TVA Group Inc.
TSX : TVA.NV.B

TVA Group Inc.

October 28, 2005 13:25 ET

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

MONTREAL, CANADA--(CCNMatthews - Oct. 28, 2005) - TVA Group Inc. (TSX:TVA.NV.B) reports net income of $2.7 million, or $0.10 per diluted share, for the third quarter of 2005, compared with net income of $8.1 million, or $0.25 per diluted share, for the corresponding quarter of 2004. This decline in net income is due mainly to the significant reduction in income for our Publishing sector, as well as to losses incurred by our new services. TVA Network continues to post excellent audience ratings but considerably higher content costs caused a slight drop in operating income from the same period a year earlier. EBITDA (see definition below) for the third quarter was $4.8 million, compared with $13.0 million for the same quarter of 2004.

"TVA Group's lower profitability is the direct result of the strategic decisions we have made in order to maintain our leadership position in our market and build our future," said Pierre Dion, President and Chief Executive Officer of TVA Group. "The major improvements we have made to the content and design of our weekly magazines and our more aggressive newsstand pricing have resulted in a marked increase in the number of copies we are selling and ensured that our publications maintain their market shares."

Mr. Dion continued: "These strategic decisions are very costly but we believe they are necessary to preserve TVA's position at the heart of Quebec's star system - a position we are determined to maintain. In our Television sector, Toronto 1 was renamed SunTV during the quarter and is now offering a brand-new programming lineup, including two new locally produced shows that we are convinced will capture a niche in the Ontario viewing market in the coming months. So the real building of this new Toronto station has officially just begun. As for our new digital channels, Mystere is more successful than anticipated and we are continuing our efforts to further improve Argent's positioning. The significant growth in content costs - and particularly costs for TVA Network's Canadian content - is very worrisome. We are, however, very proud of the success of TVA Network, which remains far and away the Quebec leader."

Cash flows provided by operations were $13.2 million for the quarter, against $24.5 million for 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.

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

During the quarter, the Company filed a new notice of intent to repurchase for cancellation, in the normal course of its activities, between August 4, 2005, and August 3, 2006, a maximum of 1,137,722 Class B shares. No shares were redeemed during the third quarter as part of this program.

TVA Group's Board of Directors also announced today a dividend of $0.05 per share, payable on November 29, 2005 to Class A and B shareholders of record as at November 14, 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 SunTV, a general-interest station in Toronto. The Company'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)
--------------------------------------------------------------------
(in thousands of dollars,
except per share amounts) For the three-month For the nine-month
periods ended periods ended
Sept 30, Sept 30, Sept 30, Sept 30,
2005 2004 2005 2004
--------------------------------------------------------------------

Operating revenues $81,042 $71,274 $281,806 $251,572

Operating, selling
and administrative expenses 76,230 58,319 245,571 196,538
--------------------------------------------------------------------

Operating income before
amortization, financial
expenses and other items 4,812 12,955 36,235 55,034

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Amortization of fixed assets
and start-up costs 2,996 2,613 10,030 8,747

Financial expenses 909 (270) 1,582 518
Other items (notes 2, 3) - 538 (44) 538
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Income before the following
items 907 10,074 24,667 45,231
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Income taxes (note 4) (715) 2,274 7,030 11,695

Non-controlling interest (848) - (1,426) -

Equity in income of companies
subject to significant
influence (201) (316) (604) (457)
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NET INCOME $2,671 $$8,116 $19,667 $33,993
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EARNINGS PER SHARE
Basic $0.10 $0.26 $0.67 $1.06

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Diluted $0.10 $0.25 $0.67 $1.06
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TVA GROUP INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(unaudited)

(in thousands of dollars) For the nine-month periods ended
Sept 30, 2005 Sept 30, 2004
--------------------------------------------------------------------

Balance, at beginning $111,680 $98,265

Net income 19,667 33,993

Dividends paid (4,412) (4,783)

Share redemption - excess of
purchase price over net
carrying value (note 7 b)) (62,554) (24,348)
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Balance, at end $64,381 $103,127
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TVA GROUP INC.
CONSOLIDATED BALANCE SHEETS

As at As of As at
(in thousands of dollars) Sept 30, 2005 Dec. 31, 2004
(unaudited) (audited)
--------------------------------------------------------------------
CURRENT ASSETS
Cash $3,112 $1,986
Accounts receivable 84,428 86,422
Current income tax assets 3,974 6,685
Investments in televisual
products and films 62,757 35,823
Inventories and prepaid expenses 5,655 4,963
Future tax assets 7,064 5,297
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166,990 141,176

INVESTMENTS (note 5) 57,864 22,076

FIXED ASSETS 76,650 77,999

INVESTMENTS IN TELEVISUAL PRODUCTS AND FILMS 28,785 22,237

LICENCES 101,159 101,159

GOODWILL 83,002 83,002

FUTURE TAX ASSETS 2,931 3,122

OTHER ASSETS 6,429 6,348
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$523,810 $457,119
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CURRENT LIABILITIES
Bank indebtedness $3,443 $-
Accounts payable and accrued liabilities 70,905 66,090
Current income tax liabilities (note 4) 3,053 9,570
Broadcast and distribution rights payable 43,713 20,012
Deferred revenue 5,472 5,096
Deferred credit 1,447 1,860
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128,033 102,628

BROADCAST RIGHTS PAYABLE 2,941 4,899

LONG-TERM DEBT (note 6) 107,491 34,929

FUTURE TAX LIABILITIES 55,289 54,376

DEFERRED CREDIT 317 397

NON-CONTROLLING INTEREST AND REEDEMABLE 46,539 10,665
PREFERRED SHARES (note 5)

SHAREHOLDERS' EQUITY
Capital stock (note 7) 115,388 134,114
Contributed surplus 3,431 3,431
Retained earnings 64,381 111,680
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183,200 249,225
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$523,810 $457,119
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TVA GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
--------------------------------------------------------------------
(in thousands of dollars) For the three-month For the nine-month
periods ended periods ended
Sept 30, Sept 30, Sept 30, Sept 30,
2005 2004 2005 2004
--------------------------------------------------------------------

OPERATING ACTIVITIES
Net income $2,671 $8,116 $19,667 $33,993
Non-cash items
Amortization 3,018 2,728 10,148 9,091
Equity in income of
companies subject to
significant influence (201) (316) (604) (457)
Non-controlling interest (848) - (1,426) -
Future income taxes 589 1,537 (1,002) 3,655
Other items 132 576 298 662
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Cash flows provided by
current operations 5,361 12,641 27,081 46,944
Net change in non-cash items 7,802 11,892 (7,635) 19,985
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Cash flows from operating
activities 13,163 24,533 19,446 66,929


INVESTING ACTIVITIES
Acquisitions of
fixed assets (2,934) (3,994) (9,789) (7,618)
Business acquisitions
(note 2) - - - (1,540)
Deferred charges - - (742) -
Decrease (increase) in
investments (note 5) (37,300) 112 (34,961) 415
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Cash flows from investing
activities (40,234) (3,882) (45,492) (8,743)


FINANCING ACTIVITIES
Bank indebtedness (8,872) (3,745) 3,443 (617)
Increase (decrease)
in long-term debt 77,347 (6,912) 72,562 (24,364)
Deferred financing charges - - (441) -
Issuance of redeemable
preferred shares (note 5) 37,300 - 37,300 -
Issuance of class B shares - - - 2,638
Class B Share redemption
(note 7 b)) (76,077) (8,800) (81,280) (31,255)
Dividends paid (1,354) (1,574) (4,412) (4,783)
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Cash flows from financing
activities 28,344 (21,031) 27,172 (58,381)

Net change in cash 1,273 (380) 1,126 (195)
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Cash, at beginning 1,839 2,630 1,986 2,445

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Cash, at end $3,112 $2,250 $3,112 $2,250

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TVA GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2005
AND SEPTEMBER 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 nine-month period, 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. OTHER ITEMS

During the previous period, the Company wrote off $538,000 of start-up costs for digital specialty channels, for which no future plans were made.

4. INCOME TAXES

During the previous 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. 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. During the quarter, a total tax amount of $10,018,000 was received, an amount of $7,461,000$ was paid to Quebecor World Inc. and, as at September 30, 2005, a total amount of $2,557,000 is recorded as a current income tax liability waiting for the new deduction multiple to be enacted.

5. INVESTMENTS

Note receivable from an affiliated company

On July 12, 2005, a subsidiary of the Company, 3095531 Nova Scotia Company, owned at 75% and operating the television channel SunTV, 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 149,300 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 $149,000,000, of which $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 and Corporation Sun Media's income tax obligation, since the interest expense on the convertible bonds are deductible for income tax purposes, while the dividend income on preferred shares is not taxable.

This transaction results 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.

Other investments

During the nine-month period, 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.


6. LONG-TERM DEBT

During the nine-month period, 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 September 30, 2005, the Company is in compliance with the requirements relating to the credit agreement.


7. CAPITAL STOCK



a) Number of outstanding shares

September 30, 2005 December 31, 2004
----------------------------------------
Class A common shares 4,320,000 4,320,000
Class B shares 22,574,448 26,454,247
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27,074,448 30,774,247


b) Share redemption

Substantial 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 plus transaction fees, 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.

Normal course issuer bid programs

During the nine-month period ending September 30, 2005, pursuant to its normal course issuer bid programs, the Company redeemed for cancellation a total of 250,600 non-voting Class B shares (1,389,700 shares as at September 30, 2004) for a net cash consideration of $5,203,000 ($31,255,000 as at September 30, 2004). As at September 30, 2005, all the shares redeemed in the course of the period 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.

During the quarter, the Company has also filed a new notice of intent to repurchase for cancellation between August 4, 2005 and August 3, 2006, in the normal course of its activities, a maximum of 1,137,722 Class B shares- approximately 5% of the Company's outstanding Class B. The Company repurchases its shares at the market price plus brokerage fees. As at September 30, 2005, no shares were redeemed as part of this new offer.

c) Earnings per share

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



Three-month Nine-month
periods ended periods ended
Sept 30, Sept 30, Sept 30, Sept 30,
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income $2,671 $8,116 $19,667 $33,993

Weighted average
number of shares
outstanding 27,032,402 31,819,799 29,526,499 32,119,771

Effect of dilutive
stock options 9,876 14,649 8,965 28,875
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Weighted average
number of
diluted shares
outstanding 27,042,278 31,834,448 29,535,463 32,148,646
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Basic earnings
per share $0.10 $0.26 $0.67 $1.06

Diluted earnings
per share $0.10 $0.25 $0.67 $1.06
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8. STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS


Three-month period Nine-month period
ended September 30, 2005 ended September 30, 2005
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Conventional QMI Conventional QMI
Class B stock stock Class B stock stock
options options options options
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Balance
at beginning 314,630 100,242 215,000 86,784
Granted - - 115,630 13,458
Exercised - - (6,000) -
Cancelled (4,453) - (14,453) -
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Balance as at
Sept 30, 2005 310,177 100,242 310,177 100,242
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Of the outstanding options on September 30, 2005, 57,500 conventional
Class B options at an average price of $19.67 and 24,351 QMI options
at an average price of $16.17 can be exercised.

9. 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 $692,000. As at September 30, 2005, the
Company did not record any liability related to these guarantees.

10. 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 nine-month
periods ended periods ended
Sept 30, Sept 30, Sept 30, Sept 30,
2005 2004 2005 2004
---------------------------------------------------------------------
Pension plans
Defined benefit
plans $571 $305 $1,774 $880
Defined
contribution
plans $507 $843 $1,594 $2,270

Other retirement
benefits $48 $52 $144 $155
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11. SEGMENTED INFORMATION

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


Three-month Nine-month
periods ended periods ended
Sept 30, Sept 30, Sept 30, Sept 30,
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Operating revenues
Television $58,944 $49,346 $211,934 $187,524
Publishing 18,307 18,998 57,504 56,566
Distribution 4,627 3,606 15,630 9,428
Intersegment items (836) (676) (3,262) (1,946)
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81,042 71,274 281,806 251,572
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Operating, selling and
administrative
expenses
Television 55,105 40,914 181,390 144,181
Publishing 18,047 14,132 52,526 43,882
Distribution 3,914 3,949 14,917 10,421
Intersegment items (836) (676) (3,262) (1,946)
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76,230 58,319 245,571 196,538
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Operating income
before depreciation,
amortization,
financing expenses
and other items
Television 3,839 8,432 30,544 43,343
Publishing 260 4,866 4,978 12,684
Distribution 713 (343) 713 (993)
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$4,812 $12,955 $36,235 $55,034
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As at As at
September 30, December 31,
2005 2004
------------------------------------------

Total assets
Television $404,393 $343,192

Publishing 90,111 89,375
Distribution 18,045 13,290
Unallocated items 11,262 11,262
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$523,810 $457,119
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Contact Information

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