TVA Group Inc.
TSX : TVA.B

TVA Group Inc.

November 05, 2012 11:26 ET

TVA Group Reports $2.1 Million Net Income Attributable to Shareholders in Quarter Ended September 30, 2012

MONTREAL, CANADA--(Marketwire - Nov. 5, 2012) - TVA Group Inc. (TSX:TVA.B) ("the Corporation") announces that it recorded net income attributable to shareholders in the amount of $2.1 million, or $0.09 per share, for the third quarter of 2012, compared with net income attributable to shareholders of $0.00 per share in the same quarter of 2011.

Third quarter operating highlights:

  • Operating income(1) in the Television segment up $8,685,000 to $8,374,000, mainly because of:

    • $5,320,000 increase in operating income at TVA Network due to an 8.6% increase in advertising revenues;

    • positive impact on operating income of the deconsolidation of the results of SUN News since July 1, 2012.

Partially offset by:

    • operating loss of the "TVA Sports" service, in operation since September 2011;

    • loss of the contribution to operating income provided by our interest in "Mystery TV" and "The Cave," which was sold on May 31, 2012.
  • Operating income in the Publishing segment down $944,000 to $2,310,000, mainly because of a decrease in operating revenues caused largely by lower newsstand sales and advertising revenues.

"We are satisfied with the third quarter 2012 financial results, particularly the performance of TVA Network and LCN during the Québec election campaign," said Pierre Dion, President and CEO of the Corporation. "Our French-language specialty services are also continuing to register steady growth in both subscription revenues and advertising revenues. Finally, in an increasingly competitive marketplace, we continued investing in content for all of TVA Group's vehicles.

"In the Publishing segment, operating revenues declined 4.4% compared with the same quarter of the previous year, which largely accounts for the decrease in the segment's operating income. Several brand projects and strategies designed to generate new revenue streams and make up for the decline in 'traditional' revenues are currently under way in the segment."

Cash flows provided by operating activities amounted to $18.3 million for the quarter, compared with $11.8 million in the same quarter of 2011. The $6.5 million increase was essentially due to the improved operating results.

The unaudited consolidated financial statements for the three-month and nine-month periods ending September 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 (recovery), share of loss (income) of associated corporations 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 November 5, 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.

(1) Refer to definition of operating income (loss) below.

TVA GROUP INC.
Consolidated Statements of Income (Loss)
(unaudited)
(in thousand of dollars, except per share amounts)
Three-month periods
ended September 30
Nine-month periods
ended September 30
Note 2012 2011 2012 2011
Revenues2$97,171$89,214 $330,362 $313,859
Operating, selling and administrative expenses3 86,487 86,271 305,771 283,992
Amortization of property, plant and equipment and intangible assets
4,913

4,280

15,372

12,528
Financial expenses4 1,211 1,469 4,161 4,377
Impairment of goodwill5 32,200
Gain on disposal of businesses13 (12,881)
Restructuring costs of operations, impairmentof assets and other costs6

312

117

633
Income (loss) before income taxes and share of income of associated corporations

4,560


(3,118
)

(14,378
)

12,329
Income taxes (recovery)7 and 13 573 (448) 2,042 5,349
After-tax share of loss (income) of associated corporations
1,860

186

1,532

(285
)
Net income (loss) $2,127$(2,856)$(17,952)$7,265
Net income (loss) attributable to:
Shareholders $2,127$8 $(13,538)$14,135
Non-controlling interest11 (2,864) (4,414) (6,870)
Basic and diluted earnings per share attributable to shareholders9 c)$
0.09

$


$

(0.57
)
$

0.59
See 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 September 30
Nine-month periods
ended September 30
Note 2012 2011 2012 2011
Net income (loss) $2,127$(2,856)$(17,952)$7,265
Other comprehensive loss:
Defined benefit plans:
Net change in asset limit or in minimum funding liability

(141
)

(423
)
Deferred income taxes 38 114
(103) (309)
Comprehensive income (loss) $2,127$(2,959)$(17,952)$6,956
Comprehensive income (loss) attributable to:
Shareholders $2,127$(95)$(13,538)$13,826
Non-controlling interest11 (2,864) (4,414) (6,870)
See accompanying notes to condensed consolidated financial statements.
TVA GROUP INC.
Consolidated Statements of Equity
(unaudited)
(in thousands of dollars)
Equity attributable to shareholders
Capital
stock
(note 9)
Contributed
surplus
Retained
earnings
Equity attributable
to non-controlling interest
Total
equity
Balance as of December 31, 2010$ 98,647 $ −$ 170,784 $ 4,511 $ 273,942
Net income (loss) 14,135 (6,870)7,265
Other comprehensive loss (309) (309)
Dividends (2,377) (2,377)
Contributions related to non-controlling interest (note 11) 7,840 7,840
Balance as of September 30, 201198,647 182,233 5,481 286,361
Net income (net loss) 11,468 (2,297)9,171
Other comprehensive loss (16,708) (16,708)
Contributions related to non-controlling interest (note 11) 2,205 2,205
Balance as of December 31, 201198,647 176,993 5,389 281,029
Net loss (13,538)(4,414)(17,952)
Contributions related to non-controlling interest (note 11) 3,528 3,528
Disposal of interest in SUN News (note 11) 581 (4,503)(3,922)
Balance as of September 30, 2012$ 98,647 $ 581$ 163,455 $ − $ 262,683
See accompanying notes to condensed consolidated financial statements.
TVA GROUP INC.
Consolidated Balance Sheets
(unaudited)
(in thousands of dollars)

Note
September 30,
2012
December 31,
2011
Assets
Current assets
Cash $5,729$1,756
Accounts receivable 114,714 117,644
Current income tax assets 4,694 4,014
Programs, broadcast and distribution rights and inventories 73,572 61,954
Prepaid expenses 3,238 2,690
Assets held for sale13 8,370
201,947 196,428
Non-current assets
Broadcast and distribution rights 33,390 35,488
Investments11 17,329 12,865
Property, plant and equipment 96,923 102,007
Licences and other intangible assets 112,181 114,539
Goodwill5 39,781 71,981
Deferred income taxes 783 545
300,387 337,425
Total assets $502,334$533,853
Liabilities and equity
Current liabilities
Bank overdraft $$3,980
Accounts payable and accrued liabilities 91,862 82,086
Current income tax liabilities 204 503
Broadcast and distribution rights payable 18,580 15,778
Provisions 948 1,533
Deferred revenues 8,667 6,535
Current portion of long-term debt8 17,756
Liabilities held for sale13 1,538
120,261 129,709
Non-current liabilities
Long-term debt8 74,626 74,635
Other liabilities 34,696 39,696
Deferred income taxes7 10,068 8,784
119,390 123,115
Equity
Capital stock9 98,647 98,647
Contributed surplus11 581
Retained earnings 163,455 176,993
Equity attributable to shareholders 262,683 275,640
Non-controlling interest11 5,389
262,683 281,029
Total liabilities and equity $502,334$533,853
See accompanying notes to condensed consolidated financial statements.

On November 5, 2012, the Board of Directors approved the condensed consolidated financial statements for the three-month and nine-month periods ended September 30, 2012 and 2011.

TVA GROUP INC.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands of dollars)
Three-month periods
ended September 30
Nine-month periods
ended September 30
Note 2012 2011 2012 2011
Cash flows related to operating activities
Net income (loss) $2,127 $(2,856)$(17,952)$7,265
Non-cash items:
Amortization 5,020 4,370 15,687 12,797
Impairment of goodwill5 32,200
Gain on disposals of businesses13 (12,881)
Restructuring costs of operations, impairment of assets and other costs6

253


583
After-tax share of loss (income) of associated corporations
1,860

186

1,532

(285
)
Deferred income taxes7 224 846 1,030 2,651
Cash flows provided by current operations 9,231 2,799 19,616 23,011
Net change in non-cash items 9,081 9,017 3,130 (917)
Cash flows provided by operating activities 18,312 11,816 22,746 22,094
Cash flows related to investing activities
Additions to property, plant and equipment (5,566) (7,034) (17,668) (22,024)
Additions to intangible assets (892) (1,490) (2,195) (3,438)
Disposal of businesses, net of cash11 and 13 765 18,663
Cash of SUN News at the date of deconsolidation11


(430
)
Net change in investments11 (1,493) 226 (1,493) 236
Cash flows used in investing activities (7,186) (8,298) (3,123) (25,226)
Cash flows related to financing activities
Net change in bank overdraft (4,943) 2,178 (3,980) (22)
Net change in revolving term loan (454) (7,394) (17,736) (3,300)
Financing costs8 (344)
Non-controlling interest11 4,900 3,528 7,840
Dividends paid (2,377)
Cash flows (used in) provided by financing activities
(5,397
)
(316
)
(18,532
)
2,141
Net change in cash 5,729 3,202 1,091 (991)
Cash at beginning of period 1,412 4,638 5,605
Cash at end of period $5,729 $4,614 $5,729 $4,614
Interest and income taxes reflected as operating activities
Interest paid $48 $312 $2,788 $2,982
Net income taxes (received) paid (1,501) 17 1,971 656
See accompanying notes to condensed consolidated financial statements.
TVA GROUP INC.
Notes to Condensed Consolidated Financial Statements
Three-month and nine-month periods ended September 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 12). 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 cyclical 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 revenues, operating results are also sensitive to prevailing economic conditions, including changes in local, regional and national economic conditions, particularly as they may affect advertising expenditures. Furthermore, the Corporation is investing in the launch of new specialty services in the Television segment. During the period immediately following the launch of a new specialty service, subscription revenues are always relatively modest, while initial operating expenses may prove more substantial. Accordingly, the results of operations for interim periods should not necessarily be considered indicative of full-year results.

1. Basis of presentation

These consolidated financial statements were prepared in accordance with the International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. In particular, these consolidated financial statements were prepared in accordance with IAS 34, Interim Financial Reporting, and accordingly, they are condensed consolidated financial statements because they do not include all disclosures required under IFRS for annual consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the Corporation's 2011 annual consolidated financial statements and the notes thereto. The same accounting policies described in the annual consolidated financial statements have been used herein.

Comparative figures for the three-month and nine-month periods ended September 30, 2011, have been reclassified to conform to the presentation adopted for the nine-month period ended September 30, 2012.

2. Revenues

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

Three-month periods
ended September 30
Nine-month periods
ended September 30
2012 2011 2012 2011
Services rendered$72,458$64,331$253,564$237,548
Product sales 24,713 24,883 76,798 76,311
$97,171$89,214$330,362$313,859

3. Operating, selling and administrative expenses

The main components are as follows:

Three-month periods
ended September 30
Nine-month periods
ended September 30
2012 2011 2012 2011
Employee and sales commission costs$36,617$36,511$120,500$110,155
Royalties, rights and production costs 30,563 27,017 115,445 103,472
Printing and distribution 4,856 4,718 17,298 15,360
Marketing, advertising and promotion 2,098 2,617 11,474 10,640
Transmission and microwave expenses 1,206 1,759 4,771 4,330
Other 11,147 13,649 36,283 40,035
$86,487$86,271$305,771$283,992

4. Financial expenses

Three-month periods
ended September 30
Nine-month periods
ended September 30
2012 2011 2012 2011
Interest on long-term debt$1,148 $1,356$3,846$4,072
Amortization of financing costs 107 90 315 269
Other (44) 23 36
$1,211 $1,469$4,161$4,377

5. Impairment of goodwill

As a result of new fees adopted in 2012 for 2010, 2011 and 2012 with respect to business contributions for costs related to waste recovery services provided by Quebec municipalities, the operating costs of the Corporation's Publishing segment 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.

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

In the nine-month period ended September 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 September 30, 2011, the Corporation had recorded an impairment expense on its broadcast rights inventories in the amount of $253,000 ($583,000 for the nine-month period ended September 30, 2011) and a $59,000 ($50,000 for the nine-month period ended September 30, 2011) provision for restructuring costs following the discontinuation of the operations of the over-the-air station "SUN TV".

7. Income taxes

In light of the evolution of the tax auditing, jurisprudence and tax legislation, the Corporation reduced its deferred tax liabilities by $195,000 in the third quarter of 2012 ($372,000 in the third quarter of 2011).

8. Long-term debt

On February 24, 2012, the Corporation completed the renewal of its revolving term loan of $100,000,000 for a five-year term with similar conditions, except for the borrowing cost, which is more favourable for the Corporation. The loan matures on February 23, 2017 and is repayable in full on that date. Given the maturity of the revolving term loan as of December 31, 2011, the Corporation had presented the loan as a current liability.

The costs associated with the renewal of the revolving term loan in the first quarter of 2012 totalled $344,000 and were recorded as financing costs in reduction of long-term debt.

9. 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

September 30,
2012
December 31,
2011
4,320,000 class A common shares$72$72
19,450,906 class B shares 98,575 98,575
$98,647$98,647

(c) Earnings per share attributable to shareholders

The following table sets forth the computation of basic and diluted earnings per share attributable to shareholders:

Three-month periods
ended September 30
Nine-month periods
ended September 30
2012 2011 2012 2011
Net income (loss) attributable to shareholders$
2,127

$

8

$

(13,538
)
$

14,135
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 (in dollars)$

0.09


$




$


(0.57
)

$


0.59

The 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 nine-month periods ended September 30, 2012, 819,421 stock options of the Corporation's plan (833,610 in 2011) were excluded from the diluted earnings per share calculation.

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

Nine-month period ended September 30, 2012
Class B Quebecor Media
stock options stock options
Weighted average Weighted average
Number exercise price Number exercise price
Balance as of December 31, 2011833,610 $ 16.35 393,252 $ 46.66
Exercised (113,728)46.27
Cancelled(14,189)16.84
Options related to SUN News' corporate executive (note 11) - (11,000)50.10
Balance as of September 30, 2012819,421 $ 16.34 268,524 $ 46.68

Of the number of options outstanding as at September 30, 2012, 712,079 Class B stock options at an average exercise price of $16.58 and 62,459 Quebecor Media stock options at an average price of $46.16 could be exercised.

During the three-month and nine-month periods ended September 30, 2012, 113,728 Quebecor Media stock options were exercised for a cash consideration of $629,000 (during the three-month period ended September 30, 2011, no stock options were exercised; during the nine-month period ended September 30, 2011, 15,230 stock options were exercised for $108,000).

During the three-month and nine-month periods ended September 30, 2012, the Corporation recorded compensation expense reversals of $19,000 and $264,000 respectively (compared with reversals of $573,000 and $1,314,000 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 $64,000 and a compensation charge of $482,000 respectively (compared with compensation charges of $500,000 and $239,000 respectively for the same periods of 2011) in relation to Quebecor Media stock options.

11. Related party transactions

Capital contributions to SUN News

During the three-month period ended September 30, 2012, the partners in SUN News made a capital contribution of $3,600,000 ($10,000,000 in 2011), including $1,764,000 ($5,100,000 in 2011) from the Corporation and $1,836,000 ($4,900,000 in 2011) from Sun Media Corporation, a company under common control.

During the nine-month period ended September 30, 2012, the partners in SUN News made a capital contribution of $10,800,000 ($16,000,000 in 2011), including $5,436,000 ($8,160,000 in 2011) from the Corporation and $5,364,000 ($7,840,000 in 2011) from Sun Media Corporation.

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 are no longer 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 assets
Cash$430
Accounts receivable and other current assets 2,792
3,222
Non-current assets
Property, plant and equipment 8,873
Intangible assets 650
12,745
Current liabilities
Accounts payable and accrued liabilities 3,555
Net assets 9,190
Corporation Sun Media interest (4,687)
Investment using equity method$4,503

12. Segmented information

The 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 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 September 30
Nine-month periods
ended September 30
2012 2011 2012 2011
Revenues
Television$81,646 $72,400 $283,598 $264,407
Publishing 16,854 17,638 49,973 52,336
Intersegment items (1,329) (824) (3,209) (2,884)
97,171 89,214 330,362 313,859
Operating, selling and administrative expenses
Television 73,272 72,711 261,911 242,560
Publishing 14,544 14,384 47,069 44,316
Intersegment items (1,329) (824) (3,209) (2,884)
86,487 86,271 305,771 283,992
Income before amortization, financial expenses, impairment of goodwill, gain on disposal of businesses, restructuring costs of operations, impairment of assets and other costs, income taxes (recovery), and share of loss (income) of associated corporations
Television 8,374 (311) 21,687 21,847
Publishing 2,310 3,254 2,904 8,020
$10,684 $2,943 $24,591 $29,867
September 30,
2012
December 31,
2011
Total assets
Television$446,482$ 449,943
Publishing 55,85283,910
$502,334$ 533,853
Goodwill
Television$2,539$ 2,539
Publishing 37,24269,442
$39,781$ 71,981

13. Disposal of businesses

In May 31, 2012, following the Canadian Radio-television and Telecommunications Commission ("CRTC") approval, the Corporation sold its 51% interest in "The Cave" and its 50% interest in "Mystery TV" to its partner in the joint ventures, Shaw Media Global Inc., and a gain on disposal of businesses in the amount of $12,881,000 before 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 at the time of the sale.

Contact Information

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