TVA Group Inc.
TSX : TVA.NV.B

TVA Group Inc.

July 29, 2005 12:30 ET

TVA Group Inc. Announces its Results for the Second Quarter of 2005

MONTREAL, CANADA--(CCNMatthews - July 29, 2005) - TVA Group Inc. (TSX:TVA.NV.B) reports net income of $14.1 million, or $0.46 per diluted share, for the second quarter of 2005, compared with net income of $17.6 million, or $0.55 per diluted share, for the corresponding quarter of 2004. This decline in net income for the quarter is due mainly to a more difficult advertising market, combined with higher programming costs for TVA Network, with the latter essentially the result of investments in new shows. The losses incurred by our new television stations and new magazines are also partially responsible for the reduced net income. EBITDA (see definition below) for the second quarter was $24.7 million, compared with $29.7 million for the same quarter last year.

"TVA's strategy of investing in its content and new channels, in addition to the challenging advertising market during the quarter, directly impacted our profitability," said Pierre Dion, President and Chief Executive Officer of TVA Group. "Despite market fragmentation and strong competition in the television industry, the TVA Network remains the strong leader - even increasing its viewing hours. In fact, the TVA Network broadcast nine of the 10 most-watched programs in Quebec during the quarter. We are very pleased with our progress in recent months, particularly concerning Toronto 1's positioning and future programming, but also with the improved performance of TVA Films."

Cash flows provided by operations were $5.2 million for the quarter, against $14.6 million generated during the corresponding year-ago period. This change in cash flows provided by operations is mainly the result of the lower net income for the quarter and of changes in non-cash working capital items, which required an investment in cash flows of $9.1 million for the second quarter of 2004, compared with an investment of $12.0 million for this quarter.

As part of its offer to repurchase for cancellation, in the normal course of its activities, a maximum of 3,500,000 Class B shares, on July 6, 2005, the Company repurchased all 3,449,199 shares deposited June 29, 2005, for a price of $22.00 per share.

TVA Group's Board of Directors also announced today a dividend of $0.05 per share, payable on August 30, 2005 to Class A and B shareholders of record as at August 15, 2005.

TVA Group is an integrated communications company involved in television, production and distribution of audiovisual products, and in magazine publishing. TVA Group is North America's largest private producer and distributor of French-language entertainment, information and public affairs programming, and its largest publisher of French-language magazines. TVA Group also operates Toronto 1, a general-interest station in Toronto. TVA Group's Class B shares are listed on the Toronto Stock Exchange under the ticker symbol TVA.NV.B.

EBITDA is defined as earnings before interest, income taxes, depreciation, amortization and other items.



TVA GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

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(in thousands of dollars, except per share amounts)
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For the three-month For the six-month
periods ended periods ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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Operating revenues $104,084 $94,383 $200,764 $180,298


Operating, selling
and administrative
expenses 79,415 64,684 169,341 138,219
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Operating income
before amortization,
financial expenses
and other items 24,669 29,699 31,423 42,079
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Amortization of fixed
assets and start-up
costs 3,597 3,058 7,034 6,134
Financial expenses 338 169 673 788
Other items (note 2) (44) - (44) -
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Income before income
taxes, non-controlling
interest and equity in
income of companies
subject to significant
influence 20,778 26,472 23,760 35,157
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Income taxes (note 3) 7,028 8,672 7,745 9,421

Non-controlling interest (149) - (578) -
Equity in income of
companies subject to
significant influence (202) 215 (403) (141)

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NET INCOME $14,101 $17,585 $16,996 $25,877
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EARNINGS PER SHARE
Basic $0.46 $0.55 $0.56 $0.80
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Diluted $0.46 $0.55 $0.56 $0.80
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TVA GROUP INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(unaudited)

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(in thousands of dollars) For the six-month periods ended
June 30, 2005 June 30, 2004
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Balance, at beginning $111,680 $98,265

Net income 16,996 25,877

Dividends paid (3,058) (3,209)

Share redemption - excess of purchase
price over net carrying value (note 6 b) (3,957) (17,689)

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Balance, at end $121,661 $103,244
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TVA GROUP INC.
CONSOLIDATED BALANCE SHEETS


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As at As at
(in thousands of dollars) June 30, 2005 Dec. 31, 2004
(unaudited) (audited)
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CURRENT ASSETS
Cash $1,839 $1,986
Accounts receivable 92,610 86,422
Current income tax assets (note 3) 9,827 6,685
Investments in televisual products
and films 37,069 35,823
Inventories and prepaid expenses 5,162 4,963
Future tax assets 6,989 5,297
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153,496 141,176

INVESTMENTS (note 4) 20,363 22,076

FIXED ASSETS 76,942 77,999

INVESTMENTS IN TELEVISUAL PRODUCTS
AND FILMS 22,052 22,237

LICENCES 101,159 101,159

GOODWILL 83,002 83,002

FUTURE TAX ASSETS 2,980 3,122

OTHER ASSETS 6,836 6,348

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$466,830 $457,119
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CURRENT LIABILITIES
Bank indebtedness $12,315 $-
Accounts payable and accrued
liabilities 70,969 66,090
Current income tax liabilities 2,624 9,570
Broadcast and distribution
rights payable 18,254 20,012
Deferred revenue 5,820 5,096
Deferred credit 1,701 1,860
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111,683 102,628

BROADCAST RIGHTS PAYABLE 2,064 4,899

LONG-TERM DEBT (note 5) 30,144 34,929

FUTURE TAX LIABILITIES 54,548 54,376

DEFERRED CREDIT 344 397

NON-CONTROLLING INTEREST 10,087 10,665

SHAREHOLDERS' EQUITY
Capital stock (notes 6, 10) 132,868 134,114
Contributed surplus 3,431 3,431
Retained earnings 121,661 111,680
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257,960 249,225
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$466,830 $457,119
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TVA GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

(in thousands of dollars)
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For the three-month For the six-month
periods ended periods ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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OPERATING ACTIVITIES
Net income $14,101 $17,585 $16,996 $25,877
Non-cash items
Amortization 3,601 3,172 7,130 6,363
Equity in income of
companies subject to
significant influence (202) 215 (403) (141)
Non-controlling
interest (149) - (578) -
Future income taxes (249) 2,653 (1,591) 2,118
Other items 71 75 166 86
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Cash flows provided by
current operations 17,173 23,700 21,720 34,303

Net change in
non-cash items (11,965) (9,114) (15,396) 8,093

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Cash flows from
operating activities 5,208 14,586 6,324 42,396


INVESTING ACTIVITIES
Acquisitions of
fixed assets (2,645) (2,103) (6,855) (3,624)
Business acquisitions
(note 2) - - - (1,540)
Deferred charges (92) - (742) -
Decrease in
investments (note 4) 2,214 190 2,339 303
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Cash flows from
investing activities (523) (1,913) (5,258) (4,861)


FINANCING ACTIVITIES
Bank indebtedness 7,329 884 12,315 3,128
Decrease in
long-term debt (9,506) (4,029) (4,785) (17,452)
Deferred financing
charges (482) - (482) -
Issuance of shares - 1,410 - 2,638
Share redemption
(note 6 b)) (188) (8,764) (5,203) (22,455)
Dividends paid (1,525) (1,594) (3,058) (3,209)
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Cash flows from
financing activities (4,372) (12,093) (1,213) (37,350)

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Net change in cash 313 580 (147) 185

Cash, at beginning 1,526 2,050 1,986 2,445

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Cash, at end $1,839 $2,630 $1,839 $2,630
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TVA GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2005 AND JUNE 30, 2004
(Amounts presented in the tables are expressed
in thousands of dollars) (unaudited)


1. FINANCIAL STATEMENTS PRESENTATION

These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles, using the same accounting policies as were used for the audited annual consolidated financial statements for the year ended December 31, 2004. The interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and notes thereto in the Company's 2004 annual report.

Retail seasonal variations influence the Company's quarterly financial results.


2. BUSINESS ACQUISITION AND DISPOSAL

Business acquisition

Publicor

As at December 31, 2003, the Company had recorded a $1,540,000 purchase price adjustment as additional goodwill and as a liability. This amount was paid on March 1, 2004.

Disposal of a business

Les Editions TVA inc.

During the quarter, the Company recorded an additional gain on disposal of $44,000 due to the final price adjustment for the sale transaction of its subsidiary, Les Editions TVA, inc., which was sold to its parent company, Quebecor Media inc., on December 31, 2004. The final consideration in cash now amounts to $1,710,000.

3. INCOME TAXES

During the quarter, the Company obtained from Quebecor World Inc., a company under common control of its ultimate parent, Quebecor Inc., tax deductions representing income taxes of approximately $1,927,000. The total amount has been recorded as a current income tax asset. Tax benefits amounting to $732,000 will be recognized into the Company's income when a new deduction multiple applied on tax benefits will be officially enacted. As at June 30, 2005, the Company has an income tax receivable of $7,465,000 and an account payable of an equivalent amount to Quebecor World Inc.

4. INVESTMENTS

During the quarter, the term loan bearing interest at the rate of 8% maturing August 1, 2007 and amounting to $2,048,000 on the payment date was totally reimbursed to the Company.

5. LONG-TERM DEBT

During the quarter, the Company renewed its credit agreement consisting in a revolving-term bank loan for a maximum amount of $160,000,000, bearing interest at floating rates based on banker's acceptance rates or bank prime rate plus a variable margin based on the ratio of total debt to earnings before interests, taxes, amortization and other items. The maturity date of the credit agreement is June 15, 2010. Under this credit agreement, the Company is subject to certain covenants, including maintaining certain financial ratios. As at June 30, 2005, the Company is in compliance with the requirements relating to the credit agreement.

6. CAPITAL STOCK

a) Number of outstanding shares



June 30, 2005 December 31, 2004
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Class A common shares 4,320,000 4,320,000
Class B shares 26,203,647 26,454,247
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30,523,647 30,774,247


b) Share redemption

During the semester, pursuant to its normal course issuer bid programs, the Company redeemed for cancellation a total of 250,600 non-voting Class B shares (959,000 shares as at June 30, 2004) for a net cash consideration of $5,203,000 ($22,500,000 as at June 30, 2004). As at June 30, 2005, all the shares redeemed in the course of the semester had been cancelled.

This normal course issuer bid which ended June 2, 2005, allowed the Company to repurchase 1,259,400 Class B shares between June 3, 2004 and June 2, 2005, the maximum permitted was 1,585,593 shares.


c) Stock-based compensation and other stock-based payments



Three-month period ended Six-month period ended
June 30, 2005 June 30, 2005
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Conventional Conventional
Class B stock QMI stock Class B stock QMI stock
options options options options
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Balance at beginning 320,630 100,242 215,000 86,784
Granted - - 115,630 13,458
Exercised (6,000) - (6,000) -
Cancelled - - (10,000) -
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Balance as at
June 30, 2005 314,630 100,242 314,630 100,242
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d) Earnings per share

The following table provides calculation of basic and diluted
earnings per share:

Three-month periods ended Six-month periods ended

June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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Net income $14,101 $17,585 $16,996 $25,877


Weighted average
number of shares
outstanding 30,524,160 32,021,400 30,581,959 32,269,757
Effect of dilutive
stock options 3,229 76,494 18,566 88,626
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Weighted average
number of diluted
shares
outstanding 30,527,389 32,097,894 30,600,525 32,358,383
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Basic earnings
per share $0.46 $0.55 $0.56 $0.80
Diluted earnings
per share $0.46 $0.55 $0.56 $0.80

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7. GUARANTEES

The maximum exposure in respect of the guaranteed portion of the residual values of certain assets under operating leases to the benefit of the lessor is $667,000. As at June 30, 2005, the Company did not record any liability related to these guarantees.

8. PENSION PLAN AND OTHER RETIREMENT BENEFITS

The Company maintains defined benefits and defined contribution pension plans for its employees. In addition, the Company maintains for certain retired employees with respect to an old plan, other retirement benefits, such as health, life and dental insurance plans. Total costs for these benefits are as follows:



For the three-month For the six-month
periods ended periods ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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Pension plans
Defined
benefit plans $603 $269 $1,203 $575
Defined contribution
plans $508 $674 $1,087 $1,426

Other retirement
benefits $48 $52 $96 $104

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9. SEGMENTED INFORMATION

The following table includes information on the operating income,
as well as information on assets:

Three-month periods ended Six-month periods ended

June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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Operating revenues
Television $79,003 $73,314 $152,990 $138,178
Publishing 20,111 18,589 39,197 37,568
Distribution 6,455 3,154 11,003 5,822
Intersegment items (1,485) (674) (2,426) (1,270)
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104,084 94,383 200,764 180,298
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Operating, selling
and administrative
expenses
Television 57,621 47,109 126,285 103,267
Publishing 17,436 14,622 34,479 29,750
Distribution 5,843 3,627 11,003 6,472
Intersegment items (1,485) (674) (2,426) (1,270)
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79,415 64,684 169,341 138,219
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Operating income
before depreciation,
amortization,
financing expenses
and other items
Television 21,382 26,205 26,705 34,911
Publishing 2,675 3,967 4,718 7,818
Distribution 612 (473) - (650)
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$24,669 $29,699 $31,423 $42,079
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As at As at
June 30, December 31,
2005 2004
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Total assets
Television $342,674 $343,192
Publishing 96,260 89,375
Distribution 16,634 13,290
Unallocated items 11,262 11,262
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$466,830 $457,119
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10. SUBSEQUENT EVENTS

a) Class B shares Issuer Bid

On May 19, 2005, the Company filed an Issuer Bid to redeem for cancellation up to 3,500,000 of its participating Class B non-voting shares at a price of not less than $19.50 per Class B share nor more than $22.00 per Class B share.

On July 6, 2005, the Company took up 3,449,199 Class B shares of its capital stock relating to this Issuer Bid, for an aggregate consideration of $75,882,378, financed by the credit agreement, representing $22.00 per Class B share. The Class B shares redeemed for cancellation under this Issuer Bid represented 13.16% of the 26,203,647 Class B shares issued and outstanding.

Following this redemption, 22,754,448 participating Class B non-voting shares will remain outstanding.

b) Fiscal consolidation

On July 12, 2005, a subsidiary of the Company, 3095531 Nova Scotia Company, owned at 75% and operating the television channel Toronto 1, entered into a fiscal consolidation transaction with the Company and its non-controlling shareholder, Corporation Sun Media, a company under common control of its ultimate parent, Quebecor Inc. To realize this transaction, 3095531 Nova Scotia Company issued preferred shares redeemable at the option of the holder carrying a 10.85% fixed cumulative dividend, of which 37,300 shares at $100 were issued to Corporation Sun Media. In return, 3095531 Nova Scotia Company invested $37,300,000 in Corporation Sun Media in the form of a 15-year term convertible bonds bearing interest at an annual rate of 10.5%, payable semi-annually, and maturing on July 6, 2020.

This transaction will have the effect of reducing the Company's income tax obligation, since the interest expense on the convertible bonds are deductible for income tax purposes for the Company, while the dividend income on preferred shares is not taxable for the subsidiary.

This transaction will result for the Company, on a consolidated level, in a long-term investment in convertible bonds of $37,300,000 in Corporation Sun Media, and an equivalent amount in redeemable preferred shares disclosed under the heading non-controlling interest and redeemable preferred shares.

Contact Information

  • TVA Group Inc.
    Paul Buron
    Senior Vice-President and Chief Financial Officer
    (514) 598-2808