TVA GROUP INC.
TSX : TVA.B

TVA GROUP INC.

August 08, 2011 11:34 ET

TVA Group Reports $13.8 Million Net Income Attributable to Shareholders for the Second Quarter Ended June 30, 2011

MONTREAL, CANADA--(Marketwire - Aug. 8, 2011) - TVA Group Inc. (TSX:TVA.B)("the Corporation") announces that it recorded net income attributable to shareholders in the amount of $13.8 million, or $0.58 per share, for the second quarter of 2011, compared with $11.7 million, or $0.49 per share, in the same quarter of 2010.

The Corporation adopted International Financial Reporting Standards ("IFRS") on January 1, 2011. The Corporation's consolidated financial statements for the three-month and six-month periods ended June 30, 2011 have therefore been prepared in accordance with IFRS and comparative data for 2010 has been restated. For more information, see "Transition to IFRS" below.

Second quarter operating highlights:

  • $3,702,000 (16.1%) decrease in the Television sector's operating income(1) compared with the same quarter of the previous year, mainly because of the operating expenses of the new specialty services launched in the second quarter of 2011, SUN News and "Mlle," which were partially offset by :

    • 3.9% increase in operating income at TVA Network due in large part to a 9.6% increase in advertising revenues;

    • the positive impact of operating expenses at the former conventional station "SUN TV" following the launch of the new SUN News specialty service.

  • 19.9% decrease in the Publishing sector's operating income, from $3,837,000 in the second quarter of 2010 to $3,072,000 in the second quarter of 2011.

(1) See "Additional IFRS Measures" below.

"The launch of our two new specialty services, SUN News and "Mlle," largely accounts for the decline in our operating income in the second quarter of 2011," said Pierre Dion, President and CEO of the Corporation. "This was however part of our strategy of investing in content and launching new specialty services to take advantage of opportunities in the fast-changing industry environment. During the last quarter, we also announced the creation of our new sports specialty service, "TVA Sports," which will launch in September 2011. The new channels will help boost TVA Group's overall television market share in the years to come. During the last quarter, advertising revenues were up 9.6% at TVA Network and 27.7% at our specialty services. Subscription revenues grew 13.4%. The revenue increases enable us to push ahead with our investment strategy while reducing the short-term impact on our results."

"Our Publishing sector registered a 5% increase in advertising revenues during the last quarter. However, an overlap in government assistance programs in 2010, which did not recur in 2011, and lower newsstand revenues caused a decrease in operating income in the second quarter of 2011," noted Mr. Dion.

Cash flows provided by operating activities were nil for the quarter, compared with $14.7 million in the same quarter of 2010. The $14.7 million decrease was due to an unfavourable variance in accounts receivable as a direct result of the dispute at Canada Post during the last month of the 2011 quarter.

Transition to IFRS

On January 1, 2011, Canadian generally accepted accounting principles ("GAAP"), as used by publicly accountable enterprises, were fully converged to IFRS. Prior to the adoption of IFRS, for all periods up to and including the year ended December 31, 2010, the Corporation's consolidated financial statements were prepared in accordance with Canadian GAAP. IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences related to recognition, measurement and disclosures.

The date of the opening balance sheet under IFRS and date of transition to IFRS is January 1, 2010. The financial data for 2010 has therefore been restated. The Corporation is also required to apply IFRS accounting policies retrospectively to determine its opening balance sheet, subject to certain exemptions. However, the Corporation is not required to restate figures for periods prior to January 1, 2010 that were previously prepared in accordance with Canadian GAAP.

Significant accounting policies under IFRS are disclosed in note 1 to the consolidated financial statements for the three-month period ended March 31, 2011. Note 11 to the condensed consolidated financial statements for the most recent quarter describes adjustments made by the Corporation in restating its previously published Canadian GAAP consolidated financial statements for the three-month and six-month periods ended June 30, 2010. The changes in critical accounting policies under IFRS and their impact on estimates are explained under "Changes in Critical Accounting Policies and Estimates" in the Corporation's interim Management's Discussion and Analysis.

Additional IFRS Measures

In its analysis of operating results, the Corporation uses operating income, as presented in its consolidated statement of income, to assess its financial performance. This measure is used by management and the Board of Directors to evaluate the Corporation's consolidated results and the results of its business sectors. This measure is unaffected by the capital structure or investment activities of the Corporation and its sectors. Operating income is also relevant because it is a significant component of the Corporation's annual incentive compensation programs. Operating income is defined as an additional IFRS measure.

Previously, under Canadian GAAP, operating income was classified as a non-GAAP measure. The Corporation defined operating income as net income under Canadian GAAP before amortization of property, plant and equipment and intangible assets, financial expenses, restructuring costs of operations, impairment of assets and other, income taxes, share of income of associated corporation and net loss attributable to non-controlling interest.

The Corporation's definition of operating income may not be the same as similarly titled measures reported by other companies.

Suspension of dividends

Given the significant investments of the Corporation in its capital projects and the launches of several specialty services, the Board of Directors of TVA Group decided to suspend the payment of dividends by the Corporation and does not expect to redeem its shares in the coming months according to the normal course issuer bid.

The Corporation

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.

The unaudited consolidated financial statements for the three-month and six-month periods ending June 30, 2011, with notes, and the interim Management's Discussion and Analysis, can be consulted on TVA Group Inc.'s website at www.tva.canoe.ca.

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 www.tva.canoe.ca including, in particular, the "Risks and Uncertainties" section of the Corporation's Management's Discussion and Analysis for the year ended December 31, 2010.

The forward-looking statements in this news release reflect the Corporation's expectations as of August 8, 2011, 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 INC.
Consolidated Statements of Income
(unaudited)
(in thousand of dollars, except per share amounts)
Three-month periods Six-month periods
ended June 30 ended June 30
Note 2011 2010 2011 2010
Revenues 3 $117,548 $110,894 $224,645 $220,528
Operating, selling and administrative expenses 4 95,184 84,063 197,721 187,952
Operating income 5 22,364 26,831 26,924 32,576
Amortization of property, plant and equipment and intangible assets 4,211 3,577 8,248 7,174
Financial expenses 6 1,442 1,467 2,908 2,742
Restructuring costs of operations, impairment of assets and other 7 321 5,665 321 5,692
Income before income taxes and share of income of associated corporation 16,390 16,122 15,447 16,968
Income taxes 5,626 4,701 5,797 5,186
Share of income of associated corporation (201 ) (245 ) (471 ) (625 )
Net income $10,965 $11,666 $10,121 $12,407
Net income (net loss) attributable to:
Shareholders $13,795 $11,666 $14,127 $12,407
Non-controlling interest (2,830 ) - (4,006 ) -
Basic and diluted earnings per share attributable to shareholders 8 (d ) $0.58 $0.49 $0.59 $0.52
See accompanying notes to condensed consolidated financial statements.
TVA GROUP INC.
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands of dollars)
Three-month periods Six-month periods
ended June 30 ended June 30
2011 2010 2011 2010
Net income $10,965 $11,666 $10,121 $12,407
Other comprehensive loss:
Defined benefit plans:
Net change in asset limit or in minimum funding liability (141 ) (1,240 ) (282 ) (2,479 )
Deferred income taxes 38 334 76 667
(103 ) (906 ) (206 ) (1,812 )
Comprehensive income $10,862 $10,760 $9,915 $10,595
Comprehensive income (loss) attributable to:
Shareholders $13,692 $10,760 $13,921 $10,595
Non-controlling interest (2,830 ) - (4,006 ) -
See accompanying notes to condensed consolidated financial statements.
TVA GROUP INC.
Consolidated Statements of Changes in Equity
(unaudited)
(in thousands of dollars)
Equity attributable to shareholders
Capital
stock
(note 8)
Contri-
buted
surplus
Retai-
ned
earnings
Accumu-
lated
other compre-
hensive
loss -
Defined benefit
plans
Equity
attri-
butable
to non-contro-
lling
interest
Total
equity
Balance as of December 31, 2009 as reported under Canadian GAAP $98,647 $4,145 $134,303 $− $− $237,095
IFRS adjustments (note 11) (4,145 ) 11,182 7,037
Balance as of January 1, 2010 under IFRS 98,647 145,485 244,132
Net income 12,407 12,407
Other comprehensive loss (1,812 ) (1,812 )
Dividends (2,377 ) (2,377 )
Balance as of June 30, 2010 98,647 155,515 (1,812 ) 252,350
Net income (net loss) 24,835 (653 ) 24,182
Related party transactions (2,000 ) (2,000 )
Other comprehensive loss (3,377 ) (3,377 )
Dividends (2,377 ) (2,377 )
Contributions related to non-controlling interest 5,164 5,164
Balance as of December 31, 2010 98,647 175,973 (5,189 ) 4,511 273,942
Net income (net loss) 14,127 (4,006 ) 10,121
Other comprehensive loss (206 ) (206 )
Dividends (2,377 ) (2,377 )
Contributions related to non-controlling interest 2,940 2,940
Balance as of June 30, 2011 $98,647 $− $187,723 $(5,395 ) $3,445 $284,420
See accompanying notes to condensed consolidated financial statements.
TVA GROUP INC.
Consolidated Balance Sheets
(unaudited)
(in thousands of dollars)
June 30, December 31,
Note 2011 2010
Assets
Current assets
Cash $1,412 $5,605
Accounts receivable 129,924 126,057
Current income tax assets 3,659 7,104
Programs, broadcast and distribution rights and inventories 56,701 60,122
Prepaid expenses 3,241 2,240
194,937 201,128
Non-current assets
Broadcast and distribution rights 38,336 34,058
Investments 12,988 12,527
Property, plant and equipment 92,489 86,208
Licences and other intangible assets 112,804 112,475
Goodwill 71,981 71,981
Deferred income taxes 1,001 694
329,599 317,943
Total assets $524,536 $519,071
Liabilities and equity
Current liabilities
Bank overdraft $1,357 $3,557
Accounts payable and accrued liabilities 83,248 81,231
Current income tax liabilities 79 171
Broadcast and distribution rights payable 20,206 25,879
Provisions 1,342 2,001
Deferred revenues 5,447 7,122
111,679 119,961
Non-current liabilities
Long-term debt 94,611 90,338
Other liabilities 21,995 25,069
Deferred income taxes 11,831 9,761
128,437 125,168
Equity
Capital stock 8 98,647 98,647
Retained earnings 187,723 175,973
Accumulated other comprehensive loss (5,395 ) (5,189 )
Equity attributable to shareholders 280,975 269,431
Non-controlling interest 3,445 4,511
284,420 273,942
Total liabilities and equity $524,536 $519,071
See accompanying notes to condensed consolidated financial statements.
On August 8, 2011, the Board of Directors approved the consolidated financial statements for the three-month and six-month periods ended June 30, 2011 and 2010, which were presented to the Audit Committee on July 28, 2011.
TVA GROUP INC.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands of dollars)
Three-month periods Six-month periods
ended June 30 ended June 30
Note 2011 2010 2011 2010
Cash flows related to operating activities
Net income $10,965 $11,666 $10,121 $12,407
Non-cash items:
Amortization 4,300 3,670 8,427 7,359
Restructuring costs of operations, impairment of assets and other 7 330 5,665 330 5,160
Share of income of associated corporation (201 ) (245 ) (471 ) (625 )
Deferred income taxes 1,128 (1,476 ) 1,805 (1,853 )
Cash flows from current operations 16,522 19,280 20,212 22,448
Net change in non-cash items (16,486 ) (4,549 ) (9,934 ) (13,783 )
Cash flows provided by operating activities 36 14,731 10,278 8,665
Cash flows related to investing activities
Additions to property, plant and equipment (6,532 ) (4,892 ) (14,990 ) (8,508 )
Additions to intangible assets (1,141 ) (2,358 ) (1,948 ) (2,777 )
Disposal of an item of property, plant and equipment 7 - 760 - 760
Net change in investments - - 10 -
Cash flows used in investing activities (7,673 ) (6,490 ) (16,928 ) (10,525 )
Cash flows related to financing activities
Net change in bank overdraft 307 2,582 (2,200 ) 1,944
Net change in revolving term loan 4,398 (9,011 ) 4,094 2,008
Non-controlling interest - - 2,940 -
Dividends paid (2,377 ) (2,377 ) (2,377 ) (2,377 )
Cash flows provided by (used in) financing activities 2,328 (8,806 ) 2,457 1,575
Net change in cash (5,309 ) (565 ) (4,193 ) (285 )
Cash at beginning of period 6,721 2,204 5,605 1,924
Cash at end of period $1,412 $1,639 $1,412 $1,639
Non-cash transactions
Net change in additions to property, plant and equipment and intangible assets financed with accounts payable and accrued liabilities $66 $(1,257 ) $(2,080 ) $(1,928 )
Net change in government assistance credited to property, plant and equipment - - - 434
Interest and income taxes reflected as operating activities
Interest paid $2,355 $2,438 $2,690 $2,644
Interest received (18 ) (138 ) (20 ) (138 )
Income taxes paid 1,932 5,974 639 17,752
See accompanying notes to condensed consolidated financial statements.
TVA GROUP INC.
Notes to Condensed Consolidated Financial Statements
Three-month and six-month periods ended June 30, 2011 and 2010 (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 10). 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 to, among other factors, 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. 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, which replaced Canadian Generally Accepted Accounting Principles ("GAAP") as of January 1, 2011. In particular, these consolidated financial statements were prepared in accordance with IAS 34, Interim Financial Reporting, and with IFRS 1, First-time Adoption of IFRS, and accordingly, they are condensed consolidated financial statements because they do not include all disclosures required under IFRS for annual consolidated financial statements. These consolidated financial statements should be read in conjunction with the Corporation's 2010 annual consolidated financial statements and the Corporation's consolidated financial statements for the three-month period ended March 31, 2011.

Significant accounting policies applied by the Corporation under IFRS are described in note 1 to the consolidated financial statements for the three-month period ended March 31, 2011. Additional information on the transition to IFRS is also provided in note 11 below.

Comparative figures for the three-month and six-month periods ended June 30, 2010, and the year ended December 31, 2010, have been restated to conform to the presentation adopted for the six-month period ended June 30, 2011.

2. New accounting pronouncements

The Corporation has not early adopted the following new standards and adoption impacts on the consolidated financial statements have not yet been determined:

New standards Expected changes to existing standards
IFRS 9 — Financial instruments

(Effective from periods beginning
January 1, 2013 with early adoption permitted)

IFRS 9 simplifies the measurement and classification for financial assets by
reducing the number of measurement categories and removing complex rule-
driven embedded derivative guidance in IAS 39, Financial Instruments:
Recognition and Measurement. The new standard also provides for a fair value
option in the designation of a non-derivative financial liability and its related classification and measurement.
IFRS 10 — Consolidated Financial Statements

(Effective from periods beginning
January 1, 2013 with early adoption permitted)
IFRS 10 replaces SIC-12, Consolidation—Special Purpose Entities and parts of
IAS 27, Consolidated and Separate Financial Statements and provides
additional guidance regarding the concept of control as the determining factor in whether an entity should be included within the consolidated financial tatements of the parent company.
IFRS 11 — Joint Arrangements

(Effective from periods beginning
January 1, 2013 with early adoption permitted)
IFRS 11 replaces IAS 31, Interests in Joint Ventures, with guidance that focuses on the rights and obligations of the arrangement, rather than its legal form. It also withdraws the option to proportionately consolidate an entity's interests in joint ventures. The new standard requires that such interests be recognized using the equity method.
IFRS 12 — Disclosure of Interests in Other Entities

(Effective from periods beginning
January 1, 2013 with early adoption permitted)
IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose entities and other off-balance sheet vehicles.
IAS 19 — Post-employment Benefits
(Including Pensions) (Amended)

(Effective from periods beginning January 1, 2013 with retrospective application)





Amendments to IAS 19 involve, among other changes, recognition of the cost of defined benefits and of the re-measurement component in other comprehensive income, thereby removing the accounting option previously available in IAS 19 to recognize changes in defined benefit obligations and in the fair value of plan assets directly in the statement of income. IAS 19 also introduces a net interest approach that replaces the expected return on assets and interest costs on the defined benefit obligation with a single net interest component determined by multiplying the net defined benefit liability or asset by the discount rate used to determine the defined benefit obligation. In addition, all past service costs are required to be recognized in profit or loss when the employee benefit plan is amended and no longer spread over any future service period.

3. Revenues

The breakdown of revenues between services rendered and product sales is as follows:

Three-month periods Six-month periods
ended June 30 ended June 30
2011 2010 2011 2010
Services rendered $91,626 $84,980 $173,217 $168,502
Product sales 25,922 25,914 51,428 52,026
$117,548 $110,894 $224,645 $220,528

4. Operating, selling and administrative expenses

The main components are as follows:

Three-month periods Six-month periods
ended June 30 ended June 30
2011 2010 2011 2010
Employee costs $34,684 $33,025 $68,680 $67,959
Royalties, rights and production costs 34,144 29,206 76,455 75,536
Printing and distribution 4,151 4,488 8,351 8,626
Marketing, advertising and promotion 3,414 3,123 8,023 7,551
Cost of retail products 1,187 1,291 2,634 3,049
Other 17,604 12,930 33,578 25,231
$95,184 $84,063 $197,721 $187,952

5. Operating income

In its analysis of operating results, the Corporation uses operating income, as presented in its consolidated statement of income, to assess its financial performance. The Corporation's management and Board of Directors use this measure in evaluating the Corporation's consolidated results as well as the results of its business segments. As such, this measure is unaffected by the capital structure or investment activities of the Corporation and its segments. Operating income is also a significant component of the Corporation's annual incentive compensation programs. Operating income is referred to as an additional IFRS measure.

6. Financial expenses

Three-month periods Six-month periods
ended June 30 ended June 30
2011 2010 2011 2010
Interest on long-term debt $1,349 $1,329 $2,716 $2,687
Net interest revenues (33 ) (3 ) (31 ) (134 )
Amortization of deferred financing costs 89 93 179 185
Foreign exchange loss (gain) 37 16 44 (28 )
Other - 32 - 32
$1,442 $1,467 $2,908 $2,742

7. Restructuring costs of operations, impairment of assets and other

During the second quarter of 2010, the Corporation and Sun Media Corporation, subsidiaries of Quebecor Media, announced the creation of a partnership (51% TVA Group and 49% Sun Media Corporation) for the purpose of setting up and launching a new news and opinion specialty service called "SUN News" in the English-Canadian market in the spring of 2011. The Corporation also announced its intention to cease operation of its existing conventional television station, "SUN TV," when the new specialty service began broadcasting. As a result of this repositioning, the Corporation recorded an impairment expense related to its broadcast rights inventories in the amount of $3,430,000 and an impairment expense for certain equipment in the amount of $2,235,000 in the second quarter of 2010. During the three-month period ended June 30, 2011, the Corporation recorded an additional impairment expense related to its broadcast rights inventories in the amount of $330,000.

As well, during the second quarter of 2010, the Corporation received $760,000 following the settlement of an insurance claim related to an item of property, plant and equipment. In the first quarter of 2010, the Corporation recorded a $505,000 gain in connection with that event, in addition to a $532,000 provision for restructuring costs of operations following the elimination of several positions in the Television sector.

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 stock

June 30, December 31,
2011 2010
4,320,000 class A common shares $72 $72
19,450,906 class B shares 98,575 98,575
$98,647 $98,647

(c) Share redemption

Normal course issuer bid

On March 17, 2011, the Corporation filed a normal course issuer bid to redeem a maximum of 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 half of 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 Six-month periods
ended June 30 ended June 30
2011 2010 2011 2010
Net income attributable to shareholders $13,795 $11,666 $14,127 $12,407
Weighted average number of basic and diluted shares outstanding 23,770,906 23,770,906 23,770,906 23,770,906
Basic and diluted earnings per share attributable to shareholders $0.58 $0.49 $0.59 $0.52

The diluted earnings per share calculation does not take into consideration the potential dilutive effect of the Corporation's stock option plan since their impact is anti-dilutive. During the three-month and six-month periods ended June 30, 2011, 833,610 stock options of the Corporation's plan (869,769 in 2010) were excluded from the diluted earnings per share calculation.

9. Stock-based compensation and other stock-based payments

Six-month period ended June 30, 2011
Class B
stock options
Quebecor Media
stock options

Number
Weighted average
exercise price

Number
Weighted average
exercise price
Balance as of December 31, 2010 833,610 $16.35 387,482 $46.33
Granted - - 21,000 50.23
Exercised - - (15,230 ) 43.32
Balance as of June 30, 2011 833,610 $16.35 393,252 $46.66

Of the number of options outstanding as of June 30, 2011, 583,743 Class B stock options at an average exercise price of $17.01 and 80,600 Quebecor Media stock options at an average price of $45.70 could be exercised.

During the three-month period ended June 30, 2011, none of Quebecor Media stock options were exercised (none in 2010). During the six-month period ended June 30, 2011, 15,230 Quebecor Media stock options were exercised for a cash consideration of $108,000 (5,046 stock options for $66,000 in 2010).

During the three-month and six-month periods ended June 30, 2011, the Corporation recorded compensation expense reversals of $826,000 and $741,000 respectively (compared with reversals of $1,203,000 and $543,000 respectively in the same periods of 2010) in relation to the Corporation's Class B stock options, as well as compensation expense reversals of $636,000 and $261,000 respectively (compared with compensation expenses of $281,000 and $429,000 respectively for the same periods of 2010) in relation to the Quebecor Media stock options.

10. Segmented information

The Corporation's operations consist of the following segments:

  • The Television segment includes the TVA Network, specialty channels, SUN TV, marketing of the websites of the different televisual brands, the various television production companies including TVA Productions Inc., commercial productions including the TVA Accès division, home and online shopping services of the TVA Boutiques division, production and distribution of audiovisual products produced by the TVA Films division;

  • The Publishing segment includes the operations of TVA Publications Inc., the publisher of various French-language magazines specializing in arts, entertainment, television, fashion, decoration and others; marketing of websites of the different brands related to the magazines and the operations of the TVA Studio division specializing in customized publishing, commercial printed 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 Six-month periods
ended June 30 ended June 30
2011 2010 2011 2010
Revenues
Television $100,734 $92,711 $192,007 $185,591
Publishing 17,829 18,758 34,698 36,525
Intersegment items (1,015 ) (575 ) (2,060 ) (1,588 )
117,548 110,894 224,645 220,528
Operating, selling and administrative expenses
Television 81,442 69,717 169,849 159,153
Publishing 14,757 14,921 29,932 30,387
Intersegment items (1,015 ) (575 ) (2,060 ) (1,588 )
95,184 84,063 197,721 187,952
Operating income
Television 19,292 22,994 22,158 26,438
Publishing 3,072 3,837 4,766 6,138
Intersegment items - - - -
$22,364 $26,831 $26,924 $32,576
June 30, December 31,
2011 2010
Total assets
Television $439,826 $435,331
Publishing 84,710 83,740
$524,536 $519,071
Goodwill
Television $2,539 $2,539
Publishing 69,442 69,442
$71,981 $71,981

11. Transition to IFRS

These consolidated financial statements are prepared in accordance with IFRS (note 1). The date of the opening balance sheet under IFRS and the Corporation's date of transition to IFRS is January 1, 2010.

The Corporation is required to establish IFRS accounting policies as of the transition date and, in general, to apply these retrospectively to determine the IFRS opening balance sheet at January 1, 2010. Descriptions of applicable exemptions and exceptions under IFRS to this general principle of retrospective application, and the choices made by the Corporation, are provided in note 9 to the Corporation's consolidated financial statements for the three-month period ended March 31, 2011. This note also presents a reconciliation of the 2010 financial figures prepared under Canadian GAAP to the 2010 financial figures prepared under IFRS, including a reconciliation of the consolidated statements of income, comprehensive income and cash flows for the year ended December 31, 2010, as well as a reconciliation of the consolidated balance sheets and shareholders' equity as of January 1, 2010 and as of December 31, 2010. Additional annual disclosures under IFRS that are deemed material are also described in this note.

The following tables set forth the impact of the adjustments from Canadian GAAP to IFRS on the Corporation's consolidated statements of income, comprehensive income, and cash flows for the three-month and six-month periods ended June 30, 2010, as well as on equity as of June 30, 2010:

(a) Reconciliation of the consolidated statements of income and comprehensive income for the three-month period ended June 30, 2010

Explanation Canadian GAAP IFRS adjustments IFRS
Revenues $110,894 $- $110,894
Operating, selling and administrative expenses i), ii ) 84,729 (666 ) 84,063
Amortization of property, plant and equipment and intangible assets 3,577 - 3,577
Financial expenses 1,467 - 1,467
Restructuring costs of operations, impairment of assets and other 5,665 - 5,665
Income before income taxes and share of income of associated corporation 15,456 666 16,122
Income taxes vi ) 4,522 179 4,701
Share of income of associated corporation (245 ) - (245 )
Net income $11,179 $487 $11,666
Other comprehensive loss i), vi ) - (906 ) (906 )
Comprehensive income $11,179 $(419 ) $10,760
Net income attributable to:
Shareholders $11,179 $487 $11,666
Non-controlling interest vii ) - - -
Basic and diluted earnings per share attributable to shareholders $0.47 $0.02 $0.49
Comprehensive income attributable to:
Shareholders $11,179 $(419 ) $10,760
Non-controlling interest vii ) - - -

(b) Reconciliation of the consolidated statements of income and comprehensive income for the six-month period ended June 30, 2010

Explanation Canadian GAAP IFRS adjustments IFRS
Revenues $220,528 $- $220,528
Operating, selling and administrative expenses i), ii ) 187,562 390 187,952
Amortization of property, plant and equipment and intangible assets 7,174 - 7,174
Financial expenses 2,742 - 2,742
Restructuring costs of operations, impairment of assets and other 5,692 - 5,692
Income before income taxes and share of income of associated corporation 17,358 (390 ) 16,968
Income taxes vi ) 5,291 (105 ) 5,186
Share of income of associated corporation (625 ) - (625 )
Net income $12,692 $(285 ) $12,407
Other comprehensive loss i), vi ) - (1,812 ) (1,812 )
Comprehensive income $12,692 $(2,097 ) $10,595
Net income attributable to:
Shareholders $12,692 $(285 ) $12,407
Non-controlling interest vii ) - - -
Basic and diluted earnings per share attributable to shareholders $0.53 $(0.01 ) $0.52
Comprehensive income attributable to:
Shareholders $12,692 $(2,097 ) $10,595
Non-controlling interest vii ) - - -

(c) Reconciliation of the consolidated statements of cash flows for the three-month and six-month periods ended June 30, 2010

The adjustments made by the Corporation in restating its consolidated financial statements for the three-month and six-month periods ended June 30, 2010, previously published in accordance with Canadian GAAP, had no impact on the totals for the various cash flow categories.

(d) Reconciliation of equity as of June 30, 2010

Explanation June 30, 2010
Shareholders' equity under Canadian GAAP $247,410
IFRS adjustments:
Defined benefit plans i ) (30,175 )
Stock-based compensation ii ) (3,412 )
Intangible assets with indefinite useful lives iv ) 23,261
Income taxes vi ) 15,266
Equity under IFRS $252,350
Equity attributable to:
Shareholders $252,350
Non-controlling interest vii ) -

(e) Reconciliation of comprehensive income for the three-month and six-month periods ended June 30, 2010

Three-month Six-month
period ended period ended
Explanation June 30, 2010 June 30, 2010
Comprehensive income under Canadian GAAP $11,179 $12,692
IFRS adjustments to net income:
Defined benefit plans i ) (308 ) (616 )
Stock-based compensation ii ) 974 226
Income taxes vi ) (179 ) 105
Non-controlling interest vii ) - -
487 (285 )
IFRS adjustments to comprehensive income:
Defined benefit plans i ) (1,240 ) (2,479 )
Income taxes vi ) 334 667
(906 ) (1,812 )
Comprehensive income under IFRS $10,760 $10,595

The significant differences between the 2010 financial figures prepared under Canadian GAAP and under IFRS are explained as follows:

(i) Defined benefit plans

As stated in the "IFRS 1: exemptions and exceptions" section of note 9 to the Corporation's consolidated financial statements for the three-month period ended March 31, 2011, the Corporation elected to recognize all cumulative actuarial gains and losses under Canadian GAAP that existed as of January 1, 2010 in the opening retained earnings under IFRS for all of its defined benefit plans.

Actuarial gains and losses

Under IFRS, the Corporation elected to immediately recognize all actuarial gains and losses arising after January 1, 2010 as a component of other comprehensive income without recycling those gains or losses to the consolidated statement of income in subsequent periods. As a result, actuarial gains and losses are not amortized to the statement of income but rather are recorded directly to other comprehensive income at the end of each reporting period. Under Canadian GAAP, the Corporation was recording in the consolidated statements of income any cumulative unrecognized net actuarial gains and losses in excess of 10% of the greater of the defined benefit obligation, or the fair value of plan assets, over the expected average remaining service period of the active employee group covered by the plans.

Past service costs

Under IFRS, past service costs are recognized on a straight-line basis over the vesting period. Under Canadian GAAP, past service costs were amortized over the expected average remaining service period of the active employee group covered by the plans (with the exception of certain pension plans for which past service costs were recognized in income as incurred).

Benefit asset limit and minimum funding liability

Under IFRS, recognition of the net benefit asset under certain circumstances is limited to the amount recoverable, which is primarily based on the extent to which the Corporation can unilaterally reduce future contributions to the plan. In addition, an adjustment to the net benefit asset or the net benefit obligation can be recorded to reflect a minimum funding liability. Since the Corporation has elected to recognize actuarial gains or losses in other comprehensive income, changes in the net benefit asset limit or in the minimum funding liability adjustment since January 1, 2010 are also recognized in other comprehensive income. Under Canadian GAAP, a concept similar to the asset limit existed, although the calculation of the recoverable amount was different and changes in the valuation allowance were recognized in the consolidated statement of income. The concept of minimum funding liability did not exist under Canadian GAAP.

(ii) Stock-based compensation

Under IFRS, the liability related to stock-based awards that call for settlement in cash or other assets must be measured at its fair value and is to be re-measured at its fair value at the end of each reporting period. Under Canadian GAAP, the liability was measured and re-measured at each reporting date at the intrinsic values of the stock-based awards instead of at their fair value.

Under IFRS, when a stock-based payment vests in instalments over a vesting period ("graded vesting"), each instalment is accounted for as a separate arrangement, as compared to Canadian GAAP, which gave the choice of treating the instruments as a pool and under which the measurement was based on the average life of the stock-based awards.

(iii) Provisions

Provisions must be presented separately in the balance sheet under IFRS.

(iv) Intangible assets with indefinite useful lives

Under IFRS, indefinite lived assets are not amortized, while under Canadian GAAP, they were amortized until January 1, 2002. Accordingly, the Corporation has reversed amortization previously recognized on its broadcasting licences in opening retained earnings at the transition date.

(v) Related party transactions

Under IFRS, no particular recognition or measurement requirements for related party transactions exist; accordingly, the recognition and measurement of related party transactions must follow existing IFRS standards that apply to the transaction. Under Canadian GAAP, related party transactions could be recognized at the carrying amount of the assets being transferred or at the exchange amount, depending on certain criteria. As stated in the "IFRS 1: exemptions and exceptions" section of note 9 to the Corporation's consolidated financial statements for the three-month period ended March 31, 2011, the Corporation elected not to restate any business combinations arising before January 1, 2010, including those entered into between companies under common control. In addition, transfers of assets that had been recognized at the carrying amount under Canadian GAAP were restated to their exchange amounts, as allowed under IFRS.

(vi) Income taxes

The expected manner of recovery of intangible assets with indefinite useful lives for purposes of calculating deferred income taxes is different under IFRS than under Canadian GAAP. This difference resulted in a reduction of the deferred income tax liability related to these assets at transition.

Other adjustments to income taxes represent the tax impacts of other IFRS adjustments.

In addition, deferred income tax assets and liabilities are presented as non-current items under IFRS, even if it is anticipated that they will be realized in the short term.

(vii) Non-controlling interest

Under IFRS, non-controlling interest is presented as a separate component of equity in the balance sheet, while under Canadian GAAP it was presented as a separate component between liabilities and equity. In the consolidated statements of income and comprehensive income under IFRS, net income and comprehensive income are calculated before non-controlling interest and then attributed to shareholders and non-controlling interest. Under Canadian GAAP, non-controlling interest was presented as a component of net income and of comprehensive income.

Contact Information

  • Denis Rozon, CA
    Vice-President and Chief Financial Officer
    (514) 598-2808