TVA Group reports higher adjusted operating income(1) in third quarter ended September 30, 2015

MONTREAL, Nov. 2, 2015 /CNW Telbec/ - TVA Group Inc. ("TVA Group" or the "Corporation") today announced that it recorded adjusted operating income1 in the amount of $30.9 million in the third quarter of 2015, compared with $7.6 million in the same quarter of 2014.

The Corporation also recognized a $60.1 million non-cash charge for impairment of a broadcasting licence and declared a net loss attributable to shareholders of $36.5 million or $0.84 per share in the quarter, compared with a net loss attributable to shareholders of $35.7 million or $1.50 per share in the same quarter of 2014.

Third quarter operating highlights:

  • Consolidated adjusted operating income1 of $30,864,000, a favourable variance of $23,226,000 (304%) compared with the same quarter of 2014;
  • Adjusted operating income1 of $19,527,000 in the Broadcasting & Production segment, a favourable variance of $14,731,000 (307%), caused mainly by an increase in the adjusted operating results of the "TVA Sports" service and an increase in TVA Network's adjusted operating income;
  • Adjusted operating income1 of $3,732,000 in the Magazines segment, a favourable variance of $890,000 (31%) due primarily to the addition of the adjusted operating results of the magazines acquired from Transcontinental on April 12, 2015;
  • Adjusted operating income1 of $7,605,000 in the Corporation's new Film Production & Audiovisual Services segment, which includes the operations of the properties acquired from A.R. Global Vision Ltd. on December 30, 2014;
  • Non-cash charge for impairment of a licence and goodwill of $60,107,000, compared with $41,000,000 in the same period of 2014.

"We are satisfied with the improvement in our financial results based on adjusted operating income in all three of our business segments. The excellent financial performance of our new Film Production & Audiovisual Services segment made a significant contribution. Adding this line of business, which has strong growth potential, to the Corporation's operations is consistent with our goal of reducing our dependence on fluctuating advertising revenues," said Julie Tremblay, President and CEO of the Corporation.

"This being said, market conditions in the television industry, particularly the pressure on advertising revenues, led the Corporation to conclude that the book value of a broadcasting licence is no longer recoverable and that a $60.1 million non-cash impairment charge was necessary," commented Ms. Julie Tremblay. "On the other hand, the progression of advertising and subscription revenues from our specialty services, particularly "TVA Sports," bode well for the Broadcasting & Production segment. TVA Group's ratings continued to climb, reaching a combined market share of 32.3%, compared with 31.6% in the same quarter of 2014. TVA Network remains the leading over-the-air network with a 22.3% market share and 3 of the top 5 most watched programs in Quebec, namely Le Banquier and two new series, Boomerang and Pour Sarah, each of which attracted more than 1.5 million viewers," said Ms. Tremblay.

"Financial results also improved in our Magazines segment during the quarter because of the inclusion of the operating results of the mastheads acquired from Transcontinental in the second quarter. The addition of those titles to our existing portfolio of magazines has made us the largest magazine publisher in Canada and strengthened our advertising offer to national advertisers," concluded Ms. Tremblay.

Definition

Adjusted operating income (loss)

In its analysis of operating results, the Corporation defines adjusted operating income (loss) as net income (loss) before depreciation of property, plant and equipment, amortization of intangible assets, financial expenses, operational restructuring costs, impairment of assets and other costs, income taxes and share of loss (income) of associated corporations. Adjusted operating income (loss) as defined above is not a measure of results that is consistent with International Financial Reporting Standards ("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 should not be considered in isolation or as a substitute for other performance measures prepared in accordance with IFRS. This measure is used by management and the Board of Directors to evaluate the Corporation's consolidated results and the results of its segments. This measure eliminates the significant level of impairment, depreciation and amortization of tangible and intangible assets and is unaffected by the capital structure or investment activities of the Corporation and its segments. Adjusted operating income (loss) is also relevant because it is a significant component of the Corporation's annual incentive compensation programs. The Corporation's definition of adjusted 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. Factors that may cause actual results to differ from current expectations include seasonality, operational risks (including pricing actions by competitors), programming, content and production cost risks, credit risk, government regulation risks, government assistance risks, changes in economic conditions, fragmentation of the media landscape, and labour relation 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, 2014 and the "Risk Factors" section in the Corporation's 2014 annual information form.

The forward-looking statements in this news release reflect the Corporation's expectations as of November 2, 2015, 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 engaged in the broadcasting, film and television production, and magazine publishing industries. TVA Group Inc. is North America's largest broadcaster of French-language entertainment, information and public affairs programming, largest publisher of French-language magazines, and one of the largest private-sector producers of French-language content. The Corporation's Class B shares are listed on the Toronto Stock Exchange under the ticker symbol TVA.B. 

____________________

1 See definition of adjusted operating income (loss) below.

 

TVA GROUP INC.
Interim consolidated statements of loss





(unaudited)
(in thousands of Canadian dollars, except per-share amounts)







Three-month periods
ended September 30

Nine-month periods
ended September 30


Note


2015


2014


2015


2014











Revenues

2

$

138,523

$

94,525

$

424,461

$

309,546











Purchases of goods and services

3


70,242


57,105


273,522


191,508

Employee costs



37,417


29,782


120,395


95,426

Depreciation of property, plant and equipment and amortization of intangible assets



6,871


5,870


20,758


16,571

Financial expenses

4


1,009


1,078


3,814


3,173

Impairment of a licence and goodwill

5


60,107


41,000


60,107


41,000

Operational restructuring costs, impairment of assets and other costs

6


168


109


2,879


109

Loss before tax recovery and share of loss of associated corporations



(37,291)


(40,419)


(57,014)


(38,241)











Tax recovery



(1,689)


(6,176)


(8,083)


(6,695)











Share of loss of associated corporations

11 a)


449


1,427


4,559


5,124

Net loss


$

(36,051)

$

(35,670)

$

(53,490)

$

(36,670)











Net (loss) income attributable to:










Shareholders


$

(36,455)

$

(35,670)

$

(53,754)

$

(36,670)

Non-controlling interest



404



264






















Basic and diluted loss per share attributable to shareholders

8 c)

$

(0.84)

$

(1.50)

$

(1.44)

$

(1.54)

See accompanying notes to interim condensed consolidated financial statements.

 

TVA GROUP INC.
Interim consolidated statements of comprehensive loss





(unaudited)
(in thousands of Canadian dollars)







Three-month periods
ended September 30

Nine-month periods
ended September 30


Note


2015


2014


2015


2014











Net loss


$

(36,051)

$

(35,670)

$

(53,490)

$

(36,670)











Other comprehensive items that may be reclassified to income:











Derivative financial instrument

9


(154)



(519)



Deferred income taxes

9


42



140


Comprehensive loss


$

(36,163)

$

(35,670)

$

(53,869)

$

(36,670)











Comprehensive (loss) income attributable to:











Shareholders


$

(36,567)

$

(35,670)

$

(54,133)

$

(36,670)


Non-controlling interest



404



264


See accompanying notes to interim condensed consolidated financial statements.

 

TVA GROUP INC.
Interim consolidated statements of equity





(unaudited)
(in thousands of Canadian dollars)






Equity attributable to shareholders

Equity
attributable
to non-
controlling interest

Total
equity


Capital
stock
(note 8)

Contributed surplus

Retained earnings

Accumula-
ted other comprehen-
sive income
(loss)

(note 9)














Balance as at December 31, 2013

$

98,647

$

581

$

203,683

$

5,148

$

$

308,059

Net loss




(36,670)




(36,670)

Balance as at September 30, 2014


98,647


581


167,013


5,148



271,389

Net loss




(4,418)




(4,418)

Other comprehensive loss





(8,766)



(8,766)

Balance as at December 31, 2014


98,647


581


162,595


(3,618)



258,205

Business acquisition (note 7)






565


565

Net (loss) income




(53,754)



264


(53,490)

Issuance of share capital, net of transaction costs


108,633






108,633

Other comprehensive loss





(379)



(379)

Balance as at September 30, 2015

$

207,280

$

581

$

108,841

$

(3,997)

$

829

$

313,534

See accompanying notes to interim condensed consolidated financial statements.

 

TVA GROUP INC.
Interim consolidated balance sheets








(unaudited)
(in thousands of Canadian dollars)









Note

September 30,
2015

December 31,
2014







Assets












Current assets







Cash


$

12,895

$


Accounts receivable



141,735


136,811


Income taxes



6,654


5,256


Programs, broadcast and distribution rights and inventories



73,972


74,765


Prepaid expenses



6,268


3,734




241,524


220,566

Non-current assets







Broadcast and distribution rights



38,793


31,989


Investments



14,169


12,111


Property, plant and equipment



202,977


201,429


Licences and other intangible assets

5


38,234


83,647


Goodwill

7


83,082


48,266


Defined benefit plan asset



4,364


2,964


Deferred income taxes



7,669


1,060




389,288


381,466

Total assets


$

630,812

$

602,032

 

TVA GROUP INC.
Interim consolidated balance sheets (continued)





(unaudited)
(in thousands of Canadian dollars)






Note

September 30,
2015

December 31,
2014







Liabilities and equity












Current liabilities







Bank overdraft


$

$

4,486


Accounts payable and accrued liabilities



111,447


88,746


Income taxes



622


777


Broadcast and distribution rights payable



88,947


45,660


Provisions



5,044


4,331


Deferred revenues



21,156


8,690


Credit facility from parent corporation

11 b)



100,000


Short-term debt



3,750


938




230,966


253,628

Non-current liabilities







Long-term debt



70,364


72,757


Other liabilities



11,920


9,967


Deferred income taxes



4,028


7,475




86,312


90,199

Equity







Capital stock

8


207,280


98,647


Contributed surplus



581


581


Retained earnings



108,841


162,595


Accumulated other comprehensive loss

9


(3,997)


(3,618)


Equity attributable to shareholders



312,705


258,205


Non-controlling interest



829





313,534


258,205







Guarantees

12





Total liabilities and equity


$

630,812

$

602,032

See accompanying notes to interim condensed consolidated financial statements.

On November 2, 2015, the Board of Directors approved the interim condensed consolidated financial statements for the three-month and nine-month periods ended September 30, 2015 and 2014.

 

TVA GROUP INC.
Interim consolidated statements of cash flows





(unaudited)
(in thousands of Canadian dollars)







Three-month periods
 ended September 30

Nine-month periods
 ended September 30


Note


2015


2014


2015


2014











Cash flows related to operating activities











Net loss


$

(36,051)

$

(35,670)

$

(53,490)

$

(36,670)


Adjustments for:












Depreciation and amortization



6,940


5,920


21,003


16,722



Impairment of a licence and goodwill

5


60,107


41,000


60,107


41,000



Share of loss of associated corporations



449


1,427


4,559


5,124



Deferred income taxes



(2,618)


(5,129)


(8,645)


(4,168)



Loss on valuation of derivative financial instruments



5



22





28,832


7,548


23,556


22,008


Net change in non-cash balances related to operating activities



(13,592)


(1,292)


63,279


5,200

Cash flows provided by operating activities



15,240


6,256


86,835


27,208

Cash flows related to investing activities











Additions to property, plant and equipment



(5,498)


(6,094)


(17,592)


(17,914)


Additions to intangible assets



(682)


(188)


(1,581)


(1,683)


Net change in investments

11 a)



(1,781)


(2,620)


(4,548)


Net business acquisitions

7


(1,161)



(56,361)


(501)

Cash flows used in investing activities



(7,341)


(8,063)


(78,154)


(24,646)

Cash flows related to financing activities











Decrease of bank overdraft





(4,486)



Net change of revolving credit facilities



(2,886)



212



Repayment of credit facility from parent corporation

11 b)




(100,000)



Issuance of share capital, net of transaction costs

8


(92)



108,633



Repayment of derivative financial instruments



(35)



(145)


Cash flows (used) provided by financing activities



(3,013)



4,214


Net change in cash



4,886


(1,807)


12,895


2,562

Cash at beginning of period



8,009


12,086



7,717

Cash at end of period


$

12,895

$

10,279

$

12,895

$

10,279

Interest and taxes reflected as operating activities











Net interest paid


$

624

$

21

$

3,175

$

2,052


Income taxes paid (net of refunds)



645


1,079


2,105


5,780

See accompanying notes to interim condensed consolidated financial statements.

TVA GROUP INC.
Notes to interim condensed consolidated financial statements

Three-month and nine-month periods ended September 30, 2015 and 2014 (unaudited)
(Tabular amounts are expressed in thousands of Canadian dollars, except per share and per option amounts)

TVA Group Inc. ("TVA Group" or the "Corporation") is governed by the Québec Business Corporations Act. TVA Group is an integrated communications company engaged in the broadcasting, film and audiovisual production, and magazine publishing industries (note 13). The Corporation is a subsidiary of Quebecor Media Inc. ("Quebecor Media" or the "parent corporation") and its ultimate parent corporation is Quebecor Inc. ("Quebecor"). The Corporation's head office is located at 1600 de Maisonneuve Boulevard East, Montreal, Quebec, Canada.

The Corporation's businesses experience significant seasonality due to, among other factors, seasonal advertising patterns, consumers' viewing and reading habits, and demand for production services from international and local producers. 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. 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 International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), except that they do not include all disclosures required under IFRS for annual consolidated financial statements. In particular, these consolidated financial statements were prepared in accordance with IAS 34, Interim Financial Reporting, and are condensed consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the Corporation's 2014 annual consolidated financial statements, which describe the accounting policies used to prepare these financial statements.

Certain comparative figures for the three-month and nine-month periods ended September 30, 2014 have been restated to conform to the presentation adopted for the three-month and nine-month periods ended September 30, 2015.

2. Revenues

The breakdown of revenues between advertising services, royalties, leasing and post-production services and other services rendered, and product sales is as follows:






Three-month periods

ended September 30

Nine-month periods

ended September 30



2015


2014


2015


2014










Advertising services

$

49,470

$

42,319

$

181,444

$

158,695

Royalties, leasing and post-production services and other services rendered


58,211


27,704


163,055


80,040

Product sales


30,842


24,502


79,962


70,811


$

138,523

$

94,525

$

424,461

$

309,546

 

3. Purchases of goods and services

The main components of purchases of goods and services are as follows:





Three-month periods

ended September 30

Nine-month periods

ended September 30



2015


2014


2015


2014










Royalties, rights and production costs

$

38,831

$

35,431

$

183,184

$

128,119

Printing and distribution


9,450


4,194


22,228


12,694

Services rendered by parent corporation










- Commissions on advertising sales


3,791


2,760


12,537


9,028


- Other


2,194


2,705


6,883


7,880

Building costs


4,729


2,118


14,558


6,798

Marketing, advertising and promotion


2,924


4,158


12,034


10,753

Other


8,323


5,739


22,098


16,236


$

70,242

$

57,105

$

273,522

$

191,508

 

4.   Financial expenses






Three-month periods

ended September 30

Nine-month periods

ended September 30



2015


2014


2015


2014










Interest on long-term debt

$

741

$

1,125

$

2,352

$

3,370

Interest on credit facility from parent corporation (note 11 b))




805


Amortization of financing costs


69


50


245


151

Foreign exchange loss


19


42


185


28

Interest expense (revenues) on net defined benefit asset or liability


13


(72)


39


(215)

Other


167


(67)


188


(161)


$

1,009

$

1,078

$

3,814

$

3,173

 

5.   Impairment of a licence and goodwill

During the third quarter of 2015, the Corporation completed the annual update of its strategic plan for the next three years. Market conditions in the television industry, particularly the continuing pressure on advertising revenues, led the Corporation to perform an impairment test on its Broadcasting & Production cash-generating unit ("CGU"). The Corporation concluded that the recoverable amount, based on value in use, of the Broadcasting & Production CGU was less than its carrying amount. A $60,107,000 non-cash impairment charge was recorded with respect to the broadcasting licence, including $30,054,000 without any tax consequences ($32,462,000 in 2014, including $16,231,000 without any tax consequences). In 2014, an $8,538,000 non-cash goodwill impairment charge, without any tax consequences, was also recognized. The Corporation used an 11.10% pre-tax discount rate and a 0.0% perpetual growth rate to calculate the recoverable amount (11.08% pre-tax discount rate and 1.0% perpetual growth rate in 2014).

6.   Operational restructuring costs, impairment of assets and other costs

In the three-month and nine-month periods ended September 30, 2015 and 2014, the Corporation recorded the following operational restructuring costs in connection with the elimination of positions:





Three-month periods

ended September 30

Nine-month periods

ended September 30



2015


2014


2015


2014










Broadcasting & Production

$

274

$

109

$

739

$

109

Magazines


602



1,882


Film Production & Audiovisual Services


4



339



$

880

$

109

$

2,960

$

109

 

During the three-month period ended September 30, 2015, the Corporation recorded a $32,000 net reversal of professional fees and integration costs ($599,000 expense for the nine-month period ended September 30, 2015) in connection with the acquisition of substantially all of the assets of Mels Studios and Postproduction G.P. ("MELS", formerly A.R. Global Vision Ltd.) and the acquisition of magazines from Transcontinental Inc.

On October 15, 2015, the Supreme Court of Canada refused to hear an appeal from Bell ExpressVu Limited Partnership ("Bell ExpressVu"), a subsidiary of Bell Canada, against a Quebec Court of Appeal judgement in favour of Videotron Ltd. and TVA Group rendered on March 6, 2015. The ruling ordered Bell ExpressVu to pay TVA Group $665,000, including interest, for having failed to implement an appropriate security system in a timely manner to prevent piracy of its satellite television signals between 1999 and 2005, harming its competitors and broadcasters. Accordingly, on October 19, 2015, Bell ExpressVu paid the amount of $933,000, including interest and professional fees, in connection with the outcome of this case. In the third quarter of 2015, a $680,000 gain, including interest, was recognized in operational restructuring costs, impairment of assets and other costs.

7.   Business acquisitions and disposal

On April 12, 2015, the Corporation acquired 14 magazines from Transcontinental, four of which are owned and operated in partnership, as well as three websites, custom publishing contracts and book publishing operations, for a cash purchase price of $55,500,000. A $2,012,000 amount payable was also recorded in accounts payable and accrued liabilities as a preliminary adjustment based on a predetermined working capital target agreed to by the parties.

The acquisition was in keeping with the Corporation's strategy of investing in the production and dissemination of diverse, rich, high-quality entertainment content. The acquired intangible assets basically consist of customer lists and mastheads. The goodwill related to the acquisition arises mainly from the quality of the content and the expected synergies.

The preliminary allocation of the fair value of assets and liabilities associated with this acquisition is as follows:










Assets acquired




Current assets

$

22,062


Investment


2,237


Property, plant and equipment


867


Intangible assets


19,250


Goodwill


34,051


Deferred income taxes


400



78,867

Liabilities assumed




Current liabilities


(20,790)



(20,790)

Net assets acquired at fair value


58,077

Non-controlling interest


(565)


$

57,512




Consideration



Cash


55,500

Amount payable


2,012


$

57,512

 

As part of this transaction, the Corporation simultaneously transferred the acquired book publishing operations to Sogides Group Inc., a corporation under common control, for an agreed price of $811,000, including $300,000 in cash and a balance receivable of $511,000. The transferred net assets include $898,000 in current assets, a $127,000 publishing fund and $214,000 in current liabilities.

The Corporation's consolidated revenues and consolidated pro forma net loss would have been $446,550,000 and $54,528,000 respectively if this net business acquisition had occurred at the beginning of the nine-month period ended September 30, 2015. 

Goodwill in the amount of $7,635,000 is deductible for income tax purposes.

MELS

In the second quarter of 2015, the Corporation recorded a $1,217,000 amount payable as a preliminary adjustment related to the acquisition of MELS in 2014. In the third quarter ended September 30, 2015, the amount payable was lowered and $1,161,000 was paid as a preliminary adjustment to the purchase price. The preliminary adjustment to the purchase price gave rise to recognition of a deferred tax asset of $373,000, additional goodwill of $765,000, and a downward adjustment to non-current liabilities in the amount of $23,000. As the purchase price allocation process had not been completed as of September 30, 2015, the amounts allocated to assets and liabilities may be changed subsequently.

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





September 30,

 2015

December 31,

2014






4,320,000 Class A common shares

$

72

$

72

38,885,535 Class B shares (19,450,906 in 2014)


207,208


98,575


$

207,280

$

98,647

 

On March 20, 2015, the Corporation completed a subscription rights offering to its shareholders, whereby it received gross proceeds totalling $110,000,000 from the issuance of 19,434,629 Class B non-voting shares. Transaction costs of $1,870,000, less $503,000 in income tax, were charged to capital stock as a reduction of gross proceeds from the issuance. The transaction costs include $1,100,000 in commitment fees paid to Quebecor Media.

c) Loss per share attributable to shareholders

The following table shows the computation of loss per basic and diluted share attributable to shareholders:





Three-month periods

ended September 30

Nine-month periods

ended September 30



2015


2014


2015


2014










Net loss attributable to shareholders

$

(36,455)

$

(35,670)

$

(53,754)

$

(36,670)










Weighted average number of basic and diluted shares outstanding


43,205,535


23,770,906


37,368,027


23,770,906










Basic and diluted loss per share attributable to shareholders

$

(0.84)

$

(1.50)

$

(1.44)

$

(1.54)

The loss per diluted share calculation does not take into consideration the potential dilutive effect of stock options of the Corporation, because their impact is non-dilutive.

9.   Accumulated other comprehensive income (loss)










Cash flow

hedge


Defined

benefits plan


Total








Balance as at December 31, 2013 and September 30, 2014

$

$

5,148

$

5,148

Other comprehensive loss



(8,766)


(8,766)

Balance as at December 31, 2014



(3,618)


(3,618)

Other comprehensive loss


(379)



(379)

Balance as at September 30, 2015

$

(379)

$

(3,618)

$

(3,997)

The Corporation is using an interest rate swap to secure future interest expenses on a $39,875,000 portion of its $75,000,000 secured term loan, which bears interest at a floating rate. This interest rate swap is designated as a cash flow hedge and therefore the effective portion of the hedge is reported in other comprehensive income while the ineffective portion is immediately recognized in loss. In the three-month and nine-month periods ended September 30, 2015, losses of $5,000 and $22,000 respectively were recognized in loss under financial expenses in connection with the ineffective portion of the hedge.

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




Nine-month period ended September 30, 2015


Corporation's Class B

stock options

Quebecor Media

stock options


Number

Weighted
average
exercise price

Number

Weighted
average
exercise price








Balance as at December 31, 2014

525,368

$

15.25

355,432

$

55.43

Granted

80,000


6.85

50,000


70.56

Exercised


(79,972)


51.24

Expired

(59,631)


21.28


Cancelled

(82,366)


13.68

(8,200)


67.80

Stock options related to Executive transferred to TVA Group


148,500


55.72

Stock options related to Executive transferred to Quebecor Media


(233,360)


53.71

Balance as at September 30, 2015

463,371

$

13.30

232,400

$

61.61

Of the options outstanding as at September 30, 2015, 369,371 Corporation Class B stock options at an average exercise price of $14.81 and 11,200 Quebecor Media stock options at an average exercise price of $59.23 could be exercised.

During the three-month period ended September 30, 2015, 33,200 Quebecor Media stock options were exercised for a cash consideration of $1,732,000 (8,000 stock options were exercised for a cash consideration of $61,000 for the same period of 2014). During the nine-month period ended September 30, 2015, 79,972 Quebecor Media stock options were exercised for a cash consideration of $2,471,000 (29,375 stock options were exercised for a cash consideration of $413,000 for the same period of 2014).

During the three-month and nine-month periods ended September 30, 2015, the Corporation recorded compensation expenses of $11,000 and $6,000 respectively (nil and a compensation expense reversal of $46,000 respectively in the same periods of 2014) in relation to the Corporation's Class B stock options, and compensation expenses of $126,000 and $957,000 respectively ($262,000 and $859,000 respectively in the same periods of 2014) in relation to Quebecor Media stock options.

11. Related party transactions

a) Share of loss and capital contributions to the "SUN News" specialty service

On February 13, 2015, Sun Media Corporation, a corporation under common control, announced the discontinuation of the operations of the "SUN News" specialty service. As at September 30, 2015, the Corporation's share of the "SUN News" specialty service's loss included costs related to the discontinuation of operations.

In a corporate reorganization carried out in April 2015, Sun Media Corporation was folded into Quebecor Media, which now holds 51% of SUN News General Partnership, the name of which was changed on September 30, 2015 to ROC Television G.P. ("ROC Television").

In 2015, the Corporation has continued making capital contributions to ROC Television and a $1,760,000 allowance was recorded under accounts payable and accrued liabilities as at September 30, 2015 to cover costs related to the discontinuation of operations.

During the three-month period ended September 30, 2015, the partners in ROC Television made no capital contribution to ROC Television. In the same quarter of 2014, the partners in ROC Television made a capital contribution of $4,100,000, including $2,009,000 from the Corporation. 

During the nine-month period ended September 30, 2015, the partners in ROC Television made a capital contribution of $5,900,000 ($10,300,000 during the same period of 2014), including $2,891,000 from the Corporation ($5,047,000 during the same period of 2014).

b) Repayment of credit facility 

On December 30, 2014, in connection with the funding of the acquisition of the assets of MELS, the Corporation obtained a $100,000,000 credit facility from Quebecor Media. On March 20, 2015, the Corporation paid down the credit facility using the proceeds from the subscription rights offering (note 8). The Corporation recognized and paid an $805,000 interest expense in connection with this transaction in the first quarter of 2015, which is included in financial expenses.

12. Guarantees

In the normal course of business, the Corporation enters into indemnification agreements with third parties as part of certain transactions, including acquisition contracts for goods, service agreements and leases. These indemnification agreements require the Corporation to compensate the third parties for costs incurred as a result of specific circumstances. The terms of these indemnification agreements vary from transaction to transaction, based on the contract terms. The nature of these indemnification agreements prevents the Corporation from making a reasonable estimate of the maximum potential amount it could be required to pay to third parties for all of its commitments. In the first quarter of 2014, the liability risk under specific commitments, which totalled $4,700,000 at December 31, 2013, was recognized in purchases of goods and services.

13. Segmented information

At the beginning of 2015, the Corporation revised its business segments to better reflect changes in its operations and management structure following the acquisition of substantially all of the assets of MELS on December 30, 2014. Accordingly, the new Film Production & Audiovisual Services segment was created.

In addition, since April 12, 2015, following the transaction with Transcontinental Inc., the operations of the acquired magazines have been included in the Magazines segment's results, while custom publishing operations have been included in the Broadcasting & Production segment's results.

The Corporation's operations now consist of the following segments:

  • The Broadcasting & Production segment, which includes the operations of TVA Network (including the subsidiary and divisions TVA Productions Inc., TVA Nouvelles and TVA Interactif), specialty services, the marketing of digital products associated with the various televisual brands, the commercial production, dubbing, custom publishing and premedia services of TVA Accès Inc., and distribution of audiovisual products by the TVA Films division;
  • The Magazines segment, which through its subsidiaries, notably TVA Publications Inc. and Les Publications Charron & Cie inc., publishes French- and English-language magazines in various fields such as the arts, entertainment, television, fashion, sports and decoration as well as the marketing of digital products associated with the various magazine brands;
  • The Film Production & Audiovisual Services segment, which since December 30, 2014 has included the soundstage and equipment leasing, post-production and visual effects services provided by MELS.

 





Three-month periods

ended September 30

Nine-month periods

ended September 30



2015


2014


2015


2014










Revenues










Broadcasting & Production

$

87,145

$

78,829

$

305,564

$

264,005


Magazines


32,265


16,243


73,980


47,339


Film Production & Audiovisual Services


20,460



48,366



Intersegment items


(1,347)


(547)


(3,449)


(1,798)



138,523


94,525


424,461


309,546

Adjusted operating income 1










Broadcasting & Production


19,527


4,796


11,579


14,655


Magazines


3,732


2,842


5,883


7,957


Film Production & Audiovisual Services


7,605



13,082




30,864


7,638


30,544


22,612

Depreciation of property, plant and equipment and amortization of intangible assets


6,871


5,870


20,758


16,571

Financial expenses


1,009


1,078


3,814


3,173

Impairment of a licence and goodwill


60,107


41,000


60,107


41,000

Operational restructuring costs, impairment of assets and other costs


168


109


2,879


109

Loss before tax recovery and share of loss of associated corporations

$

(37,291)

$

(40,419)

$

(57,014)

$

(38,241)

 

The above-noted intersegment items represent the elimination of normal course business transactions between the Corporation's business segments regarding revenues.

(1) The Chief Executive Officer uses adjusted operating income (loss) as a measure of financial performance for assessing the performance of each of the Corporation's segments. Adjusted operating income (loss) is defined as net income (loss) before depreciation of property, plant and equipment, amortization of intangible assets, financial expenses, operational restructuring costs, impairment of assets and other costs, income taxes and share of loss (income) of associated corporations. Adjusted operating income (loss) as defined above is not a measure of results that is consistent with IFRS.

 

SOURCE TVA Group

For further information: Denis Rozon, CPA, CA, Vice President and Chief Financial Officer, (514) 598-2808

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