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Press release from PR Newswire

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, 2012 Highlights 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) Q1-12 Q1-11 % Revenues 495.9 514.8 (4%) Adjusted operating income (1) 43.0 48.7 (12%) Adjusted net income applicable to participating shares (2) 27.1 28.8 (6%) Per share 0.33 0.36 (8%) Unusual items, net of income taxes (3) 60.4 3.7 - 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 /PRNewswire/ - 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 Quarter On 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 Measures Financial 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     2011 Net income applicable to participating shares $ (33.3)   $ 25.7 Dividends on preferred shares   1.7     1.7 Net loss (income) related to discontinued operations (after tax)   -     (0.6) Non-controlling interest   -     0.3 Income tax expenses   47.6     5.7 Financial expenses   23.7     10.8 Restructuring and integration expenses and acquisition costs   2.5     1.6 Impairment of assets   0.8     3.5 Adjusted operating income $ 43.0   $ 48.7 Amortization   28.9     31.0 Adjusted operating income before amortization $ 71.9   $ 79.7 Net income applicable to participating shares $ (33.3)   $ 25.7 Net 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     1.2 Impairment of assets (after tax)   0.6     2.5 Financial expenses related to unusual adjustments to income taxes (after tax)   16.0     - Adjusted net income applicable to participating shares $ 27.1   $ 28.8 Average number of participating shares outstanding   81.0     81.0 Adjusted net income applicable to participating shares per share $ 0.33   $ 0.36                 As at January 31, 2012   As at October 31, 2011 Long-term debt $ 211.9   $ 292.5 Current portion of long-term debt   312.9     271.9 Cash and cash equivalents   (56.8)     (75.0) Net indebtedness $ 468.0   $ 489.4 Amount to be paid to Quad/Graphics following the closing of the transaction to acquire the shares of Quad/Graphics Canada   50.0     50.0 Adjusted net indebtedness $ 518.0   $ 539.4 Adjusted operating income before amortization (last 12 months) $ 365.6   $ 373.4 Net indebtedness ratio   1.28x     1.31x Adjusted net indebtedness ratio   1.42x     1.44x Dividend At 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 Information Upon 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. Profile TC 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.tc Forward-looking Statements This 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   $ 514.8 Operating expenses   424.0     435.1 Restructuring, integration and acquisition costs   2.5     1.6 Impairment of assets   0.8     3.5             Operating income before amortization   68.6     74.6 Amortization   28.9     31.0             Operating income   39.7     43.6 Financial expenses   23.7     10.8             Income before income taxes   16.0     32.8 Income taxes   47.6     5.7             Net income (loss) from continuing operations   (31.6)     27.1 Net income from discontinued operations   -     0.6             Net income (loss)   (31.6)     27.7 Non-controlling interests   -     0.3 Net income (loss) attributable to shareholders of the Corporation   (31.6)     27.4 Dividends on preferred shares, net of related taxes   1.7     1.7 Net 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)     16.0 Comprehensive 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 EQUITY Unaudited                                                                                   (in millions of Canadian dollars)                                           Attributable to shareholders of the Corporation                 Share capital     Contributed surplus     Retained earnings     Accumulated other comprehensive income (loss)     Total     Non- controlling interests     Total equity                                           Balance as at October 31, 2011 $ 478.1   $ 1.8   $ 754.1   $  (28.1)   $ 1,205.9   $ 0.8   $ 1,206.7 Net 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     -     0.2 Balance 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   $ 1,148.4 Net income   -     -     27.4     -     27.4     0.3     27.7 Other comprehensive income   -     -     -     16.0     16.0     -     16.0 Shareholders' 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     -     0.2 Balance 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 POSITION Unaudited                   (in millions of Canadian dollars)   As at January 31, 2012     As at October 31, 2011     As at November 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     772.3 Intangible assets   147.9     149.6     179.1 Goodwill   682.8     682.5     678.1 Deferred income taxes   199.2     197.7     193.8 Other assets   28.9     20.2     32.3 Non-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     436.9 Deferred income taxes   124.3     127.2     124.3 Provisions   8.6     8.7       10.6 Other liabilities   100.2     87.9     80.2 Non-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 FLOWS Unaudited     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)     6.2 Cash and cash equivalents at beginning of period   75.0     36.3 Cash and cash equivalents at end of period $ 56.8   $ 42.5             Non-cash investing and financing activities             Net change in capital asset acquisitions financed by accounts payable $ 2.5   $ 13.6             The notes are an integral part of these consolidated financial statements.               SOURCE TRANSCONTINENTAL INC.For further information: <p> <u>Media </u><br/> <br/> Nancy Bouffard<br/> Director, Internal and External Communications<br/> TC Transcontinental<br/> Telephone : 514 954-2809<br/> <a href="mailto:nancy.bouffard@tc.tc" target="_blank">nancy.bouffard@tc.tc</a><br/> <a href="http://www.tc.tc" target="_blank">www.tc.tc </a><br/> <br/> <u>Financial Community </u><br/> <br/> Jennifer F. McCaughey<br/> Senior Director, Investor Relations and Financial Communications<br/> TC Transcontinental<br/> Telephone : 514 954-2821<br/> <a href="mailto:jennifer.mccaughey@tc.tc" target="_blank">jennifer.mccaughey@tc.tc</a><br/> <a href="http://tctranscontinental.com/">www.tc.tc</a><br/> <br/> </p>