Business News

Quebecor Inc. Reports Consolidated Results for Financial Year and Fourth Quarter 2010

Tuesday 08. March 2011 - Quebecor Inc. (TSX:QBR.A)(TSX:QBR.B) ("Quebecor" or the "Company") today reported its annual and fourth quarter consolidated financial results for 2010. Quebecor consolidates the financial results of its Quebecor Media Inc. ("Quebecor Media") subsidiary, in which it holds a 54.7% interest.

Highlights since end of 2009
Quebecor records revenues of $4.00 billion, up $193.7 million (5.1%) from 2009.
Operating income(1): $1.33 billion, up $52.3 million (4.1%) from 2009.
Net income: $230.1 million ($3.58 per basic share), compared with $277.7 million ($4.32 per basic share) in 2009, a decrease of $47.6 million ($0.74 per basic share) or -17.1%.
Adjusted income from continuing operating activities(2): $230.7 million in 2010 ($3.59 per basic share), compared with $236.3 million ($3.68 per basic share) in 2009, a decrease of $5.6 million ($0.09 per basic share) or -2.4%, reflecting significant investments in new services and products in the Telecommunications and News Media segments during 2010, as well as a one-time gain recognized in 2009 in connection with the reversal of the provision for CRTC Part II licence fees.
Telecommunications segment: operating income up $63.0 million (6.5%). Net customer base change in year ended December 31, 2010: +100,300 for cable telephone service, +81,500 for cable Internet access, +34,600 for cable television (counting 135,500 customer increase for Digital TV), +53,300 subscriber connections to mobile telephone service.
Launch of a new mobile services network (“3G+ network”) by Videotron Ltd. (“Videotron”) on September 9, 2010. As of December 31, 2010, there were 92,600 subscriber connections to the new network, including 36,800 migrations from the mobile virtual network operator (“MVNO”) service.
25-year agreement with Québec City granting Quebecor Media management and naming rights related to the arena to be built in Québec City.
Union and management accept mediator’s recommendation to settle the labour dispute at Le Journal de Montréal. A back-to-work agreement must now be negotiated.
Fourth quarter 2010 highlights
Revenues: up $55.9 million (5.4%) to $1.09 billion.
Operating income: down $31.2 million (-8.0%) to $356.4 million.
Net income: $43.5 million ($0.68 per basic share) in the fourth quarter of 2010, compared with $73.8 million ($1.15 per basic share) in the same quarter of 2009.
“2010 was a signal year for Quebecor’s future development,” said Pierre Karl Péladeau, President and Chief Executive Officer of Quebecor. “With the launch of several new products, the Company is entering the new decade in a position of strength. Our Quebecor Media subsidiary posted excellent financial results in 2010, with revenues topping the $4 billion mark for the first time. The Telecommunications segment recorded customer growth for all of Videotron’s services for the seventh year in a row.
“Since the acquisition of Videotron 10 years ago, Quebecor has made a major change in course, becoming a leader in change and convergence in telecommunications, news and entertainment. That process continued in 2010. After securing favourable conditions for new market entrants in the spectrum auction, spending more than a billion dollars to acquire spectrum and build out its network, and creating nearly 1,000 jobs, Videotron successfully rolled out its new 3G+ network. The launch was unquestionably the most noteworthy event of 2010 for Quebecor.
“In the first months following a product launch, the new revenues generated are often insufficient to cover the higher expenses, which in the case of the 3G+ network include customer acquisition costs per new connection and the amortization charge. Fourth quarter 2010 results were therefore negatively affected by the launch.
“In line with its commitment to continually improve customer experience, Videotron also launched illico web and illico mobile. The new services give our customers access to their television channels and other services, including video on demand, on several platforms. Customers can pause a program and resume play at the same point on their television set, computer or mobile handset. These services will be steadily expanded in the future to offer a selection of content as varied as the customer’s Digital TV package. Delivering multiplatform content on a variety of distribution channels will enable Quebecor to bring consumers a full complement of information and entertainment anytime, anywhere, placing us at the forefront of a booming industry.
“As part of its strategy aimed at offering more value-added content and making it available to ever more consumers, Quebecor Media completed another step in its development plan a few days ago by reaching an agreement with Québec City granting Quebecor Media management and naming rights for a 25-year period related to the arena to be built in Québec City. These rights are a key asset to Quebecor Media in its efforts to obtain a National Hockey League franchise for Québec City. The project creates attractive opportunities for convergence in view of the natural linkages between this new business and Quebecor Media’s lines of business.
“In the News Media segment, an industry that has been facing both cyclical and structural problems in recent years, the Company has undertaken a number of restructuring and repositioning efforts. The most important of the restructuring initiatives was carried out over the last 18 months: we reduced our workforce by more than 1,000 full-time equivalents and realized annualized operating savings of approximately $100 million, or 10% of operating expenses. The process was not problematic except at Le Journal de Montréal, where a labour dispute occurred. However, that situation will soon be resolved, since on February 26, 2011 the employees accepted the recommendation of the special mediator appointed by the Québec government.
“As for repositioning, we continued implementing our investment plan in order to increase and diversify our revenue streams. During 2010, the QMI Agency became the main supplier of general news content to all of Quebecor Media’s media properties. It has three newsrooms, in Montréal, Ottawa and Toronto. The new structure will enable us to generate new revenues by marketing our content on new markets, which we could not contemplate in the previous environment. With its national scope, the QMI Agency will provide news in many fields, such as sports, national and provincial politics, and other Canadian current events.
“At the same time, to expand its services to Canadian retailers and meet their insert printing and distribution needs, an $800 million market in Canada, the Company launched eight community newspapers in 2010, including L’Écho de Laval and L’Écho de la Rive-Nord, enabling it to extend its distribution network. With the acquisition on February 3, 2011 of Les Hebdos Montérégiens, which has more than 15 publications covering some 78 Montréal South Shore municipalities stretching from Salaberry-de-Valleyfield to Sorel, the Company now has the capacity to reach more than 90% of Québec households. Given our leading position in Ontario, where we cover more than 2.4 million doors or over 50% of the market, and our significant presence in western Canada, particularly in Alberta, the Company now has the largest distribution network in Canada. Our new business solutions have attracted new customers such as Golf Town and, more recently, The Jean Coutu Group (PJC) Inc., for which our ultramodern printing plants will in a few weeks produce the weekly printing program consisting of millions of inserts per week.
“On the marketing front, the QMI National Sales Office in Toronto reached national multiplatform advertising agreements with new clients, based on our new approach: one-stop shopping for integrated solutions. All these moves have powerfully positioned the News Media segment to set itself apart as Canada’s preeminent multimedia destination for news.
“The many investments we have made have cut into our income in recent quarters, but we consider them essential in order to make up for the decline of some of our historic lines of business, such as classified ads, and decreasing circulation revenues.
“Also as a part of this strategy, the new English-language news and opinion specialty channel Sun News, which is set to launch in the spring of 2011, will provide full coverage of the events that impact Canadian society, politics and the economy, expanding the Company’s presence in the English-language market.
“The initiatives and successes of 2010 testify to Quebecor’s determination to be a leading-edge player that delivers superior value. Quebecor is eager for new challenges and intends to seize all growth opportunities in order to accomplish its mission and be a Canadian telecommunications and media leader.”
Table 1
Quebecor financial highlights, 2006 to 2010
(in millions of Canadian dollars, except per share data)
2010 2009 2008 2007 2006

Revenues $4,000.1 $3,806.4 $3,759.4 $3,390.6 $3,015.8
Operating income1 1,329.0 1,276.7 1,121.1 948.8 785.5
Income (loss) from continuing operations 230.1 276.1 (195.3 ) 273.3 (94.8 )
Net income (loss) 230.1 277.7 188.0 (968.5 ) (94.2 )
Adjusted income from continuing operations2 230.7 236.3 179.4 134.4 97.4
Per basic share:
Income (loss) from continuing operations 3.58 4.30 (3.04 ) 4.25 (1.47 )
Net income (loss) 3.58 4.32 2.92 (15.06 ) (1.47 )
Adjusted income from continuing operations2 3.59 3.68 2.79 2.09 1.51
1 See “Operating income” under “Definitions.”
2 See “Adjusted income from continuing operations” under “Definitions.”
Analysis of 2010 results
Revenue: $4.00 billion, an increase of $193.7 million (5.1%).
Revenues increased in Telecommunications ($207.8 million or 10.4% of segment revenues) mainly because of customer growth for all services, in Broadcasting ($9.2 million or 2.1%), and in Interactive Technologies and Communications ($7.0 million or 7.7%).
Revenues decreased in News Media (by $20.1 million or -1.9%), mainly because of lower advertising revenues at the community newspapers and directories, as well as lower circulation revenues, and also in Leisure and Entertainment ($5.3 million or -1.7%).

Operating income: $1.33 billion, an increase of $52.3 million (4.1%).
Operating income increased in Telecommunications ($63.0 million or 6.5% of segment operating income), in Interactive Technologies and Communications ($1.9 million or 46.3%), and in Leisure and Entertainment ($1.6 million or 6.2%).
The News Media segment’s operating income was flat.
Operating income decreased in Broadcasting (by $3.8 million or -4.8%).
The variance in operating income includes a $32.8 million unfavourable variance (including $25.6 million in the Telecommunications segment and $7.2 million in the Broadcasting segment) related to the adjustment to CRTC Part II licence fees in 2009.
A change in the fair value of Quebecor Media resulted in a $1.4 million unfavourable variance in the stock-based compensation charge in 2010 compared with 2009. The increase in Quebecor’s stock price resulted in a $16.5 million unfavourable variance in the Company’s stock-based compensation charge in 2010.
Excluding the impact of the stock-based compensation charge, and if the figures for prior periods were restated to retroactively reflect the reversal of the accumulated CRTC Part II licence fee provision in the fourth quarter of 2009, the increase in operating income in 2010 would have been 8.2%, compared with 11.3% in 2009.

Net income: $230.1 million ($3.58 per basic share), compared with $277.7 million ($4.32 per basic share) in 2009, a variance of $47.6 million ($0.74 per basic share) or -17.1%.
The decrease was mainly due to:
$57.5 million increase in amortization charge;
$28.3 million increase in financial expenses;
$20.7 million increase in charge for restructuring of operations, impairment of assets and other special items;
$13.6 million unfavourable variance in gains on valuation and translation of financial instruments;
recognition in 2010 of losses on debt refinancing, totalling $12.3 million.
Partially offset by:
$52.3 million increase in operating income;
favourable variance in 2010 related to recognition in 2009 of a $13.6 million non-cash charge for impairment of goodwill and intangible assets.

Adjusted income from continuing operations: $230.7 million in 2010 ($3.59 per basic share), compared with $236.3 million ($3.68 per basic share) in 2009, a decrease of $5.6 million ($0.09 per basic share) or -2.4%.
Analysis of fourth quarter 2010 operating results
Revenues: $1.09 billion, an increase of $55.9 million (5.4%).
Revenues increased in Telecommunications ($53.0 million or 9.9% of segment revenues), mainly due to customer growth for all services, in Broadcasting ($4.9 million or 3.8%), Interactive Technologies and Communications ($4.4 million or 18.7%) and in Leisure and Entertainment ($2.1 million or 2.2%).
Revenues decreased in News Media (by $6.7 million or -2.4%), mainly because of lower advertising revenues at the community newspapers and directories, and lower circulation revenues.

Operating income: $356.4 million, a decrease of $31.2 million (-8.0%).
Operating income decreased in Telecommunications (by $21.3 million or -7.6% of segment operating income) and in Broadcasting ($2.3 million or -7.1%). The decrease in operating income includes unfavourable variances of $33.8 million in the Telecommunications segment and $9.0 million in the Broadcasting segment related to the adjustment to the provision for CRTC Part II licence fees in 2009. The Telecommunications segment’s results were also affected by increases in some operating expenses, among them costs related to the roll-out of the 3G+ network, including acquisition costs of $471 per subscriber addition.
Operating income decreased in News Media ($9.2 million or -13.3%).
Operating income increased in Leisure and Entertainment (by $2.8 million or 33.3%) and in Interactive Technologies and Communications ($1.1 million or 78.6%).
The change in the fair value of Quebecor Media resulted in a $5.7 million favourable variance in the stock-based compensation charge in the fourth quarter of 2010 compared with the same period of 2009. The fair value of Quebecor Media decreased during the fourth quarter of 2010, contrary to the increase in the same period of 2009. The increase in Quebecor’s stock price resulted in a $7.2 million unfavourable variance in the Company stock-based compensation charge in the fourth quarter of 2010.
Excluding the impact of the stock-based compensation charge, and if the figures for prior periods were restated to retroactively reflect the reversal in the fourth quarter of 2009 of the accumulated CRTC Part II licence fee provision, the increase in operating income in the fourth quarter of 2010 would have been 3.7%, compared with 15.9% in the same period of 2009.

Net income: $43.5 million ($0.68 per basic share) in the fourth quarter of 2010, compared with $73.8 million ($1.15 per basic share) in the same quarter of 2009.
The $30.3 million ($0.47 per basic share) decrease was mainly due to:
$34.7 million increase in amortization charge;
$31.2 million decrease in operating income;
$26.0 million unfavourable variance in gain or loss on valuation and translation of financial instruments;
$7.7 million increase in financial expenses.

Adjusted income from continuing operations: $55.7 million in the fourth quarter of 2010 ($0.87 per basic share), compared with $84.0 million ($1.31 per basic share) in the same period of 2009, a decrease of $28.3 million ($0.44 per basic share).
Financing activities
On January 5, 2011, Quebecor Media completed an issuance of Senior Notes in the aggregate principal amount of $325 million, for net proceeds of $319.2 million (net of financing fees). The Notes bear interest at a rate of 7 3/8% and mature in January 2021. This transaction marks Quebecor Media’s inaugural offering on the Canadian high-yield market, adding to its established presence in the U.S. high-yield market. Quebecor Media used the net proceeds from the placement to make a $288.0 million injection into Sun Media Corporation and for general corporate purposes. Sun Media Corporation used the Quebecor Media injection to finance the early repayment and withdrawal, on February 15, 2011, of all its outstanding 7 5/8% Senior Notes maturing on February 15, 2013, in the aggregate principal amount of $205.0 million, and to finance the settlement and cancellation of related hedges.
In May 2010, Osprey Media Publishing Inc. (“Osprey Media”) paid down the $114.8 million balance on its term credit facility. On June 30, 2010, all Osprey Media’s credit facilities were cancelled.
On January 14, 2010, Quebecor Media made a US$170.0 million early payment on drawings on its term loan “B” and settled a corresponding portion of its hedge agreements for $30.9 million, for a total cash disbursement of $206.7 million. On January 14, 2010, Quebecor Media also extended the maturity date of its $100.0 million revolving credit facility from January 2011 to January 2013 and obtained certain other advantageous amendments to the covenants attached to its credit facilities.
On January 13, 2010, Videotron closed a placement of $300.0 million aggregate principal amount of its 7 1/8% Senior Notes maturing in 2020, for net proceeds of $293.9 million (net of financing fees). This transaction was also Videotron’s inaugural offering on the Canadian high-yield market.
On February 18, Quebecor amended the indenture dated February 23, 2001 governing the bonds issued by the Company, which are exchangeable for Subordinate Voting Shares of Quebecor World Inc. As a result of the amendment, the applicable interest rate has been changed from 1.5% to 0.10% per year. All other terms of the indenture are unchanged.
Dividends
On March 7, 2011, the Board of Directors of Quebecor declared a quarterly dividend of $0.05 per share on Class A Multiple Voting Shares and Class B Subordinate Voting Shares, payable on April 19, 2011 to shareholders of record at the close of business on March 25, 2011. This dividend is designated to be an eligible dividend, as provided under subsection 89(14) of the Canadian Income Tax Act and its provincial counterpart.