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Press release from Marketwire

TVA Group's Financial Results for the First Quarter Ending March 31, 2012 Heavily Affected by the Adoption of Bill 88 Fees

Tuesday, May 08, 2012

TVA Group's Financial Results for the First Quarter Ending March 31, 2012 Heavily Affected by the Adoption of Bill 88 Fees09:09 EDT Tuesday, May 08, 2012MONTREAL, CANADA--(Marketwire - May 8, 2012) - TVA Group Inc. (the "Corporation") (TSX:TVA.B) announces that it recorded a net loss attributable to shareholders in the amount of $39.3 million, or $1.66 per share, for the first quarter of 2012, compared with net income attributable to shareholders of $0.3 million, or $0.01 per share, in the same quarter of 2011.Following the Quebec government's April 2012 adoption of new fees for 2010, 2011 and 2012 with respect to business contributions for costs related to waste recovery services provided by Quebec municipalities, the Corporation was forced to review its business plan for the Publishing segment due to the material adverse impact of these fees on its future operating costs. As a result, the Corporation determined that the recoverable amount of goodwill related to the Publishing segment was lower than its carrying amount and an impairment charge of $32.2 million was recorded in the first quarter of 2012. First quarter operating highlights :An operating loss1 in the Television segment of $3,726,000, a negative variance of $6,592,000, mainly due to the following: operating loss of the new "TVA Sports" service; a decrease in the operating income from TVA Network, due to an increase in operating expenses; and the higher operating loss of SUN News, given that the service was in its pre-operating phase in the first quarter of 2011. An operating loss in the Publishing segment of $2,028,000, a negative variance of $3,722,000, primarily due to the impact of the liability recorded in relation to the fees set for 2010, 2011 and 2012 for business contributions to the cost of waste recovery services (Bill 88). 1Refer to operating income (loss) definition on the next page."Our financial results in the Television segment for the first quarter were affected by the investment in our new specialty channels and in TVA Network's programming schedule. However, operating income for the segment grew over 12% in the first quarter of 2012, both at TVA Network, where advertising revenues increased by nearly 10%, and at the specialty services, which grew its subscription revenue by 43% and its advertising revenue by 24%. The growth in the specialty services is largely attributable to our new services, "TVA Sports" and "Mlle", but also to existing services "addikTV", "Casa", "Yoopa" and "Prise 2", which confirms our investment and diversification strategy in the segment," said Pierre Dion, President and Chief Executive Officer of the Corporation."Results in the Publishing segment were down $3,375,000, with the adoption of the new fees for 2010, 2011 and 2012 with respect to business contributions for costs related to waste recovery services. In our view, the costs put forward, how they are allocated and the new fees for magazines are based notably on an incomplete process and on unreasonable, arbitrary and false premises and conclusions, which makes them legally invalid. Further, they seriously compromise the financial viability and stability of an industry that makes a positive contribution to the cultural sector of our society. We are currently examining the legal remedies available to ensure that our rights are respected," said Mr. Dion.Cash flows provided by operating activities were $3.1 million for the quarter, compared with $10.2 million in the same quarter of 2011. The $7.1 million decline was essentially due to the decrease in the Corporation's operating income.The unaudited consolidated financial statements for the three-month period ending March 31, 2012, with notes and the interim Management's Discussion and Analysis, can be consulted on the Corporation's website at http://groupetva.ca. Definition Operating income (loss)In its analysis of operating results, the Corporation defines operating income (loss) as net income (net loss) before amortization of property, plant and equipment and intangible assets, financial expenses, restructuring costs of operations, impairment of assets and other costs, income taxes, share of income of associated corporation and net loss attributable to non-controlling interest. Operating income (loss) as defined above is not a measure of results that is consistent with IFRS. Neither is it intended to be regarded as an alternative to other financial performance measures or to the statement of cash flows as a measure of liquidity. This measure is not intended to represent funds available for debt service, dividend payment, reinvestment or other discretionary uses, and should not be considered in isolation or as a substitute for other performance measures prepared in accordance with IFRS. Operating income (loss) is used by the Corporation because management believes it is a meaningful measure of performance. This measure is used by management and the Board of Directors to evaluate the consolidated results of the Corporation and the results of its segments. Measurements such as operating income (loss) are also commonly used by the investment community to analyze and compare the performance of companies in the industries in which the Corporation is active. The Corporation's definition of operating income (loss) may not be identical to similarly titled measures reported by other companies. Forward-looking Information Disclaimer The statements in this news release that are not historical facts may be forward-looking statements and are subject to important known and unknown risks, uncertainties and assumptions which could cause the Corporation's actual results for future periods to differ materially from those set forth in the forward-looking statements. Forward-looking statements generally can be identified by the use of the conditional, the use of forward-looking terminology such as "propose," "will," "expect," "may," "anticipate," "intend," "estimate," "plan," "foresee," "believe" or the negative of these terms or variations of them or similar terminology. Certain factors that may cause actual results to differ from current expectations include seasonality, operational risks (including pricing actions by competitors), programming content and production costs risks, credit risk, government regulation risks, governmental assistance risks, changes in economic conditions, fragmentation of the media landscape and labour relations risks. Investors and others are cautioned that the foregoing list of factors that may affect future results is not exhaustive and that undue reliance should not be placed on any forward-looking statements. For more information on the risks, uncertainties and assumptions that could cause the Corporation's actual results to differ from current expectations, please refer to the Corporation's public filings available at www.sedar.com and http://groupetva.ca including, in particular, the "Risks and Uncertainties" section of the Corporation's annual Management's Discussion and Analysis for the year ended December 31, 2011.The forward-looking statements in this news release reflect the Corporation's expectations as of May 8, 2012, and are subject to change after this date. The Corporation expressly disclaims any obligation or intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by the applicable securities laws. Groupe TVA TVA Group Inc., a subsidiary of Quebecor Media Inc., is an integrated communications company involved in the creation, production, broadcast and distribution of audiovisual products, and in magazine publishing. TVA Group Inc. is the largest broadcaster of French-language entertainment, information and public affairs programming and publisher of French-language magazines in North America, and one of the largest private-sector producers of French-language content in North America. The Corporation also operates SUN News, a Canada-wide English-language news and opinion specialty service. The Corporation's Class B shares are listed on the Toronto Stock Exchange under the ticker symbol TVA.B.TVA GROUP INC.Consolidated Statements of Income (unaudited)(in thousands of dollars, except per share amounts)Three-month periods ended March 31Note20122011Revenues 2$117,812 $ 107,097Operating, selling and administrative expenses3123,566102,537Amortization of property, plant and equipment and intangible assets5,2174,037Financial expenses41,5191,466Restructuring costs of operations, impairment of assets and other costs5117−Impairment of goodwill632,200−Loss before income taxes and share of income of associated corporation(44,807)(943)(Recovery) income taxes(3,103)171After-tax share of income of associated corporation(186)(270)Net loss$(41,518)$(844)Net (loss) income attributable to:Shareholders$(39,341)$332Non-controlling interest(2,177)(1,176)Basic and diluted earnings per share attributable to shareholders8 (d)$(1.66)$0.01See accompanying notes to consolidated financial statements.TVA GROUP INC.Consolidated Statements of Comprehensive Income(unaudited)(in thousands of dollars)Three-month periods ended March 3120122011Net loss$(41,518) $ (844)Other comprehensive loss:Defined benefit plans:Net change in asset limit or in minimum funding liability−(141)Deferred income taxes−38−(103)Comprehensive loss$(41,518)(947)Comprehensive (loss) income attributable to:Shareholders$(39,341)$229Non-controlling interest(2,177)(1,176)See accompanying notes to consolidated financial statements.TVA GROUP INC.Consolidated Statements of Equity (unaudited)(in thousands of dollars)Equity attributable to shareholdersCapital stock (note 8)Retained earningsEquity attributable to non-controlling interestTotal equityBalance as of December 31, 2010$ 98,647$ 170,784$ 4,511$ 273,942Net income (loss)−332(1,176)(844)Other comprehensive loss−(103)−(103)Dividends−(1,188)−(1,188)Contributions related to non-controlling interest (note 10)−−2,9402,940Balance as of March 31, 201198,647169,8256,275274,747Net income (loss)−25,271(7,991)17,280Other comprehensive loss−(16,914)−(16,914)Dividends−(1,189)−(1,189)Contributions related to non-controlling interest (note 10)−−7,1057,105Balance as of December 31, 201198,647176,9935,389281,029Net loss−(39,341)(2,177)(41,518)Contributions related to non-controlling interest (note 10)−−1,7641,764Balance as of March 31, 2012$ 98,647$ 137,652$ 4,976$ 241,275See accompanying notes to consolidated financial statements.TVA GROUP INC.Consolidated Balance Sheets(unaudited)(in thousands of dollars)NoteMarch 31, 2012December 31, 2011AssetsCurrent assetsCash$936$1,756Accounts receivable115,902117,644Current income tax assets9,1864,014Programs, broadcast and distribution rights and inventories58,94661,954Prepaid expenses4,3292,690Assets held for sale1210,2078,370199,506196,428Non-current assetsBroadcast and distribution rights38,09735,488Investments13,05112,865Property, plant and equipment101,148102,007Licences and other intangible assets114,120114,539Goodwill639,78171,981Deferred income taxes570545306,767337,425Total assets$506,273$533,853Liabilities and equityCurrent liabilitiesBank overdraft$282$3,980Accounts payable and accrued liabilities92,00682,086Current income tax liabilities50503Broadcast and distribution rights payable18,03115,778Provisions1,1951,533Deferred revenues5,7086,535Current portion of long-term debt7−17,756Liabilities held for sale122,3211,538119,593129,709Non-current liabilitiesLong-term debt797,15174,635Other liabilities39,20139,696Deferred income taxes9,0538,784145,405123,115EquityCapital stock898,64798,647Retained earnings137,652176,993Equity attributable to shareholders236,299275,640Non-controlling interest4,9765,389241,275281,029Total liabilities and equity$506,273$533,853See accompanying notes to consolidated financial statements.On May 8, 2012, the Board of Directors approved the consolidated financial statements for the three-month periods ended March 31, 2012 and 2011. TVA GROUP INC.Consolidated Statements of Cash Flows (unaudited)(in thousands of dollars)Three-month periods ended March 31Note20122011Cash flows related to operating activitiesNet loss$(41,518)$(844)Non-cash items:Amortization5,3184,127Impairment of goodwill632,200−After-tax share of income of associated corporation(186)(270)Deferred income taxes235677Cash flows (used in) provided by current operations(3,951)3,690Net change in non-cash items7,0066,552Cash flows provided by operating activities3,05510,242Cash flows related to investing activitiesAdditions to property, plant and equipment(5,274)(8,458)Additions to intangible assets(566)(807)Net change in investments−10Cash flows used in investing activities(5,840)(9,255)Cash flows related to financing activitiesNet change in bank overdraft(3,698)(2,507)Net change in revolving term loan5,003(304)Financing costs7(344)−Non-controlling interest101,7642,940Cash flows provided by financing activities2,725129Net change in cash(60)1,116Cash at beginning of period4,6385,605Cash at end of period$4,578$6,721Cash consists of the following:Cash$936$6,721Cash from operations held for sale123,642−$4,578$6,721Interest and income taxes reflected as operating activitiesInterest paid$382$333Income taxes paid (received)2,287(1,293)See accompanying notes to consolidated financial statements.TVA GROUP INC.Notes to Condensed Consolidated Financial StatementsThree-month periods ended March 31, 2012 and 2011 (unaudited)(Tabular amounts are expressed in thousands of dollars, except per share and per option amounts)TVA Group Inc. ("TVA Group" or the "Corporation") was incorporated under Part 1A of the Companies Act (Quebec) by certificate and articles of continuance dated December 17, 1981. The Corporation has been governed by the Quebec Business Corporations Act since it came into effect on February 14, 2011. TVA Group is an integrated communications company with two operating segments: Television and Publishing (note 11). The Corporation is a subsidiary of Quebecor Media Inc. ("Quebecor Media" or the "parent corporation") and the ultimate parent corporation is Quebecor Inc. ("Quebecor"). The Corporation's head office is located at 1600 De Maisonneuve Blvd. East, Montreal, Quebec, Canada. The Corporation's businesses experience significant seasonality due, among other factors, to seasonal advertising patterns and influences on people's viewing, reading and listening habits. Because the Corporation depends on the sale of advertising for a significant portion of its revenue, operating results are also sensitive to prevailing economic conditions, including changes in local, regional and national economic conditions, particularly as they may affect advertising expenditures. Furthermore, the Corporation is investing in the launch of new specialty services in the Television segment. During the period immediately following the launch of a new specialty service, subscription revenues are always relatively modest, while initial operating expenses may prove more substantial. Accordingly, the results of operations for interim periods should not necessarily be considered indicative of full-year results.1. Basis of presentation These consolidated financial statements were prepared in accordance with the International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. In particular, these consolidated financial statements were prepared in accordance with IAS 34, Interim Financial Reporting, and accordingly, they are condensed consolidated financial statements because they do not include all disclosures required under IFRS for annual consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the Corporation's 2011 annual consolidated financial statements and the notes thereto. The same accounting policies described in the annual consolidated financial statements have been used herein.Comparative figures for the three-month period ended March 31, 2011, have been reclassified to conform to the presentation adopted for the three-month period ended March 31, 2012.2. Revenues The breakdown of revenues between services rendered and product sales is as follows: Three-month periods ended March 3120122011Services rendered$91,571$81,591Product sales26,24125,506$117,812$107,0973. Operating, selling and administrative expensesThe main components are as follows: Three-month periods ended March 3120122011Employee and sales commission costs$43,252$36,239Royalties, rights and production costs51,35242,311Printing and distribution7,9195,325Marketing, advertising and promotion5,3154,609Transmission and microwave expenses1,9621,145Other13,76612,908$123,566$102,5374.Financial expenses Three-month periods ended March 3120122011Interest on long-term debt$1,416$1,367Amortization of financing costs10190Other29$1,519$1,4665. Restructuring costs of operations, impairment of assets and other costs In the three-month period ended March 31, 2012, the Corporation recorded $117,000 in restructuring costs of operations following the elimination of several positions in the Publishing segment.6. Impairment of goodwill As a result of new fees adopted in 2012 for 2010, 2011 and 2012 with respect to business contributions for costs related to waste recovery services provided by Quebec municipalities, the operating costs of the Corporation's Publishing segment will be adversely affected. Accordingly, the Corporation reviewed its business plan for these activities and performed an impairment test on the Publishing segment's cash-generating unit ("CGU"). The Corporation concluded that the recoverable amount based on value in use was less than the carrying amount of the Publishing CGU and a goodwill impairment charge of $32,200,000 was recorded during the first quarter of 2012. The Corporation used a pre-tax discount rate of 16.26% (15.89% as of April 1, 2011) and a perpetual growth rate of 1.00% (1.00% as of April 1, 2011) to calculate the recoverable amount.7. Long-term debt On February 24, 2012, the Corporation completed the renewal of its revolving term loan of $100,000,000 for a five-year term with similar conditions, except for the borrowing cost, which is more favourable for the Corporation. The loan matures on February 23, 2017 and is repayable in full on that date. Given the maturity of the revolving term loan as of December 31, 2011, the Corporation had presented the loan as a current liability.The costs associated with the renewal of the revolving term loan in the first quarter of 2012 totalled $344,000 and were recorded as financing costs in reduction of long-term debt.8. Capital stock (a) Authorized capital stock An unlimited number of Class A common shares, participating, voting, without par value.An unlimited number of Class B shares, participating, non-voting, without par value. An unlimited number of preferred shares, non-participating, non-voting, with a par value of $10 each, issuable in series.(b) Issued and outstanding capital stockMarch 31, 2012December 31, 20114 320 000 class A common shares$72$7219 450 906 class B shares98,57598,575$98,647$98,647(c) Share redemptionNormal course issuer bidOn March 17, 2011, the Corporation filed a normal course issuer bid to redeem a maximum of approximately 5% of the number of Class B shares of the Corporation at the offer date for cancellation between March 21, 2011 and March 20, 2012. The Corporation redeems its Class B shares at the market price at the time of redemption, plus brokerage fees. No Class B shares were repurchased in the first quarters of 2012 and 2011.(d) Earnings per share attributable to shareholders The following table sets forth the computation of basic and diluted earnings per share attributable to shareholders:Three-month periods ended March 3120122011Net (loss) income attributable to shareholders$(39,341)$332Weighted average number of basic and diluted shares outstanding23,770,90623,770,906Basic and diluted earnings per share attributable to shareholders (in dollars)$(1.66)$0.01The diluted earnings per share calculation does not take into consideration the potential dilutive effect of stock options of the Corporation since their impact is anti-dilutive. During the three-month period ended March 31, 2012, 819,421 stock options of the Corporation's plan (833,610 in 2011) were excluded from the diluted earnings per share calculation.9. Stock-based compensation and other stock-based payments Three-month periods ended March 31, 2012Class B stock optionsQuebecor Media stock options NumberWeighted average exercise price NumberWeighted average exercise priceBalance as of December 31, 2011833,610$ 16.35393,252$ 46.66Cancelled(14,189)16.84--Balance as of March 31, 2012819,421$ 16.34393,252$ 46.66Of the number of options outstanding as of March 31, 2012, 706,077 Class B stock options at an average exercise price of $16.58 and 177,649 Quebecor Media stock options at an average price of $46.29 could be exercised.During the three-month period ended March 31, 2012, none of the Quebecor Media stock options were exercised (15,230 stock options were exercised for a cash consideration of $108,000 in 2011).During the three-month period ended March 31, 2012, the Corporation recorded a compensation expense of $5,000 ($85,000 in 2011) in relation to the Corporation's Class B stock options and a compensation expense of $596,000 ($375,000 in 2011) in relation to the Quebecor Media stock options.10. Related party transactionsDuring the three-month period ended March 31, 2012, the partners in SUN News made a total capital contribution of $3,600,000 ($6,000,000 in the same period of 2011), including $1,836,000 from the Corporation ($3,060,000 in 2011) and $1,764,000 from Sun Media Corporation ($2,940,000 in 2011).11. Segmented informationThe Corporation's operations consist of the following segments: The Television segment includes the operations of TVA Network (including the subsidiaries and divisions of TVA Productions Inc., TVA Ventes et Marketing Inc., TVA Accès, TVA Création, TVA Nouvelles, TVA Interactif), the specialty services, the national English-language specialty service SUN News Network, the marketing of the digital products of the different televisual brands, the home and online shopping services of the TVA Boutiques division, and the distribution of audiovisual products by the TVA Films division.The Publishing segment includes the operations of TVA Publications Inc., a producer of content specializing in the publication of French-language magazines in various fields such as the arts, entertainment, television, fashion and decoration; marketing of the digital products of the different brands related to the magazines and the operations of the TVA Studio division specializing in customized publishing, commercial print production and premedia services. The intersegment items represent the elimination of normal course business transactions between the Corporation's business segments regarding revenues and expenses. Three-month periods ended March 3120122011RevenuesTelevision$102,820$91,273Publishing15,90616,869Intersegment items(914)(1,045)117,812107,097Operating, selling and administrative expensesTelevision106,54688,407Publishing17,93415,175Intersegment items(914)(1,045)123,566102,537(Loss) income before amortization, financial expenses, restructuring costs of operations, impairment of assetsand other costs, impairment of goodwill, income taxes and share of income of associated corporationTelevision(3,726)2,866Publishing(2,028)1,694Intersegment items−−$(5,754)$4,560March 31, 2012December 31, 2011Total assetsTelevision$454,281$449,943Publishing51,99283,910$506,273$533,853GoodwillTelevision$2,539$2,539Publishing37,24269,442$39,781$71,98112. Assets held for saleOn December 22, 2011, the Corporation announced an agreement under which the Corporation will sell its 51% interest in The Cave and its 50% interest in Mystery to Shaw Media Global Inc., the other partner of these joint ventures. The transaction is valued at $17,500,000. The application to transfer the licences was approved by the Canadian Radio-television and Telecommunications Commission ("CRTC") on April 25, 2012. The transaction should be finalized in the second quarter of 2012.The following table shows the breakdown of assets and liabilities held for sale as of March 31, 2012 and December 31, 2011:March 31, 2012December 31, 2011Current assetsCash$3,642$2,882Accounts receivable2,1432,274Broadcast rights4,4223,21410,2078,370Current liabilitiesAccounts payable and accrued liabilities1,9401,099Broadcast rights payable3814392,3211,538Net assets$7,886$6,832FOR FURTHER INFORMATION PLEASE CONTACT: Vice-President and Chief Financial OfficerDenis Rozon, CA(514) 598-2808