TVA Group Inc. (TSX: TVA.B) announces that the Company reported
consolidated operating income of $10.8 million for the third
quarter 2008, compared with consolidated operating income of $11.8
million for the same quarter of 2007.
Highlights of the third quarter:
- Increase of 14.5% in the Television sector's operating income
over the same quarter of 2007 which had benefited of a positive
impact of an accrual of $3,238,000 related to disputed regulatory
fees;
- Decrease of 17.7% in the Publishing sector's operating income
against the corresponding quarter last year, down from $2,969,000
in 2007 to $2,444,000 in 2008;
- The Distribution sector sustained an operating loss of
$517,000 for the quarter, compared with operating income of
$1,247,000 for the same quarter of 2007;
- Reduction in future tax liabilities of $6,977,000 in light of
the evolution in tax auditing, jurisprudence and tax
legislation.
As a result, the Company reported net income of $11.9 million,
or $0.49 per share, compared with net income of $5.3 million, or
$0.20 per share for the corresponding quarter of 2007.
Since the beginning of the fiscal year, the Company has
generated net income of $30.4 million, or $1.18 per share, compared
with $22.8 million, or $0.84 per share, for the corresponding
period of 2007.
"Given the slowdown in the advertising market in Canada, we are
satisfied with our results, in spite of the 8.2% decrease in
operating income related, in part, to the adjustments over the last
two years for disputed regulatory fees. In television, our
specialty channels have seen an increase of 20.9% in their
operating revenues, and the TVA Network continues to enjoy solid
ratings at the beginning of the fall season with a 29 market
shares, and 25 of its shows among the 30 most watched", said Pierre
Dion, President and Chief Executive Officer of the TVA Group.
"The slowdown in the advertising market was felt more in the
Publishing sector with a 9.8% lag in operating revenues compared to
the same quarter of 2007. In spite of economic conditions, tight
management of our operating expenses provided the sector profit
margins of 12.7% for the quarter. Finally, in the Distribution
sector, the drop in operating income is explained mainly by
advertising investments made over the quarter for films that will
be released during the fourth quarter of 2008, combined with
decrease in operating revenues for the sector," said Mr. Dion.
Cash flows from operating activities were $11.9 million for the
third quarter, against $7.5 million for the corresponding year-ago
period. This increase is essentially due to the change in non-cash
working capital items, mainly accounts receivable.
TVA Group's Board of Directors today declared a dividend of
$0.05 per share, payable on December 2, 2008 to Class A and B
shareholders of record as at November 17, 2008. This dividend is
designated to be an eligible dividend, as provided under subsection
89(14) of the Income Tax Act and its provincial counterpart.
TVA Group Inc., a subsidiary of Quebecor Media Inc., is an
integrated communications company involved in television, the
production and distribution of audiovisual products, and in
magazine publishing. TVA Group is one of the largest private sector
producers and the largest private sector broadcaster of
French-language entertainment, information and public affairs
programming, and magazine publishing in North America. TVA Group
also operates SUN TV, a conventional station in Toronto. The
Company's Class B shares are listed on the Toronto Stock Exchange
under the ticker symbol TVA.B.
The unaudited consolidated financial statements with notes and
Management's Discussion and Analysis can be consulted on TVA's Web
site at: www.tva.canoe.ca.
Definition of operating income
In its analysis of operating results, the Company defines
operating income or operating loss as earnings (loss) before
amortization, financial expenses, restructuring costs of
operations, impairment of intangible assets, gain on acquisition
and disposal of business, (recovery) income taxes, non-controlling
interest and equity in income of companies subject to significant
influence. Operating income or operating loss, as defined above, is
not a measure of results that is consistent with Canadian Generally
Accepted Accounting Principles ("GAAP"). 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 Canadian GAAP. Operating income is used by the Company because
management believes it is a meaningful measurement of
performance.
This measure is commonly used by senior management and the Board
of Directors to evaluate the consolidated results of the Company
and its sector's results. Measurements such as operating income are
also commonly used by the investment community to analyze and
compare the performance of companies in the industries in which we
are engaged. The Company's definition of operating income 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 Company'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), capital
investment risks, environmental risks, credit risk, government
regulation risks, governmental assistance risks and general changes
in the economic environment. 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 Company's actual
results to differ from current expectations, please refer to the
Company's public filings available at www.sedar.com and
www.tva.canoe.ca including, in particular, the "Risks and
Uncertainties" section of the Company's Management's Discussion and
Analysis for the year ended December 31, 2007.
The forward-looking statements in this news release reflect the
Company's expectations as of October 31st, 2008, and are subject to
change after this date. The Company 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 and comprehensive income
(unaudited)
(in thousands of dollars, except per share amounts)
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Three-month periods Nine-month periods
ended September 30 ended September 30
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2008 2007 2008 2007
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Operating revenues $92,249 $91,620 $309,763 $291,413
Operating, selling and
administrative expenses
(note 14) 81,400 79,796 265,824 254,826
Amortization of fixed
assets, intangible
assets and deferred
start-up costs 3,512 3,157 10,288 9,637
Financial expenses (note 3) 1,035 1,241 2,013 3,414
Restructuring costs of
operations (note 4) - 527 184 1,739
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Income before income taxes,
non-controlling interest and
equity in income of
companies subject to
significant influence $6,302 $6,899 $31,454 $21,797
Income taxes (recovery)
(note 5) (5,222) 2,350 2,843 1,992
Non-controlling interest (374) (721) (1,369) (2,177)
Equity in loss (income) of
companies subject to
significant influence 40 (4) (393) (796)
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NET INCOME AND
COMPREHENSIVE INCOME $11,858 $5,274 $30,373 $22,778
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EARNINGS PER SHARE BASIC
AND DILUTED (note 9 c) $0.49 $0.20 $1.18 $0.84
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See accompanying notes to consolidated financial statements
Consolidated statements of retained earnings
(unaudited)
(in thousands of dollars)
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Nine-month periods
ended September 30
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2008 2007
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Balance, at beginning of period $95,610 $62,631
Net income 30,373 22,778
Dividends paid (3,904) (4,054)
Share redemption - excess of purchase price over net
carrying value (note 9b) (36,208) -
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Balance, at end of period $85,871 $81,355
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See accompanying notes to consolidated financial statements
TVA GROUP INC.
Consolidated balance sheets
(unaudited)
(in thousands of dollars)
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Sept. 30, 2008 Dec. 31, 2007
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ASSETS
Current assets
Cash $1,584 $3,225
Accounts receivable 84,207 107,854
Current income tax assets 1,956 946
Investments in televisual products and films 56,203 45,906
Inventories and prepaid expenses 6,320 5,969
Future income tax assets 3,312 4,629
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153,582 168,529
Investments in televisual products and films 37,363 27,253
Investments (note 7) 31,878 31,571
Fixed assets 82,386 77,275
Future income tax assets - 2,319
Other assets 9,606 9,102
Licences and others intangible assets 69,719 69,732
Goodwill 71,981 71,981
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$456,515 $457,762
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank overdraft $212 $2,435
Accounts payable and accrued liabilities 83,866 85,812
Current income tax liabilities 1,039 11,037
Broadcast and distribution rights payable 28,070 23,054
Deferred revenue 7,273 6,613
Deferred credit 396 471
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120,856 129,422
Broadcast rights payable 4,420 3,965
Long-term debt 98,500 56,333
Future income tax liabilities (note 5) 30,903 39,334
Others long term liabilities (note 7) 126 731
Non-controlling interest and redeemable
preferred shares (note 8) 12,089 13,458
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266,894 243,243
Shareholders' equity
Capital stock (note 9) 99,930 115,137
Contributed surplus 3,820 3,772
Retained earnings 85,871 95,610
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189,621 214,519
Contingency (note 14)
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$456,515 $457,762
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See accompanying notes to consolidated financial statements
TVA GROUP INC.
Consolidated statements of cash flows
(unaudited)
(in thousands of dollars)
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Three-month periods Nine-month periods
ended September 30 ended September 30
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2008 2007 2008 2007
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CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $11,858 $5,274 $30,373 $22,778
Non-cash items
Amortization 3,534 3,179 10,354 9,703
Equity in income of
companies subject to
significant influence 40 (4) (393) (796)
Non-controlling interest (374) (721) (1,369) (2,177)
Tax benefits relating to tax
deductions (note 5) - - - (3,670)
Future income taxes (6,408) (29) (4,900) (1,332)
Others (381) 208 (570) (467)
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Cash flows provided by
current operations 8,269 7,907 33,495 24,039
Net change in non-cash items 3,657 (361) (3,416) 15,008
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Cash flows from operating
activities 11,926 7,546 30,079 39,047
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CASH FLOWS FROM INVESTING
ACTIVITIES
Additions to fixed assets (7,981) (3,453) (15,351) (9,735)
Business acquisition
(notes 6 and 7) (105) (274) (105) (2,899)
Deferred charges - - (400) -
Changes in investments
(note 7) - 226 (489) 226
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Cash flows from investing
activities (8,086) (3,501) (16,345) (12,408)
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CASH FLOWS FROM FINANCING
ACTIVITIES
Bank overdraft (2,335) (1,985) (2,223) 2,015
(Decrease) increase in
long-term debt (922) (951) 42,167 (26,016)
Class B share redemption
(note 9 b) (15) - (51,415) -
Issuance of shares of a
subsidiary (note 8) - 750 - 2,050
Dividends paid (1,202) (1,352) (3,904) (4,054)
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Cash flows from financing
activities (4,474) (3,538) (15,375) (26,005)
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Net change in cash (634) 507 (1,641) 634
Cash, at beginning of period 2,218 3,083 3,225 2,956
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Cash, at end of period $1,584 $3,590 $1,584 $3,590
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SUPPLEMENTAL INFORMATION
Interests paid net of
interests income received $698 $926 $1,705 $3,131
Income taxes paid (received) 3,313 (806) 18,751 (3,155)
Additions to fixed assets
financed by accounts payable
and accrued liabilities at
end of period $983 $1,521
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See accompanying notes to consolidated financial statements
TVA GROUP INC.
Notes to consolidated financial statements
Three-month and nine-month periods ended September 30, 2008 and
2007 (unaudited)
(Amounts presented in the tables are expressed in thousands of
dollars, except per-share and per-option amounts)
1. FINANCIAL STATEMENT PRESENTATION
These consolidated financial statements have been prepared in
conformity with Canadian Generally Accepted Accounting Principles
("GAAP"). With the exception of the accounting policies presented
in note 2 for the current quarter, the same accounting policies
described in the consolidated financial statements included in the
latest annual report of TVA Group Inc. ("the Company") have been
used. However, these consolidated financial statements do not
include all disclosures required under Canadian GAAP for an annual
report and accordingly should be read in conjunction with the
Company's latest annual consolidated financial statements and the
notes thereto.
Some of the Company's businesses experience significant
seasonality effects due to, among other things, seasonal
advertising patterns and their influence on people's viewing,
reading and listening habits. Because the Company 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 due to the seasonality of certain operations.
2. CHANGES IN ACCOUNTING POLICIES
Current changes to accounting policies
On January 1st, 2008, the Company adopted the Canadian Institute
of Chartered Accountants (CICA) Handbook Section 3031, Inventories
which requires that additional details be provided regarding the
determination and recognition of inventories and the information to
be presented. The adoption of this new section did not have any
significant effect on its consolidated financial statements.
On January 1st, 2008, the Company also adopted Sections 3862,
Financial Instruments - Disclosures, 3863, Financial Instruments -
Presentation and Section 1535, Capital Disclosures. The disclosures
required by the new standards are presented in note 13 of these
consolidated financial statements.
Future changes to accounting policies
In January 2008, the CICA issued Section 3064 Goodwill and
Intangible Assets, to replace Section 3062 Goodwill and Other
Intangible Assets, Section 3450 Research and Development Costs, and
Emerging Issues Committee (EIC) 27 Revenues and Expenditures during
the Pre-operating Period, and to modify the Accounting Guideline
(AcG) -11 Entreprises in the Development Stage. The new section
establishes standards for the recognition of intangible assets in
the sense of the definition of assets based on principles for
recognizing costs as assets and clarifying the application of the
concept of matching revenues and expenses for intangible assets
acquired or developed internally. The new standard will take effect
for interim and annual financial statements for fiscal years that
begin October 1, 2008 or later. The Company is evaluating the
impact of the application of this standard. In February 2008, the
Accounting Standards Board of Canada confirmed that Canadian GAAP,
as used by companies with a public obligation to report, will be
fully converged to International Financial Reporting Standards
("IFRS") published by the International Accounting Standards Board
("IASB"). The Company will present its interim and annual financial
statements for 2011 in accordance with the IFRS. The Company is
evaluating the impact of this alignment with the IFRS.
3. FINANCIAL EXPENSES
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Three-month periods Nine-month periods
ended September 30 ended September 30
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2008 2007 2008 2007
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Interests on long-term debt $959 $1,043 $2,477 $3,364
Dividends on redeemable
preferred shares 267 940 797 2,800
Interest revenues on convertible
bonds issued by
an affiliated company (258) (910) (771) (2,710)
Interest revenues (25) (58) (649) (329)
Amortization of deferred
financing charges 22 22 66 66
Foreign exchange loss 70 204 93 223
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$1,035 $1,241 $2,013 $3,414
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4. RESTRUCTURING COSTS OF OPERATIONS
During the third quarter of 2007, the Company recorded a
provision for restructuring costs of $527,000 following the
elimination of positions in its Television sector.
During the first nine months of 2008, the Company recorded a
provision of restructuring costs in the amount of $184,000
following the elimination of one position in its Television sector
versus a provision for restructuring costs of $1,739,000 for the
corresponding period of 2007 including $978,000 related to the
elimination of positions in the Television and Publishing sectors,
and $761,000 linked to new litigation relating to the production
activities of its former subsidiary, TVA Acquisition Inc.
5. INCOME TAXES (RECOVERY)
In light of the evolution of tax auditing, jurisprudence and tax
legislation, the Company reduced its future tax liabilities during
the third quarter of 2008 by $6,977,000.
During the second quarter of 2007, following the federal
government's adoption of Bill C-33, which provides for the
modification of the deduction multiple for tax deductions, the
Company recognized into income tax benefits an amount of $3,670,000
that had been recorded as an income tax liabilities pending the
official enactment of the Bill by taxation authorities. Moreover,
following the reductions in federal income tax rates for 2011 and
subsequent years, and in light of the evolution of tax auditing,
jurisprudence and tax legislation, the Company also reduced its
future tax liabilities by $2,057,000 during the first semester of
2007.
6. BUSINESS ACQUISITION
On July 30, 2007, the Company acquired all of the issued and
outstanding shares in Animal Hebdo Inc., the company that publishes
Animal magazine, for a total consideration of $274,000. On January
8, 2007, the Company made the final payment of the purchase price
for the conventional television station in Toronto, SUN TV,
including a working capital adjustment of $2,625,000.
7. INVESTMENT
During the first quarter of 2008, the Company invested an
additional $490,000 in the pay-per-view television service Canal
Indigo S.E.N.C., in which it held a 20% interest. Furthermore, on
February 15, 2008, the Company signed an agreement to purchase all
of the shares of Canal Indigo S.E.N.C. for a total amount of
$105,000. This transaction was finalized on August 31st, 2008, and
the results are included in the Company's consolidated results
since September 1st, 2008.
8. NON-CONTROLLING INTEREST
On September 7, 2007, a subsidiary of the Company, SUN TV
Company, in which the Company has a 75% interest and that operates
the SUN TV television station, obtained from its non-controlling
shareholder an investment in its capital stock of $750,000,
bringing the cumulative investments for 2007 to $2,050,000. The
respective percentage interests in SUN TV Company remained
unchanged.
9. CAPITAL STOCK
a) Number of shares outstanding
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September 30, 2008 Dec. 31, 2007
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Class A common shares 4,320,000 4,320,000
Class B shares 19,704,206 22,704,848
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24,024,206 27,024,848
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b) Shares redemption
Substantial issuer bid
On March 31, 2008, the Company filed a substantial issuer bid to
redeem for cancellation up to 2,000,000 of its participating Class
B non-voting shares, or about 8.8% of the total number of its
issued and outstanding shares, for fixed price of $17.00 per share.
On May 14, 2008; the Company filed a notice to amend and extend its
initial offer order to bring the number of shares redeemable under
the offer to a maximum of 3,000,000 Class B shares and the offer
was thereby extended until June 2, 2008. A total of 9,189,542 Class
B shares were deposited as at the expiration of the offer.
Taking into account the proration factor, adjustments for odd
lot purchases and to avoid the creation of new irregular lots, the
Company took up 3,000,642 Class B shares, for a total consideration
of $51,010,914, plus $404,000 transaction fees, paid through the
credit agreement. The Class B shares redeemed for cancellation
under this issuer bid represented 13.2% of the 22,704,848 Class B
shares issued and outstanding before the redemption.
c) Earnings per share
The following table provides the calculation of basic and
diluted earnings per share:
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Three-month periods Nine-month periods
ended September 30 ended September 30
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2008 2007 2008 2007
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Net income $11,858 $5,274 $30,373 $22,778
Weighted average
number of shares
outstanding 24,024,206 27,024,848 25,716,876 27,024,848
Effect of dilutive
stock options - 6,483 3,467 6,773
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Weighted average
number of diluted
shares outstanding 24,024,206 27,031,331 25,720,343 27,031,621
Basic and diluted
earnings per share $0.49 $0.20 $1.18 $0.84
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10.STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS
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Three-month period Nine-month period
ended September 30, 2008 ended September 30, 2008
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Conventional Quebecor Conventional Quebecor
Class B stock Media Inc. Class B stock Media Inc.
options stock options options stock options
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Balance at
beginning 983,693 258,678 983,693 328,159
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Exercised - (12,694) - (82,175)
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Balance as at
September 30,
2008 983,693 245,984 983,693 245,984
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During the first quarter of 2008, the Company increased the
number of Class B shares that could be issued according to the
terms of the Class B stock option plan for managers from 1,400,000
to 2,200,000. Of the number of options outstanding as at September
30, 2008, 179,509 conventional Class B stock options at an average
exercise price of $19.37 and 2,239 Quebecor Media Inc. stock
options at an average exercise price of $30.99 can be
exercised.
11.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 approximately $992,000. As at September
30, 2008, the Company did not record any liability related to these
guarantees.
12.PENSION PLANS AND OTHER RETIREMENT BENEFITS
The Company maintains defined benefit and defined contribution
pension plans for its employees. In addition, under an old plan,
the Company maintains for certain retired employees other
retirement benefits, such as health, life and dental insurance
plans. Total costs for these benefits are as follows:
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Three-month periods Nine-month periods
ended September 30 ended September 30
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2008 2007 2008 2007
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Pension plans
Defined benefit plans $672 $1,176 $2,072 $3,063
Defined contribution plans 627 584 1,874 1,643
Other retirement benefits $47 $46 $141 $139
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13. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
The Company's risk management policy is established to identify
and analyze the risks faced by the Company, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits.
Risk management policy is reviewed, when necessary, to reflect
changes in market conditions and the Company's activities.
From its use of financial instruments, the Company is exposed to
credit risk, liquidity risk, market risks relating to foreign
exchange fluctuations and to interest rate fluctuations.
i) Fair value of financial instruments
The carrying amount of accounts receivable from external and
related parties (classified as receivables) and accounts payable
and accrued charges to external and related parties (classified as
other liabilities) approximates their fair value since these items
will be realized or paid within one year. As at September 30, 2008,
the fair value of the long-term debt was equivalent to the book
value because it bears interest at variable rates.
ii) Credit risk management
The Company is exposed to credit losses resulting from defaults
by third parties. In the normal course of business, the Company
regularly evaluates the financial position of its clients and
reviews the credit history of each new client. As at September 30,
2008, no clients had balances representing a significant portion of
the Company's consolidated trade receivables. The Company
establishes an allowance for doubtful accounts in response to the
specific credit risk of its clients. The Company's accounts
receivable balance is divided among various clients, primarily
advertising agencies. The Company does not believe that it is
exposed to an unusual or significant level of customer credit risk.
As at September 30, 2008, 10,4% of the accounts receivable had been
unpaid for more than 120 days after the date of invoicing.
Moreover, the allowance for doubtful accounts amounted to
$4,120,000 as of September 30, 2008 ($3,578,000 as of December 31,
2007).
iii) Liquidity risk management
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due or to meet them at
excessive cost. The Company ensures that it has sufficient cash
flows from continuing operations and available sources of financing
to meet planned cash requirements for capital investments, working
capital, interest payments, debt repayments, pension plan
contributions, dividends and shares redemption.
The Company has at its disposal a maximum amount of $160,000,000
under a credit agreement consisting of a revolving-term bank loan
bearing interest at floating rates based on the banker's acceptance
rate or Canadian bank prime rate, plus a variable margin based on
the ratio of total debt to operating income (or earnings before
interests, taxes and amortizations). The credit agreement matures
on June 15, 2010 and is repayable in full on that date.
iv) Market risk
Market risk is the risk that changes in market prices due to
foreign exchange rates and interest rates will affect the Company's
income or the value of its financial instruments. The objective of
market risk management is to mitigate and control exposures within
acceptable parameters.
Foreign currency risk
The Company is exposed to limited foreign currency risk on sales
and expenses that are denominated in a foreign currency other than
Canadian dollars due to the insubstantial volume of such
transactions undertaken. The majority of these transactions are
denominated in U.S. dollars, mainly for the acquisition of certain
distribution rights, for capital expenditures and for certain
foreign denominated sales. The Company has determined in view of
its limited transactions denominated in a foreign currency, its
limited exposure to foreign currency risk does not necessitate the
use of hedging. Accordingly, the Company's sensitivity to the
variation of foreign currency rates is not significant.
An increase or a decrease of 1% in the exchange rate of a
Canadian dollar into a U.S. dollar would have an impact on earnings
before taxes or capital expenditures less than $100,000 on a yearly
basis.
Interest rate risk
The Company is exposed to interest rate risk on its long-term
debt because its financing bears interest at variable rates.
An increase (decrease) of 100 basis points in Canadian banker's
acceptances rate at the reporting date would have increased
(decreased) interest expenses by $985,000 on an annual basis using
debt level prevailing as of September 30, 2008.
Considering the low exposure to markets risk, the Company does
not use derivative financial instruments. However, the Company
regularly reviews its situation to ensure that its exposure to
these risks has not changed.
Capital management
The Company's primary objectives in managing capital are:
- to safeguard the entity's ability to continue as a going
concern, so that it can continue to provide returns for
shareholders
- to maintain an optimal capital base in order to support the
capital requirements of is various activities sectors, including
growth opportunities and to maintain investor and creditor
confidence.
The Company manages its capital structure in accordance with the
characteristics of the assets of its underlying sectors and
according to its planned requirements. The Company has the ability
to manage its capital structure by issuing new debts or by repaying
existing debt with cash generated internally, by controlling the
amounts it returns to shareholders under the dividends or shares
redemption or by issuing capital stock and by making adjustment to
its capital expenditures program. Since the last financial year,
the Company has not changed its strategy regarding the management
of its capital structure.
The capital structure of the Company is composed of shareholder
equity, bank overdraft, long-term debt, non-controlling interest,
redeemable preferred shares at the option of the holder, less
cash.
Except for the maintenance of certain financial ratios required
in the credit agreement, the Company is not subject to any others
externally imposed capital requirements As at September 30, 2008,
the Company was in compliance with the conditions of its credit
agreement.
14. CONTINGENCY
In 2003 and 2004, a number of companies, including TVA Group
Inc., brought a suit against the Crown before the Federal Court,
alleging that the Part II licence fees that broadcasters are
required to pay annually constitute, in fact and in law, a tax, not
authorized by the Broadcasting Act. On December 14, 2006, the
Federal Court ruled that these fees did indeed constitute an
illegal tax, that the Canadian Radio-television and
Telecommunications Commission ("CRTC") was to cease collection of
such fees, and concluded that the plaintiff companies were not
entitled to a reimbursement of the amounts already paid. The
plaintiffs and the defendant both filed an appeal before the
Federal Court of Appeal. On October 1st, 2007, the CRTC issued a
document stating that it would comply with the decision that was
rendered and that it would not collect, in 2007 or in any
subsequent years, the Part II licence fees payable on November 30
of each year unless a Superior Court overturned the Federal Court
decision. In the third quarter of 2007, in light of these facts and
the Federal Court decision, the Company reversed its liability of
$3,238,000 relating to the Part II licence fees for the period from
September 1st, 2006 to September 30, 2007 and ceased to record
these fees for subsequent periods.
On April 29, 2008, the Federal Court of Appeal handed down its
decision and, on the basis of its position that the Part II licence
fees are a valid regulatory charge rather than a tax, overturned
the December 14, 2006 decision of the Federal Court. The plaintiff
companies disputed the decision and filed an application for leave
to appeal to the Supreme Court of Canada. The CRTC publicly stated
that it would not attempt to collect the Part II licence fees
before the earliest of the following: a) the Supreme Court of
Canada denies leave to appeal, or b) the Supreme Court of Canada
upholds the Federal Court of Appeal ruling, or c) the matter is
settled between the parties. The Company's management believes in
the soundness of its application for leave to appeal to the Supreme
Court. However, given the Federal Court of Appeal decision that
confirms the right of the CRTC to collect the Part II licence fees
to which the Company is subject, the Company recorded in the second
quarter of 2008 a total liability of $5,710,000 relating to the
Part II licence fees for the period from September 1st, 2006 to
June 30, 2008. For the three-month period ended September 30, 2008,
the Company recorded an expense for the Part II licence fees of
$575,000, thereby bringing total liability to $6,285,000 as at
September 30, 2008.
15. SEGMENTED INFORMATION
The following table includes information on operating income, as
well as information on assets:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Three-month periods Nine-month periods
ended September 30 ended September 30
--------------------------------------------------------------------------
2008 2007 2008 2007
--------------------------------------------------------------------------
Operating revenues
Television $70,791 $67,194 $240,735 $222,297
Publishing 19,197 21,291 59,098 59,886
Distribution 2,937 4,129 12,345 13,103
Intersegment items (676) (994) (2,415) (3,873)
---------------------------------------------------------------------------
92,249 91,620 309,763 291,413
Operating, selling and
administrative expenses
Television 61,932 59,458 204,576 191,549
Publishing 16,753 18,322 51,679 53,651
Distribution 3,454 2,882 12,240 13,310
Intersegment items (739) (866) (2,671) (3,684)
--------------------------------------------------------------------------
81,400 79,796 265,824 254,826
Income (loss) before
amortization, financial
expenses, restructuring
costs of operations,
income taxes, non-controlling
interest and equity in
income of companies
subject to
significant influence
Television 8,859 7,736 36,159 30,748
Publishing 2,444 2,969 7,419 6,235
Distribution (517) 1,247 105 (207)
Intersegment items 63 (128) 256 (189)
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$10,849 $11,824 $43,939 $36,587
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The intersegment items mentioned above represent the elimination of normal
course business transactions made between the Company's business segments
regarding revenues, expenses and unrealized profit.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
September 30, 2008 December 31, 2007
--------------------------------------------------------------------------
Total assets
Television $343,378 $342,500
Publishing 84,217 84,237
Distribution 17,658 19,763
Unallocated items 11,262 11,262
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$456,515 $457,762
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Contacts: TVA Group Inc. Denis Rozon, CA Vice-President and
Chief Financial Officer 514-598-2808
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