Mr. Pierre Dion reports

QUEBECOR INC. REPORTS CONSOLIDATED RESULTS FOR SECOND QUARTER 2014

Quebecor Inc. has released its consolidated financial results for the second quarter of 2014. Quebecor consolidates the financial results of its Quebecor Media Inc. subsidiary, in which it holds a 75.4-per-cent interest.

Highlights

Second quarter 2014

• Revenues were up $6.0-million (0.6 per cent) to $1.07-billion.
• Adjusted operating income were up $13.6-million (3.7 per cent) to $385.9-million despite the unfavourable impact on the comparative results of a one-time $5.8-million adjustment to Canadian Radio-television and Telecommunications Commission (CRTC) fees in 2013.
• Net loss attributable to shareholders was $54.8-million (45 cents per basic share) in the second quarter of 2014 compared with $93.6-million (75 cents per basic share) in the same period of 2013, a favourable variance of $38.8-million (30 cents per basic share).
• Adjusted income from continuing operations was $66.0-million (54 cents per basic share) in the second quarter of 2014, compared with $53.0-million (43 cents per basic share) in the same period of 2013, an increase of $13.0-million (11 cents per basic share).
• The telecommunications segment grew its revenues by $20.7-million (3.1 per cent) and its adjusted operating income by $10.7-million (3.3 per cent) in the second quarter of 2014. Mobile telephony revenues were up $13.7-million or 25.8 per cent and Internet access revenues were up $10.5-million or 5.1 per cent.
• The news media segment's adjusted operating income was up $6.1-million (20.8 per cent) in the second quarter of 2014. The sale of 74 Quebec weeklies to Transcontinental Interactive Inc., a subsidiary of Transcontinental Inc., for a cash consideration of $75.0-million closed on June 1, 2014.
• On April 28, 2014, Pierre Dion was appointed president and chief executive officer of Quebecor and Quebecor Media, replacing Robert Depatie, who resigned for health reasons. Manon Brouillette was named president and chief executive officer of Videotron Ltd. on May 7, 2014.
• On June 19, 2014, at the corporation's annual meeting of shareholders, Brian Mulroney was named chairman of the board of Quebecor.
• On July 31, 2014, Quebecor announced the creation of media group, a new segment dedicated to entertainment and news media. Media group includes the operations of TVA Group Inc., Sun Media Corp., QMI Agency, QMI Out of Home, Quebecor Media Sales, Messageries Dynamiques and Quebecor Media Printing Inc. Julie Tremblay was named president and chief executive officer of the new segment. She will also serve as president and chief executive officer of TVA Group.

"In the second quarter of 2014, Quebecor posted a $13.6-million increase in adjusted operating income and a 24.5-per-cent increase in adjusted income from continuing operations," noted Pierre Dion, president and chief executive officer of Quebecor. "Once again, the strong results were propelled by the telecommunications segment's performance, combined with successful cost-containment and reduction initiatives in our news media segment and the positive impact of various refinancing operations completed at advantageous interest rates.

"The news media segment will continue its repositioning with the creation of media group. The new entity will maximize our group's strengths by pooling its talents in order to provide even better, more diverse and more distinctive content. Media group will enhance our capability to push content across all our platforms more effectively and more nimbly, taking the convergence strategy that undergirds our success to the next level."

"Videotron continued its growth in the second quarter of 2014, increasing its revenues by $20.7-million or 3.1 per cent, and its adjusted operating income by $10.7-million, despite the $4.7-million unfavourable impact of CRTC fees," said Manon Brouillette, president and chief executive officer of Videotron. "Average monthly revenue per user (ARPU) rose to $123.61, up $6.37 (5.4 per cent) from the second quarter of 2013. Our mobile telephony service made substantial gains, adding more than 100,000 subscriber connections over the past 12 months. Videotron continues to demonstrate its formidable capacity to innovate and launch new products, such as its new illico app for the iPad and a next-generation Wi-Fi router that is compatible with the latest wireless technology."

"The adjusted operating income of the news media segment, now part of media group, jumped 20.8 per cent, despite a 7.3-per-cent decrease in revenues," said Julie Tremblay, president and chief executive officer of media group. "The numbers reflect the positive impact of the major cost-reduction and repositioning initiatives implemented over the past few years."

In the broadcasting segment, on July 1, 2014, TVA Sports became the official French-language broadcaster of the National Hockey League for the next 12 years. TVA Group reached agreements with Telus and Cogeco Cable Canada whereby Telus and Cogeco customers will have access to TVA content on demand and to the TVA Sports and TVA Sports 2 specialty channels. TVA Group also announced that the successful television program La Voix will be back for a third season in winter 2015.

"Quebecor's solid year-to-date consolidated financial results were driven by the pursuit of its business plan in its growth sectors and the refocusing and transformation of its more traditional media outlets," said Mr. Dion. "The corporation remains favourably positioned to achieve its business development, growth and profitability objectives in the second half of 2014 and subsequent quarters."

          QUEBECOR SECOND QUARTER FINANCIAL HIGHLIGHTS, 2010 TO 2014
               (In millions of dollars, except per share data)

                                 Q2         Q2         Q2         Q2       Q2
                               2014       2013       2012       2011     2010

Revenues                   $1,069.2   $1,063.2   $1,053.8   $1,019.9   $967.7
Adjusted operating income     385.9      372.3      358.1      356.8    348.6
(Loss) income from
continuing operations
attributable to
shareholders                  (61.2)    (119.7)      66.5       53.6     59.2
Net (loss) income
attributable to
shareholders                  (54.8)     (93.6)      65.5       54.0     60.4
Adjusted income from
continuing operations          66.0       53.0       48.2       58.3     61.3
Per basic share
(Loss) income from
continuing operations
attributable to
shareholders                  (0.50)     (0.96)      0.52       0.42     0.46
Net (loss) income
attributable to
shareholders                  (0.45)     (0.75)      0.52       0.42     0.47
Adjusted income from
continuing operations          0.54       0.43       0.38       0.45     0.48

Discontinued operations

Quebecor Media announced that it was abandoning door-to-door distribution of community newspapers and flyers in Quebec and discontinuing distribution of the Le Sac Plus doorknob bag as of January, 2014. On June 1, 2014, Quebecor Media finalized the sale of 74 Quebec weeklies to Transcontinental Interactive, a subsidiary of Transcontinental, for a cash consideration of $75.0-million. Quebecor Media sold its specialized websites Jobboom and Reseau Contact on June 1, 2013, for a total cash consideration of $59.2-million, net of disposed of cash in the amount of $5.8-million. The operating results and cash flows related to those businesses, as well as the $7.9-million gain on the sale of the 74 Quebec weeklies and the $37.6-million gain on the sale of the two websites, were reclassified as discontinued operations in the consolidated statements of income and cash flows.

Changes in accounting policies

Although market participants submitted various interpretations to the IFRS interpretations committee, as per the report released by the committee in May, 2014, a financial instrument that is mandatorily convertible into a variable number of shares, subject to a cap and a floor, should be classified in its entirety as a liability. As such, the corporation changed retrospectively its accounting policy for the accounting of its convertible debentures to be in line with the IFRS interpretations committee discussions.

2014/2013 second quarter comparison

Revenues: $1.07-billion, a $6.0-million (0.6-per-cent) increase

• Revenues increased in telecommunications ($20.7-million or 3.1 per cent of segment revenues) and in interactive technologies and communications ($1.5-million or 4.2 per cent).
• Revenues decreased in news media ($14.6-million or minus 7.3 per cent), leisure and entertainment ($3.2-million or minus 4.8 per cent) and broadcasting ($1.4-million or minus 1.2 per cent).

Adjusted operating income: $385.9-million, a $13.6-million (3.7-per-cent) increase

• Adjusted operating income increased in telecommunications ($10.7-million or 3.3 per cent of segment adjusted operating income) and news media ($6.1-million or 20.8 per cent).
• Adjusted operating income decreased in leisure and entertainment ($3.6-million), broadcasting ($400,000 or minus 2.3 per cent) and interactive technologies and communications ($200,000 or minus 4.5 per cent).
• The change in the fair value of Quebecor Media stock options resulted in a $900,000 unfavourable variance in the stock-based compensation charge in the second quarter of 2014 compared with the same period of 2013. The change in the fair value of Quebecor stock options and the impact of various transactions on the options issued under this program resulted in a $6.8-million favourable variance in the corporation's stock-based compensation charge in the second quarter of 2014.

Net loss attributable to shareholders was $54.8-million (45 cents per basic share) in the second quarter of 2014, compared with $93.6-million (75 cents per basic share) in the same period of 2013, a favourable variance of $38.8-million (30 cents per basic share).

• The favourable variance was due primarily to:
  • $269.8-million favourable variance in gains and losses on valuation and translation of financial instruments;
  • $18.9-million loss on debt refinancing recorded in the second quarter of 2013;
  • $14.3-million decrease in financial expenses;
  • $13.6-million increase in adjusted operating income.
• Partially offset by:
  • Recognition of a $190.0-million non-cash charge for impairment of goodwill and intangible assets, without any tax consequences, in the second quarter of 2014;
  • $26.1-million unfavourable variance in the gain on discontinued operations;
  • $6.0-million increase in the amortization charge.

In the second quarter of 2014, Quebecor Media recognized a $190.0-million non-cash goodwill impairment charge without any tax consequences in the news media segment, in accordance with international financial reporting standards (IFRS) accounting valuation principles. The charge reflects the impact of the transition to digital and challenging market conditions in the newspaper industry.

Adjusted income from continuing operations was $66.0-million (54 cents per basic share) in the second quarter of 2014, compared with $53.0-million (43 cents per basic share) in the same period of 2013, an increase of $13.0-million (11 cents per basic share).

2014/2013 year-to-date comparison

Revenues: $2.11-billion, a $17.4-million (0.8-per-cent) increase

• Revenues increased in telecommunications ($52.5-million or 3.9 per cent of segment revenues) and in interactive technologies and communications ($1.4-million or 2.0 per cent).
• Revenues decreased in news media ($30.6-million or minus 7.9 per cent), broadcasting ($6.2-million or minus 2.7 per cent), and leisure and entertainment ($5.9-million or minus 4.5 per cent).

Adjusted operating income: $732.4-million, a $35.1-million (5.0-per-cent) increase

• Adjusted operating income increased in telecommunications ($32.6-million or 5.1 per cent of segment adjusted operating income), news media ($6.5-million or 14.7 per cent), interactive technologies and communications ($1.1-million or 19.3 per cent) and head office ($8.1-million). The increase at head office was caused mainly by the favourable variance in the fair value of stock options.
• Adjusted operating income decreased in broadcasting ($7.5-million or minus 55.6 per cent) and leisure and entertainment ($5.7-million).
• The change in the fair value of Quebecor Media stock options resulted in a $2.8-million unfavourable variance in the stock-based compensation charge in the first half of 2014 compared with the same period of 2013. The change in the fair value of Quebecor stock options resulted in a $15.2-million favourable variance in the corporation's consolidated stock-based compensation charge in the first half of 2014.

Net loss attributable to shareholders was $15.7-million (13 cents per basic share) in the first half of 2014, compared with $100.1-million (80 cents per basic share) in the same period of 2013, a favourable variance of $84.4-million (67 cents per basic share).

• The favourable variance was due primarily to:
  • $304.7-million favourable variance in gains and losses on valuation and translation of financial instruments;
  • $35.1-million increase in adjusted operating income;
  • $20.5-million decrease in financial expenses.
• Partially offset by:
  • Recognition of a $190.0-million non-cash charge for impairment of goodwill and intangible assets, without any tax consequences, in the first half of 2014;
  • $22.9-million unfavourable variance in the gain on discontinued operations;
  • $13.6-million increase in the amortization charge.

Adjusted income from continuing operations was $112.7-million in the first half of 2014 (92 cents per basic share), compared with $86.7-million (70 cents per basic share) in the same period of 2013, an increase of $26.0-million (22 cents per basic share).

Financing

The following financial transactions have been concluded since the end of the first quarter of 2014:

• On April 9, 2014, Videotron issued $600-million (U.S.) aggregate principal amount of 5.375-per-cent senior notes maturing on June 15, 2024, for net proceeds of $654.5-million, net of financing fees of $7.8-million. Videotron fully hedged the exchange risk on the new senior notes by means of cross-currency interest rate swaps. It also converted the fixed interest rate on a $158.6-million (U.S.) tranche of the senior notes to a floating rate.
• Videotron used the proceeds from the April 9, 2014, issuance of senior notes to prepay and withdraw on April 24, 2014, $260-million (U.S.) principal amount of its outstanding 9.125-per-cent senior notes, issued on March 5, 2009, and maturing on April 15, 2018, to repay drawings under its revolving credit facility, to pay transaction fees and expenses, and for general corporate purposes. Strong demand enabled Videotron to upsize the offering with favourable pricing, which clearly demonstrates the strength of the subsidiary's business and credit profile.
• On April 25, 2014, Quebecor Media completed the redemption and early repayment of all of its outstanding 7.75-per-cent senior notes in the aggregate principal amount of $380.0-million (U.S.), issued on Oct. 5, 2007, and maturing on March 15, 2016, and unwound the hedges in an asset position.

Dividend

On July 30, 2014, the board of directors of Quebecor declared a quarterly dividend of 2.5 cents per share on its Class A multiple voting shares and Class B subordinate voting shares, payable on Sept. 9, 2014, to shareholders of record at the close of business on Aug. 15, 2014. 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.

Normal course issuer bid

On July 30, 2014, the board of directors of Quebecor authorized the renewal of its normal course issuer bid for a maximum of 500,000 Class A shares representing approximately 1.3 per cent of issued and outstanding Class A shares, and for a maximum of two million Class B shares representing approximately 2.4 per cent of issued and outstanding Class B shares as of July 29, 2014.

The purchases will be made from Aug. 13, 2014, to Aug. 12, 2015, at prevailing market prices, on the open market through the facilities of the Toronto Stock Exchange, and will be made in accordance with the requirements of said exchange. All shares purchased under the bid will be cancelled. As of July 29, 2014, 39,000,672 Class A shares and 83,875,792 Class B shares were issued and outstanding.

The average daily trading volume of the corporation's Class A shares and Class B shares from Jan. 1, 2014, to June 30, 2014, was 870 Class A shares and 412,399 Class B shares. Consequently, the corporation will be authorized to purchase a maximum of 1,000 Class A shares and 103,099 Class B shares during the same trading day, pursuant to its normal course issuer bid.

The corporation believes that the repurchase of these shares under this normal course issuer bid is in the best interests of the corporation and its shareholders.

Shareholders may obtain a copy of the notice filed with the Toronto Stock Exchange, without charge, by contacting the office of the secretary of the corporation at 514-380-1994.

Detailed financial information

For a detailed analysis of Quebecor's second quarter 2014 results, please refer to the management discussion and analysis and consolidated financial statements of Quebecor, available on the corporation's website.

Conference call for investors and webcast

Quebecor will hold a conference call to discuss its second quarter 2014 results on July 31, 2014, at 11 a.m. Eastern Daylight Time. There will be a question period reserved for financial analysts. To access the conference call, please dial 1-877-293-8052, access code for participants 45336 followed by the number sign. A tape recording of the call will be available from July 31 to Oct. 30, 2014, by dialling 1-877-293-8133, conference No. 1161708, access code for participants 78620 followed by the number sign. The conference call will also be broadcast live on Quebecor's website. It is advisable to ensure the appropriate software is installed before accessing the call.

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