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TVA Group Reports $23.7 Million Net Income Attributable to Shareholders in Second Quarter Ended June 30, 2012

Tuesday, August 07, 2012

TVA Group Reports $23.7 Million Net Income Attributable to Shareholders in Second Quarter Ended June 30, 201209:52 EDT Tuesday, August 07, 2012MONTREAL, CANADA--(Marketwire - Aug. 7, 2012) - TVA Group Inc. (the "Corporation") (TSX:TVA.B) announces that it recorded net income attributable to shareholders in the amount of $23.7 million, or $1.00 per share, for the second quarter of 2012, compared with $13.8 million, or $0.58 per share, in the same quarter of 2011. The Corporation's sale of its 51% interest in the specialty service "The Cave" and its 50% interest in the specialty service "Mystery TV" closed on May 31, 2012. The Corporation realized a gain on disposal of businesses of $12.9 million or $0.54 per share. Second quarter operating highlights :- Operating income1 in the Television sector down $2,253,000 to $17,039,000, mainly because of:operating loss of the new "TVA Sports" service; Partially offset by:62.3% increase in operating income at the other French-language specialty services; 21.0% decrease in the operating loss of SUN News because of subscription fees now collected for the service; and 1.9% increase in operating income at TVA Network despite the decrease in advertising revenues. - Operating income in the Publishing sector down $450,000 to $2,622,000, primarily due to a decrease in operating revenues caused largely by lower newsstand sales and advertising revenues.1 Refer to definition of operating income (loss) below."As expected, the operating loss of the new 'TVA Sports' specialty service negatively affected the Television sector's financial results for the second quarter of 2012. However, all our other French-language specialty services continued to grow, registering a 17% increase in subscription revenues and a 4% increase in advertising revenues. In the second quarter of 2012, we signed a number of affiliation agreements with Canada's leading broadcasting distribution undertakings with respect to all of our French-language specialty services. With these agreements, we expect to generate significant subscription revenue growth going forward. With respect to TVA Network, we are pleased that we were able to grow its operating income despite an 8% decline in its advertising revenues. We are also very proud of our fall schedule and remain optimistic about the advertising revenues it will generate for the remainder of the Corporation's financial year," said Pierre Dion, President and CEO of the Corporation."In the Publishing sector, operating revenues declined by 3.5% compared with the same quarter of the previous year, which largely accounts for the decrease in the sector's operating income. At the same time, the growth of the TVA Studio division, which specializes in customized publishing, commercial printed productions and premedia services, augurs well for the expansion of this line of business in the coming quarters. We are also in the process of implementing a series of operational improvements in the Publishing sector in order to realize additional savings and offset the decrease in newsstand sales and advertising revenues," said Mr. Pierre Dion.Cash flows provided by operating activities amounted to $1.4 million for the quarter, compared with nil in the same quarter of 2011. The $1.4 million increase was essentially due to changes in non-cash items, namely variances in accounts receivable. The unaudited consolidated financial statements for the three-month and six-month periods ending June 30, 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, impairment of goodwill, gain on disposal of businesses, 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 August 7, 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. TVA Group 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's Class B shares are listed on the Toronto Stock Exchange under the ticker symbol TVA.B. TVA GROUP INC.Consolidated Statements of Income (Loss)(unaudited)(in thousand of dollars, except per share amounts) Three-month periods ended June 30Six-month periods ended June 30Note2012201120122011Revenues2$115,379$117,548$233,191$224,645Operating, selling and administrative expenses395,71895,184219,284197,721Amortization of property, plant and equipment and intangible assets5,242 4,21110,459 8,248Financial expenses41,4311,4422,9502,908Impairment of goodwill6−−32,200−Gain on disposal of businesses12(12,881)−(12,881)−Restructuring costs of operations, impairmentof assets and other costs 5− 321117 321Income (loss) before income taxes and share of income of associated corporation25,869 16,390(18,938) 15,447Income taxes124,5725,6261,4695,797After-tax share of income of associated corporation(142) (201)(328) (471)Net income (loss)$21,439$10,965$(20,079)$10,121Net income (loss) attributable to:Shareholders$23,676$13,795$(15,665)$14,127Non-controlling interest10(2,237)(2,830)(4,414)(4,006)Basic and diluted earnings per share attributable to shareholders 8 d)$1.00 $ 0.58$(0.66) $ 0.59See accompanying notes to condensed consolidated financial statements.TVA GROUP INC.Consolidated Statements of Comprehensive Income (Loss)(unaudited)(in thousands of dollars)Three-month periods ended June 30Six-month periods ended June 30Note2012201120122011Net income (loss)$21,439$10,965$(20,079)$10,121Other comprehensive loss:Defined benefit plans:Net change in asset limit or in minimum funding liability− (141)− (282)Deferred income taxes−38−76−(103)−(206)Comprehensive income (loss)$21,439$10,862$(20,079)$9,915Comprehensive income (loss) attributable to:Shareholders$23,676$13,692$(15,665)$13,921Non-controlling interest10(2,237)(2,830)(4,414)(4,006)See accompanying notes to condensed consolidated financial statements.TVA GROUP INC.Consolidated Statements of Equity (unaudited)(in thousands of dollars)Equity attributable to shareholdersCapital stock (note 8)Contributed surplusRetained earningsEquity attributable to non-controlling interestTotal equityBalance as of December 31, 2010$ 98,647$ −$ 170,784$ 4,511$ 273,942Net income (loss)−−14,127(4,006)10,121Other comprehensive loss−−(206)−(206)Dividends−−(2,377)−(2,377)Contributions related to non-controlling interest (note 10)−−−2,9402,940Balance as of June 30, 201198,647−182,3283,445284,420Net income (net loss)−−11,476(5,161)6,315Other comprehensive loss−−(16,811)−(16,811)Contributions related to non-controlling interest (note 10)−−−7,1057,105Balance as of December 31, 201198,647−176,9935,389281,029Net loss−−(15,665)(4,414)(20,079)Contributions related to non-controlling interest (note 10)−−−3,5283,528Disposal of interest in SUN News (note 10)−581−(4,503)(3,922)Balance as of June 30, 2012$ 98,647$ 581$ 161,328$ −$ 260,556See accompanying notes to condensed consolidated financial statements.TVA GROUP INC.Consolidated Balance Sheets(unaudited)(in thousands of dollars)NoteJune 30, 2012December 31, 2011AssetsCurrent assetsCash$−$1,756Accounts receivable118,423117,644Current income tax assets6,4414,014Programs, broadcast and distribution rights and inventories63,55861,954Prepaid expenses5,1592,690Assets held for sale12−8,370193,581196,428Non-current assetsBroadcast and distribution rights38,45935,488Investments1017,69612,865Property, plant and equipment96,635102,007Licences and other intangible assets112,548114,539Goodwill639,78171,981Deferred income taxes568545305,687337,425Total assets$499,268$533,853Liabilities and equityCurrent liabilitiesBank overdraft$4,943$3,980Accounts payable and accrued liabilities85,97882,086Current income tax liabilities104503Broadcast and distribution rights payable19,61715,778Provisions1,0551,533Deferred revenues5,8166,535Current portion of long-term debt7−17,756Liabilities held for sale12−1,538117,513129,709Non-current liabilitiesLong-term debt774,97374,635Other liabilities36,60139,696Deferred income taxes9,6258,784121,199123,115EquityCapital stock898,64798,647Contributed surplus10581−Retained earnings161,328176,993Equity attributable to shareholders260,556275,640Non-controlling interest10−5,389260,556281,029Total liabilities and equity$499,268$533,853See accompanying notes to condensed consolidated financial statements.On August 7, 2012, the Board of Directors approved the condensed consolidated financial statements for the three-month and six-month periods ended June 30, 2012 and 2011.TVA GROUP INC.Consolidated Statements of Cash Flows (unaudited)(in thousands of dollars)Three-month periods ended June 30Six-month periods ended June 30Note2012201120122011Cash flows related to operating activitiesNet income (loss)$21,439$10,965$(20,079)$10,121Non-cash items:Amortization5,3494,30010,6678,427Restructuring costs of operations, impairment of assets and other costs 5− 330− 330Impairment of goodwill6−−32,200−Gain on disposals of businesses12(12,881)−(12,881)−After-tax share of income of associated corporation(142) (201)(328) (471)Deferred income taxes5711,1288061,805Cash flows provided by current operations14,33616,52210,38520,212Net change in non-cash items(12,957)(16,486)(5,951)(9,934)Cash flows provided by operating activities1,379364,43410,278Cash flows related to investing activitiesAdditions to property, plant and equipment(6,828)(6,532)(12,102)(14,990)Additions to intangible assets(737)(1,141)(1,303)(1,948)Disposal of businesses, net of cash1217,898−17,898−Cash of SUN News at the date of deconsolidation 10(430) −(430) −Net change in investments−−−10Cash flows provided by (used in) investing activities9,903 (7,673)4,063 (16,928)Cash flows related to financing activitiesNet change in bank overdraft4,661307963(2,200)Net change in revolving term loan(22,285)4,398(17,282)4,094Financing costs7−−(344)−Non-controlling interest101,764−3,5282,940Dividends paid−(2,377)−(2,377)Cash flows (used in) provided by financing activities(15,860) 2,328(13,135) 2,457Net change in cash(4,578)(5,309)(4,638)(4,193)Cash at beginning of period4,5786,7214,6385,605Cash at end of period$−$1,412$−$1,412Interest and income taxes reflected as operating activitiesInterest paid$2,358$2,337$2,740$2,670Income taxes paid1,1851,9323,472639See accompanying notes to condensed consolidated financial statements.TVA GROUP INC.Notes to Condensed Consolidated Financial StatementsThree-month and six-month periods ended June 30, 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") is governed by the Quebec Business Corporations Act. 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 presentationThese 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 and six-month periods ended June 30, 2011, have been reclassified to conform to the presentation adopted for the six-month period ended June 30, 2012.2. RevenuesThe breakdown of revenues between services rendered and product sales is as follows:Three-month periods ended June 30Six-month periods ended June 302012201120122011Services rendered$89,535$91,626$181,106$173,217Product sales25,84425,92252,08551,428$115,379$117,548$233,191$224,6453. Operating, selling and administrative expensesThe main components are as follows: Three-month periods ended June 30Six-month periods ended June 302012201120122011Employee and sales commission costs$40,631$37,405$83,883$73,644Royalties, rights and production costs33,53034,14484,88276,455Printing and distribution4,5235,31712,44210,642Marketing, advertising and promotion4,0613,4149,3768,023Transmission and microwave expenses1,6031,4263,5652,571Other11,37013,47825,13626,386$95,718$95,184$219,284$197,7214. Financial expensesThree-month periods ended June 30Six-month periods ended June 302012201120122011Interest on long-term debt$1,282$1,349$2,698$2,716Amortization of financing costs10789208179Other4244413$1,431$1,442$2,950$2,9085. Restructuring costs of operations, impairment of assets and othercostsIn the six-month period ended June 30, 2012, the Corporation recorded $117,000 in restructuring costs of operations following the elimination of a number of positions in the Publishing segment. During the three-month period ended June 30, 2011, the Corporation recorded an impairment expense related to its broadcast rights inventories in the amount of $330,000 following the discontinuation of the operations of the over-the-air station "SUN TV."6. Impairment of goodwillAs 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 are 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 debtOn 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 stockAn 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 stockJune 30, 2012December 31, 20114,320,000 class A common shares$72$7219,450,906 class B shares98,57598,575$98,647$98,647c) Share redemption On March 17, 2011, the Corporation filed a normal course issuer bid to redeem for cancellation, between March 21, 2011 and March 20, 2012, a maximum of approximately 5% of the Corporation's issued and outstanding Class B shares at the offer date. 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 for cancellation in the first halves of 2012 and 2011.(d) Earnings per share attributable to shareholdersThe following table sets forth the computation of basic and diluted earnings per share attributable to shareholders:Three-month periods ended June 30Six-month periods ended June 302012201120122011Net income (loss) attributable to shareholders$23,676 $ 13,795$ (15,665) $ 14,127Weighted average number of basic and diluted shares outstanding23,770,906 23,770,90623,770,906 23,770,906Basic and diluted earnings per share attributable to shareholders (in dollars)$1.00 $ 0.58$(0.66) $ 0.59The 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 and six-month periods ended June 30, 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 paymentsSix-month period ended June 30, 2012Class B stock optionsQuebecor Media stock optionsNumberWeighted average exercise priceNumberWeighted average exercise priceBalance as of December 31, 2011833,610$ 16.35393,252$ 46.66Cancelled(14,189)16.84−−Options related to SUN News' corporate executive (note 10)−−(11,000)50,10Balance as of June 30, 2012819,421$ 16.34382,252$ 46.56Of the number of options outstanding as at June 30, 2012, 706,077 Class B stock options at an average exercise price of $16.58 and 175,449 Quebecor Media stock options at an average price of $46.24 could be exercised.During the three-month and six-month periods ended June 30, 2012, none of the Quebecor Media stock options were exercised (during the six-month period ended June 30, 2011, 15,230 stock options were exercised for $108,000). During the three-month and six-month periods ended June 30, 2012, the Corporation recorded compensation expense reversals of $250,000 and $245,000 respectively (compared with reversals of $826,000 and $741,000 respectively in the same periods of 2011) in relation to the Corporation's Class B stock options as well as a compensation expense reversal of $50,000 and a compensation charge of $546,000 respectively (compared with compensation charge reversals of $636,000 and $261,000 respectively for the same periods of 2011) in relation to Quebecor Media stock options.10. Related party transactions Capital contributions to SUN News During the three-month period ended June 30, 2012, the partners in SUN News made a capital contribution of $3,600,000 (nil in 2011), including $1,836,000 from the Corporation and $1,764,000 from Sun Media Corporation, a company under common control. During the six-month period ended June 30, 2012, the partners in SUN News made a capital contribution of $7,200,000 ($6,000,000 in 2011), including $3,672,000 from the Corporation ($3,060,000 in 2011) and $3,528,000 from Sun Media Corporation ($2,940,000 in 2011). Disposal of interest in SUN News On June 30, 2012, the Corporation sold a 2% interest in SUN News to Sun Media Corporation for a $765,000 consideration. The Corporation now holds a 49% interest in SUN News and Sun Media Corporation owns 51%. The difference between the amount paid and the book value of the interest yielded a $581,000 gain, which was accounted for in contributed surplus. Following the loss of control, SUN News' results will no longer be consolidated as of July 1, 2012 and the investment in SUN News is now accounted for using the equity method.The following table shows details of the net assets of SUN News, which were reclassified as an investment using the equity method at the date of deconsolidation:Current assetsCash$430Accounts receivable and other current assets2,7923,222Non-current assetsProperty, plant and equipment8,873Intangible assets65012,745Current liabilitiesAccounts payable and accrued liabilities3,555Net assets9,190Corporation Sun Media interest(4,687)Investment using equity method$4,50311. Segmented informationThe Corporation's operations consist of the following segments:- The Television segment includes the activities of TVA Network (including the subsidiaries and divisions TVA Productions Inc., TVA Ventes et Marketing Inc., TVA Accès, TVA Création, TVA Nouvelles, TVA Interactif), specialty services, the national English-language specialty service SUN News Network, the marketing of the digital products of the different televisual brands, the TVA Boutiques division's home and online shopping services and the TVA Films division's audiovisual products distribution operations.- The Publishing segment includes the operations of TVA Publications Inc., a content producer specializing in the publication of French-language magazines in various fields, including 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, which specializes in customized publishing, commercial print productions 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 June 30Six-month periods ended June 302012201120122011RevenuesTelevision$99,132$100,734$201,952$192,007Publishing17,21317,82933,11934,698Intersegment items(966)(1,015)(1,880)(2,060)115,379117,548233,191224,645Operating, selling and administrative expensesTelevision82,09381,442188,639169,849Publishing14,59114,75732,52529,932Intersegment items(966)(1,015)(1,880)(2,060)95,71895,184219,284197,721Income before amortization, financial expenses, impairment of goodwill, gain on disposals of businesses, restructuring costs of operations, impairment of assets and other costs, income taxes and share of income of associated corporationTelevision17,03919,29213,31322,158Publishing2,6223,0725944,766$19,661$22,364$13,907$26,924June 30, 2012December 31, 2011Total assetsTelevision$444,048$ 449,943Publishing55,22083,910$499,268$ 533,853GoodwillTelevision$2,539$ 2,539Publishing37,24269,442$39,781$ 71,98112. Disposal of businessesOn December 22, 2011, the Corporation announced an agreement to sell its 51% interest in The Cave and its 50% interest in Mystery TV to the other partner in the joint ventures, Shaw Media Global Inc. The sale closed on May 31, 2012, following Canadian Radio-television and Telecommunications Commission approval, and a gain on disposal of businesses of $12,881,000 before income taxes was recorded. The transaction did not give rise to any income tax charge because the Corporation used unrecorded capital losses to eliminate the capital gains tax on disposal of businesses. The sale generated net cash flows in the amount of $17,898,000; proceeds from disposal of $20,963,000 less $3,065,000 in cash the time of the sale.FOR FURTHER INFORMATION PLEASE CONTACT: Vice-President and Chief Financial OfficerDenis Rozon, CPA, CA(514) 598-2808