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Press release from CNW Group

Transcontinental's inc. first quarter: Closes Quad/Graphics Canada, Inc. acquisition and increases dividend by 7%

Tuesday, March 13, 2012

Transcontinental's inc. first quarter: Closes Quad/Graphics Canada, Inc. acquisition and increases dividend by 7%07:00 EDT Tuesday, March 13, 2012Highlights Note: Our 2012 results are now reported under the International Financial Reporting Standards (IFRS) and the previous year has been restated to take this into account.(in millions of dollars, except per share data)Q1-12Q1-11%Revenues495.9514.8(4%)Adjusted operating income (1)43.048.7(12%)Adjusted net income applicable to participating shares (2)27.128.8(6%)Per share0.330.36(8%)Unusual items, net of income taxes (3)60.43.7-Net income applicable to participating shares(33.3)25.7-Per share(0.41)0.32-Notes 1 and 2 please refer to the table "Reconciliation of Non-IFRS financial measures" in this press release.Note 3: these unusual items are mainly related to notices of tax re-assessment estimated at $58 million in 2012.Closed the indirect acquisition of all the shares of Quad/Graphics Canada, Inc. It is expected to add about $230 million to revenues and should generate at least $40 million in net incremental EBITDA over the coming 12 to 24 months.Increased dividends on participating shares by 7%. It now stands at $0.58 per share on an annual basis.Net income applicable to participating shares decreased from $25.7 million to a loss of $33.3 million mainly due to a tax provision related to notices of re-assessment estimated to be $58.0 million, including applicable interest and penalties for its fiscal years 2006 to 2010. Excluding unusual items, adjusted net income applicable to participating shares decreased 6%, from $28.8 million to $27.1 million. MONTREAL, March 13, 2012 /CNW Telbec/ - Transcontinental's Inc. (TSX: TCL.A, TCL.B, TCL.PR.D) revenues decreased by 4% in the first quarter, from $514.8 million to $495.9 million, driven primarily by the sale of its black and white book printing business, destined for U.S. exports, completed last September, which was part of the asset swap transaction in which it acquired Quad/Graphics Canada on March 1st. Revenues were also impacted by lower volume from the non-recurring revenue from the printing contract for the Canadian Census last year and to a lesser extent, the printing of magazines and books. This first quarter decrease was mitigated by the Media sector, most notably from the growth of its digital media and community newspaper businesses, as a result of recent investments. Consolidated revenues are expected to return on a growth path over the next year given the contribution from the Quad/Graphics Canada acquisition as well as other contracts such as Canadian Tire.For this same period, adjusted operating income decreased 12%, from $48.7 million to $43.0 million, driven primarily by the Media sector due to a softer advertising environment coupled with continued competitive pressures in the local solutions marketplace and to a lesser extent by lower first quarter volume in the Printing sector. Net income applicable to participating shares decreased from $25.7 million, or $0.32 per share, to a loss of $33.3 million, or $0.41 per share. This decrease is mainly due to a tax provision of $58.0 million related to notices of re-assessment, which the Corporation intends to contest, pertaining to deductions on investments in capital assets made by the Corporation, as well as interprovincial allocation of income. Excluding unusual items, adjusted net income applicable to participating shares decreased 6%, from $28.8 million, or $0.36 per share, to $27.1 million, or $0.33 per share."The acquisition of the Canadian assets of Quad/Graphics is an important milestone in our development, said François Olivier, President and Chief Executive Officer of TC Transcontinental. It strengthens our print business going forward given the industry dynamics and it allows us to extend our integrated marketing activation offering to many new customers. In fact, our transformation continues to ramp up with the growth of our digital and interactive revenues again this quarter.We continue to maintain a strong financial position with a solid balance sheet and an ability to generate significant cash flow. If the advertising markets remain stable, we expect to improve our performance in the balance of the year given the lift from the Quad/Graphics Canada acquisition, the full impact from new contracts and the benefits related to the integration of our Media and Interactive sectors. We are confident in our strategy and future prospects and as such have increased our dividends on participating shares by 7%."Other Highlights of the QuarterOn February 16, 2012, Isabelle Marcoux was elected Chair of the Board.Capital expenditures decreased, from $21 million to $8 million. Capital expenditures are expected to be $75 million at the most for fiscal 2012.Transcontinental Inc. put in place a new $400 million five-year Unsecured Revolving Credit Facility that expires in February 2017. The current credit facility will remain in place until its expiry in September 2012 but has been reduced to $200 million.As at January 31, 2012, the adjusted net indebtedness ratio was 1.42x, as compared to 1.44x as at October 31, 2011.In February 2012, the federal and provincial tax authorities informed the Corporation that it would receive notices of re-assessment estimated to be $58.0 million, including applicable interest and penalties for its fiscal years 2006 to 2010. The notices of re-assessments relate to deductions on investments in capital assets made by the Corporation, as well as the interprovincial allocation of income. The Corporation recorded a provision of $58.0 million with respect to these matters, of which $16.0 million was included in financial expenses and $42.0 million in income taxes, although it intends to contest these re-assessments. Therefore, the outcome of this dispute could favorably influence the amounts recognized in the consolidated financial statements of the Corporation.Continued to grow our newspaper publishing operations in Quebec by acquiring the print and Internet publishing assets of Courrier Frontenac as well as acquiring the assets of Tout Magazine. We also launched a new community newspaper, the Valleyfield Express.ca. In addition, we are now the sole shareholder of Réseau Sélect, the largest advertising network for the French-language weekly press in Canada.Acquired the shares of Les Éditions Caractère, the leader in the supplemental educational publishing market in Quebec and publisher of bestsellers in the trade market.For more detailed financial information, please see Management's Discussion and Analysis for the first quarter ended January 31, 2012 and the complete financial statements on our website at www.tc.tc, under "Investors."Reconciliation of Non-IFRS Financial MeasuresFinancial data have been prepared in conformity with IFRS. However, certain measures used in this press release do not have any standardized meaning under IFRS and could be calculated differently by other companies. We believe that many readers analyze our results based on certain non-IFRS financial measures because such measures are more appropriate for evaluating the Corporation's operating performance. Internally, Management uses such non-IFRS 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 IFRS.The following table reconciles IFRS financial measures to non-IFRS financial measures.Reconciliation of Non-IFRS financial measures(unaudited)       For the first quarter ended January 31(in millions of dollars, except per share amounts) 2012  2011Net income applicable to participating shares$(33.3) $25.7Dividends on preferred shares 1.7  1.7Net loss (income) related to discontinued operations (after tax) -  (0.6)Non-controlling interest -  0.3Income tax expenses 47.6  5.7Financial expenses 23.7  10.8Restructuring and integration expenses and acquisition costs 2.5  1.6Impairment of assets 0.8  3.5Adjusted operating income$43.0 $48.7Amortization 28.9  31.0Adjusted operating income before amortization$71.9 $79.7Net income applicable to participating shares$(33.3) $25.7Net loss (income) from discontinued operations (after tax) -  (0.6)Unusual adjustments to income taxes 42.0  -Restructuring and integration expenses and acquisition costs (after tax) 1.8  1.2Impairment of assets (after tax) 0.6  2.5Financial expenses related to unusual adjustments to income taxes (after tax) 16.0  -Adjusted net income applicable to participating shares$27.1 $28.8Average number of participating shares outstanding 81.0  81.0Adjusted net income applicable to participating shares per share$0.33 $0.36         As at January 31,2012 As at October 31, 2011Long-term debt$211.9 $292.5Current portion of long-term debt 312.9  271.9Cash and cash equivalents (56.8)  (75.0)Net indebtedness$468.0 $489.4Amount to be paid to Quad/Graphics following the closing of the transactionto acquire the shares of Quad/Graphics Canada 50.0  50.0Adjusted net indebtedness$518.0 $539.4Adjusted operating income before amortization (last 12 months)$365.6 $373.4Net indebtedness ratio 1.28x  1.31xAdjusted net indebtedness ratio 1.42x  1.44xDividendAt its March 12, 2012 meeting, the Corporation's Board of Directors declared a quarterly dividend of $0.145 per Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on April 26, 2012 to participating shareholders of record at the close of business on April 6, 2012. The Corporation thus increased the dividend per participating share by 7%, or $0.04 per share, raising the new annual dividend to $0.58 per share, from $0.54 per share. This increase is a reflection of Transcontinental's strong cash flow position. Furthermore, at the same meeting, the Board also declared a quarterly dividend of $0.4196 per share on cumulative 5-year rate reset first preferred shares, series D. This dividend is payable on April 16, 2012. On an annual basis, this represents a dividend of $1.6875 per preferred share.Additional InformationUpon releasing its first quarter 2012 results, Transcontinental will hold a conference call for the financial community today at 10:00 a.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 TC Transcontinental, at 514 954-2809.ProfileTC Transcontinental 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 the fourth-largest in North America. As the leading publisher of consumer magazines and French-language educational resources, and of community newspapers in Quebec and the Atlantic provinces, it is also one of Canada's top media groups. TC Transcontinental is also the leading door-to-door distributor of advertising material in Canada through its Publisac network in Quebec and Targeo in the rest of Canada. Thanks to a wide digital network of more than 1,000 websites, the Corporation reaches over 13.7 million unique visitors per month in Canada. TC 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 Inc. (TSX: TCL.A, TCL.B, TCL.PR.D), known by the brands TC Transcontinental, TC Media and TC Transcontinental Printing, has approximately 11,000 employees in Canada and the United States, and reported revenues of C$2.0 billion in 2011. For more information about the corporation, please visit www.tc.tcForward-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 March 13, 2012. 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 ended January 31(in millions of Canadian dollars, except per share data)2012 2011      Revenues$495.9 $514.8Operating expenses 424.0  435.1Restructuring, integration and acquisition costs 2.5  1.6Impairment of assets 0.8  3.5      Operating income before amortization 68.6  74.6Amortization 28.9  31.0      Operating income 39.7  43.6Financial expenses 23.7  10.8      Income before income taxes 16.0  32.8Income taxes 47.6  5.7      Net income (loss) from continuing operations (31.6)  27.1Net income from discontinued operations -  0.6      Net income (loss) (31.6)  27.7Non-controlling interests -  0.3Net income (loss) attributable to shareholders of the Corporation (31.6)  27.4Dividends on preferred shares, net of related taxes 1.7  1.7Net income (loss) attributable to participating shares$(33.3) $25.7      Net income (loss) per participating share - basic and diluted      Continuing operations$(0.41) $0.31 Discontinued operations-   0.01 $(0.41) $0.32      Weighted average number of shares outstanding - basic (in millions) 81.0  81.0      Weighted average number of shares outstanding - diluted (in millions) 81.0  81.1            The notes are an integral part of these consolidated financial statements.                             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)     Unaudited            Three months ended January 31(in millions of Canadian dollars)2012 2011      Net income (loss)$(31.6) $27.7      Other comprehensive income (loss)           Items that will be reclassified to net income (loss):      Net change related to cash flow hedges       Net change in the fair value of derivatives designated as cash flow hedges (1.2)  0.4  Reclassification of the net change in the fair value of derivatives designated as cash flow       hedges in prior periods, recognized in net income (loss) during the period 2.6  1.5  Related income taxes 1.6  0.7  (0.2)  1.2       Cumulative translation differences       Net gains (losses) on the translation of the financial statements of self-sustaining foreign operations 0.5  (1.7)      Items that will not be reclassified to net income (loss):      Changes in actuarial gains and losses in respect of defined benefit pension plans       Actuarial gains and losses in respect of defined benefit pension plans (15.6)  22.5  Related income taxes (4.9)  6.0  (10.7)  16.5      Other comprehensive income (loss) (10.4)  16.0Comprehensive income (loss)$(42.0) $43.7      Attributable to:      Shareholders of the Corporation$(42.0) $43.4 Non-controlling interests-   0.3 $(42.0) $43.7            The notes are an integral part of these consolidated financial statements.     CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYUnaudited                                         (in millions of Canadian dollars)                     Attributable to shareholders of the Corporation        Share capital  Contributedsurplus  Retainedearnings  Accumulatedothercomprehensiveincome (loss)  Total  Non-controllinginterests  Total equity                     Balance as at October 31, 2011$478.1 $1.8 $754.1 $ (28.1) $1,205.9 $0.8 $1,206.7Net income (loss) -  -  (31.6)  -   (31.6)  -  (31.6)Other comprehensive loss -  -  -  (10.4)  (10.4)  -  (10.4)Shareholders' contributions and                    distributions to shareholders                     Exercise of stock options 0.1  - -   -    0.1  -  0.1 Dividends -  -  (12.6)  -    (12.6)  -  (12.6) Stock-option based                     compensation -  0.2  -  -   0.2  -  0.2Balance as at January 31, 2012$478.2 $2.0 $709.9 $(38.5) $1,151.6 $0.8 $1,152.4                     Balance as at November 1, 2010$477.9 $1.1 $673.1 $(4.5) $1,147.6 $0.8 $1,148.4Net income -  -  27.4  -  27.4  0.3  27.7Other comprehensive income -  -  -  16.0  16.0  -  16.0Shareholders' contributions and                    distributions to shareholders                     Exercise of stock options 0.1  -  -  -   0.1  -  0.1 Dividends -  -  (10.6)  -   (10.6)  (0.8)  (11.4) Stock-option based                     compensation -  0.2  -  -   0.2  -  0.2Balance as at January 31, 2011$478.0 $1.3 $689.9 $11.5 $1,180.7 $0.3 $1,181.0                      The notes are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONUnaudited         (in millions of Canadian dollars) As at January 31, 2012  As atOctober 31,2011  As atNovember 1,2010         Current assets         Cash and cash equivalents$56.8 $75.0 $31.9 Accounts receivable 368.1  436.3  440.6 Income taxes receivable 7.4  14.7  19.5 Inventories 76.2  80.2  77.6 Prepaid expenses and other current assets 15.3  18.3  19.3 Current assets related to discontinued operations -  -   26.4  523.8  624.5  615.3         Property, plant and equipment 672.9  690.6  772.3Intangible assets 147.9  149.6  179.1Goodwill 682.8  682.5  678.1Deferred income taxes 199.2  197.7  193.8Other assets 28.9  20.2  32.3Non-current assets related to discontinued operations -  -  49.5 $2,255.5 $2,365.1 $  2,520.4         Current liabilities         Accounts payable and accrued liabilities$217.9 $293.5 $329.6 Provisions 6.9  10.7  15.7 Income taxes payable 86.4  33.5  29.0 Deferred subscription revenues and deposits 34.0  32.5  38.4 Current portion of long-term debt 312.9  271.9  293.8 Current liability related to discontinued operations -  -  12.8  658.1  642.1  719.3         Long-term debt  211.9  292.5  436.9Deferred income taxes 124.3  127.2  124.3Provisions 8.6  8.7    10.6Other liabilities 100.2  87.9  80.2Non-current liability related to discontinued operations -  -  0.7  1,103.1  1,158.4  1,372.0         Equity         Share capital 478.2  478.1  477.9 Contributed surplus 2.0  1.8  1.1 Retained earnings 709.9  754.1  673.1 Accumulated other comprehensive loss (38.5)  (28.1)  (4.5) Attributable to shareholders of the Corporation 1,151.6  1,205.9  1,147.6 Non-controlling interests 0.8  0.8  0.8  1,152.4  1,206.7  1,148.4 $2,255.5 $2,365.1 $2,520.4         The notes are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWSUnaudited  Three months ended January 31(in millions of Canadian dollars) 2012  2011      Operating activities      Net income (loss)$(31.6) $27.7 Less: Net income from discontinued operations -  0.6 Net income (loss) from continuing operations (31.6)  27.1       Adjustments to reconcile net income (loss) from continuing operations      and cash flows from operating activities:       Amortization 33.8  36.8  Impairment of assets 0.8  3.5  Financial expenses on long-term debt 6.9  10.1  Interest on tax contingencies 16.0  -   Net gain on disposal of assets (0.4)  -   Income taxes 47.6    5.7  Stock-option based compensation 0.2  0.2  Other 0.6  (1.7) Cash flows generated by operating activities before changes      in non-cash operating items and income tax paid 73.9  81.7 Changes in non-cash operating items (16.3)  (12.7) Income tax paid (2.3)  (6.5) Cash flows from continuing operations 55.3  62.5 Cash flows from discontinued operations -  (0.3)  55.3  62.2      Investing activities      Business acquisitions -  (4.8) Acquisitions of property, plant and equipment (8.3)  (20.5) Disposals of property, plant and equipment 0.4  0.1 Increase in intangible assets and other assets (4.7)  (4.9) Cash flows from investments in continuing operations (12.6)  (30.1) Cash flows from investments in discontinued operations -  (0.4)  (12.6)  (30.5)      Financing activities      Reimbursement of long-term debt (8.1)  (7.3) Increase (decrease) in revolving term credit facility (34.1)  6.5 Financial expenses on long-term debt (6.3)  (7.9) Dividends on participating shares (10.9)  (8.9) Dividends on preferred shares (1.7)  (1.7) Issuance of participating shares 0.1  0.1 Bond forward contract -  (6.0) Other -  - Cash flows from the financing of continuing operations (61.0)  (25.2)      Effect of exchange rate changes on cash and cash equivalents     denominated in foreign currencies 0.1  (0.3)      Increase (decrease) in cash and cash equivalents (18.2)  6.2Cash and cash equivalents at beginning of period 75.0  36.3Cash and cash equivalents at end of period$56.8 $42.5      Non-cash investing and financing activities      Net change in capital asset acquisitions financedby accounts payable$2.5 $13.6      The notes are an integral part of these consolidated financial statements.       For further information: Media  Nancy Bouffard Director, Internal and External Communications TC Transcontinental Telephone : 514 954-2809 nancy.bouffard@tc.tc www.tc.tc Financial Community  Jennifer F. McCaughey Senior Director, Investor Relations and Financial Communications TC Transcontinental Telephone : 514 954-2821 jennifer.mccaughey@tc.tc www.tc.tc