially offsetting these decreases were increased rent and occupancy costs associated with new property operating
leases.
 
 Operating income before depreciation, amortization, impairment and restructuring
 
 Operating
 income before depreciation, amortization, impairment and restructuring decreased $13.9 million, or 9.7%, to $129.9 million for the year ended August 31, 2013, as compared to the same period in the prior year.  The decrease related
primarily to decreases in revenue, partially offset by decreases in expenses as discussed above.  Excluding non-cash share-based and other long-term incentive plan compensation expense, operating income before depreciation, amortization,
impairment and restructuring decreased $10.1 million, or 7.1%.
 
 Depreciation
 
 Depreciation increased $3.8 million to $30.0 million for the year ended August 31, 2013, as compared to the same period in the prior year.  The
increase related primarily to the change in the estimate of the useful lives of certain production assets as a result of production outsourcing arrangements.
 
 Amortization
 
 Amortization decreased $0.2 million to $43.3 million for the year ended August 31, 2013, as compared to the same period in the prior
year.
 
 Impairments
 
 During the year ended August 31, 2013 as a result of interim and annual impairment testing of our goodwill and indefinite life intangible assets we recorded
an impairment loss of $93.9 million which consisted of $73.9 million related to goodwill, $16.4 million related to indefinite life intangible assets and $3.6 million related to property and equipment.  The impairments were 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.  In addition, during the year ended
August 31, 2013, we recorded an impairment loss of $6.1 million with respect to a production facility upon reclassification of the asset from property and equipment to asset held-for-sale.  There were no such impairments in the year ended
August 31, 2012.
 
 Restructuring and other items
 
 Restructuring
 and other items expense for the year ended August 31, 2013 decreased $1.2 million to $34.2 million as compared to the same period in the prior year.  Restructuring and other items expense for the year ended August 31, 2013 included an
expense of $2.3 million related to changes made to an employee benefit plan as a result of an arbitrator’s ruling.  Additionally, included in restructuring and other items was $31.9 million of severance costs, which included both
involuntary terminations and voluntary buyouts.  Restructuring and other items expense for the year ended August 31, 2012 consisted of $39.5 million related to severance costs, which included both involuntary terminations and voluntary
buyouts and a recovery of $4.1 million which represented a curtailment gain in respect of our pension benefit plans related to such involuntary terminations and voluntary buyouts.
 
 Operating income (loss)
 
 Operating loss was $77.5 million for the year ended August 31, 2013, compared to operating income of $38.8
million for the same period in the prior year, primarily as a result of decreased operating income before depreciation, amortization, impairment and restructuring, increased depreciation and the impairments recorded in the year ended August 31,
2013, all as discussed above.
 
 23
 
 Interest expense
 
 Interest expense decreased $3.5 million to $61.9 million for the year ended August 31, 2013, as compared to the same period in the prior
year.  Interest expense primarily related to interest on our long-term debt that was recognized using the effective interest rate method which amortized the initial debt issuance costs and included both cash and non-cash
interest.  The decrease in interest expense for the year ended August 31, 2013 related to decreases in interest expense due to lower debt levels as compared to the same period in the prior year, partially offset by an increase in the
effective interest rate as a result of the refinancing on August 16, 2012.  Cash interest expense decreased $1.6 million during the year ended August 31, 2013, as compared to the same period in the prior year, due to reduced hedging on the
Second-Lien Notes and lower debt levels, partially offset by an increase in the interest rate on first-lien debt as a result of the refinancing completed in August 2012.
 
 Loss on debt repayment
 
 During
 the year ended August 31, 2012, we recorded a non-cash loss on debt repayment of $9.2 million representing unamortized discounts and financing fees related to the repayment of the then outstanding Senior Secured Term Loan Credit Facility
(“Term Loan Facility”).  There were no such losses in the year ended August 31, 2013.
 
 Net financing expense relating to employee benefit plans
 
 Net
financing expense relating to employee benefit plans increased $1.8 million to $7.5 million for the year ended August 31, 2013, as compared to the same period in the prior year.  The increase relates primarily to an increase in the
employee benefit plan liabilities.
 
 (Gain) loss on disposal of property and equipment and intangible assets
 
 During
 the year ended August 31, 2013, we disposed of property and equipment and intangible assets and realized a net gain of $1.0 million.  During the year ended August 31, 2012, we disposed of property and equipment and intangible assets and
realized a loss of $0.3 million.
 
 (Gain) loss on derivative financial instruments
 
 Loss on derivative financial instruments for the year ended August 31, 2013 was $7.3 million as compared to
a gain of $8.6 million during the same period in the prior year.The loss for the year ended August 31, 2013 related to the change in fair value of
our variable prepayment option embedded derivatives on the First-Lien Notes and Second-Lien Notes.The gain for the year ended August 31, 2012
included a gain of $13.4 million which occurred prior to the settlement of a fair value swap that was not designated as a hedge, gains of $9.6 million related to the variable prepayment option embedded derivatives on the First-Lien Notes and
Second-Lien Notes, partially offset by a loss of $1.9 million related to the settlement of cash flow swaps designated as hedges for cash consideration of $1.3 million, a realized loss of $0.8 million which represents a payment made to amend the
terms of cash flow swap designated as a hedge, a realized loss of $8.8 million related to the settlement of the fair value swap not designated as a hedge and net cash outflows of $2.8 million related to contractual cash interest settlements on a
fair value swap not designated as a hedge.
 
 24
 
 Foreign currency exchange losses
 
 Foreign currency exchange losses for the year ended August 31, 2013 were $7.1 million as compared to $6.4 million during the same period in the prior year.  On August 16, 2012 we
repaid our Term Loan Facility in its entirety, which was denominated in US dollars, and replaced it with the First-Lien Notes which are denominated in Canadian dollars, thereby permanently reducing our exposure to foreign currency fluctuations on a
significant portion of our long-term debt.  In September 2012, we settled a notional amount of US$97.5 million of the foreign currency interest rate swap designated as a cash flow hedge thereby increasing our exposure to foreign currency
fluctuations on the non-swapped portion of the Second-Lien Notes from US$3.6 million to US$101.1 million.  For the year endedAugust 31, 2013foreign currency exchange losses consisted primarily of unrealized losses of $6.8 million related to the non-swapped portion of the Second-Lien Notes.  For the
year endedAugust 31, 2012foreign currency exchange losses consisted primarily of net realized losses of $6.3 million related to repayments of the Term Loan
Facility and realized losses of $0.8 million on contractual principal settlements on the foreign currency interest rate swap not designated as a hedge, partially offset by unrealized gains of $0.5 million related to the non-swapped portion of the
Second-Lien Notes.
 
 Loss before income taxes
 
 Loss before
 income taxes was $160.2 million for the year ended August 31, 2013, as compared to $39.6 million for the same period in the prior year.  The increase in loss before income taxes was primarily the result of operating losses as discussed
above.
 
 Provision for income taxes
 
 We
have not recorded a current or deferred tax expense or recovery for the year ended August 31, 2013 and 2012.  Current taxes payable or recoverable result in a decrease or increase, respectively, to our tax loss carryforward
balances.  The cumulative tax loss carryforward balances have not been recognized as a net deferred tax asset on the statement of financial position.
 
 Net loss from continuing operations
 
 Net loss from continuing operations was $160.2 million for the year ended August 31, 2013, as compared to $39.6 million for the same period in the prior
year, as a result of the factors described above in loss before income taxes.
 
 Net earnings from discontinued operations
 
 We completed the sale of substantially all of the assets and liabilities of the Lower Mainland Publishing Group, the Victoria Times Colonist and the
Vancouver Island Newspaper Group (the “Disposed Properties”) on November 30, 2011, and as a result there were no discontinued operations for the year ended August 31, 2013.  Net earnings from discontinued operations for the
year ended August 31, 2012 was $13.5 million and included a $17.1 million gain on sale of discontinued operations and an allocation of $6.4 million of interest expense representing an acceleration of debt issuance costs related to the debt repayment
made with the net proceeds from the sale.
 
 Net loss attributable to equity holders of the Company
 
 Net
loss for the year ended August 31, 2013 was $160.2 million as compared to $26.0 million for the same period in the prior year.  The decrease is due to an increase in the net loss from continuing operations and no net earnings from
discontinued operations, both as discussed above.
 
 25
 
 Consolidated quarterly financial information
 Fiscal 2014


Fiscal 2013($ in thousands of Canadian dollars, except per share information)


Q4


Q3


Q2


Q1


Q4


Q3


Q2


Q1revised (1)Total revenues


146,804



170,989



162,484



193,978



169,309



191,784



178,818



211,672Net earnings (loss)
attributible to equity holders of the Company


(49,761
)


(20,605
)


(25,290
)


(11,805
)


(47,913
)


(103,256
)


(15,761
)


6,704Basic

$
(1.24
)

$
(0.51
)

$
(0.63
)

$
(0.29
)

$
(1.19
)

$
(2.57
)

$
(0.39
)

$
0.17Diluted

$
(1.24
)

$
(0.51
)

$
(0.63
)

$
(0.29
)

$
(1.19
)

$
(2.57
)

$
(0.39
)

$
0.16Cash flows from operating activities


(16,584
)


12,928



14,659



4,223



(11,562
)


15,975



20,706



13,228
 (1)See “Other Factors –
Changes in accounting policies”.
  Liquidity and capital resources
 
 Our principal uses of funds are for working capital requirements, debt servicing and capital expenditures. Based on our current and anticipated level of operations, we believe that our cash
on hand, cash flows from operations and available borrowings under our New ABL Facility will enable us to meet our working capital, capital expenditure, debt servicing and other funding requirements.  However, our ability to fund our
working capital needs, debt servicing and other obligations depends on our future operating performance and cash flows.  There are a number of factors which may adversely affect our operating performance and our ability to meet these
obligations. See “Key Factors Affecting Operating Results”.  Our cash flows from operating activities may be impacted by, among other things, the overall strength of the economy, competition from digital media and other forms
of media as well as competition from alternative emerging technologies. In addition, in recent years there has been a growing shift in advertising dollars from newspaper advertising to other advertising formats, particularly online and other digital
platforms such as search and social media websites.  Although we expect to fund our capital needs with our available cash, cash generated from operations and available borrowings under the New ABL Facility, our indebtedness could adversely
affect our financial condition and prevent us from fulfilling our obligations under our debt agreements. See “Risk Factor - We may not be able to refinance our New ABL Facility on attractive
terms, or at all”.
 
 As
part of our annual budgeting process, management projects capital expenditures for the forthcoming fiscal year. Each project is subject to a detailed review on a case by case basis prior to approval. Investment projects must achieve an acceptable
return on investment and generally are expected to demonstrate a payback period of no more than three years. In certain instances where there are strategic considerations, a longer timeframe may be considered.  For the year ending August
31, 2015, we expect our major non-operating cash requirements to include discretionary capital expenditures of approximately $15 million and contractual principal repayments of long-term debt to total $12.5 million, which does not include the
proceeds from certain potential asset sales not included in the completion of the Rights Offering, which will be used to make an offer to redeem an equal amount of First-Lien Notes.
 
 26
 
 Sources of Cash
 
 Cash flows from operating activities
 
 Our principal sources of liquidity are cash flows from operating activities.  For the three months and year ended August 31, 2014, our cash flows from operating activities were
outflows of $16.6 million and inflows of $15.2 million, respectively (2013 – outflows of $11.6 million and inflows of $38.3 million, respectively) (year ended August 31, 2012 – inflows of $42.5 million).  Cash flows from
operating activities decreased $5.0 million for the three months ended August 31, 2014, as compared to the same period in the prior year due to a decrease in operating income before depreciation, amortization, impairment and restructuring, as well
as increased restructuring payments of $4.3 million. Partially offsetting these items was a net cash receipt of $6.1 million on the settlement of a foreign currency interest rate swap designated as a cash flow hedge in the three months ended August
31, 2014.  Cash flows from operating activities decreased $23.1 million for the year ended August 31, 2014, as compared to the same period in the prior year due to a decrease in operating income before depreciation, amortization,
impairment and restructuring as well as increased restructuring payments of $13.9 million.  Partially offsetting these items was a net cash receipt on of $6.1 million on the settlement of a foreign currency interest rate swap designated as
a cash flow hedge in the year ended August 31, 2014as compared to a net cash payment of $9.0 million on the settlement of a foreign currency interest rate swap
designated as a cash flow hedge in the year ended August 31, 2013.Cash flows from operating activities decreased $4.2 million for the year ended August 31, 2013, as compared to the same period in the prior year dueto a decrease in operating income before depreciation, amortization, impairment and restructuring and the settlement of the foreign currency interest rate swap designated as
a cash flow hedge offset by lower funding obligations on our employee benefit plans.
 
 As at August31, 2014we had cash of $30.5 million (August 31, 2013 -
$40.8 million).
 
 Uses of Cash
 
 Cash flows from investing activities
 
 For
the three months and year ended August 31, 2014, our cash flows from investing activities were outflows of $1.5 million and $13.0 million, respectively (2013 – outflows of
$4.1 million and inflows of $12.4 million, respectively) (year ended August 31, 2012 – inflows of $72.4 million.  The net cash outflows from investing activities during the three months ended August 31, 2014include outflows on capital expenditures related to property and equipment of $1.2 million and intangible assets of $0.3 million.  The net cash outflows from investing activities during the three months ended August 31, 2013 included outflows on capital expenditures related to property and equipment of
$2.1 million and intangible assets of $2.0 million.  The net cash outflows from investing activities during the year ended August 31,
2014include the net proceeds received on the sale of property and equipment of $0.3 million, offset by outflows on capital expenditures related to property
and equipment of $10.2 million and intangible assets of $3.1 million.  The net cash inflows from investing activities during the year ended August 31, 2013, included the net proceeds received on the sale of property and equipment,
intangible assets and asset held-for-sale of $25.9 million, offset by outflows on capital expenditures related to property and equipment of $7.6 million and intangible assets of $5.9 million. The net cash inflows from investing activities during the
year ended August 31, 2012 included the net proceeds from the sale of the Disposed Properties of $87.3 million, offset by outflows on capital expenditures related to property and equipment of $8.2 million and intangible assets of $6.7
million.
 
 Cash flows from financing activities
 
 Cash outflows
 from financing activities for the three months and year ended August 31, 2014, were nil and $12.5 million, respectively (2013 – nil and $32.2 million, respectively) (year ended August 31, 2012 – outflows of $103.2 million), and were
related to our indebtedness as discussed below.
 
 27
 
 Indebtedness
 
 As of August 31, 2014, we have $205.5 million First-Lien Notes and US$268.6 million Second-Lien Notesoutstanding (August 31, 2013 - $218.0 million and US$268.6 million, respectively) (August 31, 2012 - $250.0 million and US$268.6 million, respectively).During the three months and year ended August 31, 2014, we made contractual
redemptions of nil and $12.5 million, respectively (2013 – nil and $32.0 million, respectively) , of aggregate principal amount of First-Lien Notes at par in accordance with the terms and conditions of the First-Lien Notes indenture. During
the year ended August 31, 2012 we made mandatory and optional principal repayments on the Term Loan Facility of $102.0 million (US$100.0 million), which included the required repayment due to the sale of the Disposed Properties, as discussed
previously.  In addition, during the year ended August 31, 2012 we repurchased and retired US$6.4 million of the Second-Lien Notes for total cash consideration
of $6.3 million (US$6.2 million).
 
 The
following tables set out the principal and carrying amount of our long-term debt outstanding as at August 31, 2014 and August 31, 2013. On July 15, 2014, the foreign currency interest rate swap related to the Second-Lien Notes matured as a result as
at August 31, 2014, our US dollar debt has been translated to the Canadian equivalent based on the foreign exchange rate on August 31, 2014 of US$1:$1.0873.  As at August 31, 2013, the first column of the table translates, where
applicable, our US dollar debt to the Canadian equivalent based on foreign exchange rates specified in our foreign currency swap agreements for swapped debt and at the closing foreign exchange rate as at August 31, 2013 of US$1:$1.053 for our
non-swapped debt.


August 31, 2014($ in thousands of Canadian dollars)

Principal Outstanding(US$ Debt translated at swapped or period end
rates)

Principal Outstanding(US$ Debt translated at period end exchange rates)

Financing fees, discounts and other

Carrying ValueFirst-Lien Notes
(CDN$205.5M)


205,460


205,460


4,447


201,013Second-Lien Notes (US$268.6M)


292,087


292,087


6,800


285,287497,547


497,547


11,247


486,300August 31, 2013($ in thousands of Canadian dollars)

Principal Outstanding(US$ Debt translated at swapped or period end
rates)

Principal Outstanding(US$ Debt translated at period end exchange rates)

Financing fees, discounts and other

Carrying ValueFirst-Lien Notes
(CDN$218.0M)


217,960


217,960


5,927


212,033Second-Lien Notes (swapped)
(US$167.5M)


173,363


176,378


5,005


171,373Second-Lien Notes (non-swapped) (US$101.1M)


106,495


106,495


3,021


103,474497,818


500,833


13,953


486,880




28




Financial Position as at
August 31, 2014 and August 31, 2013
 ($ in thousands of Canadian dollars)

August 31, 2014

August 31, 2013Current assets


107,543



138,200Total assets


740,594



862,797Current
liabilities


111,378



130,860Total liabilities (revised) (1)


729,650



728,564Equity (revised) (1)


10,944



134,233
 (1) See “Other Factors – Changes in accounting policies”.
  The decrease in our current assets at August 31, 2014 as compared to
August 31, 2013 is primarily due to a decrease in cash and accounts receivable. Total assets atAugust 31, 2014 decreased
compared to August 31, 2013, as a result of the decrease in current assets previously described and a decrease in the carrying value of property and equipment and intangible assets as a
result of depreciation and amortization during the year ended August 31, 2014, partially offset by the carrying value of our non-current portion of derivative financial
instruments.Current liabilities have decreased due to decreased accounts payable and accrued liabilities including accrued interest payable on long-term debt, and a decrease in
restructuring provisions as a result of payments relating to the Transformation Program.  The increase in total liabilities is primarily due to the increase in the carrying value of our employee benefit plans, partially offset by the
decrease in total current liabilities previously described.
  Financial Instruments and Financial Instruments Risk
Management
  Our activities expose us to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. We used derivative
financial instruments to hedge certain foreign currency and interest rate risk exposures, until July 15, 2014 when the foreign currency interest rate swap matured.
  Current risk management techniques utilized include monitoring fair value of derivative financial instruments, fair value of publicly traded debt, foreign exchange rates and
interest rates with respect to interest rates and foreign currency risk, aging analysis and credit reviews for credit risk and cash flow projections for liquidity risk. Our enterprise risk management process is managed by a risk oversight committee
composed of senior executives of Postmedia.
  Foreign currency risk
  As at August 31, 2014, approximately 59% of the outstanding principal on our long-term debt is payable in US dollars (August 31, 2013 – 56%).  As at August 31,
2013, we had entered into derivative financial instruments to reduce the foreign currency risk exposure on 62% of our US dollar denominated long-term debt. On July 15, 2014 the foreign currency interest rate swap related to the Second-Lien Notes
matured, exposing us to foreign currency risk on the entire US$268.6 million of Second-Lien Notes outstanding (August 31, 2013 – the un-hedged portion of the Second-Lien Notes of US$101.1 million). Based on long-term debt outstanding as at
August 31, 2014, 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.
  29
  Interest rate risk
  We have no significant interest bearing assets.  Our interest rate risk arises from borrowings at fixed rates which expose us to fair value interest rate risk as well
as borrowings at variable rates which would expose us to cash flow interest rate risk.  As at August 31, 2014, we held $497.5 million (August 31, 2013 - $500.8 million) of debt subject to fair value interest rate risk and no debt subject
to cash flow interest rate risk at August 31, 2014 and 2013. Subsequent to year end we entered into a Purchase Agreement which will be financed in part by the issuance of an additional $140.0 million of First-Lien Notes.  See “Recent
Developments”.
  Credit risk
  Credit risk is the risk of financial loss to Postmedia if a customer or
counterparty to a financial asset fails to meet its contractual obligations.  As at August 31, 2014, no individual balance represented a significant portion of our accounts receivable.  We establish an allowance for doubtful
accounts based on the specific credit risk of our customers and historical trends.  The allowance for doubtful accounts amounted to $3.4 million as at August 31, 2014 (August 31, 2013 – $3.3 million).
  We continuously monitor the financial condition of our customers, review the credit history of each customer, review the aging of accounts receivable, evaluate significant
individual credit risk accounts and utilize each customer’s historical experience in order to both grant credit and set up our allowance for doubtful accounts.  If such collectability estimates prove inaccurate, adverse adjustments
to future operating results could occur and could be material.
  Liquidity risk
  Liquidity risk is the risk that we will not be able to meet our financial obligations as they come due or the risk that those financial obligations have to be met at excessive
cost.  We manage this exposure by using cash on hand and cash flow forecasts and by deferring or eliminating discretionary spending.  We had a revolving senior secured asset-based revolving credit facility for an aggregate amount
of up to $60 million, including a $10 million letter of credit sub-facility, (the “ABL Facility”), with a maximum availability of $45 million.  On October 16, 2014 we entered into a New ABL Facility for an aggregate amount of
up to $20.0 million.  The New ABL Facility will replace our ABL Facility that matured on July 13, 2014. Both of which are described in note 12 of our audited consolidated financial statements for the years ended August 31, 2014, 2013 and
2012. Subsequent to year end we entered into a Purchase Agreement which will be financed in part by the issuance of an additional $140.0 million of First-Lien Notes. See “Recent Developments”.
  Our obligations under firm contractual arrangements, including commitments for future payments under finance lease arrangements, operating lease arrangements, and pension funding
agreements and debt agreements as of August 31, 2014 are as follows:
 2015

2016

2017

2018

2019

ThereafterFinance lease


-



-



-



-



-



1,560Operating leases and
other


22,158



18,830



16,387



10,784



8,457



41,802Estimated employee benefit
plan funding obligations (1)


20,254



21,914



21,595



21,595



21,595



N/ALong-term debt(2)


12,500



12,500



180,460



292,087



-



-Interest on long-term debt(2)


53,203



52,172



55,183



36,511



-



-108,115



105,416



273,625



360,977



30,052



43,362




Notes:
 (1)
Reflects expected contributions to our defined benefit pension benefit plans,
post-retirement benefit plans and other long-term employee benefit plans.  Information for our pension funding obligations is based upon our actuarial valuation dated December 31, 2013 and does not include calculations of our pension
funding obligations beyond fiscal 2019.  Future required payments are expected to be material.
 (2)
Long-term debt and interest on long-term debt consist of only the mandatory
contractual payments.  US Dollar long-term debt and the related interest payments have been converted to Canadian dollars using the closing exchange rate as at August 31, 2014 of US$1:$1.0873 and are calculated at the fixed interest rates
underlying the obligation.




30




Guarantees and Off-Balance Sheet
Arrangements
  We do not have any significant guarantees or off-balance sheet arrangements.
  Future Accounting Standards
 
 We have not early adopted the following new standards and the impacts on
the audited consolidated financial statements have not yet been determined, except as indicated below:
 
 (i) IFRS 9 – Financial Instruments
  IFRS 9 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.
  This standard is required to be applied for annual periods beginning on or after January 1, 2018, with earlier adoption permitted.
  (ii) IFRS 15 – Revenue from Contracts with Customers
  IFRS 15 – Revenue from Contracts with Customers 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. IFRS 15 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, 2017, with earlier adoption permitted.
  (iii) IFRIC 21 – Levies
 
 IFRIC 21 -
Levies clarifies the timing for the accounting of 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 is not expected to have an impact on the consolidated financial statements.
 
 Risk Factors
  The risks and uncertainties described below are those we currently
believe to be material, but should not be considered exhaustive.  If any of the following risks, or any other risks and uncertainties that we have not yet identified or that we currently consider not to be material, actually occur or
become material risks, our business, financial condition, results of operations and cash flows and consequently the price of our shares, the First-Lien Notes and Second-Lien Notes could be materially and adversely affected.
  31
  Risks Relating to Our Business
  Competition from digital and other forms of media may
impair our ability to generate advertising and circulation revenue.
  Participants in the newspaper publishing industry depend primarily upon
advertising sales, paid subscriptions and single copy newspaper sales in order to generate revenue. Competition for advertising, subscribers, readers and distribution is intense and comes primarily from digital media, as well as, television; radio;
local, regional and national newspapers; magazines; free publications; direct mail; telephone directories; and other communications and advertising and subscriber-based media that operate in these markets. In addition, in recent years there has been
a growing shift in advertising dollars from newspaper advertising to other advertising platforms, including digital media competitors such as search and social media, and this shift appears to be permanent. Participants in the digital media industry
also depend upon the sale of advertisements and paid subscriptions in order to generate revenue. The digital media industry experiences additional competitive challenges because barriers to entry are low and geographic location is less
relevant.
  Participants in digital media platforms may improve their ability to target specific audiences and therefore become an even more attractive media for advertisers. These
circumstances could result in our newspaper or online media not being as competitive as they are currently in relation to these other forms of media. In order to respond to changing circumstances, the costs of producing or promoting editorial
content may increase, or we may need to reduce our advertising and/or subscription rates, either of which could adversely affect our financial performance. Increased competition could also lead to additional expenditures for editorial content and
marketing.
  In addition, there is increasing consolidation in the Canadian newspaper publishing and other media industries, and competitors increasingly include market participants with
interests in multiple media. These competitors may be more attractive than we are to certain advertisers because they may be able to bundle advertising sales across newspaper, television and internet platforms. Some of these competitors also have
access to greater financial and other resources than we do.
  Our ability to continue to compete successfully in
the newspaper and online media industries and to attract advertising dollars, subscribers and readers will depend upon a number of factors, including:
  ●
our continued ability to offer high-quality editorial content;
  ●
the variety, quality and attractiveness of our products and services;
  ●
the pricing of our products and services;
  ●
the platforms on which our products and services are offered;
  ●
the manner in which we market and promote our products and services;
  ●
the effectiveness of the distribution of our products and services;
  ●
our customer service; and
  ●
the emergence of technologies resulting in further shifts, which may be permanent,
from newspaper advertising to advertising in other formats, including new media outlets.
  32
  These factors are largely dependent upon on our ability to:
  ●
identify and successfully respond to changes in technology, customer trends and
preferences and online digital platforms such as search and social media;
  ●
develop new products across our business lines;
  ●
protect our intellectual property and avoid infringing the intellectual property
rights of others;
  ●
avoid damage to our brands or reputation;
  ●
appeal to many demographics; and
  ●
expand into new distribution channels, particularly with respect to digital media
and online products.
  There can be no assurance that existing and future competitors will not
pursue or be capable of achieving similar or competitive business strategies. In addition, there can be no assurance that we will be able to compete successfully with existing or potential competitors, or that increased competition will not have an
adverse effect on our business, financial condition or results of operations.
  Advertising revenue is the largest component of our
revenues and our advertising revenue is influenced by prevailing economic conditions and the prospects of our advertising customers. Advertising revenue has been declining since 2009.
  We generate revenue primarily from the sale of advertising. Advertising revenue, including both print and digital advertising, represented 64.4% of our consolidated revenues in
the year ended August 31, 2014 (2013 – 67.8%) (2012 – 69.4%).
  Advertising revenue is affected in part by prevailing economic
conditions. Adverse economic conditions generally, and downturns in the Canadian economy specifically, have a negative impact on the Canadian advertising industry and, consequently, on our financial prospects. We have been experiencing a decline in
advertising revenue since 2009.
  Our advertising revenue is also dependent on the prospects of our
advertising customers. Certain of our advertising customers operate in industries that may be cyclical or sensitive to general economic conditions, such as the automobile, financial, employment, technology, retail, food and beverage,
telecommunications, travel, packaged goods and entertainment industries. Advertising customers could alter their spending priorities and reduce their advertising budgets in the event of a downturn in their business or prospects which would have an
adverse effect on the revenue we generate from advertising. In addition, because a substantial portion of our revenue is derived from retail advertisers, our business, financial condition and results of operations would also be adversely affected by
a further downturn in the retail sector.
  33
  A further reduction in our advertising revenues could result from:
  ·
the continuing shift from newspaper advertising to advertising in other formats,
including new media outlets, which shift appears to be permanent;
  ·
a decline in economic conditions;
  ·
a decline in the circulation volume of our newspapers, which appears to be
permanent;
  ·
a decline in popularity of our editorial content or perceptions about our
brands;
  ·
a change in the demographic makeup of the populations to which our newspapers are
targeted;
  ·
the activities of our competitors, including increased competition from other forms
of advertising-based media (e.g., magazines, radio and television broadcasters, cable television, direct mail and electronic media), and online digital platforms such as search and social media; and
  ·
a decline in the amount spent on advertising in general or in particular industries
such as those discussed above.
  To the extent the economic conditions worsen and the structural shifts in
advertising revenue and circulation continue, our business and advertising revenues will continue to be adversely affected, which would in turn adversely impact our operations and cash flows.
  Failure to fulfill our strategy of building our digital media and online businesses would adversely affect our business prospects.
  The competitive environment in which we operate demands, and our future growth strategies incorporate, the development of our digital media and online businesses. We believe the
consumer preference for digital media and online products will accelerate as younger, more technologically savvy customers make up a greater portion of our potential customer base. In order for our digital media and online businesses to succeed, we
must invest time and significant resources in them, to, among other things:
  ●
accelerate the evolution of existing products (such as local newspaper websites and
national content channels);
  ●
develop new digital media and online products (such as redesigned classified sites
in automotive, employment and real estate categories);
  ●
develop new content channels (such as mobile optimized formats, online video
capabilities and content for tablet devices);
  ●
attract and retain talent for critical positions;
  ●
transform our organization and operating model to grow our digital media and online
business;
  ●
continue to develop and upgrade our technologies and supporting processes to
distinguish our products and services from those of our competitors;
  ●
sell advertising in significant markets, and be a compelling choice for advertisers
online;
  34
  ●
attract and retain a base of frequent, engaged visitors to our websites;
and
  ●
continuously advance our digital offerings based on fast-moving trends that may pose
opportunities as well as risks (e.g., tablets and mobile applications).
  No assurance can be provided that we will be successful in achieving
these and other necessary objectives or that our digital media and online businesses will be profitable or successful. Our failure to adapt to new technology or delivery methods, or our choice of one technological innovation over another, may have
an adverse impact on our ability to compete for new customers or to meet the demands of our existing customers. If our digital media and online businesses are not successful, we could lose significant opportunities for new advertising revenue from
digital sources while also losing advertising revenue from traditional sources due to the reallocation from print to digital advertising currently taking place. If we are not successful in achieving our digital media and online objectives, our
business, financial condition and prospects would be materially adversely affected.
  Our failure to maintain our print and online
newspaper readership and circulation levels would limit our ability to generate advertising and circulation revenue.
  Our ability to attract advertisers and thereby generate revenue and
profits is dependent in large part upon our success in attracting readership of the newspapers and online publications that we publish. Readership and to a lesser extent circulation volume are the key drivers of advertising prices and revenue in the
Canadian news and newspaper information industry.
  We believe reader acceptance is a function of the editorial and
advertising content being offered and is influenced by a number of factors, including:
  ●
the availability of alternative forms of news and other editorial
content;
  ●
the availability of alternative forms of media technologies, such as the internet
and other new media formats, that are often free for users;
  ●
a growing preference among some customers to receive all or a portion of their news
from sources other than from a newspaper;
  ●
increases in subscription and newsstand rates;
  ●
general economic conditions, including the resulting decline in consumer spending on
discretionary items such as newspapers;
  ●
reviews of critics, promotions, the quality and acceptance of other competing
editorial content in the marketplace;
  ●
public tastes and perceptions generally; and
  ●
other intangible factors.
  Circulation volumes of our newspapers have been declining in both the home delivered and single copy distribution channels. The rate of circulation decline could increase due to
changing media consumption patterns of our readers or other factors, and these declines appear to be permanent. If we are unable to stop these declines or if the rate of decline were to accelerate, it will result in lower readership and circulation
levels and, consequently, may lead to decreased advertising and other revenues.
  35
  Although we make significant investments in the editorial content of our newspapers, there can be no assurance provided that our newspapers will maintain satisfactory readership
or circulation levels and any decrease in such levels may be permanent. In addition, factors affecting our readership levels could change rapidly, and many of the changes may be beyond our control and permanent. Loss of readership could have a
material adverse effect on our ability to generate advertising and circulation revenue.
  Because a high percentage of our operating expenses
are fixed, a decrease in advertising revenue could have a negative impact on our results of operations.
  Newspaper publishing is both capital and labour intensive and, as a
result, newspapers have relatively high fixed cost structures. Advertising revenue, on which we rely for a majority of our revenue, may fluctuate due to a variety of factors whereas our expenses do not vary significantly with the increase or
decrease in advertising revenue. As a result, a relatively small change in advertising revenue could have a disproportionate effect on our results of operations. For example, during periods of economic contraction, our advertising revenue may
decline while most costs remain fixed, resulting in decreased earnings, as has been evident in the current economic environment.
  The financial difficulties of certain of our contractors and vendors could have a negative impact on our results of operations.
  The financial difficulties that some of our contractors and vendors may face, including one or more contractor or vendor bankruptcies due to poor economic conditions, may cause
them to fail to provide us with products and/or services or may increase the cost of the products and services that they provide us. We may be unable to procure replacement products and/or services from other contractors or vendors in a timely and
efficient manner and on acceptable terms, or at all. Any material change in these relationships, such as increased pricing, could have a material adverse effect on our business, financial condition, results of operations, liquidity and cash
flow.
  We compete with alternative emerging technologies and anticipate that we will be investing a significant amount of capital to address continued technological
development.
  The media industry is experiencing rapid and significant technological changes that have resulted in the development of alternative means of editorial content distribution. The
continued growth of the internet has presented alternative content distribution options that compete with traditional media for advertising revenue. We may not be able to compete successfully with existing or newly developed alternative distribution
technologies, or may be required to acquire, develop or integrate new technologies in order to compete. The cost of the acquisition, development or implementation of any such new technologies could be significant, and our ability to fund such
implementation may be limited. In addition, even if we were able to fund such an implementation, we may be unable to implement any such technologies successfully. Any such event could have a material adverse effect on our business, financial
condition or results of operations.
  In addition, the continuing growth and technological expansion of
internet-based services has increased existing competitive pressure on our businesses. As web-based and digital formats grab an increasingly larger share of consumer readership, we may lose customers or fail to attract new customers if we are not
able to transition and update our publications and other products to these new and evolving formats. Furthermore, to the extent that advertisers continue to shift advertising dollars to new media outlets, which shift appears to be permanent,
advertising revenues will decrease even if we are able to maintain our current share of print media advertising dollars. The increased competition may have a material adverse effect on our business and financial results.
  36
  We may not be able to achieve a profitable balance between circulation levels and advertising revenues.
  We must balance our circulation levels with our advertising revenue objectives. This balancing necessitates a continuous effort that varies by publication and requires effective
management of the circulation rate, the addition of new subscribers through cost-effective marketing methods and effective advertising operations. To maintain our readership and circulation rates, it may be necessary to incur additional costs that
we may not be able to recover through circulation and advertising revenues. No assurance can be provided that we will be able to add and retain a sufficient number of newspaper subscribers in an economically efficient manner. Failure to do this
could require reductions of our circulation rate or the elimination of certain products, which would negatively affect our advertising revenues and could materially and adversely affect our results of operations and financial condition.
  We may not realize our anticipated cost savings from cost savings initiatives and any failure to manage costs would hamper profitability.
  The level of our expenses impacts our profitability. Because of general economic and business conditions and our operating results, we have taken steps to lower operating costs
by implementing cost savings initiatives including various transformation projects. During the year ended August 31, 2012 we began implementing a Transformation Program aimed at significantly reducing legacy newspaper infrastructure costs.
Initiatives include the shutdown of Postmedia News, our proprietary breaking news service, the centralizing of editorial production services through Postmedia Editorial Services in Hamilton, the streamlining of advertiser flyer insert operations,
the cancellation of Sunday editions in three markets due to unprofitability, the outsourcing of our classified call centre and the outsourcing of production in certain markets. In addition, we have implemented and continue to explore opportunities
to reduce product costs by optimizing our distribution footprint, production schedules and shared distribution. We will continue to explore strategic initiatives, including additional transformation projects.
  Estimates of cost savings are inherently uncertain, and we may not be able to achieve cost savings or expense reductions within the time frame we have projected or at all. Our
ability to successfully realize savings and the timing of any realization may be affected by factors such as the need to ensure continuity in our operations, labour and other contracts, regulations and/or statutes governing employee/employer
relationships, and other factors. In particular, certain of our collective bargaining agreements limit our ability to achieve operating efficiencies by limiting our ability to implement strategic initiatives. In addition, our implementation of these
initiatives has and is expected to require upfront costs. There can be no assurance that we will be able to successfully contain our expenses or that even if our savings are achieved that implementation or other expenses will not offset any such
savings. Our estimates of the future expenditures necessary to achieve the savings we have identified may not prove accurate, and any increase in such expenditures may affect our ability to achieve our anticipated savings. If these cost-control
efforts do not reduce costs in line with our expectations, our financial position, results of operations and cash flows will be negatively affected.
  Our revenue, which is generated primarily from advertisers, is subject to significant seasonal variations, which may increase our borrowing needs at various
points in the year.
  Our revenue has experienced, and is expected to continue to experience, significant seasonal variances due to seasonal advertising patterns and seasonal influences on media
consumption habits. Typically, our revenue is lowest during the fourth quarter of our fiscal year, which ends in August, and highest during the first and third quarters, which end in November and May, respectively, while expenses are relatively
constant throughout the fiscal year. These seasonal variations may lead to increased borrowing needs at certain points within the year. As a result, we may use amounts available under our New ABL Facility to mitigate the impact of short-term
fluctuations in cash flow, which could consequently leave us in a more constrained liquidity position.  See “Risk Factor - We may not be able to refinance our New ABL Facility on
attractive terms, or at all”.
  37
  Our intellectual property rights are valuable, and any inability to protect them or liability for infringing the intellectual property rights of others could
reduce the value of our services and our brands.
  We rely on the trademark, copyright, internet/domain name, trade secret
and other laws of Canada and other countries, as well as nondisclosure and confidentiality agreements, to protect our intellectual property rights. However, we may be unable to prevent third parties from using our intellectual property without our
authorization, breaching any nondisclosure agreements with us, acquiring and maintaining domain names that infringe or otherwise decrease the value of our trademarks and other proprietary rights, or independently developing intellectual property
that is similar to ours, particularly in those countries that do not protect our proprietary rights as fully as in Canada. The use of our intellectual property by others could reduce or eliminate any competitive advantage we have developed, cause us
to lose sales or otherwise harm our businesses. If it became necessary to litigate to protect these rights, any proceedings could be burdensome and costly, and we may not prevail.
  We have obtained and applied for several Canadian and foreign service mark and trademark registrations, and will continue to evaluate the registration of additional service marks
and trademarks, as appropriate. We cannot guarantee that any of our pending applications will be approved by the applicable governmental authorities. Moreover, even if the applications are approved, third parties may seek to oppose or otherwise
challenge these registrations. A failure to obtain trademark registrations in Canada and in other countries could limit our ability to protect our trademarks and impede our marketing efforts in those jurisdictions.
  We cannot be certain that our intellectual property does not and will not infringe the intellectual property rights of others. We may be subject to legal proceedings and claims
in the ordinary course of our business, including claims of alleged infringement of the trademarks, copyrights and other intellectual property rights of third parties. Any such claims, whether or not meritorious, could result in costly litigation
and divert resources and the efforts of our personnel. Moreover, should we be found liable for infringement, we may be required to enter into licensing agreements (if available on acceptable terms, or at all) or to pay damages and to cease using
certain trademarks or copyrights or making or selling certain products, or to redesign or rename some of our products or processes to avoid future infringement liability. Any of the foregoing could cause us to incur significant costs.
  We maintain many well-known mastheads, consumer brands and trademarks, damage to the reputation of any of which could have an adverse impact upon our
business, financial performance or results of operations.
  The mastheads, brand names and trademarks that we own are well-known to
consumers and are important in maintaining existing business and sourcing new business, as our ability to attract and retain customers is in part dependent upon our external perceptions, the quality of our products and services and our integrity.
Damage to the reputation of any of these brands or negative publicity or perceptions about us could have an adverse impact upon the business, financial performance or results of operations.
  We may be adversely affected by variations in the cost and availability of newsprint.
  Newsprint is our largest raw material expense, representing approximately 5.4% of total operating costs in the year ended August 31, 2014 (2013 – 6.6%) (2012 -7.7%).
Newsprint is a commodity and, as such, price varies considerably from time to time as a result of, among other factors, foreign currency exchange fluctuations and supply shortfalls. The price of newsprint can increase as a result of various factors,
including consolidation in the newsprint industry, which has resulted in a smaller number of suppliers and reduced competition on price among them, and declining newsprint supply as a result of mill closures and conversions to other grades of paper.
Changes in newsprint prices can significantly impact our operating results. We would expect a $50 per tonne increase or decrease in the price of newsprint to affect our operating expenses by approximately $2.6 million on an annualized basis. There
can be no assurance that we will not be exposed to increased newsprint costs, which could have a material adverse effect on our business, financial condition or results of operations. In addition, if newspaper suppliers experience labour unrest,
transportation difficulties or other supply disruptions, our ability to produce and deliver newspapers could be impaired and the cost of the newsprint could increase, both of which would negatively affect our operating results.
  38
  We rely upon information systems and technology and other manufacturing systems, disruptions to which could adversely affect our operations.
  Our newspaper and digital media and online operations rely upon information technology systems, and other complex manufacturing systems, in order to produce and distribute our
products. Our information technology and manufacturing systems may be vulnerable to unauthorized access, computer viruses, system failures, human error, natural disasters, fire, power loss, communications failure or acts of sabotage or terrorism. If
a significant disruption or repeated failure were to occur, our business or revenue could be adversely affected. There may also be significant costs incurred as a result of such disruptions or failures that adversely affect our financial performance
or capital expenditure levels.
  Our operations could be adversely affected by labour
disruptions, and labour agreements limit our ability to achieve operating efficiencies.
  Approximately 34% of our staff were employed under 19 separate collective
agreements as of August 31, 2014. A majority of our collective agreements include provisions that could impede restructuring efforts, including work force reduction, centralization, outsourcing and other initiatives. We are currently in negotiations
with 6 bargaining units, covering the equivalent of 114 full-time employees, regarding expired agreements. In addition, we have 3 agreements that cover approximately 484 full-time employees that will expire by December 31, 2014.  Of our
remaining agreements, one expires in 2015 while the remainder expire in 2016 and 2017.
  There can be no assurance provided that any of these collective
agreements will be renewed on satisfactory terms, or at all. Labour organizing activities could result in additional employees becoming unionized, which could result in higher ongoing labour costs and reduced flexibility in running our operations.
In addition, labour disruptions or grievances could also affect our operations and certain unions have filed grievances against us alleging violations of one or more provisions of the applicable collective agreements. There can be no assurance
provided that we will not experience other labour disruptions, or that a material grievance will not be decided against us, or that we will not experience other forms of labour protest. Any strike, lock out or other form of labour disruption could
have a material adverse effect on our business, financial condition or results of our operations.
  Equipment failure may have a material adverse
effect.
  There is a risk of equipment failure, primarily related to our printing facilities, due to wear and tear, latent defect, design error or operator error, among other things, which
could have a material adverse effect on us. Although our printing facilities have generally operated in accordance with expectations, there can be no assurance that they will continue to do so. There may also be significant costs incurred as a
result of such disruptions or failures that adversely affect our financial performance or capital expenditure levels.
  We are subject to environmental, health and safety
laws and regulations, which could subject us to liabilities, increase our costs or restrict our business or operations in the future.
  We are subject to a variety of laws and regulations concerning emissions to the air, water and land, sewer discharges, handling, storage and disposal of, or exposure to,
hazardous substances and wastes, recycling, remediation and management of contaminated sites, or otherwise relating to protection of the environment and employee health and safety. Environmental laws and regulations and their interpretation have
become increasingly more stringent, and we may incur additional expenses to comply with existing or future requirements. If we fail to comply with environmental or health and safety requirements we could incur monetary fines, civil or criminal
sanctions, third-party claims or cleanup obligations or other costs. In addition, our compliance with environmental and health and safety requirements could restrict our ability to expand our operations or require us to install costly pollution
control equipment, incur other significant expenses or modify our printing processes.
  39
  We use and store hazardous substances such as inks and solvents in conjunction with our operations at our printing facilities. Such hazardous substances have in the past been
stored in underground storage tanks at some of our properties. Some of our printing and other facilities are located in areas with a history of long-term industrial use, and they may be impacted by past activities onsite or by contamination
emanating from nearby industrial sites. In the past, we have had contamination resulting from leaks and spills at some of our locations. We have not conducted environmental site assessments with respect to all of our owned and leased facilities, and
where such assessments have been conducted, they may not have identified all potential causes of environmental liability. There can be no assurance provided that remediation costs or potential claims for personal injury or property or natural
resource damages resulting from any newly-occurring or newly-discovered contamination will not be material, or that a material environmental condition does not otherwise exist at any of our properties.
  Our editorial content may be controversial and may result in litigation.
  We have had, in the ordinary course of our business, and expect to continue to have, litigation claims filed against us, most of which are claims for defamation arising from the
publication of our editorial content. While we maintain insurance in respect of claims for defamation, some claims made against us may not be insured or may result in costs above our coverage limits. In the event that a judgment is rendered against
us, there can be no assurance that our insurance coverage will cover that particular loss.
  We are currently involved in unresolved litigation
matters.
  We are involved in various legal claims arising in the ordinary course of our newspaper and digital media and online businesses. The majority of these claims are brought pursuant
to defamation laws in the province of publication. We maintain a multi-media liability insurance policy in respect of defamation claims. Subject to the terms and conditions of that policy, and the insurer’s coverage position in respect of
individual claims, the resolution of these matters is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.
  Failure to comply with “Canadian newspaper” status would materially affect our financial results and our business prospects.
  Under the Tax Act, generally no deduction is allowed for an outlay or expense for advertising space in an issue of a newspaper for an advertisement directed primarily to a market
in Canada, unless the issue is a “Canadian issue” of a “Canadian newspaper.”
  In order to qualify as a “Canadian issue”, the issue
generally must have its type set in Canada, be edited in Canada by individuals resident in Canada for purposes of the Tax Act and be printed and published in Canada. Issues of our newspapers currently meet these criteria.
  The test of whether a newspaper is a “Canadian newspaper” depends on the jurisdiction, governance, factual control and share ownership of the corporation which
directly publishes the newspaper. We publish our newspapers directly. In order to satisfy the requirements of a “Canadian newspaper” (subject to a statutory 12 month grace period), we must satisfy the following: (i) the corporation must
be incorporated under the laws of Canada or a province thereof, (ii) the chairperson or other presiding officer and at least 75% of the directors or other similar officers of the corporation must be Canadian citizens, and (iii) the corporation must
not be controlled, in fact, directly or indirectly, by persons or partnerships who could not themselves hold the right to produce and publish issues of a “Canadian newspaper”, including by citizens or subjects of a country other than
Canada.
  In addition, under the share ownership requirements, at least 75% of a non-public corporation’s voting shares and shares having a fair market value in total of at least 75%
of the fair market value of all issued shares of a non-public corporation, must be beneficially owned by either (i) Canadian citizens or (ii) one or more Qualifying Public Corporations. Upon the listing of Postmedia Network Canada Corp’s
shares on the Toronto Stock Exchange, it became a Qualifying Public Corporation. As Postmedia Network Inc. is a direct, wholly-owned subsidiary of Postmedia Network Canada Corp., our newspapers qualify as “Canadian
newspapers”.
  40
  Issues of our newspapers therefore qualify as “Canadian issues” of “Canadian newspapers” (or otherwise fall outside of the limitation on deductibility of
advertising expenses) and as a result advertisers currently have the right to deduct their advertising expenditures for Canadian tax purposes.
  There can be no assurance that issues of the newspapers published or produced by us will continue to be “Canadian issues” of “Canadian newspapers” under
the Tax Act, or that Canadian federal income tax laws respecting the treatment of deductibility of advertising expenses incurred in relation to “Canadian issues” of “Canadian newspapers” will not be changed in a manner which
adversely affect us.
  If our newspapers cease to be “Canadian newspapers” for purposes of the Tax Act, it is expected that our advertising revenue will decline significantly, which would
have a material adverse effect on our business, financial condition and results of operations.
  The collectability of accounts receivable could
deteriorate to a greater extent than provided for in our financial statements.
  In the normal course of business, we are exposed to credit risk for
accounts receivable from our customers. Our accounts receivable are carried at net realizable value and our allowance for doubtful accounts has been determined based on several factors, including the aging of accounts receivable, evaluation of
significant individual credit risk accounts and historical experience. If such collectability estimates prove inaccurate, adverse adjustments to future operating results could occur and could be material.
  We may have goodwill and intangible asset impairments
  At August 31, 2014, we had goodwill and other intangible assets of $437.4 million. We conduct annual impairment testing to determine if we will be able to recover all or a
portion of the carrying value of goodwill and indefinite life intangible assets. In addition, we are required to review goodwill and indefinite life intangible assets for impairment more frequently if impairment indicators arise. If the fair value
is insufficient to recover the carrying value of our goodwill and indefinite life intangible assets, we may be required to record a material non-cash charge to the statement of operations.
  The fair values of our cash-generating units under IFRS generally are based on discounted cash flow projections. The discounted cash flow projections are based on
management’s best estimates considering historical and expected operating plans, economic conditions, and general outlook for the industry and geographic markets in which we operate. The discount rates used are based on an industry based
debt/equity ratio and consider the risk free rate, risk premium and size premium for possible variations from management’s projections. The terminal value used in the discounted cash flow projections is the value attributed to the operations
beyond the projected discrete period using a perpetuity growth rate based on industry, revenue and operating income trends and growth prospects.
  As disclosed in note 4 of our audited consolidated financial statements for the years ended August 31, 2014, 2013 and 2012, we concluded that under IFRS during the year ended
August 31, 2014 we had impairments of nil (2013 - $100.0 million) (2012 – nil).  The impairments during the year ended August 31, 2013 included an impairment loss relating to: goodwill of $73.9 million, intangible assets and property
and equipment of two cash-generating units of $16.4 million and $3.6 million, respectively.  In addition, we had an impairment loss of $6.1 million during the year ended August 31, 2013 with respect to a production facility upon
reclassification of the asset from property and equipment to asset held-for-sale on the consolidated statement of financial position.
  We monitor impairment indicators on a quarterly basis. Significant changes in market conditions, and estimates or judgments used to determine expected future cash flows that
indicate a reduction in carrying value, may give rise to impairments in the period that the change becomes known and such impairments could have a material adverse effect on our results of operations.
  41
  Disruptions in the credit markets could adversely affect the availability and cost of short-term funds for liquidity requirements, and could adversely affect
our access to capital or our ability to obtain financing at reasonable rates and refinance existing debt at reasonable rates or at all.
  If internal funds are not available from our operations, we may be required to rely on the banking and credit markets to meet our financial commitments and short-term liquidity
needs. Disruptions in the capital and credit markets could adversely affect our ability to access additional funds in the capital markets or draw on or refinance our existing or any future credit facilities. Although we believe that our operating
cash flow and access to capital and credit markets, including funds from our New ABL Facility, will give us the ability to meet our financial needs for the foreseeable future, there can be no assurance provided that continued or increased volatility
and disruption in the capital and credit markets will not impair our liquidity.  See “Risk Factor - We may not be able to refinance our New ABL Facility on attractive terms, or at
all”.  If this should happen, we may not be able to put alternative credit arrangements in place or without a potentially significant increase in our cost of borrowing. As of August 31, 2014, we have $205.5 million First-Lien
Notes and US$268.6 million Second-Lien Notes outstanding. No assurance can be provided that we will be able to refinance our indebtedness on attractive terms, or at all.
  We may be adversely affected by the availability and terms of our insurance policies.
  We carry liability, property and casualty insurance and director and officer liability insurance coverage subject to certain deductibles, limits and exclusions which we believe
are customary or reasonable given the cost of procuring insurance and current operating conditions. However, there can be no assurance that: (i) such insurance coverage will continue to be offered on economically feasible terms, (ii) all
events which could give rise to a loss or liability will be insurable, or (iii) the amounts of insurance coverage will at all times be sufficient to cover each and every material loss or claim which may occur involving our assets or
operations.
  Our underfunded registered pension plans or our inability to make required cash contributions to our pension plans could have a material adverse effect on us,
our business, cash flows, operations and financial condition.
  We maintain several defined benefit and defined contribution plans
providing pension and other retirement and post-employment benefits to our employees. Provincial pension legislation requires that the funded status of registered defined benefit pension plans be determined on both a going concern basis (which
essentially assumes the pension plan continues indefinitely) and a solvency basis (which essentially assumes a cessation of a pension plan, and is based on statutory requirements). Based on our most recently filed actuarial valuations as of December
31, 2013, the aggregate going concern surplus was approximately $24.6 million and the aggregate wind up deficiency (which essentially assumed that all of the pension plans terminated on their actuarial valuation dates) was approximately $57.7
million. The actual funded status of our pension plans and our contribution requirements are dependent on many factors, including regulatory developments and changes to legislation, changes to the level of benefits provided by the plans, actuarial
assumptions and methods used, changes in plan demographics and experience, and changes in the economic conditions, such as the return on fund assets and changes in interest rates and other factors. Additionally, significant changes in investment
performance or in a change in the portfolio mix of invested assets can result in corresponding increases and decreases in the valuation of plan assets, particularly equity securities, or in a change to the expected rate of return on plan assets.
Significant variations in pension performance could produce volatility in our reported results, and significant underfunding in our pension plans could necessitate higher company contributions to those plans, which could have a material effect on
our cash flows, liquidity and financial condition.
  42
  Significant changes in pension fund investment performance or assumptions relating to pension costs may have a material effect on the valuation of pension
obligations, the funded status of pension plans and our pension cost.
  Our pension cost is materially affected by the discount rate used to
measure defined benefit obligations, and the level of plan assets available to fund those obligations at the measurement date.  A change in the discount rate could result in a significant increase or decrease in the valuation of pension
obligations, affecting the reported funded status of our pension plans as well as the net pension cost in subsequent fiscal years.
  We may be adversely affected by foreign exchange fluctuations.
  As of August 31, 2014, approximately 59% of the outstanding principal of our long-term debt is denominated in US dollars and interest, principal and premium, if any, on such
borrowings must be paid in US dollars. As at August 31, 2013, through the use of foreign currency interest rate swaps we hedged foreign exchange rate risk on 62% of our US dollar-denominated debt. The outstanding foreign currency interest rate swap
of US$167.5 million matured on July 15, 2014 exposing us to foreign exchange rate risk on the entire US$268.6 million of Second-Lien Notes outstanding as at August 31, 2014 (August 31, 2013 – the unhedged portion of the Second-Lien Notes of
US$101.1 million).  Canadian currency is volatile and may retain the same or higher levels of volatility in the coming years. As a result, we have significant exposure to foreign exchange rate risk.
  Our distribution costs could increase due to increases in fuel prices.
  Although we do not incur significant fuel related distribution costs directly, our third-party distributors are adversely affected by rising fuel costs. Significant increases in
fuel prices could result in increased fees paid to our distributors in the form of fuel subsidies or surcharges. Significant increases in fuel prices could result in material increases to our distribution expenses which could result in an adverse
effect to our financial condition and results of operations.
  We outsource certain aspects of our business to
third-party vendors that may fail to reduce costs and may subject us to risks, including disruptions in our business and increased costs.
  We continuously seek to make our cost structure more efficient and to focus on our core strengths. These efforts include contracting with other companies to perform functions or
operations that, in the past, we have performed ourselves. We currently rely on partners or third-party service providers for services such as the provision of advertising production, call centre services, and certain of our printing operations, and
we may outsource additional business functions in the future. Although we believe that outsourcing will result in lower costs and increased efficiencies, this may not be the case. Because these third parties may not be as responsive to our needs as
we might be ourselves or they experience problems to their own operations beyond our control, outsourcing increases the risk of disruption to our operations. If we are unable to effectively utilize, or integrate with, our outsource providers, or if
these partners or third-party service providers experience business difficulties or are unable to provide business services as anticipated, we may need to seek alternative service providers or resume providing these business processes internally,
which could be costly and time-consuming and have a material adverse effect on our operating and financial results.
  43
  Our business may suffer if we are not able to retain and attract sufficient qualified personnel, including key managerial, editorial, technical, marketing and
sales personnel.
  We operate in an industry where there is intense competition for experienced personnel. We depend on our ability to identify, recruit, hire, train, develop and retain qualified
and effective personnel. Our future success depends in large part upon the continued contribution of our senior management and other key employees. A loss of a significant number of skilled managerial, editorial or technical personnel would have a
negative effect on the quality of our products. Similarly, a loss of a significant number of experienced and effective marketing and sales personnel would likely result in fewer sales of our products and could materially and adversely affect our
results of operations and financial condition. Our ability to identify, recruit, hire, train, develop and retain qualified and effective personnel depends on numerous factors, including factors that we cannot control, such as competition and
conditions in the local employment markets in which we operate. The loss of the services of any of our senior management or other key employees could harm our business and materially and adversely affect our ability to compete in our markets.
Although we have employment agreements with certain members of senior management and key employees, those individuals may choose to terminate their respective employment at any time, and any such termination may have a material adverse effect on our
business.
  Increases in sales and other taxes could reduce our revenues and impact profit and cash flows.
  In the markets in which we operate, some or all of our products are subject to local and national sales taxes and other taxes such as value-added taxes. Increases in taxes may
have a negative effect on the sales of our products. Higher taxes may reduce profit margins on our products if we are unable to pass on the increase to our customers.
  The occurrence of natural or man-made disasters could disrupt the marketing and promotion and delivery of our products and services, and adversely affect our
financial condition and results of operation.
  The success of our businesses is largely contingent on the availability
of direct access to customers. As a result, any event that disrupts or limits our direct access to customers or disrupts our ability to rely on delivery services would materially and adversely affect our business. We are exposed to various risks
arising out of natural disasters, as well as man-made disasters, including acts of terrorism and military actions. The threat of terrorism and ongoing military actions may cause significant volatility in global financial markets, and a natural or
man-made disaster could trigger an economic downturn in the areas directly or indirectly affected by the disaster. These consequences could, among other things, result in a decline in business from those areas. Disasters also could disrupt public
and private infrastructure, including communications and financial services, which could disrupt our normal business operations. In addition, increased energy costs, strikes and other labour-related supply chain disruptions could adversely affect
our business. A natural or man-made disaster also could disrupt the operations of our counterparties or result in increased prices for the products and services they provide to us.
  44
  We have become subject to the requirements of Regulation 52-109 on Certification of Disclosure in Issuers’ Annual and Interim Filings and the Sarbanes
Oxley Act and must devote time and resources to maintain compliance.
  As a result of listing our shares on the TSX and our SEC-registered
exchange offer for the Second-Lien Notes in the year ended August 31, 2011 and ongoing reporting requirements in the indenture governing the Second-Lien Notes, we are subject to the requirements of Regulation 52-109 and the Sarbanes Oxley Act, which
requires, among other things, public companies to maintain disclosure controls and procedures to ensure timely disclosure of material information, and for foreign private issuers like ourselves, to have management review the effectiveness of those
controls on an annual basis. These requirements may place a strain on our systems and resources. Sarbanes-Oxley also requires public companies to have and maintain internal controls over financial reporting to provide reasonable assurance regarding
the reliability of financial reporting and preparation of financial statements and to have management review the effectiveness of those controls on an annual basis following the filing of a company’s first annual report. In order to maintain
and improve our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight are required. This may divert management’s attention from other business concerns, which could
have a material adverse effect on our business, financial condition, results of operations and cash flows.
  If we fail to maintain an effective system of
internal controls, we may not be able to provide timely and reliable financial reports.
  We are responsible for establishing and maintaining adequate internal
control over financial reporting, which is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
  Our business could be adversely affected by a change
of laws.
  Changes to the laws, regulations and policies governing our operations, the introduction of new laws, regulations or policies and changes to the treatment of the tax
deductibility of advertising expenditures could have a material effect on our business, financial condition, prospects and results of operations. In addition, we may incur increased costs in order to comply with existing and newly adopted laws and
regulations or pay penalties for any failure to comply. It is difficult to predict in what form laws and regulations will be adopted or how they will be construed by the relevant courts, or the extent to which any changes might adversely affect
us.
  Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to
suffer.
  In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers,
suppliers and business partners, as well as personally identifiable information of our customers (including credit card information) and employees, on our networks. The secure processing, maintenance and transmission of this information is critical
to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could
compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect
the privacy of personal information, regulatory penalties, disrupt our operations and the services we provide to customers, damage our reputation, and cause a loss of confidence in our products and services, which could adversely affect our
business, financial condition, results of operations and cash flows.
  45
  Risks Related to our Indebtedness
  Our substantial indebtedness could adversely affect
our financial condition.
  As of August 31, 2014, total carrying value of amounts outstanding under our respective debt agreements was $486.3 million (August 31, 2013 - $486.9 million).
  Subject to the limits contained in the credit agreement governing the New ABL Facility, the indenture that governs the First-Lien Notes and the indenture that governs the
Second-Lien Notes, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt
could intensify. Specifically, our high level of debt could have important consequences, including the following:
  ●
making it more difficult for us to satisfy our obligations with respect to the
First-Lien Notes and Second-Lien Notes;
  ●
limiting our ability to obtain additional financing to fund future working capital,
capital expenditures, acquisitions or other general corporate requirements;
  ●
requiring a substantial portion of our cash flows to be dedicated to debt service
payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;
  ●
increasing our vulnerability to general adverse economic and industry
conditions;
  ●
exposing us to the risk of increased interest rates as certain of our borrowings,
including borrowings under the New ABL Facility, are at variable rates of interest;
  ●
limiting the flexibility in planning for and reacting to changes in the industry in
which we compete;
  ●
placing us at a disadvantage compared to other, less leveraged competitors;
and
  ●
increasing our cost of borrowing.
  In addition, the indenture that governs the First-Lien Notes and the indenture that governs the Second-Lien Notes and the credit agreement governing the New ABL Facility contain
restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the
acceleration of all our debts.
  Despite our current level of indebtedness, we may be
able to incur substantially more debt. This could further exacerbate the risks to our financial condition described above.
  Our operating subsidiary may be able to incur significant additional
indebtedness in the future. Although the indenture that governs the First-Lien Notes and the indenture that governs the Second-Lien Notes and the credit agreement that governs the New ABL Facility contain restrictions on the incurrence of additional
indebtedness, these restrictions are subject to a number of qualifications and exceptions and the additional indebtedness incurred in compliance with these exceptions could be substantial. We may be able to issue additional First-Lien Notes under
the indenture under certain circumstances, and may be able to incur other indebtedness that ranks equally with the First-Lien Notes. Additionally, the New ABL Facility provides commitments of up to a maximum of $20 million. All of those borrowings
would be secured indebtedness. If new debt is added to our current debt levels, the related risks that we and our operating subsidiary now face could intensify.
  46
  The terms of the New ABL Facility, the First-Lien Notes and the Second-Lien Notes restrict our current and future operations, particularly our ability to
respond to changes or to take certain actions.
  The indenture that governs the First-Lien Notes and the indenture that
governs the Second-Lien Notes and the credit agreement governing the New ABL Facility contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may
be in our long-term best interests, including, among other things, restrictions on our 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 transactions with affiliates;
  ●
alter the businesses we conduct;
  ●
enter into agreements restricting any subsidiary’s ability to pay dividends;
and
  ●
consolidate, merge or sell all or substantially all of our assets.
  There are limitations on our ability to incur the full $20 million of commitments under the New ABL Facility. The New ABL Facility provides the lenders considerable discretion to
impose reserves, which could materially impair the amount of borrowings that would otherwise be available. There can be no assurance provided that the lenders under the New ABL Facility will not impose such actions during the term of the New ABL
Facility and further, were they to do so, the resulting impact of this action could materially and adversely impair our ability to make interest payments on indebtedness. The inability to borrow under the New ABL Facility may adversely affect our
liquidity, financial position and results of operations.
  A breach of the covenants under the indenture that governs the First-Lien
Notes, the indenture that governs the Second-Lien Notes or under the credit agreement that governs the New ABL Facility could result in an event of default under the applicable indebtedness. Such default may allow our creditors to accelerate the
related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the New ABL Facility would permit the lenders under the New ABL Facility to
terminate all commitments to extend further credit under such facility. Furthermore, if we are unable to repay the amounts due and payable under the New ABL Facility, the First-Lien Notes or the Second-Lien Notes, the applicable lenders could
proceed against the collateral granted to such lenders to secure the indebtedness under the applicable facility. As a result of these restrictions, we may be:
  ●
limited in how we conduct our business;
  ●
unable to raise additional debt or equity financing to operate during general
economic or business downturns; or
  ●
unable to compete effectively or to take advantage of new business
opportunities.
  These restrictions may affect our ability to grow in accordance with our
plans.
  47
  We may not be able to refinance our New ABL Facility on
attractive terms, or at all
 
 On February 1, 2013, the Supreme Court of Canada (the “SCC”) released its decision in Sun Indalex Finance, LLC v.
United Steelworkers, a case which dealt with the priority claims of pension plan members against those of secured creditors in the context of the insolvency of a plan sponsor. The SCC overturned the Ontario Court of Appeals decision that
effectively subordinated a debtor-in-possession financing that had been granted super-priority status in a Companies’ Creditors Arrangement Actproceeding to the wind up deficiency under
a pension plan. The SCC, however, upheld the Ontario Court of Appeal’s expanded interpretation of the deemed trust provisions of the Ontario Pension Benefits Act, and found that a deemed
trust applies in respect of the entire wind up deficiency of a plan upon its wind up, which is an expansion from previous case law which limited the deemed trust to current service costs and special payments accrued and unpaid to the wind up date.
The expanded definition of the deemed trust may affect the availability of credit to companies who sponsor defined benefit pension plans as lenders consider the possible impact of a future plan wind up on the security of any loan.
 
 The deemed
trust is limited in respect of the assets to which it applies. Specifically, wind up deficiencies have a priority charge only over a debtor company's accounts receivable and inventory and their proceeds. Other assets are not subject to the deemed
trust.
 
 We have a New ABL Facility with an availability of an aggregate amount of up to $20 million. The New ABL Facility is secured on a first-priority basis by accounts receivable,
cash and inventory of Postmedia Network Inc. and any related assets of Postmedia Network Canada Corp. As such, the New ABL Facility is primarily secured by the assets over which a deemed trust could be found in the event of the wind up of a
Postmedia sponsored pension plan. The New ABL Facility terminates on October 16, 2015. Given that the SCC decision is recent and its impact on the credit markets is uncertain, as well as the current solvency deficiencies in our pension plans, there
can be no assurance that we will be able to refinance the New ABL Facility on attractive terms, or at all.
  The New ABL Facility contains restrictions on the
ability to amend the First-Lien Notes and Second-Lien Notes.
  The New ABL Facility will restrict amendments to the First-Lien Notes and
Second-Lien Notes to the extent such amendment, modification or waiver could reasonably be expected to be adverse in any material respect to the lenders under the New ABL Facility. These restrictions could impact our ability to amend any provision
of the indenture for the First-Lien Notes or the indenture governing the Second-Lien Notes, particularly since it may be difficult to determine whether an amendment is adverse to the lenders under the New ABL Facility.
  Our variable rate indebtedness subjects us to interest rate risk which could cause our indebtedness service obligations to increase
significantly.
  Borrowings under the New ABL Facility are at variable rates of interest and will expose us to interest rate risk. If interest rates increase if any amount is owed under the New
ABL Facility, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net earnings and cash flows, including cash available for servicing our indebtedness, would
correspondingly decrease. Further, we may not decide, or be able, to hedge all or any portion of the risk.
  We may not be able to generate sufficient cash to
service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
  Our ability to make scheduled payments on or to refinance our debt obligations and derivative financial instruments depends on our financial condition and operating performance,
which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities
sufficient to permit us to pay the future amounts due on our indebtedness.
  48
  If our cash flows and capital resources are insufficient to fund our debt service and derivative financial instrument obligations, we could face substantial liquidity problems
and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance indebtedness. We may not be able to effect any such
alternative measures, if necessary, on commercially reasonable terms, or at all and, even if successful, such alternative actions may not allow us to meet our scheduled debt service and derivative financial instrument obligations. The credit
agreement that governs the New ABL Facility, the indenture that governs the First-Lien Notes and the indenture that governs the Second-Lien Notes restrict our ability to dispose of assets and use the proceeds from any such dispositions and may also
restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service and
derivative financial instrument obligations then due.
  Our inability to generate sufficient cash flows to satisfy our debt and
derivative financial instrument obligations, or to refinance indebtedness on commercially reasonable terms, or at all, would materially and adversely affect our business, financial position and results of operations, and our ability to satisfy such
obligations.
  If we cannot make scheduled payments on our debt, we will be in default and, as a result, holders of the First-Lien Notes and Second-Lien Notes could declare all outstanding
principal and interest to be due and payable, the lenders under the New ABL Facility could terminate their commitments to loan money and our secured lenders, including under the New ABL Facility, could foreclose on or exercise other remedies against
the assets securing such borrowings on a basis senior to the First-Lien Notes and we could be forced into bankruptcy, liquidation or other insolvency proceedings.
  Risks Relating to Our Shares
  An active public market for the Shares has not yet
been developed.
  On June 14, 2011 our Class C voting shares and our Class NC variable voting shares (“Shares”) began trading on the Toronto Stock Exchange. An active public market for
the Shares has not yet developed and, if developed, may not be sustained. If an active public market does not develop, the liquidity of an investment in our Shares, and therefore the ability to buy or sell our Shares at or near the market price, may
be limited.
  Volatile market price for the Shares.
  The market price for the Shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond our control, including the
following:
  ●
the lack of liquidity in the trading of our Shares;
  ●
actual or anticipated fluctuations in our quarterly results of
operations;
  ●
changes in estimates of future results of operations by ourselves or securities
research analysts;
  ●
changes in the economic performance or market valuations of other companies that
investors deem comparable to us;
  ●
addition or departure of our executive officers and other key
personnel;
  ●
release or other transfer restrictions on outstanding Shares;
  ●
sales or perceived sales of additional Shares;
  ●
our dual class share structure;
  49
  ●
significant acquisitions or business combinations, strategic partnerships, joint
ventures or capital commitments by or involving ourselves or our competitors; and
  ●
news reports relating to trends, concerns or competitive developments, regulatory
changes and other related issues in our industry or target markets.
  Financial markets are susceptible to significant price and volume
fluctuations that may affect the market prices of equity securities of companies and may be unrelated to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of the Shares may decline even
if our operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values which may result in impairment losses. As well, certain institutional
investors may base their investment decisions on consideration of our environmental, governance and social practices and performance against such institutions’ respective investment guidelines and criteria, and failure to meet such criteria
may result in a limited or no investment in the Shares by those institutions, which could adversely affect the trading price of the Shares. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased
levels of volatility and market turmoil continue, our operations could be adversely impacted and the trading price of the Shares may be adversely affected.
  We have a dual class share structure.
  Our authorized capital consists of two classes: Voting Shares and Variable Voting Shares. The Voting Shares may only be beneficially owned by persons that are Canadian. If a
Canadian acquires Variable Voting Shares, such Shares will be automatically converted into Voting Shares. A holder, of Voting Shares, however, has the option at any time to convert some or all of such Shares into Variable Voting
Shares and to convert those Shares back to Voting Shares. Given these conversion features and the fact that we will not know whether a purchaser of Variable Voting Shares is a Canadian unless such person completes a declaration provided by our
transfer agent, the transfer agent’s records of the amount of Voting Shares and Variable Voting Shares outstanding at any one time may not be accurate. As we believe that the issued and outstanding Variable Voting Shares as at August 31, 2014
represent more than 97% of the outstanding Shares, if a Canadian acquires Variable Voting Shares such Shares would automatically convert into a larger percentage of the outstanding Voting Shares. In certain circumstances, such an acquisition may
constitute an indirect take-over bid under applicable securities laws and require the offeror to make a formal take-over bid for the outstanding Voting Shares or, alternatively, rely on certain exemptions from the formal take-over bid requirements
under applicable securities laws. Purchasers of our Shares should consider applicable take-over bid laws as well as the Postmedia Rights Plan prior to purchasing Shares that may represent more than 20% of any class. 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. In
addition, one class of Shares may be less liquid than the other and the classes of Shares may have different trading prices.
  50
  Postmedia Network Canada Corp. is a holding company.
  Postmedia Network Canada Corp. (“PNCC”) is a holding company and a substantial portion of its assets are the capital stock of its subsidiary, Postmedia Network Inc.
(“PMNI”). As a result, investors in PNCC are subject to the risks attributable to PMNI. As a holding company, PNCC conducts substantially all of its business through PMNI, which generates substantially all of its revenues. Consequently,
PNCC’s cash flows and ability to complete current or desirable future enhancement opportunities are dependent on the earnings of PMNI and the distribution of those earnings to PNCC. The ability of PMNI to pay dividends and other distributions
will depend on its operating results and will be subject to applicable laws and regulations which require that solvency and capital standards be maintained, and contractual restrictions contained in the instruments governing its debt. In the event
of a bankruptcy, liquidation or reorganization of PMNI, holders of indebtedness and trade creditors will generally be entitled to payment of their claims from the assets of the subsidiary before any assets are made available for distribution to
PNCC.
  Future sales of Shares by directors and executive officers.
  Subject to compliance with applicable securities laws, officers and directors and their affiliates may sell some or all of their Shares in the future. No prediction can be made
as to the effect, if any, such future sales of Shares will have on the market price of the Shares prevailing from time to time. However, the future sale of a substantial number of Shares by our officers and directors and their affiliates, or the
perception that such sales could occur, could adversely affect prevailing market prices for the Shares.
  Dilution and future sales of Shares may
occur.
  Our articles permit the issuance of an unlimited number of Shares, and shareholders will have no pre-emptive rights in connection with such further issuances. Our directors have
the discretion to determine the price and the terms of issue of further issuances of Shares.
  Risks Relating to the Sun Acquisition and Related
Financings
  Completion of the Sun Acquisition is subject to the satisfaction of various conditions and regulatory approvals.
  Completion of the Sun Acquisition is subject to a number of conditions precedent, some of which are outside our control, including: (i) receipt of certain approvals that are
necessary under the Competition Act (Canada) to consummate the Sun Acquisition; (ii) Toronto Stock Exchange approval of the Rights Offering; and (iii) receipt of certain third party consents.
  There can be no certainty, nor can we provide any assurance, that all conditions precedent to the Sun Acquisition will be satisfied or waived.  If any of the conditions
precedent to the Sun Acquisition are not satisfied or waived and, as a result, the Sun Acquisition is not completed, our business, financial conditions or results of operations could be subject to various material adverse consequences, including
without limitation the exposure to significant costs relating to the Sun Acquisition and the related debt and equity financings.
  In order to obtain Competition Act Approval (as defined in the Purchase Agreement), the Competition Bureau will consider whether the Sun Acquisition prevents or lessens, or is
likely to prevent or lessen, competition substantially. The remedial terms and conditions the Competition Bureau may require in order to meet the Competition Act Approval condition may impose limitations, costs or restrictions on the operation of
our business following the completion of the Sun Acquisition or require that we divest certain assets in order to proceed with the Sun Acquisition. There can be no assurance that the Competition Bureau will not require terms, conditions,
requirements, limitations, costs or restrictions that would impose additional material costs on or limit the revenues of Postmedia, require the divestiture of certain assets or limit some or all of the synergies and other benefits we anticipate
following completion of the Sun Acquisition. In addition, we cannot provide any assurance that any such terms, conditions, requirements, limitations, costs, or restrictions will not result in a material delay in, or the abandonment of, the Sun
Acquisition.
  51
  Risks associated with the implementation of the Sun Acquisition.
  Each of QMI and Postmedia has the right, in certain circumstances, to terminate the Purchase Agreement. Accordingly, there can be no certainty, nor can we provide any assurance,
that the Purchase Agreement will not be terminated by either of QMI or Postmedia prior to the completion of the Sun Acquisition. If, for any reason, the Purchase Agreement is terminated and/or the Sun Acquisition is not completed, our business,
financial conditions or results of operations could be subject to various material adverse consequences, including without limitation the exposure to significant costs relating to the Sun Acquisition and the related debt and equity
financings.
  Financing risks related to the Sun Acquisition.
  Postmedia’s obligation to close the Sun Acquisition is not conditioned upon the successful closing by Postmedia of any debt or equity financing.  Although we
expect to finance the purchase price of the Sun Acquisition through the issuance of subscription receipts that are exchangeable for additional First-Lien Notes on closing of the Sun Acquisition pursuant to the debt financing and rights to acquire
subscription receipts (which will be exchangeable for Variable Voting Shares on closing of the Sun Acquisition) pursuant to the Rights Offering, each of the debt financing (including the exchange of subscription receipts for additional Notes) and
Rights Offering (including the related standby commitment and exchange of subscription receipts for Variable Voting Shares) are conditioned upon the occurrence of certain events.  Some of the conditions are outside of our control and there
can be no certainty, nor can we provide any assurance, that all conditions precedents to the debt and equity financings, will be satisfied or waived, or, if satisfied or waived, when they will be satisfied or waived. Should the funds under the debt
or equity financings not be available to Postmedia at or prior to closing of the Sun Acquisition, we will not have sufficient funds to close the Sun Acquisition, which would have a material adverse impact on Postmedia.
  Further, the parties providing the debt financing and the standby commitment under the equity financing have imposed deadlines for the Sun Acquisition to close that match the
final outside date in the Purchase Agreement. Should the consents noted above take longer than expected and extend beyond the final outside date in the Purchase Agreement, there is no assurance that the debt and equity providers will agree to extend
their commitments.
  Risks relating to the assets of Sun Media.
  Although we have conducted due diligence in connection with the Sun Acquisition and QMI has provided a number of representations and warranties in the Purchase Agreement in
favour of Postmedia in connection with the Sun Acquisition, an unavoidable level of risk remains regarding any undisclosed or unknown liabilities of, or issues concerning, the assets of Sun Media. Following completion of the Sun Acquisition, we may
discover that we have acquired substantial undisclosed liabilities. While QMI has agreed to indemnify us under the Purchase Agreement with respect to certain liabilities, losses and damages, many of the representations and warranties are qualified
by knowledge and/or materiality and, subject to certain exceptions, the maximum indemnity available to Postmedia under the Purchase Agreement in respect of misrepresentations by QMI is $45 million. There can be no assurance of recovery by Postmedia
from QMI for any breach of the representations, warranties or covenants provided by QMI under the Purchase Agreement because there can be no assurance that the amount and length of the indemnification obligations will be sufficient to satisfy such
obligations or that QMI will have any assets or continue to exist.  The inability to claim for full indemnification from QMI could have a material adverse impact on Postmedia.
  52
  The integration of the assets of Sun Media may not occur as planned.
  The Sun Acquisition is being undertaken by us with the expectation that its successful completion will result in cost savings by taking advantage of operating and other synergies
to be realized from the acquisition. These anticipated benefits will depend in part on whether the assets of Sun Media can be integrated in an efficient and effective manner. Most operational and strategic decisions and certain staffing decisions
have not yet been made.  These decisions and the integration of the assets of Sun Media will present challenges to management, including the integration of systems and personnel of the two companies. As a result of these factors, it is
possible that the cost savings and synergies expected from the Sun Acquisition will not be realized. The performance of Postmedia after completion of the Sun Acquisition could be adversely affected if this integration does not occur as
anticipated.
  In addition, to effectively integrate the assets of Sun Media, we must establish appropriate administrative, finance and management systems and controls relating to those assets.
This will require substantial attention from our management team. This diversion of management attention, as well as any other difficulties which we may encounter in completing the transition and integration process, could have a material adverse
impact on Postmedia.
  Internal Controls
  Disclosure controls and procedures within Postmedia have been designed to
provide reasonable assurance that all relevant information is identified to its management, including the President and Chief Executive Officer (“CEO”) and the Executive Vice President and Chief Financial Officer (“CFO”), as
appropriate, to allow required disclosures to be made in a timely fashion.
  Internal controls over financial reporting have been designed by
management, under the supervision of and with the participation of the CEO and CFO, to provide reasonable assurance regarding the reliability of Postmedia’s financial reporting and the preparation of financial statements for external purposes
in accordance with IFRS.
  The CEO and CFO of Postmedia have evaluated the effectiveness of Postmedia’s internal controls over financial reporting during the year ended August 31,
2014.  Based on this evaluation, the CEO and CFO concluded that disclosure controls and procedures and internal controls over financial reporting were effective as at August 31, 2014.  The CEO and CFO have evaluated whether there
were changes to Postmedia's internal control over financial reporting during the year ended August 31, 2014, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting. There were no
changes identified during their evaluation.
  Share Capital
  As at October 20, 2014 we had the following number of shares and options outstanding:
  Class C voting shares


943,519Class NC variable voting shares


39,266,100Total shares outstanding


40,209,619Total options and restricted share units outstanding (1)


2,310,000




(1)The total options and restricted share units outstanding are convertible into
1,710,000 Class C voting shares and 600,000 Class NC variable voting shares.  The total options and restricted share units outstanding include 1,734,000 options that are vested and 576,000 options that are unvested.