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Press release from CNW Group

Transcontinental Generates organic revenue and profit growth for the 6th consecutive quarter

Wednesday, September 07, 2011

Transcontinental Generates organic revenue and profit growth for the 6th consecutive quarter11:12 EDT Wednesday, September 07, 2011Highlights(in millions of dollars, except per share data)Q3-2011Q3-2010%Revenues$492.6$481.32%Adjusted operating income57.257.4-%Adjusted net income applicable to participating shares32.833.4(2%)Per share0.400.41(2%)Net income applicable to participating shares10.628.9(63%)Per share0.130.36(64%)July 13, 2011, Transcontinental announced an agreement to indirectly acquire all of the shares of Quad Graphics Canada Inc. This transaction is currently being reviewed by the Competition Bureau of CanadaThe Mexican Federal Competition Commission approved the sale of Transcontinental's Mexican operations to Quad/GraphicsAcquired the publishing assets of Groupe Le Canada Français and the majority of the assets of Avantage Consommateurs de l'Est du Québec inc.Announced the consolidation of production activities of two commercial printing plants in Montreal, Transcontinental Litho Acme and Transcontinental Direct MontrealRanked by Corporate Knights as one of the Best 50 Corporate Citizens in 2011 and included in the Maclean's/Jantzi-Sustainalytics ranking of the 50 most socially responsible corporations in CanadaMONTREAL, Sept. 7, 2011 /CNW Telbec/ - Transcontinental's revenues increased 2% in the third quarter of 2011, from $481.3 million to $492.6 million. This increase was primarily due to a number of new contracts, most notably from the expanded relationship with The Globe and Mail. Excluding acquisitions, divestitures and closures, the impact of the exchange rates and the paper component variance, organic revenue growth was 2%, driven primarily by the Printing sector.Adjusted operating income was flat at $57.2 million, while the adjusted operating income margin slightly decreased from 11.9% to 11.6%. The contribution from new contracts coupled with the synergies associated with the use of our most productive assets and continued efficiency improvement initiatives in the Printing sector was compensated by more difficult market conditions in the Media sector, more specifically related to the educational book publishing division, continued strategic investments in the Interactive sector and the negative impact of the exchange rates. However, we generated 6% of organic growth.Net income applicable to participating shares decreased 63%, from $28.9 million, or $0.36 per share, to $10.6 million, or $0.13 per share. This decrease is mainly due to a net loss related to the discontinuance of our operations in Mexico. Excluding unusual items and discontinued operations, adjusted net income applicable to participating shares decreased 2%, from $33.4 million, or $0.41 per share, to $32.8 million, or $0.40 per share."I am satisfied with our third quarter results, especially with the fact that we have generated organic revenue and profit growth for the sixth consecutive quarter in an industry that faces increasing competition. In the past few months, we pursued our strategy to strengthen our existing assets by making strategic acquisitions, divesting less core businesses and rationalizing certain activities. We also developed our offering of products and services on the digital side by expanding our digital advertising representation relationships as well as mobile partnerships. We will continue with our plan to transform Transcontinental to meet our customers' evolving needs. In the next few months we will launch new digital products and services and make use of our most productive assets in order to continue to grow and transform Transcontinental," said François Olivier, President and Chief Executive Officer.Other Financial Highlights Free cash flow from operations increased significantly as cash flow from operations, before changes in non-cash operating items, was stable at $71.4 million and capital expenditures decreased, from $21.4 million to $8.7 million.As at July 31, 2011, the ratio of net indebtedness (including the securitization program) to adjusted operating income before amortization was 1.59x, as compared to 1.82x as at October 31, 2010 and 1.85x as at July 31, 2010. The ratio of net indebtedness to adjusted operating income before amortization is slightly above the target of 1.5x set by management. Over the next few quarters, it should reach the target given the expected increase in cash flow generation and reduction in capital expenditures.In the quarter, Transcontinental prepaid and cancelled its five-year term loan of $50 million with SGF Rexfor Inc.For more detailed financial information, please see Management's Discussion and Analysis for the Third Quarter Ended July 31, 2011 at www.transcontinental.com, under "Investors."Operating HighlightsTranscontinental announced that it agreed to acquire all the shares of Quad Graphics Canada Inc. This transaction is currently being reviewed by the Competition Bureau of Canada. Transcontinental was informed by the Competition Bureau that it requires additional information in order to complete its review of the proposed transaction. Under the Competition Act, the period during which the parties may not complete the transaction has been extended until 30 days after providing the Competition Bureau with the additional information it has requested. Both parties have been cooperating with the Competition Bureau since the announcement of the transaction, and they expect to be able to comply with the request for additional information in a timely manner. Given the scope and complexity of the parties' businesses, the issuance of a request for additional information is not unusual.The Mexican Federal Competition Commission has approved the sale of Transcontinental's Mexican operations to Quad/Graphics, therefore this transaction will close shortly. In connection with the upcoming closing, Transcontinental will also transfer its black and white book printing business, destined for U.S. export, to Quad/Graphics. As a result of this imminent volume reduction, Transcontinental will gradually reduce approximately one third of its workforce in its Louiseville and Sherbrooke plants where this book work is produced.These transactions combined are expected to generate at least $40 million in incremental EBITDA for Transcontinental, over 12 to 24 months following the closure of the transactions.Transcontinental announced the consolidation of production activities of two commercial printing plants in Montreal, Transcontinental LithoAcme and Transcontinental Direct Montreal by late September 2011. As a result of this reorganization, the workforce will be reduced.Transcontinental Media acquired the publishing assets of Groupe Le Canada Français, both print publications and websites. Print publications have a combined weekly circulation of more than 155,000 copies. It also acquired the majority of the assets of Avantage Consommateurs de l'Est du Québec inc., including print publications, which have a combined weekly circulation of 60,000 copies, as well as digital and distribution activities. Furthermore, it significantly grew its digital advertising offering thanks to a new partnership with The New York Times Company for About.com, CalorieCount.com and Netplaces.com as well as with Ziff Davis for PCMag.com, ExtremeTech.com and Geek.com. As of today, Transcontinental Media has a digital network of 11.3 million monthly unique visitors in Canada through more than 1,000 websites, bringing its global reach to almost 1 in 2 Canadian Internet users.Transcontinental Interactive won a number of awards. It was ranked top Canadian vendor by the 2011 Email Vendor Features & Functions Guides from Red Pill Email and was ranked fifth in the United States, the only Canadian company to place in the top five. In addition, it captured a total of 30 top prizes at the prestigious Magnum Opus Awards for 2011. These awards recognize excellence in custom-media editorial, design and strategy and were presented by ContentWise and the Content Marketing Institute. They were judged by leading custom-publishing professionals and professors from the Missouri School of Journalism.Transcontinental was ranked by the independent Canadian media corporation Corporate Knights as one of the Best 50 Corporate Citizens in 2011 for the fifth consecutive year. Corporations are selected based on their community involvement, labour relations, environmental practices, occupational health & safety and governance practices. Furthermore, for the third year in a row, Transcontinental was included in the Maclean's/Jantzi-Sustainalytics ranking of the 50 most socially responsible corporations in Canada. Launched jointly in 2007 by Maclean's magazine and the research firm Jantzi-Sustainalytics, the top 50 companies are evaluated based on a broad range of environmental, social and governance criteria (ESG).Highlights for the Nine-month PeriodIn the first nine months of fiscal 2011, Transcontinental's revenues increased 2%, from $1,471.9 million to $1,506.1 million. Excluding acquisitions, divestitures and closures, the impact of the exchange rates and the paper component variance, organic revenue growth was 2%, with all three sectors contributing. Similarly, adjusted operating income increased 3%, from $161.0 million to $166.4 million, while the adjusted operating income margin increased slightly from 10.9% to 11.0%. Net income applicable to participating shares went from $122.1 million, or $1.51 per share, to $69.8 million, or $0.86 per share. Excluding unusual items and discontinued operations, adjusted net income applicable to participating shares increased 9%, from $93.2 million to $101.5 million. On a per share basis it increased 9%, from $1.15 to $1.25.Reconciliation of Non-GAAP Financial MeasuresFinancial data have been prepared in conformity with Canadian Generally Accepted Accounting Principles (GAAP). However, certain measures used in this press release do not have any standardized meaning under GAAP and could be calculated differently by other companies. The Corporation believes that certain non-GAAP financial measures, when presented in conjunction with comparable GAAP financial measures, are useful to investors and other readers because that information is an appropriate measure for evaluating the Corporation's operating performance. Internally, the Corporation uses this non-GAAP financial information as an indicator of business performance, and evaluates management's effectiveness with specific reference to these indicators. These measures should be considered in addition to, not as a substitute for or superior to, measures of financial performance prepared in accordance with GAAP.The following table reconciles GAAP financial measures to non-GAAP financial measures.Reconciliation of Non-GAAP financial measures(unaudited)  Three months ended July 31 Nine months ended July 31(in millions of dollars, except per share amounts) 2011 2010 2011  2010Net income applicable to participating shares$10.6$28.9$69.8$122.1Dividends on preferred shares 1.7 1.7 5.1 5.1Net loss (income) from discontinued operations (after tax) 21.3 3.7 20.0 (30.5)Non-controlling interest   -   - 0.8 0.3Income taxes 12.7 11.7 25.3 26.8Discount on sale of accounts receivable   -   -   - 0.9Financial expenses 9.9 10.4 29.4 30.9Expenses related to long-term debt prepayment   -   - 5.8   -Impairment of assets and restructuring costs 1.0 1.0 10.2 5.4Adjusted operating income $57.2$57.4$166.4$161.0 Net income applicable to participating shares$10.6$28.9$69.8$122.1Net loss (income) from discontinued operations (after tax) 21.3 3.7 20.0 (30.5)Unusual adjustments to income taxes   -   -   - (2.4)Expenses related to long-term debt prepayment (after tax)   -   - 4.2   -Impairment of assets and restructuring costs (after tax) 0.9 0.8 7.5 4.0Adjusted net income applicable to participating shares$32.8$33.4$101.5$93.2Average number of participating shares outstanding 81.0 80.8 81.0 80.8Adjusted net income applicable to participating shares per share$0.40$0.41$1.25$1.15 Cash flow related to continuing operations$74.2$113.4$186.0$112.3Changes in non-cash operating items 2.8 42.5 (21.3) (87.0)Cash flow from continuing operations before changes in non-cash operating items$71.4$70.9$207.3$199.3DividendAt its September 7, 2011 meeting, the Corporation's Board of Directors declared a quarterly dividend of $0.135 per Class A Subordinate Voting Shares and Class B shares. This dividend is payable on October 21, 2011 to participating shareholders of record at the close of business on October 3, 2011. On an annual basis, this represents a dividend of $0.54 per share. Furthermore, at the same meeting, the Board also declared a quarterly dividend of $0.4253 per share on cumulative 5-year rate reset first preferred shares, series D. This dividend is payable on October 15, 2011. On an annual basis, this represents a dividend of $1.6875 per preferred share.Additional InformationUpon releasing its quarterly results, Transcontinental will hold a conference call for the financial community today at 4:15 p.m. Media may hear the call in listen-only mode or tune in to the simultaneous audio broadcast on the Corporation's Web site, which will then be archived for 30 days. For media requests for information or interviews, please contact Nancy Bouffard, Director, Internal and External Communications of Transcontinental, at 514 954-2809.ProfileTranscontinental creates marketing products and services that allow businesses to attract, reach and retain their target customers. The Corporation is the largest printer in Canada and Mexico, and fourth-largest in North America. It is also one of Canada's top media groups as the leading publisher of consumer magazines and French-language educational resources, and of community newspapers in Quebec and the Atlantic provinces. Transcontinental is also the leading door-to-door distributor of advertising material in Canada through its celebrated Publisac network in Quebec and Targeo in the rest of Canada. Thanks to a wide digital network of more than 1000 websites, the company reaches over 11.3 million unique visitors per month in Canada. Transcontinental also offers interactive marketing products and services that use new communication platforms supported by marketing strategy and planning services, database analytics, premedia, e-flyers, email marketing, custom communications and mobile solutions.Transcontinental (TSX: TCL.A, TCL.B, TCL.PR.D) has 10,500 employees in Canada, the United States and Mexico, and reported revenues of C$2.1 billion in 2010. For more information about the Corporation, please visit www.transcontinental.com.Forward-looking StatementsThis press release contains certain forward-looking statements concerning the future performance of the Corporation. Such statements, based on the current expectations of management, inherently involve numerous risks and uncertainties, known and unknown. We caution that all forward-looking information is inherently uncertain and actual results may differ materially from the assumptions, estimates or expectations reflected or contained in the forward-looking information, and that actual future performance will be affected by a number of factors, many of which are beyond the Corporation's control, including, but not limited to, the economic situation, structural changes in its industries, exchange rate, availability of capital, energy costs, increased competition, as well as the Corporation's capacity to engage in strategic transactions and integrate acquisitions into its activities. The risks, uncertainties and other factors that could influence actual results are described in the Management's Discussion and Analysis and Annual Information Form.The forward-looking information in this release is based on current expectations and information available as at September 7, 2011. The Corporation's management disclaims any intention or obligation to update or revise any forward-looking statements unless otherwise required by the Securities Authorities. CONSOLIDATED STATEMENTS OF INCOME unaudited                                                              Three months endedNine months ended(in millions of dollars, except per share data)July 31July 31  2011 2010 2011 2010   Revenues$492.6$481.3$1,506.1$1,471.9Operating costs 348.7 333.4 1,074.8 1,038.0Selling, general and administrative expenses 57.3 60.6 175.0 179.5                                       Operating income before amortization, impairment of assets and restructuring costs  86.6 87.3 256.3 254.4Amortization 29.4 29.9 89.9 93.4Impairment of assets and restructuring costs 1.0 1.0 10.2 5.4 Operating income 56.2 56.4 156.2 155.6Financial expenses 9.9 10.4 29.4 30.9Expenses related to long-term debt prepayment -  - 5.8 -Discount on sale of accounts receivable -  - - 0.9 Income before income taxes and non-controlling interest 46.3 46.0 121.0 123.8Income taxes 12.7 11.7 25.3 26.8Non-controlling interest -  - 0.8 0.3 Net income from continuing operations 33.6 34.3 94.9 96.7Net income (loss) from discontinued operations (21.3) (3.7) (20.0) 30.5Net income 12.3 30.6 74.9 127.2Dividends on preferred shares, net of related income taxes 1.7 1.7 5.1 5.1Net income applicable to participating shares$10.6$28.9$69.8$122.1           Net income (loss) per participating share - basic and diluted           Continuing operations$0.39$0.41$1.11$1.13 Discontinued operations (0.26) (0.05) (0.25) 0.38 $0.13$0.36$0.86$1.51                                       Weighted average number of participating shares outstanding - basic (in millions) 81.0 80.8 81.0 80.8 Weighted average number of participating shares outstanding - diluted (in millions) 81.1 80.9 81.1 80.9The notes are an integral part of the consolidated financial statements.  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME   unaudited                                                               Three months endedNine months ended(in millions of dollars)July 31July 31   2011 2010 2011 2010           Net income$12.3 $30.6$74.9 $127.2                Other comprehensive income (loss):            Net change in fair value of derivatives designated as cash flow hedges, net of income taxes of $(0.4) million and $1.3 million for the three-month and nine-month periods ended July 31, 2011 ($(2.6) million and $(3.4) million for the same periods in 2010)  (0.5) (8.0) 3.1  (13.4)                Reclassification adjustments for net change in fair value of derivatives designated as cash flow hedges in prior periods, transferred to net income in the current period, net of income taxes of a negligible amount and $(0.5) million for the three-month and nine-month periods ended July 31, 2011 ($0.7 million and $1.3 million for the same periods in 2010) (1.0) 2.0 (2.1) 9.2Net change in fair value of derivatives designated as cash flow hedges (1.5) (6.0) 1.0 (4.2)             Reclassification of a realized foreign exchange loss to net income of discontinued operations, related to the reduction of net investment in self-sustaining foreign operations 21.6  - 21.6  -Net gains (losses) on translation of financial statements of self-sustaining foreign operations 0.6  (0.6) (8.0) (3.5)Other comprehensive income (loss) 20.7  (6.6) 14.6  (7.7)Comprehensive income$ 33.0 $ 24.0$ 89.5 $ 119.5   CONSOLIDATED STATEMENTS OF RETAINED EARNINGS  unaudited              Nine months ended(in millions of dollars) July 31    2011 2010         Balance, beginning of period  $784.0  $ 645.9Net income   74.9  127.2   858.9 773.1Dividends on participating shares  (28.7) (21.1)Dividends on preferred shares   (5.1) (5.3)Balance, end of period  $825.1 $ 746.7The notes are an integral part of the consolidated financial statements.    CONSOLIDATED BALANCE SHEETS   unauditedaudited As at As at July 31,October 31,(in millions of dollars)                            2011 2010       Current assets    Cash and cash equivalents  $60.8 $31.9 Accounts receivable 360.2 440.6 Income taxes receivable  19.8 19.5 Inventories  73.6 77.6 Prepaid expenses and other current assets  26.0 19.3 Future income taxes  14.1 16.6 Assets from discontinued operations  30.0 27.5   584.5 633.0   Property, plant and equipment 791.1  871.6Property, plant and equipment held for sale 6.1  -Goodwill  682.4  678.1Intangible assets 174.3  179.1Future income taxes  137.7  145.3Other assets  31.1  39.2Assets from discontinued operations  43.5  48.4  $ 2,450.7$2,594.7       Current liabilities     Accounts payable and accrued liabilities $ 239.0 $345.4 Income taxes payable  27.1 29.0 Deferred subscription revenues and deposits  26.5 38.4 Future income taxes  2.4 2.5 Current portion of long-term debt  15.3 17.8 Liabilities from discontinued operations  14.6 12.8   324.9 445.9      Long-term debt 642.2 712.9Future income taxes  143.3 137.4Other liabilities  35.4 50.0Liabilities from discontinued operations  0.7 0.7   1,146.5 1,346.9      Non-controlling interest 0.8 0.8     Shareholders' equity      Share capital  478.8 478.6 Contributed surplus  14.2 13.7        Retained earnings  825.1 784.0 Accumulated other comprehensive loss (14.7) (29.3)  810.4 754.7  1,303.4 1,247.0  $2,450.7$2,594.7The notes are an integral part of the consolidated financial statements.  CONSOLIDATED STATEMENTS OF CASH FLOWS    unaudited            Three months endedNine months ended(in millions of dollars)July 31July 31   2011 2010 2011 2010           Operating activities         Net income $12.3 $30.6 $74.9 $127.2 Less: Net income (loss) from discontinued operations (21.3) (3.7) (20.0) 30.5 Net income from continuing operations  33.6 34.3 94.9 96.7          Items not affecting cash and cash equivalents         Amortization  36.0 35.5 110.0 111.3  Impairment of assets  0.4 - 3.9 0.3  Loss (gain) on disposal of assets  0.1 (0.6) (0.2) (1.0)  Future income taxes  6.6 4.2 6.6 (5.1)  Net change in accrued pension benefit asset and liability  (4.3) (3.0) (8.5) (3.7)  Stock option compensation  0.2 0.2 0.5 0.6  Other  (1.2) 0.3 0.1 0.2  Cash flow from operating activities before changes in non-cash operating items 71.4 70.9 207.3 199.3  Changes in non-cash operating items  2.8 42.5 (21.3) (87.0)  Cash flow related to operating activities of continuing operations 74.2 113.4 186.0 112.3  Cash flow related to operating activities of discontinued operations 0.1 (3.3) 0.1 2.8  74.3 110.1 186.1 115.1         Investing activities           Business acquisitions -  (4.1) (5.4) (6.9) Acquisitions of property, plant and equipment  (8.7) (21.4) (37.2) (109.0) Disposals of property, plant and equipment  0.2 2.3 0.8 3.9 Increase in intangible assets and other assets  (7.9) (2.3) (18.6) (13.5) Cash flow related to investing activities of continuing operations (16.4) (25.5) (60.4) (125.5) Cash flow related to investing activities of discontinued operations  (1.0) (1.1) (1.8) 90.3   (17.4) (26.6) (62.2) (35.2)           Financing activities         Increase in long-term debt  - 2.7 - 40.4 Reimbursement of long-term debt  (59.2) (0.7) (166.6) (8.5) Increase (decrease) in revolving term credit facility 78.5 (68.7) 109.7 (98.3) Dividends on participating shares  (10.9) (7.3) (28.7) (21.1) Dividends on preferred shares  (1.7) (1.7) (5.1) (5.3) Issuance of participating shares  - 0.3 0.2 0.5 Bond forward contract  - - (6.0) - Other  - (1.5) - (0.3) Cash flow related to financing activities of continuing operations  6.7 (76.9) (96.5) (92.6) Cash flow related to financing activities of discontinued operations - (0.4) -  (1.3)   6.7 (77.3) (96.5) (93.9)          Effect of exchange rate changes on cash and cash equivalents denominated inforeign currencies  (0.4) - (1.2) 0.1         Increase (decrease) in cash and cash equivalents  63.2  6.2 26.2 (13.9)            Cash and cash equivalents (bank overdraft) of continuing operations at beginning of period (3.8) 10.1 31.9 28.9Cash and cash equivalents of discontinued operations at beginning of period 3.1 4.5 4.4 5.8   (0.7) 14.6 36.3 34.7            Cash and cash equivalents of continuing operations at end of period   60.8 18.0 60.8 18.0Cash and cash equivalents of discontinued operations at end of period  1.7 2.8 1.7 2.8  $62.5 $20.8 $62.5 $20.8           Additional information           Interest paid  $ 4.4 $7.3 $23.9 $27.7 Income taxes paid (recovered)  $(3.7) $0.3 $ 19.4 $34.4The notes are an integral part of the consolidated financial statements. For further information: Media  Nancy Bouffard Director, Internal and External Communications Transcontinental Inc. Telephone : 514 954-2809 nancy.bouffard@transcontinental.ca www.transcontinental.com Financial Community  Jennifer F. McCaughey Senior Director, Investor Relations and Financial Communications Transcontinental Inc. Telephone : 514 954-2821 jennifer.mccaughey@transcontinental.cawww.transcontinental.com