Table of Contents
![LOGO](https://capedge.com/proxy/424B3/0001206212-06-000146/m31895b3m3189500.gif)
• | We will exchange all old notes that are validly tendered and not validly withdrawn for an equal principal amount of new notes that have been registered. In this prospectus, we refer to our outstanding 73/4% Senior Notes due March 15, 2016 as the “old notes” and to the new 73/4% Senior Notes due March 15, 2016 to be issued in exchange for the old notes as the “Notes.” | |
• | You may withdraw tenders of old notes at any time prior to the expiration of the exchange offer. | |
• | The exchange offer expires at 5:00 PM, New York City time, on July 14, 2006, unless we extend the exchange offer. |
• | The terms of the Notes to be issued in the exchange offer are substantially identical to the terms of the old notes, except that the Notes will be freely tradeable by persons who are not affiliated with us. | |
• | No active public market currently exists for the old notes. We do not intend to list the Notes on any securities exchange and, therefore, no active public market is anticipated. | |
• | The Notes, like the old notes, are: |
— | senior unsecured obligations of Quebecor Media; | |
— | effectively junior to all of Quebecor Media’s existing and future secured indebtedness, including any borrowings under our Senior Secured Credit Facilities, to the extent of the value of the assets securing such indebtedness; and | |
— | effectively junior in right of payment to all of the existing and future liabilities, including trade payables, of Quebecor Media’s subsidiaries. |
Page | ||||
ii | ||||
ii | ||||
ii | ||||
iii | ||||
iv | ||||
v | ||||
1 | ||||
16 | ||||
31 | ||||
32 | ||||
33 | ||||
38 | ||||
85 | ||||
124 | ||||
138 | ||||
148 | ||||
151 | ||||
154 | ||||
160 | ||||
171 | ||||
216 | ||||
220 | ||||
223 | ||||
223 | ||||
223 | ||||
224 | ||||
F-1 |
Table of Contents
ii
Table of Contents
• | general economic, financial or market conditions; | |
• | the intensity of competitive activity in the industries in which we operate; | |
• | unanticipated higher capital spending required to address continued development of competitive alternative technologies or the inability to obtain additional capital to continue the development of our business; | |
• | our ability to implement successfully our business and operating strategies and manage our growth and expansion; | |
• | our ability to continue to distribute a wide range of television programming and to attract large audiences and readership; | |
• | variations in the cost, quality and variety of our television programming; | |
• | cyclical and seasonal variations in our advertising revenue; | |
• | disruptions to the network through which we provide our digital television, Internet access and telephony services, and our ability to protect such services from piracy; | |
• | labor disputes or strikes; | |
• | changes in our ability to obtain services and equipment critical to our operations; | |
• | changes in laws and regulations, or in their interpretations, which could result in, among other things, the loss (or reduction in value) of our licenses or markets or in an increase in competition, compliance costs or capital expenditures; | |
• | our substantial indebtedness and the restrictions on our business imposed by the terms of our debt; and | |
• | interest rate fluctuations that affect a portion of our interest payment requirements on long-term debt. |
iii
Table of Contents
iv
Table of Contents
Year Ended | Average(1) | High | Low | Period End | ||||||||||||
December 31, 2001 | 0.6446 | 0.6697 | 0.6241 | 0.6279 | ||||||||||||
December 31, 2002 | 0.6370 | 0.6619 | 0.6200 | 0.6329 | ||||||||||||
December 31, 2003 | 0.7205 | 0.7738 | 0.6349 | 0.7738 | ||||||||||||
December 31, 2004 | 0.7719 | 0.8493 | 0.7158 | 0.8310 | ||||||||||||
December 31, 2005 | 0.8282 | 0.8690 | 0.7872 | 0.8579 |
Month Ended | Average(2) | High | Low | Period End | ||||||||||||
December 31, 2005 | 0.8610 | 0.8690 | 0.8521 | 0.8579 | ||||||||||||
January 31, 2006 | 0.8642 | 0.8744 | 0.8528 | 0.8744 | ||||||||||||
February 28, 2006 | 0.8704 | 0.8788 | 0.8638 | 0.8788 | ||||||||||||
March 31, 2006 | 0.8641 | 0.8834 | 0.8531 | 0.8569 | ||||||||||||
April 30, 2006 | 0.8740 | 0.8926 | 0.8534 | 0.8926 | ||||||||||||
May 31, 2006 | 0.9009 | 0.9100 | 0.8903 | 0.9069 |
(1) | The average of the exchange rates on the last day of each month during the applicable year. |
(2) | The average of the exchange rates for all days during the applicable month. |
v
Table of Contents
• | cross-promote our brands, programs and other content across multiple media platforms; | |
• | provide advertisers with an integrated solution for local, regional and nationalmulti-platform advertising; | |
• | offer a differentiated, bundled suite of entertainment, information and communication services and products, including digital television,high-speed Internet access,video-on-demand and other interactive television services, as well as residential and commercial telephony services using Voice over IP technology, or VoIP; |
1
Table of Contents
• | deliver high-quality services and products, including, for example, our standard high-speed Internet access service that enables our customers to download data at a higher speed than that currently offered by standard digital subscriber line, or DSL, technology, and the widest range ofFrench-language programming in Canada; | |
• | leverage our content, management, sales and marketing and production resources to provide superior information and entertainment services to our customers; | |
• | extend our market reach by leveraging our multimedia platform and cross-marketing expertise and experience to enhance our national media platform; | |
• | leverage our single, highly contiguous network that covers approximately 80% of Québec’s total addressable market and five of the province’s top six urban areas, which provides many benefits, including a higher quality and more reliable network, the ability to rapidly and efficiently launch and deploy new products and services, and a lower cost structure through reduced maintenance and technical support costs; and | |
• | leverage our advanced broadband network, 98% of which isbi-directional, which allows us to offer a wide range of advanced services on the same medium, such as analog and digital television,video-on-demand,high-speed Internet access and VoIP telephony services. |
2
Table of Contents
![LOGO](https://capedge.com/proxy/424B3/0001206212-06-000146/m31895b3m3189501.gif)
3
Table of Contents
• | the Notes have been registered under the Securities Act and will be freely tradeable by persons who are not affiliated with us; | |
• | the Notes are not entitled to the rights which are applicable to the old notes under the registration rights agreement; and | |
• | our obligation to pay special interest on the Notes if (a) the exchange offer registration statement that includes this prospectus is not declared effective by August 15, 2006 or (b) if the exchange offer is not consummated by September 29, 2006, in each case, at incremental rates ranging from 0.25% per annum to 1.0% per annum depending on how long we fail to comply with these deadlines, does not apply to the Notes. |
The Exchange Offer | We are offering to exchange up to US$525.0 million aggregate principal amount of our new 73/4% Senior Notes due March 15, 2016, which have been registered under the Securities Act, for up to US$525.0 million aggregate principal amount of our old 73/4% Senior Notes due March 15, 2016, which were issued on January 17, 2006 pursuant to a private placement offering. Old notes may be exchanged only in integral multiples of US$1,000. | |
Resale of the Notes | Based on interpretations by the staff of the Securities and Exchange Commission, or the SEC, set forth in no-action letters issued to third parties, we believe that the Notes issued in the exchange offer may be offered for resale, resold and otherwise transferred by you (unless you are our “affiliate” within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that you are: | |
• acquiring the Notes in the ordinary course of business; | ||
• not participating, do not intend to participate, and have no arrangement or understanding with any person to participate in the distribution of the Notes; and | ||
• not a broker-dealer who purchased your old notes directly from us for resale pursuant to Rule 144A or any other available exemption under the Securities Act. |
4
Table of Contents
We do not intend to seek our own no-action letter, and there is no assurance that the SEC staff would make a similar determination with respect to the Notes. If this interpretation is inapplicable and you transfer any Notes issued to you in the exchange offer without delivering a prospectus or without an exemption under the Securities Act, you may incur liability under the Securities Act. We do not assume and will not indemnify you against this liability. | ||
Each broker-dealer that receives Notes for its own account in exchange for the old notes that were acquired by this broker-dealer as a result of market-making activities or other trading activities must acknowledge that it will deliver a prospectus in connection with any resale of those Notes. See “Plan of Distribution.” | ||
Any holder of Notes who: | ||
• is our “affiliate” as defined in Rule 405 under the Securities Act; | ||
• does not acquire the Notes in the ordinary course of its business; | ||
• tenders in the exchange offer with the intention to participate, or for the purpose of participating, in a distribution of the Notes; or | ||
• is a broker-dealer that purchased old notes from us to resell them pursuant to Rule 144A or any other available exemption under the Securities Act, | ||
cannot rely on the position of the SEC staff expressed in the no-action letters described above and, in the absence of an exemption, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the Notes. | ||
Expiration of the Exchange Offer | The exchange offer will expire at 5:00 p.m., New York City time, on July 14, 2006, unless we decide to extend the expiration date. | |
Conditions to the Exchange Offer | The exchange offer is subject to customary conditions, some of which we may waive. See “The Exchange Offer — Conditions to the Exchange Offer.” | |
Procedures for Tendering Old Notes | If you wish to exchange your old notes for Notes pursuant to the exchange offer, you must complete, sign and date the letter of transmittal according to the instructions contained in this prospectus and the letter of transmittal. You must also mail or otherwise deliver the letter of transmittal, together with your old notes and any other required documents, to the exchange agent at the address set forth on the cover of the letter of transmittal. If you hold old notes through the Depository Trust Company, or DTC, and wish to participate in the exchange offer, you must comply with the Automated Tender Offer Program procedures of DTC, or ATOP, by which you will agree to be bound by the letter of transmittal. | |
By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things: | ||
• you are acquiring the Notes in the ordinary course of business; |
5
Table of Contents
• you have no arrangement or understanding with any person to participate in the distribution of the Notes; | ||
• if you are a broker-dealer that will receive Notes for your own account in exchange for old notes that were acquired as a result of market- making or other trading activities, you will deliver a prospectus, as required by law, in connection with any resale of the Notes; and | ||
• you are not our “affiliate” as defined in Rule 405 under the Securities Act. | ||
See “The Exchange Offer — Procedures for Tendering Old Notes.” | ||
Special Procedures for Beneficial Owners | If you own a beneficial interest in old notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee or custodian, and you wish to tender your old notes in the exchange offer, you should contact the registered holder as soon as possible and instruct the registered holder to tender on your behalf. | |
Guaranteed Delivery Procedures | If you wish to tender your old notes and your old notes are not immediately available or you cannot deliver your old notes, the letter of transmittal or any other documents required by the letter of transmittal to the exchange agent or comply with the applicable procedures under DTC’s Automated Tender Offer Program by the expiration date, you must tender your old notes pursuant to the guaranteed delivery procedures described in this prospectus under the heading “The Exchange Offer — Procedures for Tendering Old Notes — Guaranteed Delivery Procedures.” | |
Withdrawal Rights | You may withdraw the tender of your old notes at any time prior to 5:00 p.m., New York City time, on the expiration date. | |
Consequences of Failure to Exchange the Old Notes for the Notes | All unexchanged old notes will continue to be subject to transfer restrictions. In general, the old notes may not be offered or sold unless registered under the Securities Act or pursuant to an exemption from registration under the Securities Act and applicable state securities laws. Therefore, the market for secondary resales of any unexchanged old notes is likely to be minimal. Other than in connection with the exchange offer, we do not currently anticipate that we will register the old notes under the Securities Act. | |
Federal Income Tax Consequences | The exchange of the old notes for the Notes will generally not be a taxable event for U.S. federal income tax purposes. See “Certain U.S. Federal Tax Considerations” and “Certain Canadian Federal Income Tax Considerations.” | |
Use of Proceeds | We will not receive any cash proceeds from the issuance of the Notes in the exchange offer. We will pay all expenses incidental to the exchange offer. See “Use of Proceeds” and “The Exchange Offer — Fees and Expenses.” |
6
Table of Contents
Exchange Agent for Notes | U.S. Bank National Association is the exchange agent for the exchange offer. | |
Dissenter or Appraisal Rights | Holders of old notes will not have dissenters’ or appraisal rights in connection with the exchange offer. |
7
Table of Contents
Issuer | Quebecor Media Inc. | |
Notes Offered | US$525,000,000 in principal amount of 73/4% senior unsecured notes due 2016. The Notes will be issued under an indenture dated as of January 17, 2006 between us and U.S. Bank National Association as trustee, which is the same indenture under which we issued the old notes. | |
Maturity | The Notes will mature on March 15, 2016. | |
Interest Payment Dates | June 15 and December 15 of each year commencing on June 15, 2006. | |
Ranking | The Notes will be: | |
• senior unsecured obligations of Quebecor Media: | ||
• effectively junior to all of Quebecor Media’s existing and future secured indebtedness, including any borrowings under our Senior Secured Credit Facilities, to the extent of the value of the assets securing such indebtedness; and | ||
• effectively junior in right of payment to all of the existing and future liabilities, including trade payables, of Quebecor Media’s subsidiaries. | ||
As of March 31, 2006, Quebecor Media and its consolidated subsidiaries had $3.0 billion of indebtedness outstanding, Quebecor Media, excluding its subsidiaries, had $533.8 million of senior secured indebtedness, and Quebecor Media’s subsidiaries had $3.0 billion of total liabilities, excluding intercompany liabilities. See “Capitalization.” | ||
Optional Redemption | Prior to March 15, 2011, we may from time to time redeem all or a portion of the Notes by paying a special “make-whole” premium specified in this prospectus under “Description of the Notes — Optional Redemption.” | |
At any time on or after March 15, 2011, we may redeem all or a portion of the Notes at fixed redemption prices specified in the section “Description of the Notes — Optional Redemption.” | ||
In addition, at any time and from time to time on or prior to March 15, 2009, we may redeem a portion of the Notes with the net cash proceeds of any equity offerings by us, so long as: | ||
• we pay 107.75% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption; | ||
• at least 65% of the aggregate principal amount of all old notes and Notes issued under the indenture remain outstanding afterwards; and |
8
Table of Contents
• the redemption occurs within 90 days of the date of the closing of such equity offering. | ||
Additional Amounts | Any payments made by us with respect to the Notes will be made without withholding or deduction, unless required by law. If we are required by law to withhold or deduct for taxes with respect to a payment to the holders of Notes, we will, subject to certain exceptions, pay the additional amount necessary so that the net amount received by holders of Notes (other than certain excluded holders) after the withholding is not less than the amount they would have received in the absence of the withholding. See “Description of the Notes — Payment of Additional Amounts.” | |
Tax Redemption | If we are required to pay additional amounts as a result of changes in laws applicable to tax-related withholdings or deductions in respect of payments on the Notes, we will have the option to redeem the Notes, in whole but not in part, at a redemption price equal to 100% of the principal amount of the Notes, plus any accrued and unpaid interest to the date of redemption and any additional amounts that may be then payable. See “Description of the Notes — Redemption for Changes in Withholding Taxes” and “— Payment of Additional Amounts.” | |
Change of Control | If we experience a change in control, we must offer to purchase the Notes at 101% of the principal amount plus accrued and unpaid interest, if any, to the date of purchase. | |
Certain Covenants | The indenture governing the Notes limits our ability and the ability of our restricted subsidiaries to: | |
• borrow money or sell preferred stock; | ||
• pay dividends beyond certain amounts and make other restricted payments; | ||
• create or permit certain liens; | ||
• use the proceeds from sales of assets and subsidiary stock; | ||
• create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make other distributions; | ||
• enter into certain transactions with affiliates; | ||
• issue guarantees of debt; and | ||
• enter into certain mergers, consolidations and transfers of all or substantially all of our assets. | ||
These covenants are subject to important exceptions and limitations. See “Description of the Notes.” | ||
Tax Consequences | For a discussion of the possible U.S. and Canadian federal income tax consequences of an investment in the Notes, see “Certain U.S. Federal Tax Considerations” and “Certain Canadian Federal Income Tax Considerations.” You should consult your own tax advisor to determine the federal, state, provincial, local and other tax consequences of an investment in the Notes. |
9
Table of Contents
Use of Proceeds | We will not receive any cash proceeds from the issuance of the Notes in the exchange offer. See “Use of Proceeds.” | |
Absence of an Active Public Market for the Notes | The old notes are presently eligible for trading in the PORTAL market. We do not intend to apply for the Notes to be listed on any securities exchange or to arrange for any quotation system to quote them. The initial purchasers of the old notes have advised us that they intend to make a market for the Notes, but they are not obligated to do so. The initial purchasers may discontinue any market making in the Notes at any time in their sole discretion. Accordingly, we cannot assure you that a liquid market for the Notes will develop or be maintained. | |
Exchange Offer; Registration Rights | Pursuant to a registration rights agreement among us and the initial purchasers of the old notes, we agreed to: | |
• file a registration statement within 120 days after the issue date of the old notes, relating to the exchange of the privately placed old notes for publicly registered exchange notes with substantially identical terms evidencing the same continuing indebtedness; | ||
• use our best efforts to cause the registration statement to become effective within 210 days after the issue date of the old notes; | ||
• keep the exchange offer open for not less than 30 days; | ||
• consummate the exchange offer by September 29, 2006; and | ||
• file a shelf registration statement for the resale of the old notes if we cannot effect or consummate an exchange offer within the specified time periods and in certain other circumstances described in this prospectus. | ||
We intend the registration statement relating to this prospectus to satisfy these obligations. If we do not comply with our obligations under the registration rights agreement, we will be required to pay additional special interest on the old notes and/or the Notes under specific circumstances. See “The Exchange Offer — Purpose and Effect of the Exchange Offer”. | ||
Offering; Transfer Restrictions | The Notes are not being offered for sale and may not be offered or sold directly or indirectly in Canada except in accordance with applicable securities laws of the provinces and territories of Canada. We are not required, and do not intend, to qualify by prospectus in Canada the Notes, and accordingly, the Notes will be subject to restrictions on resale in Canada. |
10
Table of Contents
11
Table of Contents
Three Months | ||||||||||||||||||||
Ended | ||||||||||||||||||||
Year Ended December 31, | March 31, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
(In millions) | ||||||||||||||||||||
STATEMENT OF INCOME DATA: | ||||||||||||||||||||
Revenues | $ | 2,298.1 | $ | 2,462.4 | $ | 2,702.9 | $ | 624.7 | $ | 698.7 | ||||||||||
Cost of sales, selling and administrative expenses | (1,686.3 | ) | (1,765.2 | ) | (1,969.3 | ) | (473.7 | ) | (539.1 | ) | ||||||||||
Amortization | (226.6 | ) | (225.9 | ) | (231.9 | ) | (54.6 | ) | (64.6 | ) | ||||||||||
Financial expenses | (300.1 | ) | (314.6 | ) | (285.3 | ) | (74.7 | ) | (52.3 | ) | ||||||||||
Reserve for restructuring of operations, impairment of assets and other special charges | (1.8 | ) | (2.8 | ) | 0.2 | — | 0.4 | |||||||||||||
Gain (loss) on debt refinancing and on repurchase of redeemable preferred shares of a subsidiary | 144.1 | (4.8 | ) | (60.0 | ) | — | (331.6 | ) | ||||||||||||
(Loss) gain on sale of businesses and other assets | (1.1 | ) | 9.3 | 0.1 | — | — | ||||||||||||||
Write-down of goodwill | (0.5 | ) | — | — | — | — | ||||||||||||||
Income taxes | 12.5 | (37.4 | ) | (44.0 | ) | (7.5 | ) | 108.6 | ||||||||||||
Non-controlling interest | (34.6 | ) | (31.7 | ) | (16.2 | ) | (1.4 | ) | 1.5 | |||||||||||
Income (loss) from discontinued operations and other expenses | 0.2 | (1.1 | ) | — | — | — | ||||||||||||||
Net income (loss) | $ | 203.9 | $ | 88.2 | $ | 96.5 | $ | 12.8 | $ | (178.4 | ) | |||||||||
OTHER FINANCIAL DATA: | ||||||||||||||||||||
Operating income(1) | $ | 611.8 | $ | 697.2 | $ | 733.6 | $ | 151.0 | $ | 159.6 | ||||||||||
Additions to property, plant and equipment | 131.2 | 181.1 | 315.5 | 47.8 | 93.1 |
At December 31, | At March 31, | |||||||||||||||
2003 | 2004 | 2005 | 2006 | |||||||||||||
(unaudited) | ||||||||||||||||
(In millions) | ||||||||||||||||
BALANCE SHEET DATA: | ||||||||||||||||
Cash and cash equivalents | $ | 103.6 | $ | 108.8 | $ | 97.4 | $ | 53.3 | ||||||||
Total assets | 6,610.6 | 6,509.2 | 6,675.5 | 6,629.5 | ||||||||||||
Total debt | 2,756.8 | 2,548.8 | 2,533.2 | 3,016.8 | ||||||||||||
Capital stock | 1,773.7 | 1,773.7 | 1,773.7 | 1,773.7 | ||||||||||||
Shareholders’ equity | 2,395.0 | 2,459.9 | 2,450.1 | 2,261.8 |
12
Table of Contents
Three Months | ||||||||||||||||||||
Ended | ||||||||||||||||||||
Year Ended December 31, | March 31, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
(In millions) | ||||||||||||||||||||
STATEMENT OF INCOME DATA: | ||||||||||||||||||||
Revenues | $ | 2,298.1 | $ | 2,471.7 | $ | 2,709.1 | $ | 625.9 | $ | 699.2 | ||||||||||
Cost of sales, selling and administrative expenses | (1,683.0 | ) | (1,764.3 | ) | (1,973.5 | ) | (475.5 | ) | (539.9 | ) | ||||||||||
Amortization | (226.6 | ) | (225.7 | ) | (229.6 | ) | (54.1 | ) | (64.0 | ) | ||||||||||
Financial expenses | (467.6 | ) | (308.0 | ) | (285.5 | ) | (79.8 | ) | (33.4 | ) | ||||||||||
Reserve for restructuring of operations, impairment of assets and other special charges | (1.8 | ) | (2.8 | ) | 0.2 | — | 0.4 | |||||||||||||
Loss on debt refinancing | (9.6 | ) | (4.8 | ) | (48.5 | ) | — | (273.9 | ) | |||||||||||
(Loss) gain on sale of businesses and other assets | (1.1 | ) | 9.3 | 1.6 | — | — | ||||||||||||||
Write-down of goodwill | (0.5 | ) | — | — | — | — | ||||||||||||||
Income taxes | 13.8 | (43.4 | ) | (14.2 | ) | (7.4 | ) | 74.8 | ||||||||||||
Non-controlling interest | (34.6 | ) | (35.1 | ) | (18.4 | ) | (1.5 | ) | 1.4 | |||||||||||
Income (loss) from discontinued operations and other expenses | 16.4 | (0.8 | ) | — | — | — | ||||||||||||||
Net (loss) income | $ | (96.5 | ) | $ | 96.1 | $ | 141.2 | $ | 7.6 | $ | (135.4 | ) | ||||||||
OTHER FINANCIAL DATA: | ||||||||||||||||||||
Operating income(1) | $ | 615.1 | $ | 707.4 | $ | 735.6 | $ | 150.4 | $ | 159.3 | ||||||||||
Additions to property, plant and equipment | 131.2 | 181.1 | 315.5 | 47.8 | 93.1 | |||||||||||||||
Comprehensive (loss) income | (155.7 | ) | (11.3 | ) | 172.4 | (14.8 | ) | (59.9 | ) |
At December 31, | At March 31, | |||||||||||||||
2003 | 2004 | 2005 | 2006 | |||||||||||||
(unaudited) | ||||||||||||||||
(In millions) | ||||||||||||||||
BALANCE SHEET DATA: | ||||||||||||||||
Cash and cash equivalents | $ | 103.6 | $ | 108.8 | $ | 97.4 | $ | 53.3 | ||||||||
Total assets | 6,602.2 | 6,480.1 | 6,664.1 | 6,617.5 | ||||||||||||
Total debt | 2,736.1 | 2,514.9 | 2,468.5 | 2,927.8 | ||||||||||||
Capital stock | 1,773.7 | 1,773.7 | 1,773.7 | 1,773.7 | ||||||||||||
Shareholders’ equity | 2,253.3 | 2,218.4 | 2,301.7 | 2,231.6 |
(1) | We define operating income, as reconciled to net income under Canadian GAAP, as net income (loss) before amortization, financial expenses, reserve for restructuring of operations, impairment of assets and other special charges, (loss) gain on debt refinancing and on repurchase of redeemable preferred shares of a subsidiary, gain (loss) on sales of businesses and other assets, write-down of goodwill, income taxes, amortization of goodwill (net of non-controlling interest), non-controlling interest and discontinued operations and other expenses. We define operating income, as reconciled to net income under U.S. GAAP, as net income (loss) before amortization, financial expenses, reserve for restructuring of operations, impairment of assets and other special charges, loss on debt refinancing, gain (loss) on sale of businesses and other assets, write-down of goodwill, income taxes, non-controlling interest and income (loss) from discontinued operations and other expenses. Operating income as defined above is not a measure of results that is consistent with Canadian GAAP or U.S. GAAP. It is not intended to be regarded as an alternative to other financial operating performance measures or to the statement of cash flows as a measure of liquidity. It is not intended to represent funds available for debt service, dividends, reinvestment or other discretionary uses, and should not be considered in isolation or as a substitute for |
13
Table of Contents
measures of performance prepared in accordance with Canadian GAAP or U.S. GAAP. Our management believes that operating income is a meaningful measure of performance. Our parent company, Quebecor, considers the media segment as a whole and uses operating income in order to assess the performance of its investment in Quebecor Media. Our management and Board of Directors use this measure in evaluating Quebecor Media’s consolidated results as well as results of Quebecor Media’s operating segments. As such, this measure eliminates the significant level of non-cash depreciation of tangible assets and amortization of certain intangible assets, and it is unaffected by the capital structure or investment activities of Quebecor Media and of its segments. Operating income is also relevant because it is a significant component of Quebecor Media’s annual incentive compensation programs. A limitation of this measure, however, is that it does not reflect the periodic costs of capitalized tangible and intangible assets used in generating revenues in Quebecor Media’s segments. Management evaluates the costs of such tangible and intangible assets through other financial measures such as capital expenditures and free cash flows from operations. In addition, measures like operating income are commonly used by the investment community to analyze and compare the performance of companies in the industries in which we are engaged. Our definition of operating income may not be the same as similarly titled measures reported by other companies. |
The following table provides a reconciliation of operating income to net income under Canadian GAAP as disclosed in our financial statements: |
Three Months Ended | ||||||||||||||||||||
Year Ended December 31, | March 31, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
(In millions) | ||||||||||||||||||||
Reconciliation of net income (loss) (Canadian GAAP) and operating income disclosed herein | ||||||||||||||||||||
Net income (loss) | $ | 203.9 | $ | 88.2 | $ | 96.5 | $ | 12.8 | $ | (178.4 | ) | |||||||||
Amortization | 226.6 | 225.9 | 231.9 | 54.6 | 64.6 | |||||||||||||||
Financial expenses | 300.1 | 314.6 | 285.3 | 74.7 | 52.3 | |||||||||||||||
Reserve for restructuring of operations, impairment of assets and other special charges | 1.8 | 2.8 | (0.2 | ) | — | (0.4 | ) | |||||||||||||
Gain (loss) on debt refinancing and on repurchase of redeemable preferred shares of a subsidiary | (144.1 | ) | 4.8 | 60.0 | — | 331.6 | ||||||||||||||
Loss (gain) on sale of businesses and other assets | 1.1 | (9.3 | ) | (0.1 | ) | — | — | |||||||||||||
Write-down of goodwill | 0.5 | — | — | — | — | |||||||||||||||
Income taxes | (12.5 | ) | 37.4 | 44.0 | 7.5 | (108.6 | ) | |||||||||||||
Non-controlling interest | 34.6 | 31.7 | 16.2 | 1.4 | (1.5 | ) | ||||||||||||||
(Income) loss from discontinued operations and other expenses | (0.2 | ) | 1.1 | — | — | — | ||||||||||||||
Operating income | $ | 611.8 | $ | 697.2 | $ | 733.6 | $ | 151.0 | $ | 159.6 | ||||||||||
14
Table of Contents
The following table provides a reconciliation of operating income to net income under U.S. GAAP as disclosed in our financial statements: |
Three Months Ended | ||||||||||||||||||||
Year Ended December 31, | March 31, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
(In millions) | ||||||||||||||||||||
Reconciliation of net (loss) income (U.S. GAAP) and operating income disclosed herein | ||||||||||||||||||||
Net (loss) income | $ | (96.5 | ) | $ | 96.1 | $ | 141.2 | $ | 7.6 | $ | (135.4 | ) | ||||||||
Amortization | 226.6 | 225.7 | 229.6 | 54.1 | 64.0 | |||||||||||||||
Financial expenses | 467.6 | 308.0 | 285.5 | 79.8 | 33.4 | |||||||||||||||
Reserve for restructuring of operations, impairment of assets and other special charges | 1.8 | 2.8 | (0.2 | ) | — | (0.4 | ) | |||||||||||||
Loss on debt refinancing | 9.6 | 4.8 | 48.5 | — | 273.9 | |||||||||||||||
Loss (gain) on sale of businesses and other assets | 1.1 | (9.3 | ) | (1.6 | ) | — | — | |||||||||||||
Write-down of goodwill | 0.5 | — | — | — | — | |||||||||||||||
Income taxes | (13.8 | ) | 43.4 | 14.2 | 7.4 | (74.8 | ) | |||||||||||||
Non-controlling interest | 34.6 | 35.1 | 18.4 | 1.5 | (1.4 | ) | ||||||||||||||
(Income) loss from discontinued operations and other expenses | (16.4 | ) | 0.8 | — | — | — | ||||||||||||||
Operating income | $ | 615.1 | $ | 707.4 | $ | 735.6 | $ | 150.4 | $ | 159.3 | ||||||||||
15
Table of Contents
We operate in highly competitive industries and our inability to effectively compete could have a material adverse effect on our business. |
16
Table of Contents
We compete, and will continue to compete, with alternative technologies, and we may be required to invest a significant amount of capital to address continued technological development. |
We may not be able to obtain additional capital to continue the development of our business. |
We may not successfully implement our business and operating strategies. |
We have grown rapidly. This rapid growth presents significant strains on our management. If we do not effectively manage our growth, our financial results and operations could be adversely affected. |
17
Table of Contents
Our financial performance will be materially adversely affected if we cannot continue to distribute a wide range of television programming on reasonable terms. |
Our content may not attract large audiences, which may limit our ability to generate advertising and circulation revenue. |
We may be adversely affected by variations in our costs, quality and variety of our television programming. |
18
Table of Contents
Our advertising revenue is subject to cyclical and seasonal variations, which may cause our results to vary. |
We provide our digital television, Internet access and telephony services through a single clustered network, which may be more vulnerable to widespread disruption. |
We depend on third-party suppliers and providers for services and other items critical to our operations. |
We are dependent upon our information technology systems and those of certain third parties and the inability to enhance our systems or a security breach or disaster could have an adverse impact on our financial results and operations. |
19
Table of Contents
Malicious and abusive Internet practices could impair our cable data services. |
We may not be able to protect our services from piracy, which may have a negative effect on our customer base and lead to a possible decline in revenues. |
We may be adversely affected by the cost of newsprint. |
We may be adversely affected by strikes and other labor protests. |
• | Videotron’s 4 collective bargaining agreements, representing 2,199, or 100%, of its unionized employees, had been recently renewed and are scheduled to expire on various dates between December 2009 and August 2011; | |
• | 20 of Sun Media’s collective bargaining agreements, representing approximately 388, or 19%, of its unionized employees, had expired. Negotiations regarding these 20 collective bargaining agreements are either in progress or will be undertaken in 2006. Furthermore, eight of Sun Media’s collective |
20
Table of Contents
bargaining agreements, covering 484 employees, expire in 2006, while Sun Media’s 21 other collective bargaining agreements, representing approximately 1,137 unionized employees, are scheduled to expire on various dates between December 2007 and June 2010; | ||
• | 12 of TVA Group’s 15 collective bargaining agreements, representing approximately 379, or 41%, of its unionized employees, will expire between April 2007 and the end of December 2008, one of its collective bargaining agreements, representing approximately 516, or 56%, of its unionized employees, will expire at the end of December 2006 and two collective bargaining agreements, representing 26, or 3%, of its employees, have expired and negotiations regarding these collective bargaining agreements will be undertaken in 2006. A group of 53 employees is currently in the process of being unionized; and | |
• | three of our other collective bargaining agreements, representing approximately 126, or 13%, of our other unionized employees, had expired. Negotiations regarding these collective bargaining agreements are either in progress or will be undertaken in 2006. Another seven of our collective bargaining agreements, representing approximately 859, or 87%, of our other unionized employees, expire at various dates between the end of December 2006 and March 2010. |
We depend on key personnel. |
We may be adversely affected by fluctuations of exchange rates. |
21
Table of Contents
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements could be impaired, which could adversely affect our ability to operate our business, our financial results and investors’ view of us. |
We are subject to extensive government regulation. Changes in government regulation could adversely affect our business, financial condition or results of operations. |
22
Table of Contents
23
Table of Contents
The CRTC may not renew our existing broadcast and distribution licenses or grant us new licenses on acceptable terms, or at all. |
24
Table of Contents
We are required to provide third-party Internet service providers with access to our cable systems, which may result in increased competition. |
We may have to support increasing costs in securing access to support structures needed for our network. |
We are subject to a variety of environmental laws and regulations. |
25
Table of Contents
If you do not properly tender your old notes, you will not receive new Notes in the exchange offer, and you may not be able to sell your old notes. |
The market for the old notes may be significantly more limited after the exchange offer. |
26
Table of Contents
Our substantial indebtedness and significant related interest payment requirements could adversely affect our financial condition and prevent us from fulfilling our obligations under the Notes. |
• | increase our vulnerability to general adverse economic and industry conditions; | |
• | require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our indebtedness, reducing the availability of our cash flow to fund capital expenditures, working capital and other general corporate purposes; | |
• | limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate; | |
• | place us at a competitive disadvantage compared to our competitors that have less debt or greater financial resources; and | |
• | limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds. |
We are a holding company and depend on our subsidiaries to generate sufficient cash flow to meet our debt service obligations, including payments on the old notes and the Notes. |
27
Table of Contents
Restrictive covenants in our outstanding debt instruments may reduce our operating and financial flexibility. |
• | borrow money or sell preferred stock; | |
• | create or permit certain liens; | |
• | pay dividends beyond certain amounts and make other restricted payments; | |
• | make certain types of investments; | |
• | use the proceeds from sales of assets and subsidiary stock; | |
• | enter into certain asset sales; | |
• | create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make other distributions; | |
• | enter into certain transactions with affiliates; | |
• | issue guarantees of debt; and | |
• | enter into certain mergers, consolidations and transfers of all or substantially all of our assets. |
The old notes and the Notes will be structurally subordinated to the debt and liabilities of our subsidiaries. |
Although the old notes and the Notes are referred to as “senior notes,” the old notes are and the Notes will be effectively subordinated to our secured indebtedness. |
28
Table of Contents
We may need to refinance certain of our indebtedness. Our inability to do so on favorable terms, or at all, could have a material adverse effect on us. |
We may not be able to finance an offer to purchase the Notes as required by the indenture following a change of control because we may not have sufficient funds at the time of the change of control or our credit facilities may not allow the repurchases. |
Canadian bankruptcy and insolvency laws may impair the trustee’s ability to enforce remedies under the Notes. |
29
Table of Contents
An active trading market for the Notes may not develop or be maintained. |
Non-U.S. holders of the Notes are subject to restrictions on the resale of Notes. |
U.S. investors in the Notes may have difficulties enforcing civil liabilities. |
30
Table of Contents
31
Table of Contents
As at March 31, 2006 | |||||
(Dollars in millions, | |||||
unaudited) | |||||
Long-term debt, including current portion: | |||||
Quebecor Media | |||||
Revolving credit facility | $ | — | |||
Term Loan A | 125.0 | ||||
Term Loan B(1) | 408.8 | ||||
111/8% Senior Notes due 2011(1)(2) | 29.1 | ||||
133/4% Senior Discount Notes due 2011(2) | 8.4 | ||||
73/4% Senior Notes due 2016 (the old notes)(1) | 613.2 | ||||
Videotron | |||||
Revolving credit facility | 245.0 | ||||
67/8% Senior Notes due 2014(1) | 772.1 | ||||
63/8% Senior Notes due 2015(1) | 203.4 | ||||
Sun Media | |||||
Revolving credit facility | — | ||||
Term Loan B | 231.4 | ||||
Term Loan C | 39.6 | ||||
75/8% Senior Notes due 2013(1) | 236.3 | ||||
Other long-term debt | |||||
TVA Group credit facility | 104.5 | ||||
Total long-term debt, including current portion | 3,016.8 | ||||
Total shareholder’s equity | 2,261.8 | ||||
Total capitalization | $ | 5,278.6 | |||
(1) | Converted from U.S. dollars to Canadian dollars based on the Bank of Canada’s closing rate of $1.1680 to US$1.00, or $1.00 to US$0.8562, on March 31, 2006. |
(2) | We intend to redeem all of the 111/8% Senior Notes due 2011 and the 133/4% Senior Discount Notes due 2011 that remain outstanding on July 15, 2006 at a price equal to 105.563% of the principal amount of such Senior Notes and 106.875% of the principal amount at maturity of such Senior Discount Notes, pursuant to the terms of the respective indentures governing each series of notes. |
32
Table of Contents
33
Table of Contents
Three Months Ended | ||||||||||||||||||||||||||||
Year Ended December 31, | March 31, | |||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
(In millions, except ratios) | ||||||||||||||||||||||||||||
STATEMENT OF INCOME DATA: | ||||||||||||||||||||||||||||
Revenues | $ | 1,765.1 | $ | 2,253.0 | $ | 2,298.1 | $ | 2,462.4 | $ | 2,702.9 | $ | 624.7 | $ | 698.7 | ||||||||||||||
Cost of sales, selling and administrative expenses | (1,375.7 | ) | (1,680.6 | ) | (1,686.3 | ) | (1,765.2 | ) | (1,969.3 | ) | (473.7 | ) | (539.1 | ) | ||||||||||||||
Amortization | (150.3 | ) | (224.6 | ) | (226.6 | ) | (225.9 | ) | (231.9 | ) | (54.6 | ) | (64.6 | ) | ||||||||||||||
Financial expenses | (289.2 | ) | (323.4 | ) | (300.1 | ) | (314.6 | ) | (285.3 | ) | (74.7 | ) | (52.3 | ) | ||||||||||||||
Reserve for restructuring of operations, impairment of assets and other special charges | (151.2 | ) | (36.9 | ) | (1.8 | ) | (2.8 | ) | 0.2 | — | 0.4 | |||||||||||||||||
Gain (loss) on debt refinancing and on repurchase of redeemable preferred shares of a subsidiary | — | — | 144.1 | (4.8 | ) | (60.0 | ) | — | (331.6 | ) | ||||||||||||||||||
Gain (loss) on sale of businesses and other assets and gain on dilution | 1.5 | 3.6 | (1.1 | ) | 9.3 | 0.1 | — | — | ||||||||||||||||||||
Write-down of goodwill | (132.8 | ) | (178.1 | ) | (0.5 | ) | — | — | — | — | ||||||||||||||||||
Income taxes | 6.9 | (4.4 | ) | 12.5 | (37.4 | ) | (44.0 | ) | (7.5 | ) | 108.6 | |||||||||||||||||
Amortization of goodwill, net of non-controlling interest | (125.7 | ) | — | — | — | — | — | — | ||||||||||||||||||||
Non-controlling interest | 26.0 | (30.5 | ) | (34.6 | ) | (31.7 | ) | (16.2 | ) | (1.4 | ) | 1.5 | ||||||||||||||||
(Loss) income from discontinued operations and other expenses | (24.1 | ) | (7.9 | ) | 0.2 | (1.1 | ) | — | — | — | ||||||||||||||||||
Net (loss) income | $ | (449.5 | ) | $ | (229.8 | ) | $ | 203.9 | $ | 88.2 | $ | 96.5 | $ | 12.8 | $ | (178.4 | ) | |||||||||||
OTHER FINANCIAL DATA AND RATIO: | ||||||||||||||||||||||||||||
Operating income(1) | $ | 389.4 | $ | 572.4 | $ | 611.8 | $ | 697.2 | $ | 733.6 | $ | 151.0 | $ | 159.6 | ||||||||||||||
Additions to property, plant and equipment | 129.7 | 135.8 | 131.2 | 181.1 | 315.5 | 47.8 | 93.1 | |||||||||||||||||||||
Ratio of earnings to fixed charges(2) | — | 0.4 | 1.7 | 1.5 | 1.5 | 1.3 | — |
At December 31, | At March 31, | |||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | |||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
BALANCE SHEET DATA: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 207.8 | $ | 188.3 | $ | 103.6 | $ | 108.8 | $ | 97.4 | $ | 53.3 | ||||||||||||
Total assets | 9,255.9 | 6,742.8 | 6,610.6 | 6,509.2 | 6,675.5 | 6,629.5 | ||||||||||||||||||
Total debt | 3,695.4 | 3,506.6 | 2,756.8 | 2,548.8 | 2,533.2 | 3,016.8 | ||||||||||||||||||
Capital stock | 3,985.0 | 1,341.8 | 1,773.7 | 1,773.7 | 1,773.7 | 1,773.7 | ||||||||||||||||||
Shareholders’ equity | 4,093.4 | 1,751.9 | 2,395.0 | 2,459.9 | 2,450.1 | 2,261.8 |
34
Table of Contents
Three Months Ended | ||||||||||||||||||||
Year Ended December 31, | March 31, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
(In millions) | ||||||||||||||||||||
STATEMENT OF INCOME DATA: | ||||||||||||||||||||
Revenues | $ | 2,298.1 | $ | 2,471.7 | $ | 2,709.1 | $ | 625.9 | $ | 699.2 | ||||||||||
Cost of sales, selling and administrative expenses | (1,683.0 | ) | (1,764.3 | ) | (1,973.5 | ) | (475.5 | ) | (539.9 | ) | ||||||||||
Amortization | (226.6 | ) | (225.7 | ) | (229.6 | ) | (54.1 | ) | (64.0 | ) | ||||||||||
Financial expenses | (467.6 | ) | (308.0 | ) | (285.5 | ) | (79.8 | ) | (33.4 | ) | ||||||||||
Reserve for restructuring of operations, impairment of assets and other special charges | (1.8 | ) | (2.8 | ) | 0.2 | — | 0.4 | |||||||||||||
Loss on debt refinancing | (9.6 | ) | (4.8 | ) | (48.5 | ) | — | (273.9 | ) | |||||||||||
Loss (gain) on sale of businesses and other assets | (1.1 | ) | 9.3 | 1.6 | — | — | ||||||||||||||
Write-down of goodwill | (0.5 | ) | — | — | — | — | ||||||||||||||
Income taxes | 13.8 | (43.4 | ) | (14.2 | ) | (7.4 | ) | 74.8 | ||||||||||||
Non-controlling interest | (34.6 | ) | (35.1 | ) | (18.4 | ) | (1.5 | ) | 1.4 | |||||||||||
Income (loss) from discontinued operations and other expenses | 16.4 | (0.8 | ) | — | — | — | ||||||||||||||
Net (loss) income | $ | (96.5 | ) | $ | 96.1 | $ | 141.2 | $ | 7.6 | $ | (135.4 | ) | ||||||||
OTHER FINANCIAL DATA AND RATIO: | ||||||||||||||||||||
Operating income(1) | $ | 615.1 | $ | 707.4 | $ | 735.6 | $ | 150.4 | $ | 159.3 | ||||||||||
Additions to property, plant and equipment | 131.2 | 181.1 | 315.5 | 47.8 | 93.1 | |||||||||||||||
Comprehensive (loss) income | (155.7 | ) | (11.3 | ) | 172.4 | (14.8 | ) | (59.9 | ) | |||||||||||
Ratio of earnings to fixed charges(2) | 0.8 | 1.6 | 1.6 | 1.2 | — |
At December 31, | At March 31, | |||||||||||||||
2003 | 2004 | 2005 | 2006 | |||||||||||||
(unaudited) | ||||||||||||||||
(In millions) | ||||||||||||||||
BALANCE SHEET DATA: | ||||||||||||||||
Cash and cash equivalents | $ | 103.6 | $ | 108.8 | $ | 97.4 | $ | 53.3 | ||||||||
Total assets | 6,602.2 | 6,480.1 | 6,664.1 | 6,617.5 | ||||||||||||
Total debt | 2,736.1 | 2,514.9 | 2,468.5 | 2,927.8 | ||||||||||||
Capital stock | 1,773.7 | 1,773.7 | 1,773.7 | 1,773.7 | ||||||||||||
Shareholders’ equity | 2,253.3 | 2,218.4 | 2,301.7 | 2,231.6 |
(1) | We define operating income, as reconciled to net income under Canadian GAAP, as net income (loss) before amortization, financial expenses, reserve for restructuring of operations, impairment of assets and other special charges, gain (loss) on debt refinancing and on repurchase of redeemable preferred shares of a subsidiary, gain (loss) on sales of businesses and other assets and gain on dilution, write-down of goodwill, income taxes, amortization of goodwill net of non-controlling interest, non-controlling interest and loss (income) from discontinued operations and other expenses. We define operating income, as reconciled to net income under U.S. GAAP, as net income (loss) before amortization, financial expenses, reserve for restructuring of operations, impairment of assets and other special charges, loss on debt refinancing, gain (loss) on sale of businesses and other assets, write-down of goodwill, income taxes, non-controlling interest and income (loss) from discontinued operations and other expenses. |
35
Table of Contents
Operating income as defined above is not a measure of results that is consistent with Canadian GAAP or U.S. GAAP. It is not intended to be regarded as an alternative to other financial operating performance measures or to the statement of cash flows as a measure of liquidity. It is not intended to represent funds available for debt service, dividends, reinvestment or other discretionary uses, and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Canadian GAAP or U.S. GAAP. Our management believes that operating income is a meaningful measure of performance. Our parent company, Quebecor, considers the media segment as a whole and uses operating income in order to assess the performance of its investment in Quebecor Media. Our management and Board of Directors use this measure in evaluating Quebecor Media’s consolidated results as well as results of Quebecor Media’s operating segments. As such, this measure eliminates the significant level of non-cash depreciation of tangible assets and amortization of certain intangible assets, and it is unaffected by the capital structure or investment activities of Quebecor Media and of its segments. Operating income is also relevant because it is a significant component of Quebecor Media’s annual incentive compensation programs. A limitation of this measure, however, is that it does not reflect the periodic costs of capitalized tangible and intangible assets used in generating revenues in Quebecor Media’s segments. Management evaluates the costs of such tangible and intangible assets through other financial measures such as capital expenditures and free cash flows from operations. In addition, measures like operating income are commonly used by the investment community to analyze and compare the performance of companies in the industries in which we are engaged. Our definition of operating income may not be the same as similarly titled measures reported by other companies. |
The following table provides a reconciliation of operating income to net income under Canadian GAAP as disclosed in our financial statements: |
Three Months | ||||||||||||||||||||||||||||
Year Ended December 31, | Ended March 31, | |||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
Reconciliation of net (loss) income and operating income disclosed herein (Canadian GAAP) | ||||||||||||||||||||||||||||
Net (loss) income | $ | (449.5 | ) | $ | (229.8 | ) | $ | 203.9 | $ | 88.2 | $ | 96.5 | $ | 12.8 | $ | (178.4 | ) | |||||||||||
Amortization | 150.3 | 224.6 | 226.6 | 225.9 | 231.9 | 54.6 | 64.6 | |||||||||||||||||||||
Financial expenses | 289.2 | 323.4 | 300.1 | 314.6 | 285.3 | 74.7 | 52.3 | |||||||||||||||||||||
Reserve for restructuring of operations, impairment of assets and other special charges | 151.2 | 36.9 | 1.8 | 2.8 | (0.2 | ) | — | (0.4 | ) | |||||||||||||||||||
(Gain) loss on debt refinancing and on repurchase of redeemable preferred shares of a subsidiary | — | — | (144.1 | ) | 4.8 | 60.0 | — | 331.6 | ||||||||||||||||||||
(Gain) loss on sale of businesses and other assets and gains on dilution | (1.5 | ) | (3.6 | ) | 1.1 | (9.3 | ) | (0.1 | ) | — | — | |||||||||||||||||
Write-down of goodwill | 132.8 | 178.1 | 0.5 | — | — | — | — | |||||||||||||||||||||
Income taxes | (6.9 | ) | 4.4 | (12.5 | ) | 37.4 | 44.0 | 7.5 | (108.6 | ) | ||||||||||||||||||
Amortization of goodwill, net of non-controlling interest | (125.7 | ) | — | — | — | — | — | — | ||||||||||||||||||||
Non-controlling interest | (26.0 | ) | 30.5 | 34.6 | 31.7 | 16.2 | 1.4 | (1.5 | ) | |||||||||||||||||||
Loss (income) from discontinued operations and other expenses | 24.1 | 7.9 | (0.2 | ) | 1.1 | — | — | — | ||||||||||||||||||||
Operating income | $ | 389.4 | $ | 572.4 | $ | 611.8 | $ | 697.2 | $ | 733.6 | $ | 151.0 | $ | 159.6 | ||||||||||||||
36
Table of Contents
The following table provides a reconciliation of operating income to net income under U.S. GAAP as disclosed in our financial statements: |
Three Months Ended | ||||||||||||||||||||
Year Ended December 31, | March 31, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
(In millions) | ||||||||||||||||||||
Reconciliation of net (loss) income (U.S. GAAP) and operating income | ||||||||||||||||||||
Net (loss) income | $ | (96.5 | ) | $ | 96.1 | $ | 141.2 | $ | 7.6 | $ | (135.4 | ) | ||||||||
Amortization | 226.6 | 225.7 | 229.6 | 54.1 | 64.0 | |||||||||||||||
Financial expenses | 467.6 | 308.0 | 285.5 | 79.8 | 33.4 | |||||||||||||||
Reserve for restructuring of operations, impairment of assets and other special charges | 1.8 | 2.8 | (0.2 | ) | — | (0.4 | ) | |||||||||||||
Loss on debt refinancing | 9.6 | 4.8 | 48.5 | — | 273.9 | |||||||||||||||
Loss (gain) on sale of businesses and other assets | 1.1 | (9.3 | ) | (1.6 | ) | — | — | |||||||||||||
Write-down of goodwill | 0.5 | — | — | — | — | |||||||||||||||
Income taxes | (13.8 | ) | 43.4 | 14.2 | 7.4 | (74.8 | ) | |||||||||||||
Non-controlling interest | 34.6 | 35.1 | 18.4 | 1.5 | (1.4 | ) | ||||||||||||||
(Income) loss from discontinued operations and other expenses | (16.4 | ) | 0.8 | — | — | — | ||||||||||||||
Operating income | $ | 615.1 | $ | 707.4 | $ | 735.6 | $ | 150.4 | $ | 159.3 | ||||||||||
(2) | For the purpose of calculating the ratio of earnings to fixed charges, (i) earnings consist of net income (loss) plus non-controlling interest in subsidiary, income taxes, fixed charges, amortized capitalized interest, less interest capitalized and (ii) fixed charges consist of interest expensed and capitalized, plus amortized premiums, discounts and capitalized expenses relating to indebtedness and an estimate of the interest within rental expense. For the years ended December 31, 2001 and 2002 and for the three months ended March 31, 2006, earnings, as calculated under Canadian GAAP, were inadequate to cover our fixed charges, and the coverage deficiency for such periods was $502.1 million, $209.2 million and $290.0 million, respectively. For the year ended December 31, 2003 and for the three months ended March 31, 2006, earnings, as calculated under U.S. GAAP, were inadequate to cover our fixed charges, and the coverage deficiency for such periods was $76.0 million and $213.1 million, respectively. |
37
Table of Contents
38
Table of Contents
Cable Segment |
Newspapers Segment |
Broadcasting Segment |
39
Table of Contents
Leisure and Entertainment Segment |
Interactive Technologies and Communications Segment |
Internet/ Portals Segment |
40
Table of Contents
• | On January 17, 2006, Quebecor Media issued the old notes, being US$525.0 million aggregate principal amount of 73/4% Senior Notes due March 2016. The Company also established its Senior Secured Credit Facilities consisting of afive-year term loan A facility in the amount of $125.0 million, maturing in 2011, a seven-year term loan B facility in the amount of US$350.0 million, maturing in 2013, and afive-year revolving credit facility in the amount of $100.0 million, maturing in 2011. The facilities also provide for an uncommitted $350 million incremental facility that may be available to Quebecor Media under certain conditions. | |
• | Quebecor Media used the proceeds from its offering and issuance of the old notes, the full amount of its new term loan A and term loan B, and amounts received from its subsidiaries ($251.7 million from Videotron, drawn on its existing revolving credit facilities and cash on hand, and $40.0 million from Sun Media, drawn on its new credit facility), to finance the repurchase, on January 17, 2006, of US$561.6 million aggregate principal amount of its 111/8% Senior Notes and US$275.6 million aggregate principal amount at maturity of its 133/4% Senior Discount Notes (representing 95.7% and 97.4%, respectively, of these notes outstanding at that date). Quebecor Media paid a total cash consideration of $1.3 billion to purchase the notes, including the premium and the cost of settlement of cross-currency swap agreements. Consequently, Quebecor Media has recognized a loss on settlement of debt of $206.0 million (net of income tax recovery of approximately $125.6 million, of which $6.0 million was recognized in the fourth quarter of 2005). |
41
Table of Contents
42
Table of Contents
43
Table of Contents
44
Table of Contents
![Fig 1](https://capedge.com/proxy/424B3/0001206212-06-000146/m31895b3m3189505.gif)
45
Table of Contents
![Fig 2](https://capedge.com/proxy/424B3/0001206212-06-000146/m31895b3m3189506.gif)
![Fig 3](https://capedge.com/proxy/424B3/0001206212-06-000146/m31895b3m3189507.gif)
46
Table of Contents
Three months ended | ||||||||
March 31, | ||||||||
2005 | 2006 | |||||||
(In millions of | ||||||||
Canadian dollars) | ||||||||
Operating income before cost of equipment subsidies to customers | $ | 104.7 | $ | 124.4 | ||||
Cost of equipment subsidies to customers | (5.6 | ) | (6.6 | ) | ||||
Operating income | $ | 99.1 | $ | 117.8 | ||||
47
Table of Contents
Three months ended | ||||||||
March 31, | ||||||||
2005 | 2006 | |||||||
(In millions of | ||||||||
Canadian dollars) | ||||||||
Cash flows from operating activities before undernoted item | $ | 83.3 | $ | 101.3 | ||||
Net change in non-cash balances related to operations | (42.4 | ) | (83.6 | ) | ||||
Cash flows from continuing operating activities | 40.9 | 17.7 | ||||||
Additions to property, plant and equipment | (36.5 | ) | (59.3 | ) | ||||
Proceeds from disposal of assets | 0.2 | 0.1 | ||||||
Free cash flows from operations | $ | 4.6 | $ | (41.5 | ) | |||
48
Table of Contents
Three months ended | ||||||||
March 31, | ||||||||
2005 | 2006 | |||||||
(In millions of | ||||||||
Canadian dollars) | ||||||||
Cash flows from operating activities before undernoted item | $ | 32.7 | $ | 26.8 | ||||
Net change in non-cash balances related to operations | 0.9 | (11.5 | ) | |||||
Cash flows from continuing operating activities | 33.6 | 15.3 | ||||||
Additions to property, plant and equipment | (2.6 | ) | (30.8 | ) | ||||
Free cash flows from operations | $ | 31.0 | $ | (15.5 | ) | |||
49
Table of Contents
50
Table of Contents
51
Table of Contents
Restricted Subsidiaries |
52
Table of Contents
Cable Segment |
![(TABLE 1 GRAPH)](https://capedge.com/proxy/424B3/0001206212-06-000146/m31895b3m3189502.gif)
53
Table of Contents
![(TABLE 2 GRAPH)](https://capedge.com/proxy/424B3/0001206212-06-000146/m31895b3m3189503.gif)
![(TABLE 3 GRAPH)](https://capedge.com/proxy/424B3/0001206212-06-000146/m31895b3m3189504.gif)
54
Table of Contents
2003 | 2004 | 2005 | ||||||||||
(In millions of | ||||||||||||
Canadian dollars) | ||||||||||||
Operating income before cost of equipment subsidies to customers | $ | 325.3 | $ | 400.5 | $ | 450.0 | ||||||
Cost of equipment subsidies to customers | (35.6 | ) | (36.7 | ) | (36.7 | ) | ||||||
Operating income | $ | 289.7 | $ | 363.8 | $ | 413.3 | ||||||
55
Table of Contents
2003 | 2004 | 2005 | ||||||||||
(In millions of | ||||||||||||
Canadian dollars) | ||||||||||||
Cash flow from operating activities before undernoted item | $ | 237.4 | $ | 318.1 | $ | 348.6 | ||||||
Net change in non-cash balances related to operations | (45.2 | ) | 13.6 | 30.4 | ||||||||
Cash flow from operating activities | 192.2 | 331.7 | 379.0 | |||||||||
Additions to property, plant and equipment | (108.2 | ) | (144.5 | ) | (215.6 | ) | ||||||
Proceeds from disposal of assets | 4.1 | 3.0 | 1.3 | |||||||||
Free cash flow from operations | $ | 88.1 | $ | 190.2 | $ | 164.7 | ||||||
Newspapers Segment |
56
Table of Contents
2003 | 2004 | 2005 | ||||||||||
(In millions of | ||||||||||||
Canadian dollars) | ||||||||||||
Cash flows from continuing operating activities before undernoted item | $ | 199.8 | $ | 187.1 | $ | 184.6 | ||||||
Net change in non-cash balances related to operations | 25.2 | (9.7 | ) | (3.2 | ) | |||||||
Cash flows from continuing operating activities | 225.0 | 177.4 | 181.4 | |||||||||
Additions to property, plant and equipment | (14.3 | ) | (18.8 | ) | (74.0 | ) | ||||||
Proceeds from disposal of assets | 0.3 | 0.6 | 0.5 | |||||||||
Free cash flows from operations | $ | 211.0 | $ | 159.2 | $ | 107.9 | ||||||
Broadcasting Segment |
57
Table of Contents
Leisure and Entertainment Segment |
58
Table of Contents
Internet/ Portals Segment |
Unrestricted Subsidiary |
Interactive Technologies and Communications segment |
59
Table of Contents
60
Table of Contents
Cable Segment |
61
Table of Contents
Newspapers Segment |
Broadcasting Segment |
62
Table of Contents
Leisure and Entertainment Segment |
Interactive Technologies and Communications Segment |
Internet/ Portals Segment |
Sources and Uses of Liquidity and Capital Resources |
• | funds from operations; and | |
• | access to unused portions of its credit facilities. |
• | capital expenditures to grow or upgrade its fixed assets; | |
• | servicing and repayment of debt, and servicing of other contractual obligations; and | |
• | business acquisitions. |
Operating Activities |
63
Table of Contents
Financing Activities |
64
Table of Contents
65
Table of Contents
Investing Activities |
66
Table of Contents
Less Than | 1-3 | 3-5 | 5 Years | |||||||||||||||||
Total | 1 Year | Years | Years | and More | ||||||||||||||||
(In millions of Canadian dollars) | ||||||||||||||||||||
Long-term debt | $ | 3,016.8 | $ | 19.7 | $ | 38.6 | $ | 707.6 | $ | 2,250.9 | ||||||||||
Interest payments(1) | 1,624.4 | 209.7 | 413.7 | 370.3 | 630.7 | |||||||||||||||
Operating leases | 178.4 | 41.6 | 59.5 | 39.5 | 37.8 | |||||||||||||||
Capital asset purchases and other commitments | 147.8 | 102.9 | 40.1 | 4.8 | — | |||||||||||||||
Total contractual obligations | $ | 4,967.4 | $ | 373.9 | $ | 551.9 | $ | 1,122.2 | $ | 2,919.4 | ||||||||||
(1) | Estimate of interest to be paid on long-term debt based on the interest rates and foreign exchange rate as at March 31, 2006. |
67
Table of Contents
Additional Amount Payable to The Carlyle Group |
68
Table of Contents
69
Table of Contents
As at March 31, 2006 | ||||||||||||||
Carrying Amount | Fair Value of | |||||||||||||
Notional Value | of Asset (Liability) | Asset (Liability) | ||||||||||||
(In millions of Canadian dollars) | ||||||||||||||
Derivative financial instruments | ||||||||||||||
Interest rate swap agreements | $5.0 | $ | — | $ | — | |||||||||
Foreign exchange forward contracts | ||||||||||||||
in US$ | 52.8 | US$ | — | 1.2 | ||||||||||
in EUR | 29.3 | EUR | — | (0.3 | ) | |||||||||
in CHF | 31.0 | CHF | — | (0.1 | ) | |||||||||
Cross-currency interest rate swap agreements | 2,104.3 | US$ | (209.9 | ) | (354.3 | ) |
Financial Position |
70
Table of Contents
Management Arrangements |
Lease Arrangements |
Commercial Printing and Other Services |
71
Table of Contents
Tax Benefit Transactions |
Guarantees |
Operating lease agreements |
72
Table of Contents
Business and asset disposals |
Long-term debt |
Outsourcing companies and suppliers |
73
Table of Contents
Labour Agreements |
• | Videotron’s 4 collective bargaining agreements, representing 2,199, or 100%, of its unionized employees, had been recently renewed and are scheduled to expire on various dates between December 2009 and August 2011; | |
• | 20 of Sun Media’s collective bargaining agreements, representing approximately 388, or 19%, of its unionized employees, had expired. Negotiations regarding these 20 collective bargaining agreements are either in progress or will be undertaken in 2006. Furthermore, eight of Sun Media’s collective bargaining agreements, covering 484 employees, expire in 2006, while Sun Media’s 21 other collective bargaining agreements, representing approximately 1,137 unionized employees, are scheduled to expire on various dates between December 2007 and June 2010; | |
• | 12 of TVA Group’s 15 collective bargaining agreements, representing approximately 379, or 41%, of its unionized employees, will expire between April 2007 and the end of December 2008, one of its collective bargaining agreements, representing approximately 516, or 56%, of its unionized employees, will expire at the end of December 2006 and two collective bargaining agreements, representing 26, or 3%, of its employees, had expired and negotiations regarding these collective bargaining agreements will be undertaken in 2006. A group of 53 employees is currently in the process of being unionized; and | |
• | three of our other collective bargaining agreements, representing approximately 126, or 13%, of our other unionized employees, had expired. Negotiations regarding these collective bargaining agreements are either in progress or will be undertaken in 2006. Another seven of our collective bargaining agreements, representing approximately 859, or 87%, of our other unionized employees, expire at various dates between the end of December 2006 and March 2010. |
Contingencies |
74
Table of Contents
Credit Risks |
Financial Risks |
Average | Notional | ||||||||||||
Currencies (sold/bought) | Maturing | exchange rate | amount | ||||||||||
(in millions of Canadian dollars) | |||||||||||||
Quebecor Media Inc. | |||||||||||||
$/ Euro | August 2007 | 1.4369 | $ | 42.1 | |||||||||
$/ CHF | September 2007 | 0.9129 | 28.3 | ||||||||||
$/ US$ | July 2006 | 1.1422 | 40.9 |
75
Table of Contents
Exchange rate | ||||||||||||||||||||||
of interest | ||||||||||||||||||||||
Annual | Annual | and capital | ||||||||||||||||||||
effective | nominal | payments per | ||||||||||||||||||||
Period | Notional | interest | interest | CDN dollar for | ||||||||||||||||||
covered | amount | rate | rate | one U.S. dollar | ||||||||||||||||||
(in millions of Canadian dollars) | ||||||||||||||||||||||
Quebecor Media Inc. | ||||||||||||||||||||||
Senior Notes | 2006 to 2016 | US$ | 525.0 | 7.39% | 7.75% | 1.1600 | ||||||||||||||||
Term-loan “B” credit | 2006 to 2009 | US$ | 200.0 | 6.27% | LIBOR | 1.1625 | ||||||||||||||||
facility | +2.00% | |||||||||||||||||||||
Term-loan “B” credit | 2009 to 2013 | US$ | 200.0 | Bankers’ | LIBOR | 1.1625 | ||||||||||||||||
facility | acceptance | +2.00% | ||||||||||||||||||||
3 months | ||||||||||||||||||||||
+2.22% | ||||||||||||||||||||||
Term-loan “B” credit | 2006 to 2013 | US$ | 150.0 | 6.44% | LIBOR | 1.1625 | ||||||||||||||||
facility | +2.00% |
Foreign Currency Risk |
Interest Rate Risk |
Fixed | ||||||||||||||||
Maturity | Notional Amount | Pay/Receive | Rate | Floating Rate | ||||||||||||
(In millions of dollars) | ||||||||||||||||
Videotron Ltd. and its subsidiaries | ||||||||||||||||
May 2006 | $ | 90.0 | Pay fixed/ receive floating | 5.41 | % | Bankers’ acceptance 3 months | ||||||||||
September 2007 | $ | 5.0 | Pay fixed/ receive floating | 3.75 | % | Bankers’ acceptance 3 months |
76
Table of Contents
Exchange Rate | ||||||||||||||||
of Interest and | ||||||||||||||||
Annual | Capital | |||||||||||||||
Nominal | Payments per | |||||||||||||||
Notional | Interest | CDN Dollar for | ||||||||||||||
Period Covered | Amount | Annual Effective Interest Rate | Rate | One US Dollar | ||||||||||||
(In millions of dollars) | ||||||||||||||||
Quebecor Media Inc. | ||||||||||||||||
Senior Notes | 2001 to 2011 | US$586.8 | (1) | 11.98% | 11.125% | 1.5255 | ||||||||||
Senior Discount Notes | 2001 to 2011 | US$282.9 | (1) | 14.60% | 13.75% | 1.5822 | (2) | |||||||||
Videotron Ltd. and its subsidiaries | ||||||||||||||||
Senior Notes | 2004 to 2014 | US$190.0 | Bankers’ acceptance 3 months +2.80% | 6.875% | 1.2000 | |||||||||||
Senior Notes | 2004 to 2014 | US$125.0 | 7.45% | 6.875% | 1.1950 | |||||||||||
Senior Notes | 2003 to 2014 | US$200.0 | Bankers’ acceptance 3 months +2.73% | 6.875% | 1.3425 | |||||||||||
Senior Notes | 2003 to 2014 | US$135.0 | 7.66% | 6.875% | 1.3425 | |||||||||||
Senior Notes | 2005 to 2015 | US$175.0 | 5.98% | 6.375% | 1.1781 | |||||||||||
Sun Media Corporation and its subsidiaries | ||||||||||||||||
Senior Notes | 2003 to 2008 | US$155.0 | 8.17% | 7.625% | 1.5227 | |||||||||||
Senior Notes | 2008 to 2013 | US$155.0 | Bankers’ acceptance 3 months +3.70% | 7.625% | 1.5227 | |||||||||||
Senior Notes | 2003 to 2013 | US$50.0 | Bankers’ acceptance 3 months +3.70% | 7.625% | 1.5227 | |||||||||||
Term-loan “B” credit facility | 2003 to 2009 | US$199.3 | Bankers’ acceptance 3 months | LIBOR +2.00% | 1.5175 |
(1) | The cross-currency swap agreements used as foreign exchange hedges for the Senior Notes and the Senior Discount Notes were closed out in their entirety when thenear-totality of these notes was refinanced on January 17, 2006. |
(2) | As per the agreement, the exchange rate includes an exchange fee. |
Commodity Price Risk |
Material Limitations |
77
Table of Contents
Fair Value of Financial Instruments |
2004 | 2005 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Value | Value | Value | Value | |||||||||||||
(In millions of dollars) | ||||||||||||||||
Quebecor Media Inc. | ||||||||||||||||
Long-term debt(1) | (1,140.7 | ) | (1,332.9 | ) | (988.1 | ) | (1,078.8 | ) | ||||||||
Cross-currency interest rate swaps | (3.9 | ) | (241.9 | ) | (21.5 | ) | (261.3 | ) | ||||||||
Foreign forward exchange contract | — | — | — | (1.8 | ) | |||||||||||
Videotron Ltd. and its subsidiaries | ||||||||||||||||
Long-term debt(1) | (888.9 | ) | (901.1 | ) | (971.7 | ) | (967.4 | ) | ||||||||
Interest rate swaps | (4.6 | ) | (4.6 | ) | (0.9 | ) | (0.9 | ) | ||||||||
Cross-currency interest rate swaps | (45.5 | ) | (72.3 | ) | (73.7 | ) | (135.0 | ) | ||||||||
Foreign exchange forward contract | (8.4 | ) | (8.4 | ) | — | (0.2 | ) | |||||||||
Sun Media Corporation and its subsidiaries | ||||||||||||||||
Long-term debt(1) | (484.3 | ) | (507.7 | ) | (466.3 | ) | (476.1 | ) | ||||||||
Cross-currency interest rate swaps and foreign exchange forward contract | (147.4 | ) | (169.8 | ) | (154.1 | ) | (186.5 | ) | ||||||||
TVA Group Inc. and its subsidiaries | ||||||||||||||||
Long-term debt | (34.9 | ) | (34.9 | ) | (107.1 | ) | (107.1 | ) |
(1) | Including current portion. |
Principal Repayments |
(In | ||||
Twelve Month Period Ending March 31 | millions) | |||
2006 | $ | 19.7 | ||
2007 | 19.3 | |||
2008 | 19.3 | |||
2009 | 599.1 | |||
2010 | 108.5 | |||
2011 and thereafter | $ | 2,250.9 |
Revenue Recognition |
Cable Segment |
78
Table of Contents
Newspapers segment |
Broadcasting segment |
Leisure and Entertainment segment |
Goodwill |
79
Table of Contents
Impairment of Long-Lived Assets |
Derivative Financial Instruments |
80
Table of Contents
Pension Plans and Postretirement Benefits |
Allowance for Doubtful Accounts |
81
Table of Contents
Business Combinations |
Future Income Taxes |
Revenue recognition and revenue arrangements with multiple deliverables |
82
Table of Contents
Hedging relationships |
Subscriber equipment andhook-up costs |
Stock based compensation |
83
Table of Contents
84
Table of Contents
• | On April 12, 2006, Quebecor Media announced the signing of a credit agreement with Société Générale (Canada) for along-term credit facility for the Canadian dollar equivalent of€59.4 million. Drawings under this credit facility will be used to partially finance the purchase of six MAN Roland rotary presses by Quebecor Media. As announced in the third quarter of 2005, the presses will be used mainly to print some of Quebecor Media’s newspapers. This facility, which will be drawn down over the next 20 months and repaid over the following 8 years, is related to a German export financing program and provides Quebecor Media with financing at a very attractive cost. It is secured by, among other things, afirst-ranking hypothec on Quebecor Media’s movable assets. | |
• | On January 17, 2006, we issued the old notes as part of our Refinancing Plan. See “Summary — Refinancing Plan.” | |
• | On January 1, 2006, our wholly-owned indirect subsidiary Videotron Telecom merged with and into Videotron. Combining Videotron Telecom’s telecommunication network and expertise with Videotron’s commercial customer enables Videotron to offer additional bundled services, which is expected to result in new business opportunities. This reorganization is a continuation of the existing collaboration between Videotron and Videotron Telecom in, among other things, our VoIP telephony and fiber network development, and it reflects a corporate strategy to improve operating efficiency. | |
• | On December 12, 2005, we closed our acquisition of Sogides, a major Québec book publishing and distribution group which owns the publishing houses Les Éditions de l’Homme, Le Jour, Utilis, Les Presses Libres and Groupe Ville-Marie Littérature (which includes L’Hexagone, VLB Éditeur and Typo), and owns the distributor Les Messageries A.D.P., which is a distributor for more than 120 Québec and foreign publishing houses. With this acquisition, Quebecor Media offers a more complete selection of books by Québec authors, will be able to promote Québec writers in Europe through the Sogides network on that continent and becomes the largest Québec-based publisher and distributor of French-language books in the Province of Québec. | |
• | During the year ended December 31, 2005, TVA Group repurchased 3,739,599 of its non-voting Class B Shares for cash consideration of $81.9 million pursuant to a “substantial issuer bid” dated |
85
Table of Contents
May 19, 2005, and pursuant to TVA Group’s share repurchase and cancellation program, increasing our interest in TVA Group to 45.2% from 39.7% at December 31, 2005. | ||
• | On September 20, 2005, we announced, through Videotron, that we had signed a strategic relationship agreement with a partnership owned by Rogers Wireless Inc., or Rogers Wireless, the operator of Canada’s largest integrated wireless voice and data network. Through that relationship, we will be able to offer Québec consumers a quadruple play of television, broadband Internet, VoIP telephony and Videotron-branded mobile wireless services. Videotron will operate as a Mobile Virtual Network Operator, or MVNO, utilizing wireless voice and data services provided by Rogers Wireless across its GSM/ GPRS network. We currently intend to launch our mobile wireless offering during the second half of 2006, with services to include international roaming and popular options. We will be responsible for acquiring and billing customers, as well as for providing customer support under our own brand. | |
• | On September 16, 2005, Videotron issued US$175.0 million aggregate principal amount of its 61/8% Senior Notes due December 15, 2015. The net proceeds from this sale of Videotron’s 61/8% Senior Notes were used primarily to refinance the repurchase of Senior Notes issued by our CF Cable TV subsidiary and a portion of the repurchase by Quebecor Media of its Senior Notes and Senior Discount Notes. | |
• | In August 2005, we announced an investment of more than $110.0 million to relocate and modernize theJournal de Montréalprinting plant. The project includes acquisition of three new printing presses andstate-of-the-art shipping and inserting equipment. Construction of the new printing plant in Saint-Janvier-de-Mirabel, north of Montréal, began on September 9, 2005 and should be completed by spring 2007. We also announced the creation of a partnership with our affiliate Quebecor World to operate a new printing facility in Islington, in the Greater Toronto area. The project entails a $110.0 million investment. The new facility will make it possible to consolidate some of Quebecor World’s printing operations in Ontario and to strengthen the convergence among our Toronto media properties. This new facility is expected to be fully operational by 2007. | |
• | On July 19, 2005, we repurchased and retired US$128.2 million in aggregate principal amount of our 111/8% Senior Notes due 2011 and US$12.1 million in aggregate principal amount at maturity of our 133/4% Senior Discount Notes due 2011 pursuant to cash tender offers commenced on June 20, 2005. We paid aggregate cash consideration of $215.3 million to purchase these notes, including the redemption premium and the cost of settlement of related cross-currency swap agreements, recognizing a $60.8 million loss on settlement of debt. | |
• | In January 2005, Videotron launched its telephony services in the Province of Québec, using VoIP technology. Videotron became the first major cable company in Canada to offer consumers residential telephone service over cable. See “— Cable” below. |
86
Table of Contents
• | cross-promote our brands, programs and other content across multiple media platforms; | |
• | provide advertisers with an integrated solution for local, regional and national multi-platform advertising; | |
• | offer a differentiated, bundled suite of entertainment, information and communication services and products, including digital television, cable Internet access,video-on-demand and other interactive television services, as well as residential and commercial telephony services using VoIP technology; | |
• | deliver high-quality services and products, including, for example, our standard cable Internet access service that enables our customers to download data at a higher speed than that currently offered by standard digital subscriber line, or DSL, technology, and the widest range of French-language programming in Canada; | |
• | leverage our content, management, sales and marketing and production resources to provide superior information and entertainment services to our customers; | |
• | extend our market reach by leveraging our multimedia platform and cross-marketing expertise and experience to enhance our national media platform; | |
• | leverage our single, highly contiguous network that covers approximately 80% of Québec’s total addressable market and five of the province’s top six urban areas. We believe that our single cluster and network architecture provides many benefits, including a higher quality and more reliable network, the ability to rapidly and efficiently launch and deploy new products and services, and a lower cost structure through reduced maintenance and technical support costs; and | |
• | leverage our advanced broadband network, 98% of which is bi-directional which allows us to offer a wide range of advanced services on the same media, such as analog and digital television,video-on-demand, cable Internet access and VoIP telephony services. We are committed to maintaining and upgrading our network capacity and, to that end, we currently anticipate that future capital expenditures over the next five years will be required to accommodate the evolution of our products and services and to meet the demand for increased capacity resulting from the launch of our new telephony service and the offering of our other advanced products and services. |
87
Table of Contents
• | Introduce new and enhanced products and services. We expect a significant portion of our growth in our Cable segment revenues to be driven by the introduction of new products and services and continuing penetration of products and services such as digital cable services, cable Internet access, VoIP telephony, wireless services, high-definition television,video-on-demand and interactive television. Our objective is also to increase our revenue per subscriber by focusing sales and marketing efforts on the bundling of these value-added products and services. | |
• | Offer multi-platform media advertising solutions. Our multi-platform media assets enable us to provide advertisers with an integrated advertising solution. We are able to provide flexible, bundled advertising packages that allow advertisers to reach local, regional and national markets, as well as special interest and specific demographic groups. We will focus on further integrating our television, newspaper and magazine publishing, and Internet advertising platforms to enable us to tailor advertising packages to customers’ needs. | |
• | Cross-promote brands, programs and other content. The geographic overlap of our cable, television, newspaper and magazine publishing, music and video store chains, and Internet platforms enables us to cost effectively promote and co-brand media properties. We will continue to promote initiatives to advance these cross-promotional activities, including the cross-promotion of various businesses, cross-divisional advertising and shared infrastructures. | |
• | Use content across media properties. We are the largest private-sector French-language programming broadcaster, a leading producer of French-language programming, the second largest newspaper publisher, and a leading English- and French-language Internet news and information portal in Canada. Our objective is to further accelerate the distribution of our content across platforms. | |
• | Leverage geographic clustering. Our subsidiary Videotron holds cable licenses that cover approximately 80% of Québec’s 3 million homes and commercial premises passed by cable. Geographic clusters facilitate bundled service offerings and, in addition, allow us to tailor our offerings to certain demographic markets. We aim to leverage the highly clustered nature of our systems to enable us to use marketing dollars more efficiently and to enhance customer awareness, increase use of products and services and build brand support. | |
• | Maximize customer satisfaction and build customer loyalty. Across our media platform, we believe that maintaining a high level of customer satisfaction is critical to future growth and profitability. An important factor in our historical growth and profitability has been our ability to attract and satisfy customers with high quality products and services and we will continue our efforts to maximize customer satisfaction and build customer loyalty. |
88
Table of Contents
89
Table of Contents
Cable Television Industry Overview |
Twelve Months Ended August 31, | ||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | CAGR(1) | |||||||||||||||||||
($ in billions; homes passed and basic cable customers | ||||||||||||||||||||||||
in millions) | ||||||||||||||||||||||||
Canada | ||||||||||||||||||||||||
Industry Revenue | $ | 3.2 | $ | 3.4 | $ | 3.7 | $ | 4.2 | $ | 4.5 | 9.6 | % | ||||||||||||
Homes Passed(2) | 9.4 | 9.5 | 9.7 | 10.0 | 10.2 | 2.0 | % | |||||||||||||||||
Basic Cable Customers | 7.0 | 6.9 | 6.7 | 6.6 | 6.6 | -1.2 | % | |||||||||||||||||
Basic Penetration | 73.8 | % | 72.0 | % | 69.3 | % | 65.5 | % | 65.0 | % |
Twelve Months Ended August 31, | ||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | CAGR(3) | |||||||||||||||||||
(US$ in billions; homes passed and basic cable customers in millions) | ||||||||||||||||||||||||
United States | ||||||||||||||||||||||||
Industry Revenue | US$ | 43.5 | US$ | 49.4 | US$ | 51.3 | US$ | 57.6 | US$ | 69.5 | 9.8 | % | ||||||||||||
Homes Passed(2) | 100.6 | 102.7 | 102.9 | 108.2 | 110.8 | 2.0 | % | |||||||||||||||||
Basic Cable Customers | 73.0 | 73.5 | 73.4 | 73.6 | 73.1 | 0.0 | % | |||||||||||||||||
Basic Penetration | 72.6 | % | 71.6 | % | 71.3 | % | 68.0 | % | 66.0 | % |
(1) | Compounded annual growth rate from 2000 through 2004. |
(2) | “Homes passed” means the number of residential premises, such as single dwelling units or multiple dwelling units, and commercial premises passed by the cable television distribution network in a given cable system service area in which the programming services are offered. |
(3) | Compounded annual growth rate from 2001 through 2005. |
90
Table of Contents
Expansion of Digital Distribution and Programming |
91
Table of Contents
Traditional Cable Television Services |
• | Basic Service. All of our customers receive a package of basic programming, consisting of local broadcast television stations, the four U.S. commercial networks and PBS, selected Canadian specialty programming services, and local or regional community programming. Our basic service customers generally receive 29 channels on basic cable. | |
• | Extended Basic Service. This expanded programming level of services, which is generally comprised of approximately 24 channels, includes a package of French-language and English-language specialty television programming and U.S. cable channels in addition to the basic service channelline-up described above. Branded as “Telemax,” this service was introduced in almost all of our markets largely to satisfy customer demand for greater flexibility and choice. |
Advanced Products and Services |
• | Cable Internet Access. Leveraging our advanced cable infrastructure, we offer cable Internet access to our residential customers primarily via cable modems attached to personal computers. We provide this service at speeds up to 290 times the speed of a conventional telephone modem. As of March 31, 2006, we had 681,823 cable Internet access customers, representing 44.9% of our basic customers and 28.1% of our total homes passed. In addition, as of March 31, 2006, we had 16,715 dial-up Internet access customers. Based on internal estimates, we are the largest provider of cable Internet access services in the areas we serve with an estimated market share of 52.2% as of March 31, 2006. | |
• | Digital Television. As part of our network modernization program, we have installed headend equipment capable of delivering digitally encoded transmissions to a two-way digital-capable set-top box in the customer’s home. This digital connection provides significant advantages. In particular, it increases channel capacity, which allows us to increase both programming and service offerings while providing increased flexibility in packaging our services. We launched our digital television service in March 1999 with the introduction of digital video compression terminals in the greater Montréal area. Since introducing our digital television service in the greater Montréal area, we have also introduced the service in other major markets. In September 2001, we launched a new digital service offering under theillicobrand. In addition to providing high quality sound and image quality,illico Digital TVoffers our customers significant programming flexibility. Our basic digital package includes 24 television channels, 45 audio services providing CD quality music, 18 AM/ FM radio channels, an interactive programming guide as well as television-basede-mail capability. Our extended digital basic television service, branded as “Self-Service”, offers customers the ability to select more than 200 additional channels of their choice, including U.S. super-stations and other special entertainment programs, allowing them to customize their choices among many specialty channels. This service also offers customers significant programming flexibility including the option of French-language only, English-language only or a combination of French and English-language programming. We also offer pre-packaged themed service tiers in the areas of news, sports and discovery. Customers who purchase |
92
Table of Contents
basic service and one customized package can also purchase channels on anà la cartebasis at a specified cost per channel per month. As part of our digital service offering, customers can also purchasevideo-on-demand services. As of March 31, 2006, we had 512,382 customers for our digital television service, representing 33.7% of our basic customers and 21.1% of our total homes passed. Our customers currently have the option to purchase or lease the digital set-top boxes required for digital service. We believe that the sale of equipment to customers improves customer retention, and, as of March 31, 2006, approximately 92.7% of our digital television customers purchased and 7.3% were leasing our digital set-top boxes. | ||
• | VoIP. In January 2005, we launched our new telephony service using VoIP technology in selected areas of the Province of Québec (Montréal, South Shore and North Shore of Montréal, Laval and Québec City), and since then progressively among our other residential and commercial customers in the Province of Québec. Our new telephony service includes both local and long-distance calling, and permits all of our telephony customers, both residential and commercial, to access all service features mandated by CRTC Decision 97-8 and other regulatory decisions and orders, including: enhanced 911 Emergency service; number portability from and to any local exchange carrier; a message relay service allowing subscribers to communicate with the hearing impaired; and a variety of personal privacy features including universal call tracing. We also offer free basic listings in local telephone directories, as well as full operator assistance, including: operator-assisted calls; collect and third-party calls; local, national and international directory assistance;person-to-person calls; and busy-line verification. Finally, we offer as part of our new telephony service a host of convenient, optional features, including: name and number caller ID; call waiting with long-distance distinctive ring and audible indicator tone; name and number caller ID on call waiting; visual indicator of a full voice mail box and audible message waiting indicators; automatic call forwarding; three-way conference calling; automatic recalling; and last incoming call identification and recall. In the future, VoIP will allow us to deliver new cutting-edge features, such as voice-mail toe-mail functionality launched in December 2005, which allows customers to access their voice-mail viae-mail in the form of audio-file attachments. In keeping with our competitive strength of providing differentiated, bundled service offerings, we offer free installation of our new telephony service to existing cable television and/or Internet customers and to new bundled customers. We also offer discounts to our bundled customers, when compared to the sum of the prices of the individual services provided to these customers. In addition, we offer discounts for a second telephone line subscription. As of March 31, 2006, we had 226,954 customers of our VoIP telephony service. | |
• | Interactive Services. In September 2001, we also launched digital interactive services under theillico Interactivebrand. These services, which combine our digital television and Internet access services, enable customers equipped with wireless keyboards to access the Internet and send and receivee-mail. In the near future, we intend to provide additional functionality includinge-commerce. We believe interactive services will be increasingly desired by customers, and we intend to continue to develop and deploy advanced products and services to add greater functionality to our interactive services offering. | |
• | Video-On-Demand.Video-on-demand service enables digital cable customers to rent from a library of movies, documentaries and other programming through their digital set-top box. Our digital cable customers are able to rent theirvideo-on-demand selections for a period of 24 hours, which they are then able to watch at their convenience with full stop, rewind, fast forward, pause and replay functionality during that period. Ourvideo-on-demand service is available to 98% of the homes passed by us. We also offer pay television channels on a subscription basis that permit our customers to access and watch any of theirvideo-on-demand selections at any time at their convenience. | |
• | Other New Business Initiatives. To maintain and enhance our market position, we are focused on increasing penetration of high-definition television and personal video recorders, as well as otherhigh-value products and services. On September 20, 2005, we announced that we had signed a strategic relationship agreement with Rogers Wireless, the operator of Canada’s largest integrated wireless voice and data network, that will enable us to offer Québec consumers a quadruple play of television, |
93
Table of Contents
broadband Internet, VoIP telephony and Videotron-branded mobile wireless services. We will operate as a Mobile Virtual Network Operator, or MVNO, utilizing wireless voice and data services provided by Rogers Wireless across its GSM/ GPRS network. We currently intend to launch our mobile wireless offering during the second half of 2006, with services to include international roaming and popular options. We will be responsible for acquiring and billing customers, as well as for providing customer support under our own brand. |
At December 31, | March 31, | |||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | |||||||||||||||||||
Basic analog cable | ||||||||||||||||||||||||
Homes passed(1) | 2,330,648 | 2,329,023 | 2,351,344 | 2,383,443 | 2,419,335 | 2,426,105 | ||||||||||||||||||
Basic customers(2) | 1,510,408 | 1,431,060 | 1,424,144 | 1,452,554 | 1,506,113 | 1,519,970 | ||||||||||||||||||
Penetration(3) | 64.8 | % | 61.4 | % | 60.6 | % | 60.9 | % | 62.3 | % | 62.7 | % | ||||||||||||
Digital cable | ||||||||||||||||||||||||
Digital customers | 114,634 | 171,625 | 240,863 | 333,664 | 474,629 | 512,382 | ||||||||||||||||||
Penetration(4) | 7.6 | % | 12.0 | % | 16.9 | % | 23.0 | % | 31.5 | % | 33.7 | % | ||||||||||||
Number of digital terminals | 121,210 | 182,010 | 257,350 | 362,053 | 537,364 | 585,521 | ||||||||||||||||||
Dial-up Internet access | ||||||||||||||||||||||||
Dial-up customers | 55,427 | 43,627 | 28,821 | 23,973 | 18,034 | 16,715 | ||||||||||||||||||
Cable Internet access | ||||||||||||||||||||||||
Cable modem customers | 228,759 | 305,054 | 406,277 | 502,630 | 637,971 | 681,823 | ||||||||||||||||||
Penetration(3) | 9.8 | % | 13.1 | % | 17.3 | % | 21.1 | % | 26.4 | % | 28.1 | % | ||||||||||||
Telephony Services | ||||||||||||||||||||||||
VoIP customers | — | — | — | 2,135 | 162,979 | 226,954 | ||||||||||||||||||
Penetration(3) | — | — | — | 0.1 | % | 6.7 | % | 9.4 | % |
(1) | “Homes passed” means the number of residential premises, such as single dwelling units or multiple dwelling units, and commercial premises passed by the cable television distribution network in a given cable system service area in which the programming services are offered. |
(2) | Basic customers are customers who receive basic cable service in either the analog or digital mode. The number of basic customers for the years 2000-2003 inclusive, were restated in order to permit such numbers to be compared to the 2004 number of basic customers. |
(3) | Represents customers as a percentage of total homes passed. |
(4) | Represents customers for the digital service as a percentage of basic customers. |
Videotron Business Solutions |
94
Table of Contents
Video Stores |
Pricing of Our Products and Services |
Service | Price Range(1) | |||
Basic analog cable | $ | 15.07 – $28.19 | ||
Extended basic analog cable | $ | 26.81 – $40.50 | ||
Basic digital cable | $ | 12.98 – $14.98 | ||
Extended basic digital cable | $ | 25.98 – $73.98 | ||
Pay-television | $ | 6.00 – $19.95 | ||
Pay-per-view (per movie or event) | $ | 3.99 – $79.95 | ||
Video-on-demand (per movie or event) | $ | 0.99 – $24.95 | ||
Dial-up Internet access | $ | 9.95 – $19.95 | ||
Cable Internet access | $ | 26.95 – $74.90 | ||
VoIP Telephony | $ | 15.95 – $22.95 |
(1) | These rates reflect price increases, effective March 1, 2006, of $0.60 on basic analog cable and extended basic analog cable, $1.00 on basic digital cable, between $1.00 and $3.00 on extended digital cable and $1.00 on cable internet access and VoIP telephone. |
95
Table of Contents
Our Network Technology |
450 MHz | 480 MHz | 750 MHz | Two-Way | |||||||||||||
and Under | to 625 MHz | to 860 MHz | Capability | |||||||||||||
December 31, 2001 | 3 | % | 25 | % | 72 | % | 97 | % | ||||||||
December 31, 2002 | 3 | % | 23 | % | 74 | % | 97 | % | ||||||||
December 31, 2003 | 3 | % | 23 | % | 74 | % | 97 | % | ||||||||
December 31, 2004 | 3 | % | 23 | % | 74 | % | 97 | % | ||||||||
December 31, 2005 | 2 | % | 23 | % | 75 | % | 98 | % |
96
Table of Contents
Marketing and Customer Care |
• | continue to rapidly introduce and deploy advanced products and services such as cable Internet access, digital television and VoIP telephony; | |
• | design product offerings that provide greater opportunity for customer entertainment and information choices; | |
• | target marketing opportunities based on demographic data and past purchasing behavior; | |
• | develop targeted marketing programs to attract former customers, households that have never subscribed to our services and customers of alternative or competitive services; | |
• | enhance the relationship between customer service representatives and our customers by training and motivating customer service representatives to promote advanced products and services; | |
• | leverage the retail presence of SuperClub Videotron, Archambault Group and third-party commercial retailers; | |
• | cross-promote the wide variety of content and services offered within the Quebecor Media group (including, for example, the content of TVA Group productions and the 1-900 service for audience voting during television programs such as Star Académie, Occupation Double and other reality shows popular in Québec) in order to distribute our cable, data transmission and telephony services to our existing and future customers; | |
• | introduce new value-added packages of products and services, which we believe increases ARPU and improves customer retention; and | |
• | leverage our business market, using the Videotron Business Solutions network and expertise with our commercial customer base, which should enable us to offer additional bundled services to our customers and may result in new business opportunities. |
97
Table of Contents
Programming |
Competition |
• | Over-the-air Television and Providers of Other Entertainment. Cable television has long competed with broadcast television, which consists of television signals that the viewer is able to receive without charge using anover-the-air antenna. The extent of such competition is dependent upon the quality and quantity of broadcast signals available throughover-the-air reception compared to the services provided by the local cable system. Cable systems also face competition from alternative methods of distributing and receiving television signals and from other sources of entertainment such as live sporting events, movie theaters and home video products, including videotape recorders, DVD players and video games. The extent to which a cable television service is competitive depends in significant part upon the cable system’s ability to provide a greater variety of programming, superior technical performance and superior customer service than are available over the air or through competitive alternative delivery sources. | |
• | Direct Broadcast Satellite. Direct broadcast satellite, or DBS, is a significant competitor to cable systems. DBS delivers programming via signals sent directly to receiving dishes from medium- and |
98
Table of Contents
high-powered satellites, as opposed to cable delivery transmissions. This form of distribution generally provides more channels than some of our television systems and is fully digital. DBS service can be received virtually anywhere in Canada through the installation of a small rooftop or side-mounted antenna. Like digital cable distribution, DBS systems use video compression technology to increase channel capacity and digital technology to improve the quality of the signals transmitted to their customers. | ||
• | DSL. The deployment of digital subscriber line technology, known as DSL, provides customers with Internet access at data transmission speeds greater than that which is available over conventional telephone lines. DSL service is comparable to cable-modem Internet access over cable systems. We also face competition from providers of DSL service. | |
• | VDSL. The CRTC and Industry Canada have authorized video digital subscriber line, or VDSL, services. VDSL technology increases the capacity of DSL lines available, which permits the distribution of digital video. We expect that we will soon face competition from incumbent local exchange carriers, which have been granted licenses to launch video distribution services using this technology. ILECs are currently installing this new technology, which operates over the copper lines in phone lines, in our markets. This technology can achieve speeds as high as 52 Mbps upstream, but VDSL can only operate over a short distance of about 4,000 feet (1,200 metres). As a result, telephone companies are replacing many of their main feeds with fibre-optic cable. By placing a VDSL transceiver, a VDSL gateway, in larger multiple dwelling units, the distance limitation is overcome. Further, as a result of such improvements in broadband speeds over DSL and the evolution of compression technology, incumbent telephone carriers in our service areas may be in a position to enable delivery of digital television over their cable Internet connections (IPTV) in the coming years. Advanced trials are under way in Canada and in other countries. Tests in our service markets are expected to be performed in the first half of 2006. If successful, IPTV may provide telecommunications carriers with a way to offer services similar to those offered by cable operators in the consumer market. | |
• | Private Cable. Additional competition is posed by satellite master antenna television systems known as “SMATV systems” serving multi-dwelling units, such as condominiums, apartment complexes, and private residential communities. | |
• | Other Cable Distribution. There is currently a cable operator offering analog television distribution and providing cable Internet access service serving the greater Montréal area. This cable operator, which has approximately 15,000 customers, is owned by the regional ILEC. | |
• | Wireless Distribution. Cable television systems also compete with wireless program distribution services such as multi-channel multipoint distribution systems, or MDS. This technology uses microwave links to transmit signals from multiple transmission sites toline-of-sight antennas located within the customer’s premises. | |
• | Grey and Black Market DBS Providers. Cable and other distributors of television signals continue to face competition from the use of access codes and equipment that enable the unauthorized decoding of encrypted satellite signals, from unauthorized access to our analog and digital cable signals (black market) and from the reception of foreign signals through subscriptions to foreign satellite television providers that are not lawful distributors in Canada (grey market). | |
• | Telephony Service. Our new VoIP telephony service competes against other telephone companies, including both the incumbent telephone service provider in Québec, which controls a significant portion of the telephony market in Québec, as well as other VoIP telephony service providers and cellular telephone service providers. | |
• | Other Internet Service Providers. In the Internet access business, cable operators compete against other Internet service providers offering residential and commercial Internet access services. The CRTC requires the large Canadian incumbent cable operators to offer access to their high speed Internet system to competitive Internet service providers at mandated rates. |
99
Table of Contents
Canadian Newspaper Publishing Industry Overview |
100
Table of Contents
Advertising and Circulation |
101
Table of Contents
Newspaper Operations |
• | the Urban Daily Group; and | |
• | the Community Newspaper Group. |
102
Table of Contents
2005 Average Readership | |||||||||||||||||
Market Position by | |||||||||||||||||
Newspaper | Saturday | Sunday | Mon-Fri | Paid Circulation(1) | |||||||||||||
Le Journal de Montréal | 713,000 | 455,200 | 648,000 | 1 | |||||||||||||
Le Journal de Québec | 208,700 | 140,200 | 171,800 | 1 | |||||||||||||
The Toronto Sun | 578,300 | 864,300 | 683,000 | 2 | |||||||||||||
The London Free Press | 176,700 | 104,400 | 170,300 | 1 | |||||||||||||
The Ottawa Sun | 109,500 | 121,700 | 151,400 | 2 | |||||||||||||
The Winnipeg Sun | 93,000 | 91,500 | 108,500 | 2 | |||||||||||||
The Edmonton Sun | 145,200 | 187,000 | 204,100 | 2 | |||||||||||||
The Calgary Sun | 185,900 | 199,600 | 198,700 | 2 | |||||||||||||
Total Average Readership | 2,190,300 | 2,163,900 | 2,335,800 | ||||||||||||||
(1) | Based on paid circulation data published by the Audit Bureau of Circulations in September 2005 with respect to non-national newspapers in each market. |
Year Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
Le Journal de Montréal | ||||||||||||
Saturday | 314,600 | 312,500 | 308,000 | |||||||||
Sunday | 263,500 | 262,400 | 259,800 | |||||||||
Monday to Friday | 269,600 | 267,000 | 268,200 |
103
Table of Contents
Year Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
Le Journal de Québec | ||||||||||||
Saturday | 124,300 | 124,100 | 123,400 | |||||||||
Sunday | 101,500 | 101,600 | 101,400 | |||||||||
Monday to Friday | 99,400 | 100,500 | 99,700 |
Year Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
The Toronto Sun | ||||||||||||
Saturday | 170,000 | 158,900 | 148,000 | |||||||||
Sunday | 357,000 | 339,700 | 326,500 | |||||||||
Monday to Friday | 200,200 | 192,600 | 183,600 |
Year Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
The London Free Press | ||||||||||||
Saturday | 111,900 | 108,300 | 104,400 | |||||||||
Sunday | 66,300 | 66,300 | 64,600 | |||||||||
Monday to Friday | 92,800 | 90,700 | 87,600 |
104
Table of Contents
Year Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
The Ottawa Sun | ||||||||||||
Saturday | 44,700 | 44,200 | 44,800 | |||||||||
Sunday | 52,500 | 51,600 | 51,000 | |||||||||
Monday to Friday | 49,300 | 49,100 | 51,200 |
Year Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
The Winnipeg Sun | ||||||||||||
Saturday | 42,800 | 41,200 | 40,500 | |||||||||
Sunday | 55,200 | 52,700 | 49,100 | |||||||||
Monday to Friday | 44,000 | 42,100 | 40,600 |
Year Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
The Edmonton Sun | ||||||||||||
Saturday | 69,300 | 66,200 | 68,100 | |||||||||
Sunday | 98,700 | 95,400 | 94,900 | |||||||||
Monday to Friday | 69,800 | 68,900 | 70,000 |
105
Table of Contents
Year Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
The Calgary Sun | ||||||||||||
Saturday | 63,700 | 62,800 | 62,500 | |||||||||
Sunday | 95,400 | 94,400 | 91,500 | |||||||||
Monday to Friday | 64,400 | 64,200 | 62,300 |
Competition |
106
Table of Contents
The Community Newspaper Group |
Average Daily | |||||||||
Newspaper | Location | Paid Circulation | |||||||
The Brockville Recorder and Times | Brockville, Ontario | 11,800 | |||||||
Stratford Beacon Herald | Stratford, Ontario | 10,700 | |||||||
The Daily Herald Tribune | Grande Prairie, Alberta | 8,500 | |||||||
Simcoe Reformer | Simcoe, Ontario | 7,500 | |||||||
St. Thomas Time-Journal | St. Thomas, Ontario | 7,000 | |||||||
Woodstock Sentinel-Review | Woodstock, Ontario | 6,800 | |||||||
Fort McMurray Today | Fort McMurray, Alberta | 4,000 | |||||||
The Daily Miner & News | Kenora, Ontario | 3,100 | |||||||
The Daily Graphic | Portage La Prairie, Manitoba | 2,700 | |||||||
Total Average Daily Paid Circulation | 62,100 |
Number of | |||||
Province | Publications | ||||
Québec | 52 | ||||
Ontario | 51 | ||||
Alberta | 45 | ||||
Manitoba | 12 | ||||
Saskatchewan | 6 | ||||
New Brunswick | 1 | ||||
Total Publications | 167 | ||||
Competition |
107
Table of Contents
Commercial Printing and Distribution |
Television Station |
Seasonality and Cyclicality |
108
Table of Contents
Raw Materials |
109
Table of Contents
Share of Province of Québec | ||||
Network | Television Audience | |||
TVA Group | 28.1 | % | ||
Société Radio-Canada | 15.0 | % | ||
Réseau TQS | 12.8 | % | ||
Télé-Québec | 3.9 | % | ||
Various French-language specialty cable channels | 32.1 | % | ||
Others | 8.1 | % |
Transition ofOver-the-air Television Broadcasting from Analog to Digital |
110
Table of Contents
Television Broadcasting |
French-language Market |
English-language Market |
Advertising Sales and Revenue |
Programming |
111
Table of Contents
Specialty Broadcasting |
Type of Service | Language | Voting Interest | ||||||
Analog Specialty Services: | ||||||||
• LCN — Le Canal Nouvelles | French | TVA(1) 99.9% | ||||||
• Canal Évasion | French | TVA 8.3% | ||||||
• CPAC | French and English | V(2) 21.7% | ||||||
Category One Digital Specialty Services: | ||||||||
• MenTV | English | TVA 51.0% | ||||||
• Mystery (13th Street) | English | TVA 50.0% | ||||||
• Mystère (13e rue) | French | TVA 99.9% | ||||||
• Argent | French | TVA 99.9% | ||||||
Category Two Digital Specialty Service: | ||||||||
• Prise 2 | French | TVA 99.9% | ||||||
Pay Per View Services (terrestrial & direct broadcasting satellite): | ||||||||
• Canal Indigo | French | TVA 20.0% | ||||||
Video-on Demand Services: | ||||||||
• illico sur Demande | French and English | AG(3) 100% | ||||||
Exempted Programming Service: | ||||||||
• Canal TVAchats | French | TVA(1) 99.9% |
(1) | TVA Group (“TVA”) controls the programming services. Quebecor Media controls TVA Group. |
(2) | Videotron (“V”) controls the programming services. Quebecor Media controls Videotron. |
(3) | Archambault Group (“AG”) controls the programming services. Quebecor Media controls Archambault Group. |
Le Canal Nouvelles LCN |
Argent |
112
Table of Contents
Canal Évasion |
MenTV |
Mystery TV |
Mystère |
Prise 2 |
Canal Indigo |
Canal TVAchats; Home Shopping Service; Infomercials |
Canadian Public Affairs Channel (CPAC) |
113
Table of Contents
Authorized Digital Specialty Services |
Application for National Pay Television Services |
Magazine Publishing |
114
Table of Contents
Cultural Products Production, Distribution and Retailing |
Book Publishing and Distribution |
Video-On-Demand Services |
Ownership |
115
Table of Contents
116
Table of Contents
Ownership |
Media Properties |
• | CANOE (canoe.qc.caandcanoe.ca), a bilingual, integrated media and Internet services network and one of Canada’s leading Internet portals with more than 328 million page views in October 2005, according to Canoe internal statistics; | |
• | La Toile du Québec(toile.com), the first French-language navigational guide in Canada and Québec’s leading portal with approximately 45,000 indexed sites and more than 60 guides; | |
• | Webfin Argent and Canoe Money (argent.canoe.comandmoney.canoe.ca), a financial Web site which offers, among other things, a variety of services ranging from financial information to portfolio management tools (the Webfin Argent website was redesigned in early 2005 in partnership with TVA’s new financial channel,Argent); | |
• | TVA Group and LCN (tva.canoe.comandlcn.canoe.com) dedicated Web sites for the TVA television network and the LCN all-news channel; and | |
• | Several Web sites for popular TVA Group programs, such asOccupation Double (occupationdouble.com) andStar Académie (staracademie.ca). |
E-commerce Properties |
• | Jobboom.com, a unique Web-based employment site with over 1.5 million members, which also includes Jobboom Formation, an Internet directory of continuing education services; | |
• | Autonet.ca, Canada’s leading site devoted entirely to cars; | |
• | ReseauContact.com/flirt.canoe.ca, a bilingual dating and friendship site with 500,000 unique visitors per month, over 940,000 registered members and approximately 100,000 active members generating more than 125 million page views per month, as of October 2005, according to internal statistics; | |
• | Micasa.ca, a new real-estate Web site which, according to ComScore Media Metrix (September 2005), was the leading real estate Web site in Québec for the month of its official launch, having been visited by over 536,000 unique visitors in that month; and |
117
Table of Contents
• | Classifiedextra.caandClasseesextra.ca, classified ad sites through which visitors can view classified ads from more than 150 Canadian newspapers. |
Ownership |
118
Table of Contents
119
Table of Contents
![(GRAPH)](https://capedge.com/proxy/424B3/0001206212-06-000146/m31895b3m3189501.gif)
Cable |
120
Table of Contents
Newspapers |
Floor Space | ||||||||||||
Address | Use of Property | Press Capacity(1) | (sq. ft.) | |||||||||
Toronto, Ontario 333 King Street East | Operations building, including printing plant — The Toronto Sun | 4 Metro presses (32 units) and 1 Metroliner press (8 units) | 263,600 | |||||||||
Montréal, Québec 4545 Frontenac Street | Operations building, including printing plant — Le Journal de Montréal | 3 Metro presses and 1 Cosmo press (37 units) | 162,000 | |||||||||
London, Ontario 369 York Street | Operations building, including printing plant — The London Free Press | 2 Headliner presses (12 units) and 1 Urbanite press (8 units) | 150,100 | |||||||||
Calgary, Alberta 2615-12 Street NE | Operations building, including printing plant — The Calgary Sun | 1 Headliner press (7 units) | 90,000 | |||||||||
Vanier, Québec 450 Bechard Avenue | Operations building, including printing plant — Le Journal de Québec | 2 Urbanite presses (24 units) | 74,000 | |||||||||
Winnipeg, Manitoba 1700 Church Avenue | Operations building, including printing plant — The Winnipeg Sun | 1 Urbanite press (15 units) | 63,000 | |||||||||
Edmonton, Alberta 9300-47 Street | Printing plant — The Edmonton Sun | 1 Metro press (8 units) | 49,600 | |||||||||
Edmonton, Alberta 4990-92 Avenue | Operations building The Edmonton Sun (leased until Dec. 2013) | N/A | 45,200 | |||||||||
Gloucester, Ontario 4080 Belgreen Drive | Printing plant — The Ottawa Sun | 1 Urbanite press (14 units) | 23,000 | |||||||||
Ottawa, Ontario 6 Antares Drive | Operations building (leased until Oct. 2013) — The Ottawa Sun | N/A | 19,300 |
(1) | A “unit” is the critical component of a press that determines color and page count capacity. All presses listed have between six and 15 units. |
121
Table of Contents
Television Broadcasting |
Leisure and Entertainment Segment and Interactive Technologies and Communications Segment |
Liens and Charges |
Number of | ||||||||||||
Total Number | Employees under | Number of | ||||||||||
Operations | of Employees | Collective Agreements | Collective Agreements | |||||||||
Cable | 3,344 | 2,199 | 4 | |||||||||
Newspapers | 6,083 | 2,009 | 49 | |||||||||
Broadcasting | 1,512 | 921 | 15 | |||||||||
Leisure and Entertainment | 1,615 | 335 | 7 | |||||||||
Business Telecommunications | 444 | 152 | 2 | |||||||||
Interactive Technologies and Communications | 553 | 0 | 0 | |||||||||
Internet/ Portals | 303 | 0 | 0 | |||||||||
Others | 673 | 498 | 1 | |||||||||
Total | 14,527 | 6,114 | 78 | |||||||||
122
Table of Contents
• | Videotron’s 4 collective bargaining agreements, representing 2,199, or 100%, of its unionized employees, had been recently renewed and are scheduled to expire on various dates between December 2009 and August 2011; | |
• | 20 of Sun Media’s collective bargaining agreements, representing approximately 388, or 19%, of its unionized employees, had expired. Negotiations regarding these 20 collective bargaining agreements are either in progress or will be undertaken in 2006. Furthermore, eight of Sun Media’s collective bargaining agreements, covering 484 employees, expire in 2006, while Sun Media’s 21 other collective bargaining agreements, representing approximately 1,137 unionized employees, are scheduled to expire on various dates between December 2007 and June 2010; | |
• | 12 of TVA Group’s 15 collective bargaining agreements, representing approximately 379, or 41%, of its unionized employees, will expire between April 2007 and the end of December 2008, one of its collective bargaining agreements, representing approximately 516, or 56%, of its unionized employees, will expire at the end of December 2006 and two collective bargaining agreements, representing 26, or 3%, of its employees, had expired and negotiations regarding these collective bargaining agreements will be undertaken in 2006. A group of 53 employees is currently in the process of being unionized; and | |
• | three of our other collective bargaining agreements, representing approximately 126, or 13%, of our other unionized employees, had expired. Negotiations regarding these collective bargaining agreements are either in progress or will be undertaken in 2006. Another seven of our collective bargaining agreements, representing approximately 859, or 87%, of our other unionized employees, expire at various dates between the end of December 2006 and March 2010. |
123
Table of Contents
124
Table of Contents
Licensing of Canadian Broadcasting Distribution Undertakings |
125
Table of Contents
126
Table of Contents
Distribution of Canadian Content |
1998 Broadcasting Distribution Regulations |
127
Table of Contents
• | Competition, Carriage Rules and Signal Substitution. The 1998 Regulations provide equitable opportunities for all distributors of broadcasting services. Similar to the signal carriage and substitution requirements that are imposed on existing cable television systems, under the 1998 Regulations, new broadcasting distribution undertakings are also subject to carriage and substitution requirements. The 1998 Regulations prohibit a distributor from giving an undue preference to any person, including itself, or subjecting any person to an undue disadvantage. This gives the CRTC the ability to address complaints of anti-competitive behavior on the part of certain distributors. | |
• | A significant aspect of television broadcasting in Canada is simultaneous program substitution, or simulcasting, a regulatory requirement under which Canadian distribution undertakings, such as cable television systems with over 6,000 customers, are required to substitute the foreign programming service, with local Canadian signal, including Canadian commercials, for broadcasts of identical programs by a U.S. station when both programs are exhibited at the same time. These requirements are designed to protect the program rights that Canadian broadcasters acquire for their respective local markets. The CRTC, however, has suspended the application of these requirements to DTH satellite operators for a period of time, so long as they undertake certain alternative measures, including monetary compensation to a fund designed to help finance regional television productions. | |
• | Canadian Programming and Community Expression Financing Rules. All distributors, except systems with less than 2,000 customers, are required to contribute at least 5% of their gross annual broadcast revenues to the creation and presentation of Canadian programming including community programming. However, the allocation of these contributions between broadcast and community programming can vary depending on the type and size of the distribution system involved. | |
• | Inside Wiring Rules. The CRTC determined that the inside wiring portion of cable networks creates a bottleneck facility that could affect competition if open access is not provided to other distributors. Incumbent cable companies may retain the ownership of the inside wiring but must allow usage by competitive undertakings to which the cable company may charge a just and reasonable fee for the use of the inside wire. On September 3, 2002, the CRTC established a fee of $0.52 per customer per month for the use of cable inside wire in MDUs. On October 9, 2002, the CRTC, had ordered Câblage QMI and Videotron to comply with the inside wiring access rules. In Broadcasting Decision CRTC 2005-223 of May 31, 2005, the CRTC rescinded the Mandatory Order issued against Videotron and its subsidiaries. In Broadcasting Public Notice CRTC 2005-83 of August 15, 2005, the CRTC called for comments on possible regulatory amendments that would expand competitive access to inside wire owned by a cable licensee and installed in properties, such as hotels, hospitals, nursing homes and other commercial or institutional premises that are used to house transient residents as well as in office buildings, retail stores or other types of non-residential properties. On May 29, 2006, pursuant to Broadcasting Public Notice CRTC 2006-68, the CRTC determined that mandating access to such wiring in these properties by subscribers and by competing BDUs would not contribute significantly to the competitive health of the broadcasting distribution market or significantly advance end-user choice. For these reasons, the CRTC concluded that its intervention to regulate competitive access to wiring in commercial and institutional properties is not warranted at this time. |
128
Table of Contents
(1) 30% or more of the households in the licensed service area have access to the services of another broadcasting distribution undertaking. The CRTC has advised that as of August 31, 1997, the 30% availability criterion was satisfied for all licensed cable areas; and | |
(2) the number of customers for basic cable service has decreased by at least 5% since the date on which a competitor started offering its basic cable service in the particular area. |
129
Table of Contents
Royalties for the Retransmission of Distant Signals |
Royalties for the Transmission of Pay and Specialty Services |
130
Table of Contents
Royalties for Pay Audio Services |
Tariff in Respect of Internet Service Provider Activities |
131
Table of Contents
Proposed Tariffs in Respect of Online Activities |
Programming of Canadian Content |
Advertising |
Broadcasting License Fees |
132
Table of Contents
Jurisdiction |
Overview of the Telecommunications Competition Framework |
Application of Canadian Telecommunications Regulation |
133
Table of Contents
134
Table of Contents
Right to Access to Telecommunications and Hydro-Electric Support Structures |
Access by Third Parties to Cable Networks |
135
Table of Contents
Foreign Ownership Restrictions |
136
Table of Contents
Canadian Publishing |
137
Table of Contents
Name and Municipality of Residence | Age | Position | |||||
Serge Gouin(1) Montréal, Quebec | 63 | Director and Chairman of the Board of Directors and Chairman of the Compensation Committee | |||||
Jean La Couture, FCA(2) | 60 | Director and Chairman of the Audit Committee | |||||
Montréal, Quebec | |||||||
André Delisle(2) | 60 | Director | |||||
Montréal, Quebec | |||||||
A. Michel Lavigne, FCA(1)(2) | 56 | Director | |||||
Brossard, Quebec | |||||||
Samuel Minzberg(1) | 56 | Director | |||||
Westmount, Québec | |||||||
The Right Honourable Brian | |||||||
Mulroney, P.C., C.C., LL.D | 67 | Director | |||||
Westmount, Québec | |||||||
Jean Neveu | 65 | Director | |||||
Longueuil, Québec | |||||||
Érik Péladeau Rosemère, Quebec | 51 | Director and Vice Chairman of the Board of Directors | |||||
Pierre Karl Péladeau Montréal, Quebec | 44 | Director, Chief Executive Officer and Vice Chairman of the Board of Directors | |||||
Normand Provost | 51 | Director | |||||
Longueuil, Quebec | |||||||
Pierre Francoeur | 53 | President and Chief Operating Officer | |||||
Ste-Adèle, Quebec | |||||||
Luc Lavoie | 50 | Executive Vice President, Corporate Affairs | |||||
Montréal, Quebec | |||||||
Mark D’Souza | 45 | Vice President, Finance | |||||
Beaconsfield, Quebec | |||||||
Sylvain Chamberland | 43 | Vice President, Business/Media Development | |||||
Ile Dupas, Quebec | |||||||
Richard Soly | 68 | Executive Vice President, Marketing & Content | |||||
Montréal, Quebec | |||||||
Louis St-Arnaud | 59 | Senior Vice President, Legal Affairs and Secretary | |||||
Mont-Saint-Hilaire, Quebec | |||||||
Bruno Péloquin Montréal, Quebec | 41 | Senior Vice President, Strategic Development, Customer Relations | |||||
Pierre Lampron | 60 | Vice President, Institutional Relations | |||||
Outremont, Quebec | |||||||
Michel Ethier | 51 | Vice President, Taxation | |||||
Montréal, Quebec | |||||||
Jean-François Pruneau | 35 | Treasurer | |||||
Repentigny, Quebec | |||||||
Jean-François Richard | 47 | Vice President, Advertising Convergence | |||||
Kirkland, Quebec | |||||||
Denis Sabourin | 45 | Vice President and Corporate Controller | |||||
Kirkland, Quebec | |||||||
Claudine Tremblay Montréal, Quebec | 52 | Senior Director, Corporate Secretariat and Assistant Secretary |
138
Table of Contents
Name and Municipality of Residence | Age | Position | |||||
Édouard G. Trépanier | 55 | Vice President, Regulatory Affairs | |||||
Boucherville, Quebec | |||||||
Sylvie Cordeau | 41 | Vice President, Communications | |||||
Verdun, Quebec |
(1) | Member of our Compensation Committee. |
(2) | Member of our Audit Committee. |
139
Table of Contents
140
Table of Contents
141
Table of Contents
142
Table of Contents
Compensation of Directors |
143
Table of Contents
Compensation of Executive Officers |
144
Table of Contents
Quebecor Media’s Stock Option Plan |
Quebecor Inc.’s Stock Option Plan |
145
Table of Contents
Pension Benefits |
Years of Membership | ||||||||||||||||||||
Compensation | 10 | 15 | 20 | 25 | 30 | |||||||||||||||
$105,550 or more | $ | 21,110 | $ | 31,665 | $ | 42,220 | $ | 52,775 | $ | 63,330 |
146
Table of Contents
Supplemental Retirement Benefit Plan for Designated Executives |
Years of Credited Service | ||||||||||||||||||||
Compensation | 10 | 15 | 20 | 25 | 30 | |||||||||||||||
$200,000 | $ | 18,890 | $ | 28,335 | $ | 37,780 | $ | 47,225 | $ | 56,670 | ||||||||||
$300,000 | $ | 38,890 | $ | 58,335 | $ | 77,780 | $ | 97,225 | $ | 116,670 | ||||||||||
$400,000 | $ | 58,890 | $ | 88,335 | $ | 117,780 | $ | 147,225 | $ | 176,670 | ||||||||||
$500,000 | $ | 78,890 | $ | 118,335 | $ | 157,780 | $ | 197,225 | $ | 236,670 | ||||||||||
$600,000 | $ | 98,890 | $ | 148,335 | $ | 197,780 | $ | 247,225 | $ | 296,670 | ||||||||||
$800,000 | $ | 138,890 | $ | 208,335 | $ | 277,780 | $ | 347,225 | $ | 416,670 | ||||||||||
$1,000,000 | $ | 178,890 | $ | 268,335 | $ | 357,780 | $ | 447,225 | $ | 536,670 | ||||||||||
$1,200,000 | $ | 218,890 | $ | 328,335 | $ | 437,780 | $ | 547,225 | $ | 656,670 |
147
Table of Contents
(a) standard rights of first refusal with respect to certain transfers of Quebecor Media shares; | |
(b) standard preemptive rights which permit shareholders to maintain their respective holdings of Quebecor Media shares on a fully-diluted basis in the event of issuances of additional Quebecor Media shares or our convertible securities; | |
(c) rights of representation on our Board of Directors in proportion to shareholdings, with Quebecor initially having five nominees and CDP Capital having four nominees to our Board of Directors; | |
(d) consent rights in certain circumstances with respect to matters relating to us and our non-reporting issuer (public) subsidiaries, including (1) a substantial change in the nature of our business and our subsidiaries taken as a whole, (2) an amendment to our articles or to the articles of certain of our subsidiaries, (3) the merger or amalgamation of us or certain of our subsidiaries with a person other than an affiliate, (4) the issuance by us or certain of our subsidiaries of shares or of securities convertible into shares except in the event of an initial public offering of Quebecor Media shares, (5) any transaction having a value of more than $75,000,000, other than the sale of goods and services in the normal course of business, (6) a business acquisition in a business sector unrelated to sectors in which we and certain of our subsidiaries are involved, and (7) in respect of capital expenditures in excess of certain amounts for each of the first five years of our operations; |
148
Table of Contents
(e) standard rights of first refusal in favor of CDP Capital with respect to the sale of all or substantially all of the shares or assets of TVA Group or Videotron; | |
(f) so long as CDP Capital holds at least 22.5% of the Quebecor Media shares on a fully-diluted basis, if the Péladeau family (as defined in the shareholders’ agreement) ceases to control Quebecor, CDP Capital shall have at its option either a “call” on Quebecor’s interest in us at fair market value, or a “put” right in respect of CDP Capital’s interest in us to Quebecor or its new controlling shareholder at fair market value, provided that the “call” right shall not apply if the Péladeau family (as defined in the shareholders’ agreement) has offered a standard right of first refusal on its Quebecor control block to CDP Capital before selling control of Quebecor, and all of the above-mentioned rights shall cease to apply five years following the approval by the CRTC of the acquisition by us of Videotron; and | |
(g) a non-competition covenant by Quebecor in respect of it and its affiliates pursuant to which Quebecor and its affiliates shall not compete with Quebecor Media and its subsidiaries in their areas of activity so long as Quebecor has“de jure” or“de facto” control of us, subject to certain limited exceptions. |
149
Table of Contents
150
Table of Contents
151
Table of Contents
Issuance and Redemption of Convertible Obligations and Investments in Quebecor Media Preferred Shares |
Issuance of Subordinated Loans and Investments in Quebecor Media Preferred Shares |
Other Income Tax Transactions |
152
Table of Contents
153
Table of Contents
2006 Senior Secured Credit Facilities |
General |
Interest Rates, Fees and Payments |
Principal Repayments and Prepayments |
154
Table of Contents
Security |
Covenants |
Events of Default |
Our Existing Notes |
General |
111/8% Senior Notes due 2011 |
155
Table of Contents
133/4% Senior Discount Notes due 2011 |
Videotron Credit Facility |
General |
Interest Rate, Fees and Payments |
156
Table of Contents
Principal Repayments and Prepayment |
Security and Guarantees |
Covenants |
Events of Default |
Videotron 67/8% Senior Notes due January 15, 2014 |
Videotron 63/8% Senior Notes due December 15, 2015 |
157
Table of Contents
Sun Media Credit Agreement |
General |
Interest Rates, Fees and Payment |
Principal Repayments and Prepayments |
Security and Guarantees |
158
Table of Contents
Covenants |
Events of Default |
Sun Media 75/8% Senior Notes due 2013 |
TVA Group Revolving Term Bank Loan |
159
Table of Contents
• | file an exchange offer registration statement with the SEC with respect to a registered offer to exchange, without novation, the old notes for the Notes no later than May 17, 2006; | |
• | use our best efforts to cause the exchange offer registration statement to be declared effective under the Securities Act no later than August 15, 2006; and | |
• | keep the registered exchange offer open for not less than 30 days after the date notice of the registered exchange offer is mailed to the holders of the old notes. |
• | we are not permitted to consummate the exchange offer because the exchange offer is not permitted by applicable law or SEC policy; | |
• | the exchange offer is not consummated by September 29, 2006; or | |
• | any holder of notes notifies us prior to the 20th day following consummation of the exchange offer that: |
• | it is prohibited by law or SEC policy from participating in the exchange offer; or | |
• | it may not resell the old notes acquired by it in the exchange offer to the public without delivering a prospectus and the prospectus contained in the exchange offer registration statement is not appropriate or available for such resales; or | |
• | it is a broker-dealer and owns notes acquired directly from Quebecor Media or an affiliate of Quebecor Media; |
160
Table of Contents
• | on or prior to May 17, 2006, the exchange offer registration statement has not been filed with the SEC; | |
• | on or prior to August 15, 2006, the exchange offer registration statement has not been declared effective; | |
• | on or prior to September 29, 2006, the registered exchange offer has not been consummated; | |
• | we are required to file the shelf registration statement pursuant to the registration rights agreement and: |
• | the shelf registration statement has not been filed with the SEC on or prior to 120 days (or if the 120th day is not a business day, on the next business day) after the date on which the obligation to file the shelf registration statement arose under the registration rights agreement; or | |
• | the shelf registration statement has not been declared effective on or prior to 210 days (or if the 210th day is not a business day, on the next business day) after the date on which the obligation to file the shelf registration statement arose under the registration rights agreement; or |
• | after either the exchange offer registration statement or the shelf registration statement has been declared effective, the exchange offer registration statement or the shelf registration statement ceases to be effective or usable (subject to certain exceptions) in connection with the resales of the old notes or the Notes in accordance with and during the periods specified in the registration rights agreement. |
161
Table of Contents
• | the representations described under “— Procedures for Tendering Old Notes — Representations Made by Tendering Holders of Old Notes” and “Plan of Distribution;” and | |
• | any other representations reasonably necessary under applicable SEC rules, regulations or interpretations to make available to us an appropriate form for registration of the Notes under the Securities Act. |
162
Table of Contents
• | to delay the acceptance of the old notes; | |
• | to extend the exchange offer; | |
• | if we determine any condition to the exchange offer has not occurred or has not been satisfied, to terminate the exchange offer; and | |
• | to waive any condition or amend the terms of the exchange offer in any manner. |
Valid Tender |
• | transmit a properly completed and duly executed letter of transmittal, together with all other documents required by the letter of transmittal, to the exchange agent at one of the addresses set forth below under “— Exchange Agent;” | |
• | arrange with DTC to cause an agent’s message to be transmitted with the required information (including a book-entry confirmation), to the exchange agent at one of the addresses set forth below under “— Exchange Agent;” or | |
• | comply with the guaranteed delivery procedures described below. |
• | the exchange agent must receive the certificates for the old notes, together with the properly completed and duly executed letter of transmittal; | |
• | the exchange agent must receive a timely confirmation of a book-entry transfer of the old notes being tendered into the exchange agent’s account at DTC, together with the properly completed and duly executed letter of transmittal or an agent’s message under DTC’s Automated Tender Offer Program, or ATOP; or | |
• | the holder must comply with the guaranteed delivery procedures described below. |
163
Table of Contents
Signature Guarantees |
• | by a registered holder of the old notes who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; or | |
• | for the account of an eligible institution. |
Book-Entry Transfer |
164
Table of Contents
• | the properly completed and duly executed letter of transmittal, or an agent’s message, together with any required signature guarantees and any other required documents, has been transmitted to and received by the exchange agent at one of the addresses set forth below under “— Exchange Agent;” or | |
• | the guaranteed delivery procedures described below have been complied with. |
Guaranteed Delivery Procedures |
• | your old notes are not immediately available; | |
• | time will not permit your old notes or other required documents to reach the exchange agent before the expiration date; or | |
• | you cannot complete the procedure for book-entry transfer on a timely basis, |
you may tender your old notes according to the guaranteed delivery procedures described in the letter of transmittal. Those procedures require that: |
• | tender be made by and through an eligible institution; | |
• | on or prior to the expiration date, the exchange agent receive from this eligible institution a properly completed and duly executed letter of transmittal, or an agent’s message, with any required signature guarantees, and a properly completed and duly executed notice of guaranteed delivery, substantially in the form provided: |
• | setting forth the name and address of the holder of the old notes being tendered; | |
• | stating that the tender is being made; and | |
• | guaranteeing that within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered old notes, in proper form for transfer, or a book-entry confirmation, and any other documents required by the letter of transmittal, will be deposited by the eligible institution with the exchange agent; and |
• | the exchange agent receives the certificates for the old notes, in proper form for transfer, or abook-entry confirmation, and all other documents required by the letter of transmittal, are received by the exchange agent within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery. |
Determination of Validity of Tender |
165
Table of Contents
• | reject any and all tenders of old notes determined to be in improper form or unlawful; | |
• | waive any condition of the exchange offer; and | |
• | waive any condition, defect or irregularity in the tender of old notes by any holder, whether or not we waive similar conditions, defects or irregularities in the case of other holders. |
Representations Made by Tendering Holders of Old Notes |
• | you are acquiring the Notes in the ordinary course of business; | |
• | you do not have any arrangement or understanding with any person or entity to participate in the distribution of the Notes; | |
• | if you are not a broker-dealer, you are not engaged in and do not intend to engage in a distribution of the Notes; | |
• | if you are a broker-dealer that will receive Notes for your own account in exchange for old notes that were acquired by you as a result of market-making activities or other trading activities, you will deliver a prospectus, as required by law, in connection with any resale of the Notes (see “Plan of Distribution”); and | |
• | you are not our “affiliate” as defined in Rule 405 of the Securities Act. |
• | you have full power and authority to tender, exchange, sell, assign and transfer old notes; | |
• | we will acquire good, marketable and unencumbered title to the tendered old notes, free and clear of all liens, restrictions, charges and other encumbrances; and | |
• | the old notes tendered for exchange are not subject to any adverse claims or proxies. |
166
Table of Contents
• | specify the name of the person tendering the old notes to be withdrawn; | |
• | identify the old notes to be withdrawn, including the total principal amount of these old notes; and | |
• | where certificates for the old notes have been transmitted, specify the name of the registered holder of the old notes, if different from the name of the person withdrawing the tender of these old notes. |
By Registered and Certified Mail: | By Overnight Courier or Regular Mail: | By Hand Delivery: | ||
U.S. Bank National Association | U.S. Bank National Association | U.S. Bank National Association | ||
Corporate Trust Services 60 Livingston Avenue St. Paul, Minnesota 55107 | Corporate Trust Services 60 Livingston Avenue St. Paul, Minnesota 55107 Attn: Specialized Finance Department | Corporate Trust Services 1st Floor Bond Drop Window 60 Livingston Avenue St. Paul, Minnesota 55107 |
167
Table of Contents
• | registration and filing fees; | |
• | fees and expenses of the exchange agent and trustee; | |
• | accounting and legal fees and printing costs; and | |
• | related fees and expenses. |
• | this tendering holder instructs us to register Notes in the name of, or deliver Notes to, a person other than the registered tendering holder of the old notes; | |
• | the tendered old notes are registered in the name of a person other than the person signing the applicable letter of transmittal; or | |
• | a transfer tax is imposed for any reason other than the exchange of old notes under the exchange offer. |
168
Table of Contents
• | is our “affiliate” within the meaning of Rule 405 under the Securities Act; | |
• | is a broker-dealer who purchased old notes directly from us for resale under Rule 144A or any other available exemption under the Securities Act; | |
• | acquired the Notes other than in the ordinary course of this holder’s business; or | |
• | is participating, intends to participate or has an arrangement or understanding with any person to participate in the distribution of the Notes. |
• | is our “affiliate” as defined in Rule 405 under the Securities Act; | |
• | does not acquire the Notes in the ordinary course of business; | |
• | tenders in the exchange offer with the intention to participate, or for the purpose of participating, in a distribution of the Notes; or | |
• | is a broker-dealer that purchased old notes from us to resell them pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act, and |
169
Table of Contents
170
Table of Contents
• | senior unsecured obligations of Quebecor Media; | |
• | effectively junior in right of payment to all of our existing and future secured indebtedness, including any borrowings under the Credit Agreement (as defined below), to the extent of the value of the assets securing that indebtedness; and |
171
Table of Contents
• | effectively junior in right of payment to all indebtedness and other obligations (including trade payables) of our Subsidiaries. |
172
Table of Contents
(1) at least 65% of the aggregate principal amount of Notes issued under the indenture remain outstanding immediately after the occurrence of such redemption (and any old notes outstanding), excluding any old notes or Notes held by Quebecor Media and its Subsidiaries; and | |
(2) the redemption occurs within 90 days of the date of the closing of any such Equity Offering. |
Year | Percentage | |||
2011 | 103.875 | % | ||
2012 | 102.583 | % | ||
2013 | 101.292 | % | ||
2014 and thereafter | 100.000 | % |
173
Table of Contents
(1) make this withholding or deduction; | |
(2) remit the full amount deducted or withheld to the relevant government authority in accordance with applicable law; | |
(3) pay such additional amounts, which we refer to as “Additional Amounts,” as may be necessary so that the net amount received by each holder after this withholding or deduction (including any deduction or withholding for Additional; Amounts) will not be less than the amount the holder would have received if these Taxes had not been withheld or deducted; | |
(4) furnish to the holders, within 30 days after the date the payment of any Taxes is due, certified copies of tax receipts evidencing this payment by Quebecor Media; | |
(5) indemnify and hold harmless each holder (other than an Excluded Holder, as defined below) for the amount of (a) any Taxes paid by each such holder as a result of payments made on or with respect to the Notes, (b) any liability (including penalties, interest and expenses) arising from or with respect to these payments and (c) any Taxes imposed with respect to any reimbursement under (a) or (b), but excluding any of these Taxes that are in the nature of Taxes on net income, taxes on capital, franchise taxes, net worth taxes and similar taxes; and | |
(6) at least 30 days prior to each date on which any payment under or with respect to the Notes is due and payable, if Quebecor Media becomes obligated to pay Additional Amounts with respect to such payment, deliver to the trustee an officers’ certificate stating the amounts so payable and such other information necessary to enable the trustee to pay these Additional Amounts to holders on the payment date. |
(1) with which Quebecor Media does not deal at arm’s-length, within the meaning of theIncome Tax Act(Canada), at the time of making such payment; |
174
Table of Contents
(2) which is subject to such Taxes by reason of its being connected with Canada or any province or territory thereof otherwise than by the mere acquisition, holding or disposition of Notes or the receipt of payments or the enforcement of rights thereunder; or | |
(3) if such holder waives its right to receive Additional Amounts. |
Change of Control |
(1) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer; | |
(2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and | |
(3) deliver or cause to be delivered to the trustee the Notes so accepted together with an officers’ certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by Quebecor Media. |
175
Table of Contents
Asset Sales |
(1) Quebecor Media, or the Restricted Subsidiary, as the case may be, receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and |
176
Table of Contents
(2) at least 75% of the consideration received in the Asset Sale by Quebecor Media or such Restricted Subsidiary is in the form of cash, Cash Equivalents, Replacement Assets or a combination thereof. For the purposes of this provision, each of the following shall be deemed to be cash: |
(a) any Indebtedness or other liabilities, as shown on Quebecor Media’s or such Restricted Subsidiary’s most recent balance sheet, of Quebecor Media or any Restricted Subsidiary (other than contingent liabilities and Indebtedness that are by their terms subordinated to the Notes) that are assumed by the transferee of any such assets pursuant to a written agreement that releases Quebecor Media or such Restricted Subsidiary from further liability with respect to such Indebtedness or liabilities; and | |
(b) any securities, notes or other obligations received by Quebecor Media or any such Restricted Subsidiary from such transferee that are converted within 90 days of the applicable Asset Sale by Quebecor Media or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion. |
(1) (a) to permanently repay or reduce Indebtedness, other than Subordinated Indebtedness, of Quebecor Media and, if the Indebtedness repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto; or (b) to permanently repay or reduce Indebtedness of any of Quebecor Media’s Restricted Subsidiaries; | |
(2) to acquire, or enter into a binding agreement to acquire, all or substantially all of the assets (other than cash, Cash Equivalents and securities) of any Person engaged in a Permitted Business;provided, however, that any such commitment shall be subject only to customary conditions (other than financing), and such acquisition shall be consummated no later than 180 days after the end of this360-day period; | |
(3) to acquire, or enter into a binding agreement to acquire, Voting Stock of a Person engaged in a Permitted Business from a Person that is not a Subsidiary of Quebecor Media;provided, however,that such commitment shall be subject only to customary conditions (other than financing) and such acquisition shall be consummated no later than 180 days after the end of such360-day period; andprovided, further, however, that (a) if the Net Proceeds are from the sale of assets of Quebecor Media or any of its Restricted Subsidiaries or the Equity Interests of any of its Restricted Subsidiaries, after giving effect thereto, the Person so acquired becomes a Restricted Subsidiary of Quebecor Media; and (b) such acquisition is otherwise made in accordance with the indenture, including, without limitation, the covenant described under the caption “— Covenants — Restricted Payments;” | |
(4) to acquire, or enter into a binding agreement to acquire, previously issued and outstanding Voting Stock of a non-Wholly Owned Restricted Subsidiary of Quebecor Media (a) from a Person that is not an Affiliate of Quebecor Media or (b) in a brokered transaction through the facilities of a stock exchange;provided, however, that such commitment shall be subject only to customary conditions (other than financing) and such acquisition shall be consummated no later than 180 days after the end of such360-day period; | |
(5) to make capital expenditures; or | |
(6) to acquire, or enter into a binding agreement to acquire, other long-term assets (other than securities) that are used or useful in a Permitted Business;provided, however, that such commitment shall be subject only to customary conditions (other than financing) and such acquisition shall be consummated no later than 180 days after the end of this360-day period. |
177
Table of Contents
(1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or | |
(2) if the Notes are not listed on any national securities exchange, on apro ratabasis, by lot or by such method as the trustee shall deem fair and appropriate. |
Restricted Payments |
(1) declare or pay any dividend or make any other payment or distribution on account of Quebecor Media’s or any of its Restricted Subsidiaries’ Equity Interests, including, without limitation, any payment in connection with any merger or consolidation involving Quebecor Media or any of its |
178
Table of Contents
Restricted Subsidiaries, or to the direct or indirect holders of Quebecor Media’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such, other than dividends, payments or distributions payable in Equity Interests (other than Disqualified Stock orBack-to-Back Securities) of Quebecor Media or to Quebecor Media or a Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, to the other shareholders of such Restricted Subsidiary on apro ratabasis or on a basis that results in the receipt by Quebecor Media or a Restricted Subsidiary of dividends or distributions of greater value than it would receive on apro rata basis); | |
(2) purchase, redeem or otherwise acquire or retire for value, including, without limitation, in connection with any merger or consolidation involving Quebecor Media, any Equity Interests of Quebecor Media, other than such Equity Interests of Quebecor Media held by Quebecor Media or any of its Restricted Subsidiaries; | |
(3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value anyBack-to-Back Securities or Subordinated Indebtedness, except, in the case of Subordinated Indebtedness (other thanBack-to-Back Securities), a payment of interest at the Stated Maturity of such interest, or principal at or within one year of the Stated Maturity of principal, of such Subordinated Indebtedness; or | |
(4) make any Restricted Investment; |
(1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; and | |
(2) Quebecor Media would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable fiscal quarter, have been permitted to incur at least US$1.00 of additional Indebtedness, other than Permitted Debt, pursuant to the Debt to Cash Flow Ratio test set forth in the first paragraph of the covenant described under the caption “— Incurrence of Indebtedness and Issuance of Preferred Shares;” and | |
(3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments declared or made by Quebecor Media and its Restricted Subsidiaries after the Issue Date, excluding Restricted Payments made pursuant to clauses (2), (3), (4), (6), (7), (8), (9), (10) and (11) of the next succeeding paragraph, shall not exceed, at the date of determination, the sum, without duplication, of: |
(a) an amount equal to Quebecor Media’s Consolidated Cash Flow from the first date of the fiscal quarter in which the Issue Date occurs to the end of Quebecor Media’s most recently ended full fiscal quarter for which internal financial statements are available, taken as a single accounting period, less 1.5 times Quebecor Media’s Consolidated Interest Expense from the first date of the fiscal quarter in which the Issue Date occurs to the end of Quebecor Media’s most recently ended full fiscal quarter for which internal financial statements are available, taken as a single accounting period (or, if such amount for such period is a deficit, minus 100% of such deficit); plus | |
(b) an amount equal to 100% of Capital Stock Sale Proceeds, less any such Capital Stock Sale Proceeds used in connection with: |
(i) an Investment made pursuant to clause (6) of the definition of“Permitted Investments;” or | |
(ii) an incurrence of Indebtedness pursuant to clause (8) of the covenant described under the caption “— Incurrence of Indebtedness and Issuance of Preferred Shares;” plus |
(c) to the extent that any Restricted Investment that was made after the Issue Date is sold for cash or otherwise liquidated or repaid for cash (except to the extent any such payment or proceeds are included in the calculation of Consolidated Cash Flow), the lesser of (i) the cash return of |
179
Table of Contents
capital with respect to such Restricted Investment, less the cost of disposition, if any, and (ii) the initial amount of such Restricted Investment; plus | |
(d) to the extent that the Board of Directors of Quebecor Media designates any Unrestricted Subsidiary that was designated as such after the Issue Date as a Restricted Subsidiary, the lesser of (i) the aggregate fair market value of all Investments owned by Quebecor Media and its Restricted Subsidiaries in such Subsidiary at the time such Subsidiary was designated as an Unrestricted Subsidiary and (ii) the then aggregate Fair Market Value of all Investments owned by Quebecor Media and its Restricted Subsidiaries in such Unrestricted Subsidiary;plus | |
(e) Cdn$215.0 million. |
(1) so long as no Default has occurred and is continuing or would be caused thereby, the payment of any dividend within 60 days after the date the dividend is declared, if at that date of declaration such payment would have complied with the provisions of the indenture;provided, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; | |
(2) so long as no Default has occurred and is continuing or would be caused thereby, the redemption, repurchase, retirement, defeasance or other acquisition of any Subordinated Indebtedness of Quebecor Media or any of its Restricted Subsidiaries or of any Equity Interests of Quebecor Media in exchange for, or out of the net cash proceeds of the substantially concurrent sale, other than to a Subsidiary of Quebecor Media or an employee stock ownership plan or to a trust established by Quebecor Media or any Subsidiary of Quebecor Media for the benefit of its employees, of, Equity Interests of Quebecor Media (other than Disqualified Stock orBack-to-Back Securities);providedthat the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (3)(b) of the preceding paragraph; | |
(3) so long as no Default has occurred and is continuing or would be caused thereby, the defeasance, redemption, repurchase or other acquisition of Subordinated Indebtedness of Quebecor Media or any of its Restricted Subsidiaries with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; | |
(4) any payment by Quebecor Media or a Restricted Subsidiary of Quebecor Media to any one of the other of them; | |
(5) so long as no Default has occurred and is continuing or would be caused thereby, the repurchase, redemption or other acquisition or retirement for value by Quebecor Media of any Equity Interests of Quebecor Media held by any member of Quebecor Media’s, or any of its Subsidiaries’, management pursuant to Quebecor Media’s stock option plans;provided, however, that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed the sum of (a) US$5.0 million in any fiscal year (with unused amounts in any fiscal year being permitted to be carried over to succeeding fiscal years) and (b) Quebecor Media’s liability under Quebecor Media’s stock option plans as of the Issue Date; | |
(6) payments of any kind made in connection with or in respect ofBack-to-Back Securities;provided, however, that to the extent such payments are made to Affiliates of Quebecor Media (other than its Subsidiaries), all corresponding payments required to be paid by such Affiliates pursuant to the relatedBack-to-Back Securities shall be received, immediately prior to or concurrently with any such payments, by all applicable Quebecor Media Entities; | |
(7) so long as no Default has occurred and is continuing or would be caused thereby, any Tax Benefit Transaction; |
180
Table of Contents
(8) so long as no Default has occurred and is continuing or would be caused thereby, management fees or similar expenses payable to shareholders of Quebecor Media in an aggregate amount not to exceed US$2.0 million in any calendar year; | |
(9) (a) the payment of any dividend pursuant to the terms of Disqualified Stock of Quebecor Media or Preferred Shares of any of its Restricted Subsidiaries,provided, that such dividend is included in Quebecor Media’s Consolidated Interest Expense; and (b) the payment of principal at the Stated Maturity of Disqualified Stock of Quebecor Media or Preferred Shares of any of its Restricted Subsidiaries,provided, that such Disqualified Stock or Preferred Shares was incurred or permitted to be incurred pursuant to the covenant described under the caption “— Incurrence of Indebtedness and Issuance of Preferred Shares;” | |
(10) the repurchase by any of Quebecor Media’s non-Wholly Owned Restricted Subsidiaries of its previously issued and outstanding Equity Interests for consideration equal to the Fair Market Value of the repurchased Equity Interests; | |
(11) so long as no Default has occurred and is continuing or would be caused thereby, other Restricted Payments in an aggregate amount not to exceed US$50.0 million; and | |
(12) so long as no Default has occurred and is continuing or would be caused thereby and the Debt to Cash Flow Ratio is no greater than 5.5 to 1.0 (calculated on apro formabasis as if such payment, including any related financing transaction, had occurred at the beginning of the applicable Measurement Period), the purchase, redemption or other acquisition or retirement for value, of Equity Interests of Quebecor Media held byCaisse de dépôt et placement du Québecor any of its Affiliates. |
Incurrence of Indebtedness and Issuance of Preferred Shares |
181
Table of Contents
(1) the incurrence by Quebecor Media of Indebtedness and letters of credit under one or more Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of Quebecor Media thereunder) not to exceed an aggregate of Cdn$1.25 billion,lessthe aggregate amount of all Net Proceeds of Asset Sales applied by Quebecor Media since the Issue Date to permanently repay Indebtedness under a Credit Facility (and, in the case of any revolving credit Indebtedness, to effect a corresponding commitment reduction thereunder) pursuant to the covenant described under the caption “— Offers to Repurchase at the Option of Holders — Asset Sales;” | |
(2) the incurrence by Quebecor Media and its Restricted Subsidiaries of Existing Indebtedness; | |
(3) the incurrence by Quebecor Media of Indebtedness represented by the old notes issued on the Issue Date and the Notes issued in exchange for such old notes and in exchange for any Additional Notes; | |
(4) the incurrence by Quebecor Media or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of Quebecor Media or such Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (4), not to exceed US$100.0 million at any time outstanding; | |
(5) the incurrence by Quebecor Media or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness, other than intercompany Indebtedness, that was permitted by the indenture to be incurred under the first paragraph of this covenant or clauses (2), (3) and (4) of this paragraph; | |
(6) the incurrence by Quebecor Media or any of its Restricted Subsidiaries of intercompany Indebtedness between or among Quebecor Media and any of its Restricted Subsidiaries;provided, however, that: |
(a) if Quebecor Media is the obligor on such Indebtedness, such Indebtedness must be unsecured and expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes; | |
(b) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than Quebecor Media or a Restricted Subsidiary thereof and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either Quebecor Media or a Restricted Subsidiary of Quebecor Media will be deemed, in each case, to constitute an incurrence of such Indebtedness by Quebecor Media or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); |
(7) the issuance by Quebecor Media of Disqualified Stock or the issuance by any of its Restricted Subsidiaries of Preferred Shares solely to or among Quebecor Media and any of its Restricted Subsidiaries;provided, however, that (i) any subsequent issuance or transfer of Equity Interests that results in any such Disqualified Stock or Preferred Shares being held by a Person other than Quebecor Media or a Restricted Subsidiary and (ii) any sale or other transfer of any such Disqualified Stock or Preferred Shares to a Person that is not either Quebecor Media or a Restricted Subsidiary will be deemed, in each case, to constitute an issuance of such Disqualified Stock by Quebecor Media or Preferred Shares by any of its Restricted Subsidiaries, as the case may be, that was not permitted by this clause (7); |
182
Table of Contents
(8) the incurrence by Quebecor Media or any Restricted Subsidiary of Hedging Obligations that are incurred in the ordinary course of business of Quebecor Media or such Restricted Subsidiary and not for speculative purposes;provided, however, that, in the case of: |
(a) any Interest Rate Agreement, the notional principal amount of such Hedging Obligation does not exceed the principal amount of the Indebtedness to which such Hedging Obligation relates; and | |
(b) any Currency Exchange Protection Agreement, such Hedging Obligation does not increase the principal amount of Indebtedness of Quebecor Media or such Restricted Subsidiary outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; |
(9) the guarantee by Quebecor Media or any of its Restricted Subsidiaries of Indebtedness of Quebecor Media or a Restricted Subsidiary that was permitted to be incurred by another provision of this covenant; | |
(10) the incurrence by Quebecor Media or any of its Restricted Subsidiaries of Indebtedness in relation with the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; | |
(11) the incurrence by Quebecor Media or any of its Restricted Subsidiaries of Indebtedness owed to any Person under or in connection with any worker’s compensation, health, disability, employee benefits or equity compensation plan or property, casualty or liability insurance provided by such Person to Quebecor Media or its Restricted Subsidiaries pursuant to reimbursement or indemnification obligations to such Person, in each case incurred in the ordinary course of business; | |
(12) the incurrence by Quebecor Media or any of its Restricted Subsidiaries of Indebtedness arising from agreements of Quebecor Media or any of its Restricted Subsidiaries providing for indemnification, adjustment of purchase price, earn out obligations or other similar obligations, in each case incurred or assumed in connection with a transaction permitted by the indenture; | |
(13) Non-Recourse Accounts Receivable Entity Indebtedness incurred by any Accounts Receivable Entity in a Qualified Receivables Transaction; | |
(14) the incurrence by Quebecor Media or any of its Restricted Subsidiaries of Indebtedness, the issuance by Quebecor Media of Disqualified Stock or the issuance by any of Quebecor Media’s Restricted Subsidiaries of Preferred Shares in an aggregate principal amount at any time outstanding not to exceed US$100.0 million; and | |
(15) the issuance of Indebtedness, Preferred Shares or Disqualified Stock in connection with a Tax Benefit Transaction. |
183
Table of Contents
Liens |
Dividend and Other Payment Restrictions Affecting Subsidiaries |
(1) pay dividends or make any other distributions on its Equity Interests to Quebecor Media or any other Restricted Subsidiary, or with respect to any other interest or participation in, or measured by, its profits, or pay any liabilities owed to Quebecor Media or any other Restricted Subsidiary; | |
(2) make loans or advances, or guarantee any such loans or advances, to Quebecor Media or any other Restricted Subsidiary; or | |
(3) transfer any of its properties or assets to Quebecor Media or any other Restricted Subsidiary. |
(1) agreements governing Existing Indebtedness and Credit Facilities as in effect on the Issue Date and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof;provided, however, that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in such Existing Indebtedness and Credit Facilities, as in effect on the Issue Date;provided, further, however, that if such Existing Indebtedness or Credit Facility could not be amended, modified, restated, renewed, increased, supplemented, refunded, replaced or refinanced on commercially reasonable terms without the inclusion of dividend and other payment restrictions that are materially more restrictive than those contained in such Existing Indebtedness or Credit Facility (as determined in good faith by the Board of Directors of Quebecor Media), Quebecor Media or its Restricted Subsidiary may amend, modify, restate, renew, increase, supplement, refund, replace or refinance such Existing Indebtedness or Credit Facility,provided, that the dividend and other payment restrictions contained therein will not materially impair Quebecor Media’s ability to make payments on the old notes and the Notes (as determined in good faith by the Board of Directors of Quebecor Media); |
184
Table of Contents
(2) the indenture, the old notes and the Notes; | |
(3) applicable law or any applicable rule, regulation or order, or under the terms of any permit or license issued under applicable law or any applicable rule, regulation or order; | |
(4) any instrument governing Indebtedness or Capital Stock of a Person acquired by Quebecor Media or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred or issued in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired;provided, however, that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the indenture to be incurred at the time of such acquisition; | |
(5) customary non-assignment provisions in leases or other agreements that restrict the assignment of such agreements or rights or non-cash assets thereunder, including, without limitation, customary restrictions imposed on the transfer of intellectual property, in each case entered into in the ordinary course of business; | |
(6) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the property so acquired of the nature described in clause (3) of the preceding paragraph; | |
(7) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition; | |
(8) Permitted Refinancing Indebtedness;provided, however, that the dividend and other payment restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;provided, further, however,that if such Permitted Refinancing Indebtedness could not be entered into on commercially reasonable terms without the inclusion of dividend and other payment restrictions that are materially more restrictive than those contained in the existing Indebtedness (as determined in good faith by the Board of Directors of Quebecor Media), Quebecor Media or its Restricted Subsidiary may enter into such Permitted Refinancing Indebtedness,provided, that the dividend and other payment restrictions contained therein will not materially impair Quebecor Media’s ability to make payments on the old notes and the Notes (as determined in good faith by the Board of Directors of Quebecor Media); | |
(9) Liens securing Indebtedness that is permitted to be secured without also securing the old notes and the Notes pursuant to the covenant described under the caption “— Liens” that limit the right of the debtor to dispose of the assets subject to any such Lien; | |
(10) provisions with respect to the disposition or distribution of assets or property asset sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business; | |
(11) customary provisions in joint venture agreements, shareholders’ agreements and other similar agreements entered into in the ordinary course of business; | |
(12) customary restrictions imposed by customers under contracts entered into in the ordinary course of business; | |
(13) Non-Recourse Accounts Receivable Entity Indebtedness or other contractual requirements of an Accounts Receivable Entity in connection with a Qualified Receivables Transaction;providedthat such restrictions apply only to such Accounts Receivables Entity or the receivables which are subject to the Qualified Receivables Transaction; and | |
(14) any Indebtedness or any agreement pursuant to which such Indebtedness was issued if (a) the encumbrance or restriction applies only upon a payment or financial covenant default or event of default contained in such Indebtedness or agreement (b) such encumbrance or restriction is not materially more disadvantageous to the holders of the old notes and the Notes than is customary in comparable |
185
Table of Contents
financings (as determined in good faith by the Board of Directors of Quebecor Media) (c) such encumbrance or restriction will not materially impair Quebecor Media’s ability to make payments on the old notes and the Notes (as determined in good faith by the Board of Directors of Quebecor Media). |
Merger, Consolidation or Sale of Assets |
(1) either (a) Quebecor Media is the surviving corporation, or (b) the Person formed by or surviving any such consolidation, merger or amalgamation (if other than Quebecor Media) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state of the United States, the District of Columbia, Canada or any province or territory of Canada; | |
(2) the Person formed by or surviving any such consolidation, merger or amalgamation (if other than Quebecor Media) or the Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made expressly assumes all the obligations of Quebecor Media under the old notes, the Notes, the indenture and, if applicable, the registration rights agreement, pursuant to agreements reasonably satisfactory to the trustee; | |
(3) immediately after giving effect to such transaction no Default or Event of Default exists; and | |
(4) Quebecor Media or the Person formed by or surviving any such consolidation, merger or amalgamation, if other than Quebecor Media, or to which such sale, assignment, transfer, conveyance or other disposition has been made will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable fiscal quarter, be permitted to incur at least US$1.00 of additional Indebtedness pursuant to the Debt to Cash Flow Ratio test set forth in the first paragraph of the covenant described under the caption “— Incurrence of Indebtedness and Issuance of Preferred Shares.” |
Transactions with Affiliates |
(1) such Affiliate Transaction is on terms that are no less favorable to Quebecor Media or the relevant Restricted Subsidiary than those that would have been obtained in a comparable arm’s-length transaction by Quebecor Media or such Restricted Subsidiary with an unrelated Person; and | |
(2) Quebecor Media delivers to the trustee with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of US$40.0 million, (a) a resolution of the Board of Directors of Quebecor Media, set forth in an officers’ certificate stating that such Affiliate Transaction or series of related Affiliate Transactions has been approved by a majority of the disinterested members of the Board of Directors of Quebecor Media; or (b) an opinion as to the |
186
Table of Contents
fairness to Quebecor Media or such Restricted Subsidiary of such Affiliate Transaction or series of related Affiliate Transactions from a financial point of view issued by an independent accounting, appraisal or investment banking firm of national standing in the United States or Canada. |
(1) payments pursuant to any employment agreement, collective bargaining agreement, employee benefit plan or other compensation, indemnity, incentive or similar arrangement entered into by Quebecor Media or any of its Restricted Subsidiaries in the ordinary course of business, which represent customary and reasonable consideration (as determined in good faith by the Board of Directors of Quebecor Media); | |
(2) transactions between or among Quebecor Media and/or its Restricted Subsidiaries; | |
(3) transactions with a Person that is an Affiliate of Quebecor Media solely because Quebecor Media owns an Equity Interest in such Person,providedsuch transactions are on terms that are no less favorable to Quebecor Media or the relevant Restricted Subsidiary than those that would have been obtained in a comparable arm’s-length transaction by Quebecor Media or such Restricted Subsidiary with an unrelated Person; | |
(4) payment of reasonable directors’ fees to Persons who are not otherwise Affiliates of Quebecor Media; | |
(5) sales of Equity Interests of Quebecor Media, other than Disqualified Stock orBack-to-Back Securities, to Affiliates of Quebecor Media; | |
(6) any agreement or arrangement as in effect on the Issue Date or any amendment thereto or any transaction contemplated thereby, including pursuant to any amendment thereto, in any replacement agreement or arrangement thereto so long as any such amendment or replacement agreement or arrangement is not more disadvantageous to Quebecor Media or its Restricted Subsidiaries, as the case may be, in any material respect than the original agreement as in effect on the Issue Date; | |
(7) Restricted Payments that are permitted by the provisions of the indenture described under the caption “— Restricted Payments;” | |
(8) Permitted Investments; | |
(9) transactions effected as part of a Qualified Receivables Transaction; and | |
(10) any Tax Benefit Transaction. |
Designation of Restricted and Unrestricted Subsidiaries |
(1) has no Indebtedness other than Non-Recourse Debt; | |
(2) does not own any Equity Interests of any Restricted Subsidiary of Quebecor Media, or hold any Liens on any property of Quebecor Media or any of its Restricted Subsidiaries; | |
(3) is not party to any agreement, contract, arrangement or understanding with Quebecor Media or any of its Restricted Subsidiaries unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to Quebecor Media or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of Quebecor Media; | |
(4) is a Person with respect to which neither Quebecor Media nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; |
187
Table of Contents
(5) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of Quebecor Media or any of its Restricted Subsidiaries; | |
(6) has at least one director on its Board of Directors that is not a director or executive officer of Quebecor Media or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of Quebecor Media or any of its Restricted Subsidiaries; and | |
(7) that designation would not cause a Default or Event of Default. |
Reports |
(1) within 120 days after the end of each fiscal year, annual reports on Form 20-F or 40-F, as applicable, or any successor form; and | |
(2) (a) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, reports on Form 10-Q, or any successor form, or (b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year, reports on Form 6-K, or any successor form, which in each case, regardless of applicable requirements, shall, at a minimum, contain a “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and, with respect to any such reports, a reconciliation to U.S. GAAP as permitted by the SEC for foreign private issuers. |
188
Table of Contents
Payments for Consent |
(1) default for 30 days in the payment when due of interest on, or with respect to, the old notes and the Notes; | |
(2) default in payment, when due at Stated Maturity, upon acceleration, redemption, required repurchase or otherwise, of the principal of, or premium, if any, on the old notes and the Notes; | |
(3) failure by Quebecor Media or any of its Restricted Subsidiaries to comply with the provisions described under the captions “— Offers to Repurchase at the Option of Holders,” or “— Covenants — Merger, Consolidation or Sale of Assets;” | |
(4) failure by Quebecor Media or any Restricted Subsidiary for 45 days after written notice thereof has been given to Quebecor Media by the trustee or to Quebecor Media and the trustee by the holders of at least 25% of the aggregate principal amount of the old notes and the Notes outstanding to comply with any of its other covenants or agreements in the indenture; | |
(5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness by Quebecor Media or any of its Restricted Subsidiaries, or the payment of which is guaranteed by Quebecor Media or any of its Restricted Subsidiaries, whether such Indebtedness or guarantee now exists, or is created after the Issue Date, if that default: |
(a) is caused by a failure to pay principal of, or interest or premium, if any, on, such Indebtedness when due at the final maturity of such Indebtedness, which is referred to as a Payment Default; or | |
(b) results in the acceleration of such Indebtedness prior to its Stated Maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates US$25.0 million or more; |
(6) failure by Quebecor Media or any of its Restricted Subsidiaries to pay final, non-appealable judgments aggregating in excess of US$25.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; and | |
(7) certain events of bankruptcy or insolvency described in the indenture with respect to Quebecor Media or any of its Significant Subsidiaries or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary. |
189
Table of Contents
(1) the holder gives the trustee written notice of a continuing Event of Default; | |
(2) the holders of at least 25% in aggregate principal amount of outstanding old notes and Notes make a written request to the trustee to pursue the remedy; | |
(3) such holder or holders offer the trustee indemnity satisfactory to the trustee against any costs, liability or expense; | |
(4) the trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and | |
(5) during such60-day period, the holders of a majority in aggregate principal amount of the outstanding old notes and Notes do not give the trustee a direction that is inconsistent with the request. |
190
Table of Contents
(1) the rights of holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium and Additional Amounts and special interest, if any, on such Notes when such payments are due solely from the trust referred to below; | |
(2) Quebecor Media’s obligation with respect to the Notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust; | |
(3) the rights, powers, trusts, duties and immunities of the trustee, and Quebecor Media’s obligations in connection therewith; and | |
(4) the Legal Defeasance provisions of the indenture. |
(1) Quebecor Media must irrevocably deposit with the trustee, in trust, for the benefit of the holders of the Notes cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, or interest and premium and Additional Amounts and special interest, if any, on the outstanding Notes on the Stated Maturity or on the applicable date of redemption, as the case may be, and Quebecor Media must specify whether the Notes are being defeased to maturity or to a particular date of redemption; | |
(2) in the case of Legal Defeasance, Quebecor Media shall have delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that (a) Quebecor Media has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred and Quebecor Media shall have delivered to the trustee an opinion of counsel in Canada reasonably acceptable to the trustee confirming that the holders of the outstanding Notes will not recognize income, gain or loss for Canadian federal, provincial or territorial income tax purposes as a result of such Legal Defeasance and will be subject to Canadian federal, provincial or territorial income tax (including withholding tax) on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; | |
(3) in the case of Covenant Defeasance, Quebecor Media shall have delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred and Quebecor Media shall have delivered to the trustee an opinion of counsel in Canada reasonably acceptable to the trustee confirming that the holders of the outstanding Notes will not recognize income, |
191
Table of Contents
gain or loss for Canadian federal, provincial or territorial income tax purposes as a result of such Covenant Defeasance and will be subject to Canadian federal, provincial or territorial income tax (including withholding tax) on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; | |
(4) no Default or Event of Default shall have occurred and be continuing either (a) on the date of such deposit or (b) insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit, other than, in each case, a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit; | |
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument to which Quebecor Media or any of its Subsidiaries is a party or by which Quebecor Media or any of its Subsidiaries is bound; | |
(6) Quebecor Media must have delivered to the trustee an opinion of counsel to the effect that, (a) assuming no intervening bankruptcy of Quebecor Media between the date of deposit and the 91st day following the deposit and assuming that no holder is an “insider” of Quebecor Media under applicable bankruptcy law, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, and (b) the creation of the defeasance trust does not violate the Investment Company Act of 1940; | |
(7) Quebecor Media must deliver to the trustee an officers’ certificate stating that the deposit was not made by Quebecor Media with the intent of preferring the holders of Notes over the other creditors of Quebecor Media with the intent of defeating, hindering, delaying or defrauding creditors of Quebecor Media or others; | |
(8) if the Notes are to be redeemed prior to their Stated Maturity, Quebecor Media must deliver to the trustee irrevocable instructions to redeem all of the Notes on the specified redemption date; and | |
(9) Quebecor Media must deliver to the trustee an officers’ certificate and an opinion of counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. |
(1) reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver; | |
(2) reduce the principal of or change the Stated Maturity of any note or alter the provisions with respect to the redemption of the notes; |
192
Table of Contents
(3) reduce the rate of or change the time for payment of interest, including special interest, if any, on any note; | |
(4) waive a Default or Event of Default in the payment of principal of, or interest or premium, or special interest, if any, on the notes, except a rescission of acceleration of the notes by the holders of at least a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration; | |
(5) make any note payable in money other than that stated in the notes; | |
(6) make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of holders of notes to receive payments of principal of, or interest or premium or special interest, if any, on the notes, or to institute suit for the enforcement of any payment on or with respect to such holders’ notes; | |
(7) amend, change or modify the obligation of Quebecor Media to make and consummate an Asset Sale Offer with respect to any Asset Sale in accordance with the “— Offers to Repurchase at the Option of Holders — Asset Sales” covenant after the obligation to make such Asset Sale Offer has arisen or the obligation of Quebecor Media to make and consummate a Change of Control Offer in the event of a Change of Control in accordance with the “— Offers to Repurchase at the Option of Holders — Change of Control” covenant after such Change of Control has occurred, including, in each case, amending, changing or modifying any definition relating thereto; | |
(8) except as otherwise permitted under the “— Covenants — Merger, Consolidation or Sale of Assets” covenant, consent to the assignment or transfer by Quebecor Media of any of its rights or obligations under the indenture; | |
(9) subordinate the notes to any other obligation of Quebecor Media; | |
(10) amend or modify the provisions described under the caption “— Payment of Additional Amounts;” or | |
(11) make any change in the preceding amendment and waiver provisions. |
(1) to cure any ambiguity, defect or inconsistency; | |
(2) to provide for uncertificated notes in addition to or in place of certificated notes; | |
(3) to provide for the assumption of the obligations of Quebecor Media to holders of notes in the case of a merger, consolidation, or amalgamation or sale of all or substantially all of the assets of Quebecor Media;provided, however, that Quebecor Media delivers to the trustee: |
(a) an opinion of counsel to the effect that holders of the notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such assumption by a successor corporation and will be subject to U.S. federal income tax on the same amount and in the same manner and at the same times as would have been the case if such assumption had not occurred, and | |
(b) an opinion of counsel in Canada to the effect that holders of the notes will not recognize income, gain or loss for Canadian federal, provincial or territorial tax purposes as a result of such assumption by a successor corporation and will be subject to Canadian federal, provincial or territorial taxes (including withholding taxes) on the same amounts, in the same manner and at the same times as would have been the case if such assumption had not occurred; |
(4) to make any change that would provide any additional rights or benefits to the holders of the notes or that does not adversely affect the legal rights under the indenture of any such holder; | |
(5) provide for the issuance of Additional Notes in accordance with the indenture; or |
193
Table of Contents
(6) to comply with requirements of the SEC in order to effect or maintain the qualification of the indenture under the Trust Indenture Act. |
(1) either: |
(a) all notes that have been authenticated, except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money has theretofore been deposited in trust and thereafter repaid to Quebecor Media, have been delivered to the trustee for cancellation; or | |
(b) all notes that have not been delivered to the trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year and Quebecor Media has irrevocably deposited or caused to be deposited with the trustee as trust funds in trust solely for the benefit of the holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the notes not delivered to the trustee for cancellation for principal, premium and Additional Amounts and special interest, if any, and accrued interest to the date of maturity or redemption; |
(2) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which Quebecor Media is a party or by which Quebecor Media is bound; | |
(3) Quebecor Media has paid or caused to be paid all sums payable by it under the indenture; and | |
(4) Quebecor Media has delivered irrevocable instructions to the trustee under the indenture to apply the deposited money toward the payment of the notes at maturity or the date of redemption, as the case may be. |
194
Table of Contents
195
Table of Contents
(1) any aspect of DTC’s records or any participant’s or indirect participant’s records relating to or payments made on account of beneficial ownership interests in the global Notes or for maintaining, supervising or reviewing any of DTC’s records or any participant’s or indirect participant’s records relating to the beneficial ownership interests in the global Notes; or | |
(2) any other matter relating to the actions and practices of DTC or any of its participants or indirect participants. |
(1) DTC notifies Quebecor Media that it (a) is unwilling or unable to continue as depositary for the global Notes or (b) has ceased to be a clearing agency registered under the Exchange Act and, in either case, Quebecor Media fails to appoint a successor depositary within 120 days after the date of such notice; | |
(2) Quebecor Media, at its option, notifies the trustee in writing that it elects to cause the issuance of the certificated Notes, subject to the rules of DTC, which require the consent of each participant; or | |
(3) there shall have occurred and be continuing a Default or Event of Default with respect to the Notes. |
196
Table of Contents
(1) certificated Notes will be issued only in fully registered form in denominations of $1,000 or integral multiples thereof, | |
(2) payment of principal of, and premium, if any, and interest on, the certificated Notes will be payable, and the transfer of the certificated Notes will be registrable, at the office or agency of Quebecor Media maintained for such purposes, and | |
(3) no service charge will be made for any registration of transfer or exchange of the certificated Notes, although Quebecor Media may require payment of a sum sufficient to cover any tax or governmental charge imposed in connection therewith. |
197
Table of Contents
(1) that is formed solely for the purpose of, and that engages in no activities other than activities in connection with, financing accounts receivable; | |
(2) that is designated pursuant to a resolution of the Board of Directors of Quebecor Media as an Accounts Receivable Entity; | |
(3) no portion of the Indebtedness or any other obligation (contingent or otherwise) of which (a) is at any time guaranteed by Quebecor Media or any of its Restricted Subsidiaries (excluding guarantees of obligations (other than any guarantee of Indebtedness) pursuant to Standard Securitization Undertakings), (b) is at any time recourse to or obligates Quebecor Media or any of its Restricted Subsidiaries in any way, other than pursuant to Standard Securitization Undertakings, or (c) subjects any asset of Quebecor Media or any other Restricted Subsidiary of Quebecor Media, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings (such Indebtedness,“Non-Recourse Accounts Receivable Entity Indebtedness”); | |
(4) with which neither Quebecor Media nor any of its Restricted Subsidiaries has any material contract, agreement, arrangement or understanding other than contracts, agreements, arrangements and understandings entered into in the ordinary course of business on terms no less favorable to Quebecor Media or such Restricted Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of Quebecor Media in connection with a Qualified Receivables Transaction and fees payable in the ordinary course of business in connection with servicing accounts receivable in connection with such a Qualified Receivables Transaction; and | |
(5) with respect to which neither Quebecor Media nor any of its Restricted Subsidiaries has any obligation to maintain or preserve the solvency or any balance sheet term, financial condition, level of income or results of operations thereof. |
(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or becomes a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of such specified Person; and | |
(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. |
198
Table of Contents
(1) the sale, lease, conveyance or other disposition of any assets of Quebecor Media or any of its Restricted Subsidiaries;provided, however, that the sale, conveyance or other disposition of all or substantially all of the assets of Quebecor Media and its Restricted Subsidiaries, taken as a whole, will be governed by the provisions of the indenture described under the caption “— Offers to Repurchase at the Option of Holders — Change of Control” and/or the provisions described under the caption “— Covenants — Merger, Consolidation or Sale of Assets” and not by the provisions of the indenture described under “— Offers to Repurchase at the Option of Holders — Asset Sales;” and | |
(2) the issuance of Equity Interests of any of Quebecor Media’s Restricted Subsidiaries or the sale by Quebecor Media’s or any of its Restricted Subsidiaries of Equity Interests in any of its Restricted Subsidiaries. |
(1) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than US$10.0 million; | |
(2) a sale, lease, conveyance or other disposition of assets between or among Quebecor Media and its Restricted Subsidiaries; | |
(3) an issuance of Equity Interests by Quebecor Media or any of its Restricted Subsidiaries to Quebecor Media or another of its Restricted Subsidiaries; | |
(4) the sale, lease, conveyance or other disposition of equipment, inventory or other assets in the ordinary course of business; | |
(5) the sale or other disposition of cash or Cash Equivalents; | |
(6) sales of accounts receivables pursuant to a Qualified Receivables Transaction for the Fair Market Value thereof, including cash in an amount equal to at least 75% of the Fair Market Value thereof; | |
(7) any transfer of accounts receivable, or a fractional undivided interest therein, by an Accounts Receivable Entity in a Qualified Receivables Transaction; | |
(8) any Tax Benefit Transaction; | |
(9) the issuance of Equity Interests of any Public Subsidiary pursuant to any equity compensation plan approved in accordance with the rules and regulations of the primary stock exchange or quotation system on which the Capital Stock of such Public Subsidiary is listed or quoted;provided, however, that the aggregate Fair Market Value for all such issued Equity Interests shall not exceed US$5.0 million in any twelve-month period; | |
(10) the issuance of Equity Interests of any of Quebecor Media’s Restricted Subsidiaries;provided,that after such issuance Quebecor Media’s ownership interests in such Restricted Subsidiary, whether directly or through its Restricted Subsidiaries, is at least equal to its ownership interests in such Restricted Subsidiary prior to such issuance; and |
199
Table of Contents
(11) a Restricted Payment or Permitted Investment that is permitted by the covenant described above under the caption “— Covenants — Restricted Payments.” |
(1) to a Quebecor Media Entity by an Affiliate of Quebecor Media (other than a Quebecor Media Entity) in circumstances where, immediately prior to or after, as the case may be, the issuance of such Preferred Shares, an Affiliate of such Quebecor Media Entity (other than a Quebecor Media Entity) has loaned on an unsecured basis to such Quebecor Media Entity, or an Affiliate of such Quebecor Media Entity (other than a Quebecor Media Entity) has subscribed for Preferred Shares of such Quebecor Media Entity, in an amount equal to, the requisite subscription price for such Preferred Shares; | |
(2) by a Quebecor Media Entity to one of its Affiliates (other than a Quebecor Media Entity) in circumstances where, immediately prior to or after, as the case may be, the issuance of such Preferred Shares, such Quebecor Media Entity has loaned an amount equal to the proceeds of such issuance to an Affiliate (other than a Quebecor Media Entity) on an unsecured basis; or | |
(3) by a Quebecor Media Entity to one of its Affiliates (other than a Quebecor Media Entity) in circumstances where, immediately prior to or after, as the case may be, the issuance of such Preferred Shares, such Quebecor Media Entity has used the proceeds of such issuance to subscribe for Preferred Shares issued by an Affiliate (other than a Quebecor Media Entity); |
(a) the aggregate redemption amount applicable to the Preferred Shares issued to or by such Quebecor Media Entity is identical: |
(i) in the case of (1) above, to the principal amount of the loan made or the aggregate redemption amount of the Preferred Shares subscribed for by such Affiliate; | |
(ii) in the case of (2) above, to the principal amount of the loan made to such Affiliate; or | |
(iii) in the case of (3) above, to the aggregate redemption amount of the Preferred Shares issued by such Affiliate; |
(b) the dividend payment date applicable to the Preferred Shares issued to or by such Quebecor Media Entity will: |
(i) in the case of (1) above, be immediately prior to, or on the same date as, the interest payment date relevant to the loan made or the dividend payment date on the Preferred Shares subscribed for by such Affiliate; | |
(ii) in the case of (2) above, be immediately after, or on the same date as, the interest payment date relevant to the loan made to such Affiliate; or | |
(iii) in the case of (3) above, be immediately after, or on the same date as, the dividend payment date on the Preferred Shares issued by such Affiliate; |
200
Table of Contents
(c) the amount of dividends provided for on any payment date in the share conditions attaching to the Preferred Shares issued: |
(i) to a Quebecor Media Entity in the case of (1) above, will be equal to or in excess of the amount of interest payable in respect of the loan made or the amount of dividends provided for in respect of the Preferred Shares subscribed for by such Affiliate; | |
(ii) by a Quebecor Media Entity in the case of (2) above, will be less than or equal to the amount of interest payable in respect of the loan made to such Affiliate; or | |
(iii) by a Quebecor Media Entity in the case of (3) above, will be equal to the amount of dividends in respect of the Preferred Shares issued by such Affiliate; andprovidedthat, in the case of Preferred Shares issued by a Restricted Subsidiary of Quebecor Media as set forth in clauses (1), (2) and (3) above, each holder of such Preferred Shares under suchBack-to-Back Transaction, other than such Restricted Subsidiary, executes or has executed a subordination agreement in favor of the holders of the Notes in substantially the form attached as an exhibit to the indenture. |
(1) with respect to a corporation, the board of directors of the corporation; | |
(2) with respect to a partnership, the board of directors of the general partner of the partnership; and | |
(3) with respect to any other Person, the board or committee of such Person serving a similar function. |
201
Table of Contents
(1) in the case of a corporation, corporate stock; | |
(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; | |
(3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and | |
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. |
(1) as a contribution to the common equity capital or from the issue or sale of Equity Interests of Quebecor Media (other than Disqualified Stock orBack-to-Back Securities); or | |
(2) from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of Quebecor Media that have been converted into or exchanged for such Equity Interests; |
other than, in either (1) or (2) above, Equity Interests (or convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities) sold to a Subsidiary of Quebecor Media. |
(1) United States dollars or Canadian dollars; | |
(2) investments in securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth, territory or province of the United States of America or Canada, or by any political subdivision or taxing authority thereof, and rated, at the time of acquisition, in the “R-1” category by the Dominion Bond Rating Service Limited; | |
(3) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any domestic commercial bank having capital and surplus in excess of US$250.0 million; | |
(4) repurchase obligations with a term of not more than 60 days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; | |
(5) commercial paper having, at the time of acquisition, at least a“P-1” rating from Moody’s Investors Service, Inc. or at least an“A-1” rating from Standard & Poor’s Rating Services and in each case maturing within one year after the date of acquisition or with respect to commercial paper in Canada a rating, at the time of acquisition, in the “R-1” category by the Dominion Bond Rating Service Limited; and | |
(6) money market funds at least 90% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. |
(1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of Quebecor Media and its Restricted Subsidiaries, taken as a whole, to any“person” (as that term is used in Section 13(d)(3) of the Exchange Act) other than a Permitted Holder or a Related Party of a Permitted Holder; | |
(2) the adoption of a plan relating to the liquidation or dissolution of Quebecor Media; |
202
Table of Contents
(3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any Person, other than a Permitted Holder or a Related Party of a Permitted Holder, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of Quebecor Media, measured by voting power rather than number of shares; or | |
(4) during any consecutive two-year period, the first day on which individuals who constituted the Board of Directors of Quebecor Media as of the beginning of such two-year period (together with any new directors who were nominated for election or elected to such Board of Directors with the approval of a majority of the individuals who were members of such Board of Directors, or whose nomination or election was previously so approved at the beginning of such two-year period) cease to constitute a majority of the Board of Directors of Quebecor Media. |
(1) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income;plus | |
(2) Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period, to the extent that any such expense was deducted in computing such Consolidated Net Income;plus | |
(3) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period to the extent such expense is amortized) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents (i) an accrual of or reserve for cash expenses in any future period or (ii) amortization of a prepaid cash expense that was paid in a prior period to the extent such expense is amortized) of such Person and its Restricted Subsidiaries for such period, to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income;plus | |
(4) solely for the purpose of determining the amount of Indebtedness that may be Incurred under the first paragraph of “— Covenants — Incurrence of Indebtedness and Issuance of Preferred Shares,” the amount of income or losses attributable to a non-controlling interest in a non-Wholly Owned Restricted Subsidiary, which was deducted and not added back in calculating Consolidated Net Income of such Person;minus | |
(5) any interest and other payments made to Persons other than any Quebecor Media Entity in respect ofBack-to-Back Securities to the extent such interest and other payments were not deducted in computing such Consolidated Net Income;minus | |
(6) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business; |
203
Table of Contents
(1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary (other than an Unrestricted Subsidiary) or that is accounted for by the equity method of accounting shall be included;provided, that the Net Income shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary thereof; | |
(2) solely for the purpose of determining the amount available for Restricted Payments under clause 3(a) of the first paragraph of “Covenants — Restricted Payments,” the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (unless such approval has been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its equityholders; | |
(3) the Net Income of any Person acquired during the specified period for any period prior to the date of such acquisition shall be excluded; | |
(4) the cumulative effect of a change in accounting principles shall be excluded; | |
(5) the Net Income or loss of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the specified Person or one of its Subsidiaries;provided, however, that for purposes of the covenant described under the caption “— Covenants — Restricted Payments,” the Net Income of any Unrestricted Subsidiary will be included to the extent it would otherwise be included under clause (1) of this definition; and | |
(6) any non-cash compensation expense realized for grants of performance shares, stock options or other rights to officers, directors and employees of Quebecor Media or any Restricted Subsidiary shall be excluded,providedthat such shares, options or other rights can be redeemed at the option of the holders thereof for Capital Stock of Quebecor Media or Quebecor Media Inc. (other than in each case Disqualified Stock of Quebecor Media). |
204
Table of Contents
205
Table of Contents
206
Table of Contents
(1) representing principal of and premium, if any, in respect of borrowed money; | |
(2) representing principal of and premium, if any, evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); | |
(3) in respect of banker’s acceptances; | |
(4) representing Capital Lease Obligations of such Person and all Attributable Debt in respect of sale and leaseback transactions entered into by such Person; | |
(5) representing the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; | |
(6) representing the amount of all obligations of such Person with respect to the repayment of any Disqualified Stock or, with respect to any Subsidiary of such Person, any Preferred Stock (in each case, valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends); or | |
(7) representing any Hedging Obligations, |
(1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount, and | |
(2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness;provided, however, that if any Indebtedness denominated in a currency other than Canadian dollars is hedged or swapped through the maturity of such Indebtedness under a Currency Exchange Protection Agreement, the amount of such Indebtedness will be adjusted to the extent of any positive or negative value (to the extent the obligation under such Currency Exchange Protection Agreement is not otherwise included as Indebtedness of such Person) of such Currency Exchange Protection Agreement. |
207
Table of Contents
(1) any gain (or loss), together with any related provision for taxes on such gain (or loss), realized in connection with: (a) any Asset Sale (without regard to the $10.0 million limitation set forth in the definition thereof) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and | |
(2) any extraordinary gain (or loss), together with any related provision for taxes on such extraordinary gain (or loss). |
208
Table of Contents
(1) as to which neither Quebecor Media nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness) other than a pledge of the Equity Interests of an Unrestricted Subsidiary, (b) is directly or indirectly liable as a guarantor or otherwise other than by virtue of a pledge of the Equity Interests of an Unrestricted Subsidiary or (c) constitutes the lender; | |
(2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit, upon notice, lapse of time or both, any holder of any other Indebtedness (other than the old notes or the Notes) of Quebecor Media or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its Stated Maturity; and | |
(3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of Quebecor Media or any of its Restricted Subsidiaries other than as set forth in clause (1) above. |
(1) Quebecor Inc.; | |
(2) any issue of the late Pierre Péladeau; | |
(3) any trust having as its sole beneficiaries one or more of the persons listed in clause (2) above; | |
(4) any corporation, partnership or other entity controlled, directly or indirectly, by one or more of the persons or trusts referred to in clause (2) or (3) above; and | |
(5) Caisse de dépôt et placement du Québec, or any corporation, partnership or other entity controlled, directly or indirectly, byCaisse de dépôt et placement du Québec. |
(1) any Investment in Quebecor Media or in a Restricted Subsidiary of Quebecor Media; | |
(2) any Investment in cash or Cash Equivalents; | |
(3) any Investment by Quebecor Media or any of its Restricted Subsidiaries in a Person, if as a result of such Investment: |
(a) such Person becomes a Restricted Subsidiary of Quebecor Media; | |
(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, Quebecor Media or any of its Restricted Subsidiaries; | |
(c) such Person, which was formed solely for the purpose of acquiring assets of a Permitted Business, is upon acquisition of such assets obligated to convey or otherwise distribute assets to |
209
Table of Contents
Quebecor Media or any of its Restricted Subsidiaries having a Fair Market Value at least equal to the Investment of Quebecor Media or such Restricted Subsidiary in such Person (net of transaction expenses); |
provided, that, in each case, such Person’s primary business is, or the assets acquired by Quebecor Media or any of its Restricted Subsidiaries are used or useful in, a Permitted Business; |
(4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described under the caption “— Offers to Repurchase at the Option of Holders — Asset Sales;” | |
(5) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock orBack-to-Back Securities) of Quebecor Media; | |
(6) any Investment made in connection with Hedging Obligations entered into in the ordinary course of business of Quebecor Media or any of its Restricted Subsidiaries and not for speculative purposes, and that do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in interest rates, foreign currency exchange rates or commodity prices, or by reason of fees, indemnifies and compensation payable thereunder; | |
(7) payroll, travel and similar advances to officers, directors and employees of Quebecor Media and its Restricted Subsidiaries for business-related travel expenses, moving expenses and other similar expenses that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP; | |
(8) any Investment in connection withBack-to-Back Transactions; | |
(9) any Investment existing on the Issue Date, and any Investment that is an extension, modification, renewal or reinvestment of such existing Investment,provided, that, the Fair Market Value of the new Investment does not exceed the Fair Market Value of the existing Investment at the time it is extended, modified, renewed or reinvested; | |
(10) any Investment by Quebecor Media or any Restricted Subsidiary of Quebecor Media in an Accounts Receivable Entity or any Investment by an Accounts Receivable Entity in any other Person in connection with a Qualified Receivables Transaction, so long as any Investment in an Accounts Receivable Entity is in the form of a Purchase Money Note or an Equity Interest; | |
(11) Investments in joint ventures engaged in a Permitted Business not to exceed US$50.0 million; or | |
(12) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (12) since the Issue Date, not to exceed US$100.0 million in the aggregate outstanding at any one time. |
(1) Liens on the assets of Quebecor Media securing Indebtedness and other Obligations of Quebecor Media under Credit Facilities, which Indebtedness was permitted to be incurred pursuant to clause (1) of the second paragraph of the covenant described under the caption “— Covenants — Incurrence of Indebtedness and Issuance of Preferred Shares;” | |
(2) Liens in favor of Quebecor Media; | |
(3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated or amalgamated with Quebecor Media,providedthat such Liens were in existence prior to the contemplation of such merger, consolidation or amalgamation and do not extend to any assets other than those of the Person merged into or consolidated or amalgamated with Quebecor Media; |
210
Table of Contents
(4) Liens on property existing at the time of acquisition thereof by Quebecor Media,providedthat such Liens were in existence prior to the contemplation of such acquisition and do not extend to any assets other than such property; | |
(5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; | |
(6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the covenant described under the caption “— Covenants — Incurrence of Indebtedness and Issuance of Preferred Shares” covering only the assets acquired with such Indebtedness; | |
(7) Liens existing on the Issue Date; | |
(8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded,providedthat any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; | |
(9) Liens securing Permitted Refinancing Indebtedness,providedthat any such Lien does not extend to or cover any property, Capital Stock or Indebtedness other than the property, shares or debt securing the Indebtedness so refunded, refinanced or extended; | |
(10) attachment or judgment Liens not giving rise to a Default or an Event of Default; | |
(11) Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security; | |
(12) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers’ acceptance, surety and appeal bonds, government contracts, performance andreturn-of-money bonds and other Liens of a similar nature incurred in the ordinary course of business (including, without limitation, mechanics’, landlords’ or workmen’s compensation Liens and Liens in respect of insurance or benefits and other similar Liens), in each case exclusive of Obligations for the payment of borrowed money; | |
(13) licenses, permits, reservations, servitudes, easements,rights-of-way and rights in the nature of easements (including, without limiting the generality of the foregoing, licenses, easements,rights-of-way and rights in the nature of easements for railways, sidewalks, public ways, sewers, drains, gas or oil pipelines, steam, gas and water mains or electric light and power, or telephone and telegraph or cable television conduits, poles, wires and cables, reservations, limitations, provisos and conditions expressed in any original grant from any governmental entity or other grant of real or immovable property, or any interest therein) and zoning land use and building restrictions, by-laws, regulations and ordinances of federal, provincial, regional, state, municipal and other governmental authorities in respect of real property not interfering, individually or in the aggregate, in any material respect with the use of the affected real property for the ordinary conduct of the business of Quebecor Media or any of its Restricted Subsidiaries at such real property; | |
(14) Liens of franchisors or other regulatory bodies arising in the ordinary course of business; | |
(15) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; | |
(16) Liens encumbering customary initial deposits and margin deposits, and other Liens that are within the general parameters customary in the industry and incurred in the ordinary course of business, in each case, securing Indebtedness under Hedging Obligations and forward contracts, options, future contracts, future options or similar agreements or arrangements, includingmark-to-market transactions designed solely to protect Quebecor Media or any of its Restricted Subsidiaries from fluctuations in interest rates, currencies or the price of commodities; |
211
Table of Contents
(17) Liens consisting of any interest or title of licensor in the property subject to a license; | |
(18) Liens arising from sales or other transfers of accounts receivable which are past due or otherwise doubtful of collection in the ordinary course of business; | |
(19) Liens on accounts receivable and related assets incurred in connection with a Qualified Receivables Transaction; | |
(20) Liens on Capital Stock of any Unrestricted Subsidiary; | |
(21) any extensions, substitutions, replacements or renewals of the foregoing clauses (2) through (20); and | |
(22) Liens incurred in the ordinary course of business of Quebecor Media with respect to Obligations that do not exceed US$50.0 million at any one time outstanding. |
(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest thereon and the amount of any reasonably determined premium necessary to accomplish such refinancing and such reasonable expenses incurred in connection therewith); | |
(2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; | |
(3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to, the Notes on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; | |
(4) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded ispari passuin right of payment with the Notes, such Permitted Refinancing Indebtedness ispari passuwith, or subordinated in right of payment to, the Notes; and | |
(5) such Indebtedness is incurred either by Quebecor Media or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. |
212
Table of Contents
(1) any controlling shareholder, 80% (or more) owned Subsidiary, or immediate family member (in the case of an individual) of any Permitted Holder; or | |
(2) any trust, corporation, partnership or other entity, the beneficiaries, shareholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of any one or more Permitted Holder and/or such other Persons referred to in the immediately preceding clause (1). |
213
Table of Contents
(1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and | |
(2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). |
214
Table of Contents
(1) Nurun Inc.; | |
(2) any Subsidiary of Quebecor Media that is designated after the Issue Date as an Unrestricted Subsidiary as permitted or required pursuant to the covenant described under the caption “— Covenants — Designation of Restricted and Unrestricted Subsidiaries” and is not thereafter redesignated as a Restricted Subsidiary as permitted pursuant thereto; and | |
(3) any Subsidiary of an Unrestricted Subsidiary. |
(1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by | |
(2) the then outstanding principal amount of such Indebtedness. |
215
Table of Contents
• | dealers in stocks, securities or currencies; | |
• | securities traders that use amark-to-market accounting method; | |
• | banks and financial institutions; | |
• | insurance companies; | |
• | tax-exempt organizations; | |
• | persons holding notes as part of a hedging or conversion transaction or a straddle; | |
• | persons deemed to sell notes under the constructive sale provisions of the Code; | |
• | persons who or that are, or may become, subject to the expatriation provisions of the Code; | |
• | persons whose functional currency is not the U.S. dollar; and | |
• | direct, indirect or constructive owners of 10% or more of our outstanding voting shares. |
• | an individual citizen or resident alien of the United States; | |
• | a corporation or other entity treated as such formed in or under the laws of the United States, any state thereof or the District of Columbia; | |
• | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or | |
• | a trust, if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more “U.S. persons” (within the meaning of the Code) have the authority to control all substantial decisions of the trust, or if a valid election is in effect to be treated as a U.S. person. |
216
Table of Contents
217
Table of Contents
• | the amount of cash and the fair market value of any property received (less any portion allocable to the payment of accrued interest not previously included in income, which amount will be taxable as ordinary interest income); and | |
• | the U.S. Holder’s tax basis in the old notes or the Notes. |
• | fails to furnish a social security number or other taxpayer identification number (“TIN”) certified under penalty of perjury within a reasonable time after the request for the TIN; | |
• | furnishes an incorrect TIN; | |
• | is notified by the IRS that is has failed to report properly interest or dividends; or | |
• | under certain circumstances, fails to provide a certified statement, signed under penalties of perjury, that the TIN furnished is the correct number and that such holder is not subject to backup withholding. |
218
Table of Contents
219
Table of Contents
Interest |
Dispositions |
220
Table of Contents
Exchange of Old Notes for Notes |
Additional Refundable Tax |
Foreign Exchange |
221
Table of Contents
Interest |
Dispositions |
Exchange of Old Notes for Notes |
222
Table of Contents
223
Table of Contents
224
Annual Financial Information as at and for the years ended December 31, 2003, 2004 and 2005 | Page | |||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-7 | ||||
F-9 | ||||
F-12 | ||||
F-58 | ||||
F-59 | ||||
F-60 | ||||
F-61 | ||||
F-62 | ||||
F-63 |
F-1
Table of Contents
/s/KPMG llp | |
Chartered Accountants |
F-2
Table of Contents
Years Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
(In millions of Canadian dollars) | ||||||||||||
Revenues | $ | 2,298.1 | $ | 2,462.4 | $ | 2,702.9 | ||||||
Cost of sales and selling and administrative expenses | (1,686.3 | ) | (1,765.2 | ) | (1,969.3 | ) | ||||||
Amortization | (226.6 | ) | (225.9 | ) | (231.9 | ) | ||||||
Financial expenses (note 2) | (300.1 | ) | (314.6 | ) | (285.3 | ) | ||||||
Reserve for restructuring of operations, impairment of assets and other special charges (note 3) | (1.8 | ) | (2.8 | ) | 0.2 | |||||||
Gain (loss) on debt refinancing and on repurchase of redeemable preferred shares of a subsidiary (note 4) | 144.1 | (4.8 | ) | (60.0 | ) | |||||||
(Loss) gain on sale of businesses and other assets | (1.1 | ) | 9.3 | 0.1 | ||||||||
Write-down of goodwill (note 12) | (0.5 | ) | — | — | ||||||||
Income before income taxes | 225.8 | 158.4 | 156.7 | |||||||||
Income taxes (note 6) | (12.5 | ) | 37.4 | 44.0 | ||||||||
238.3 | 121.0 | 112.7 | ||||||||||
Non-controlling interest | (34.6 | ) | (31.7 | ) | (16.2 | ) | ||||||
Income from continuing operations | 203.7 | 89.3 | 96.5 | |||||||||
Income (loss) from discontinued operations (note 7) | 0.2 | (1.1 | ) | — | ||||||||
Net income | $ | 203.9 | $ | 88.2 | $ | 96.5 | ||||||
F-3
Table of Contents
Years Ended December 31, 2003, 2004 and 2005 | ||||||||||||||||||||
Contributed | Translation | Total shareholder’s | ||||||||||||||||||
Capital Stock | surplus | Deficit | adjustment | equity | ||||||||||||||||
(In millions of Canadian dollars) | ||||||||||||||||||||
Balance as at December 31, 2002 | $ | 1,341.8 | $ | 3,214.6 | $ | (2,801.7 | ) | $ | (2.8 | ) | $ | 1,751.9 | ||||||||
Issuance of new shares (note 17) | 431.9 | — | — | — | 431.9 | |||||||||||||||
Purchase of tax credits from a company under common control | — | 6.0 | — | — | 6.0 | |||||||||||||||
Net income | — | — | 203.9 | — | 203.9 | |||||||||||||||
Translation adjustment | — | — | — | 1.3 | 1.3 | |||||||||||||||
Balance as at December 31, 2003 | 1,773.7 | 3,220.6 | (2,597.8 | ) | (1.5 | ) | 2,395.0 | |||||||||||||
Purchase of tax credits from a company under common control | — | (3.8 | ) | — | — | (3.8 | ) | |||||||||||||
Dividends | — | — | (20.0 | ) | — | (20.0 | ) | |||||||||||||
Net income | — | — | 88.2 | — | 88.2 | |||||||||||||||
Translation adjustment | — | — | — | 0.5 | 0.5 | |||||||||||||||
Balance as at December 31, 2004 | 1,773.7 | 3,216.8 | (2,529.6 | ) | (1.0 | ) | 2,459.9 | |||||||||||||
Dividends | — | — | (105.0 | ) | — | (105.0 | ) | |||||||||||||
Net income | — | — | 96.5 | — | 96.5 | |||||||||||||||
Translation adjustment | — | — | — | (1.3 | ) | (1.3 | ) | |||||||||||||
Balance as at December 31, 2005 | $ | 1,773.7 | $ | 3,216.8 | $ | (2,538.1 | ) | $ | (2.3 | ) | $ | 2,450.1 | ||||||||
F-4
Table of Contents
Years Ended December 31, | ||||||||||||||
2003 | 2004 | 2005 | ||||||||||||
(In millions of Canadian dollars) | ||||||||||||||
Cash flows related to operations: | ||||||||||||||
Income from continuing operations | $ | 203.7 | $ | 89.3 | $ | 96.5 | ||||||||
Adjustments for: | ||||||||||||||
Amortization of property, plant and equipment | 215.1 | 218.1 | 225.3 | |||||||||||
Amortization of deferred charges and write-down of goodwill | 12.0 | 7.8 | 6.6 | |||||||||||
Amortization of deferred financing costs and of long-term debt discount | 53.7 | 56.9 | 62.7 | |||||||||||
(Gain) loss on ineffective derivative instruments and on foreign currency translation on unhedged long-term debt | (22.0 | ) | 8.0 | 4.4 | ||||||||||
Loss on revaluation of the additional amount payable (note 13) | 4.5 | 26.9 | 10.1 | |||||||||||
Loss (gain) on sale of businesses, other assets and property, plant and equipment | 20.3 | 3.1 | (1.7 | ) | ||||||||||
(Gain) loss on debt refinancing and on repurchase of redeemable preferred shares of a subsidiary (note 4) | (144.1 | ) | 4.8 | 60.0 | ||||||||||
Future income taxes | (28.0 | ) | 16.5 | 25.0 | ||||||||||
Non-controlling interest | 34.6 | 31.7 | 16.2 | |||||||||||
Interest on redeemable preferred shares of a subsidiary | 24.5 | — | — | |||||||||||
Other | 8.0 | (1.8 | ) | (1.5 | ) | |||||||||
382.3 | 461.3 | 503.6 | ||||||||||||
Net change in non-cash balances related to operations | (17.5 | ) | 38.6 | (32.2 | ) | |||||||||
Cash flows provided by continuing operations | 364.8 | 499.9 | 471.4 | |||||||||||
Cash flows (used in) provided by discontinued operations | (1.2 | ) | 0.6 | — | ||||||||||
Cash flows provided by operations | 363.6 | 500.5 | 471.4 | |||||||||||
Cash flows related to financing activities: | ||||||||||||||
Net (decrease) increase in bank indebtedness | (8.9 | ) | (4.2 | ) | 12.3 | |||||||||
Net borrowings under revolving bank facilities | 70.1 | (86.4 | ) | 72.2 | ||||||||||
Issuance of long-term debt, net of financing fees | 1,553.2 | 389.5 | 200.9 | |||||||||||
Repayments of long-term debt and unwinding of hedging contracts | (2,053.3 | ) | (384.9 | ) | (318.9 | ) | ||||||||
Net increase in prepayments under cross-currency swap agreements | (118.1 | ) | (184.4 | ) | (34.1 | ) | ||||||||
Repayments under an interest rate swap | — | — | (3.6 | ) | ||||||||||
Dividends | — | (20.0 | ) | (45.0 | ) | |||||||||
Dividends paid to non-controlling shareholders | (5.4 | ) | (5.0 | ) | (5.2 | ) | ||||||||
Issuance of capital stock by subsidiaries | 1.2 | 2.6 | — | |||||||||||
Repurchase of redeemable preferred shares of a subsidiary (note 4) | (55.0 | ) | — | — | ||||||||||
Proceeds from issuance of capital stock | 431.9 | — | — | |||||||||||
Cash flows used in financing activities | (184.3 | ) | (292.8 | ) | (121.4 | ) | ||||||||
Sub-total, balance carried forward | $ | 179.3 | $ | 207.7 | $ | 350.0 |
F-5
Table of Contents
Years Ended December 31, | |||||||||||||
2003 | 2004 | 2005 | |||||||||||
(In millions of Canadian dollars) | |||||||||||||
Sub-total, balance brought forward | $ | 179.3 | $ | 207.7 | $ | 350.0 | |||||||
Cash flows related to investing activities: | |||||||||||||
Business acquisitions, net of cash and cash equivalents (note 5) | (76.2 | ) | (112.5 | ) | (110.5 | ) | |||||||
Proceed from disposal of businesses, net of cash and cash equivalents disposed (notes 5 and 7) | 24.7 | (7.8 | ) | 4.3 | |||||||||
Additions to property, plant and equipment | (131.2 | ) | (181.1 | ) | (315.5 | ) | |||||||
Net (increase) decrease in temporary investments | (106.8 | ) | 94.5 | 59.1 | |||||||||
Proceeds from disposal of assets | 4.3 | 7.5 | 5.5 | ||||||||||
Decrease (increase) in advances receivable from parent company | 26.1 | — | (15.9 | ) | |||||||||
Proceeds from disposal of tax deductions to the parent company | — | — | 15.9 | ||||||||||
Other | (3.3 | ) | (3.7 | ) | (3.6 | ) | |||||||
Cash flows used in investing activities | (262.4 | ) | (203.1 | ) | (360.7 | ) | |||||||
Net (decrease) increase in cash and cash equivalents | (83.1 | ) | 4.6 | (10.7 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies | (1.6 | ) | 0.6 | (0.7 | ) | ||||||||
Cash and cash equivalents at beginning of year | 188.3 | 103.6 | 108.8 | ||||||||||
Cash and cash equivalents at end of year | $ | 103.6 | $ | 108.8 | $ | 97.4 | |||||||
Cash and cash equivalents consist of: | |||||||||||||
Cash | $ | 43.0 | $ | 8.0 | $ | 14.9 | |||||||
Cash equivalents | 60.6 | 100.8 | 82.5 | ||||||||||
$ | 103.6 | $ | 108.8 | $ | 97.4 | ||||||||
Additional information on the consolidated statements of cash flows: | |||||||||||||
Changes in non-cash balances related to operations (net of effect of business acquisitions and disposals): | |||||||||||||
Accounts receivable | $ | 11.9 | $ | (10.9 | ) | $ | (57.6 | ) | |||||
Inventories and investments in televisual products and movies | 15.9 | 5.3 | (20.3 | ) | |||||||||
Accounts payable and accrued charges | (85.2 | ) | 15.0 | 43.7 | |||||||||
Other | 39.9 | 29.2 | 2.0 | ||||||||||
$ | (17.5 | ) | $ | 38.6 | $ | (32.2 | ) | ||||||
Non-cash transaction related to financing activities: | |||||||||||||
Issuance of additional amount payable | $ | 70.0 | $ | — | $ | — | |||||||
Cash interest payments | $ | 236.4 | $ | 239.6 | $ | 230.5 | |||||||
Cash payments (net of refunds) for income taxes | (20.9 | ) | 8.8 | 13.5 | |||||||||
F-6
Table of Contents
December 31, | |||||||||
2004 | 2005 | ||||||||
(In millions of | |||||||||
Canadian dollars) | |||||||||
ASSETS | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 108.8 | $ | 97.4 | |||||
Temporary investments (market value of $99.7 million in 2004 and $40.6 million in 2005) | 99.7 | 40.6 | |||||||
Accounts receivable (note 8) | 342.9 | 415.7 | |||||||
Income taxes | 24.2 | 9.3 | |||||||
Advances receivable from parent company and companies under common control | — | 15.6 | |||||||
Inventories and investments in televisual products and movies (note 9) | 134.7 | 155.5 | |||||||
Prepaid expenses | 21.4 | 22.4 | |||||||
Future income taxes (note 6) | 70.6 | 98.7 | |||||||
802.3 | 855.2 | ||||||||
Long-term investments (market value of $13.0 million in 2004 and $11.2 million in 2005) | 13.0 | 11.2 | |||||||
Property, plant and equipment (note 10) | 1,522.1 | 1,631.5 | |||||||
Future income taxes (note 6) | 80.8 | 57.5 | |||||||
Other assets (note 11) | 240.0 | 248.2 | |||||||
Goodwill (note 12) | 3,851.0 | 3,871.9 | |||||||
$ | 6,509.2 | $ | 6,675.5 | ||||||
F-7
Table of Contents
December 31, | |||||||||
2004 | 2005 | ||||||||
(In millions of | |||||||||
Canadian dollars) | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||
Current liabilities: | |||||||||
Bank indebtedness | $ | — | $ | 12.7 | |||||
Accounts payable and accrued charges | 546.2 | 608.8 | |||||||
Deferred revenue | 143.7 | 155.2 | |||||||
Income taxes | 13.4 | 13.4 | |||||||
Dividends payable | — | 60.0 | |||||||
Advances payable to parent company and companies under common control | 16.7 | — | |||||||
Additional amount payable (note 13) | 101.4 | 111.5 | |||||||
Current portion of long-term debt (note 14) | 2.8 | 2.7 | |||||||
824.2 | 964.3 | ||||||||
Long-term debt (note 14) | 2,546.0 | 2,530.5 | |||||||
Other liabilities (note 15) | 297.0 | 359.3 | |||||||
Future income taxes (note 6) | 189.4 | 227.0 | |||||||
Non-controlling interest (note 16) | 192.7 | 144.3 | |||||||
Shareholders’ equity: | |||||||||
Capital stock (note 17) | 1,773.7 | 1,773.7 | |||||||
Contributed surplus | 3,216.8 | 3,216.8 | |||||||
Deficit | (2,529.6 | ) | (2,538.1 | ) | |||||
Translation adjustment | (1.0 | ) | (2.3 | ) | |||||
2,459.9 | 2,450.1 | ||||||||
Commitments and contingencies (note 19) | |||||||||
Guarantees (note 20) | |||||||||
Subsequent events (note 24) | |||||||||
$ | 6,509.2 | $ | 6,675.5 | ||||||
(Signed) | (Signed) | |
F-8
Table of Contents
2003 | 2004 | 2005 | |||||||||||
Revenues: | |||||||||||||
Cable | $ | 860.7 | $ | 937.6 | $ | 1,080.3 | |||||||
Newspapers | 845.9 | 888.1 | 915.6 | ||||||||||
Broadcasting | 340.9 | 358.0 | 401.4 | ||||||||||
Leisure and Entertainment | 205.0 | 241.7 | 255.4 | ||||||||||
Interactive Technologies and Communications | 44.8 | 51.9 | 65.1 | ||||||||||
Internet/Portals | 28.2 | 34.5 | 50.0 | ||||||||||
Head Office and inter-segment | (27.4 | ) | (49.4 | ) | (64.9 | ) | |||||||
$ | 2,298.1 | $ | 2,462.4 | $ | 2,702.9 | ||||||||
F-9
Table of Contents
2003 | 2004 | 2005 | |||||||||||
Income before amortization, financial expenses, reserve for restructuring of operations, impairment of assets and other special charges, gain (loss) on debt refinancing and on repurchase of redeemable preferred shares of a subsidiary, (loss) gain on sale of businesses and other assets and write-down of goodwill: | |||||||||||||
Cable | $ | 289.7 | $ | 363.8 | $ | 413.3 | |||||||
Newspapers | 224.8 | 227.8 | 222.2 | ||||||||||
Broadcasting | 81.5 | 80.5 | 53.0 | ||||||||||
Leisure and Entertainment | 14.7 | 22.7 | 27.0 | ||||||||||
Interactive Technologies and Communications | 1.1 | 2.3 | 3.9 | ||||||||||
Internet/ Portals | 3.1 | 4.5 | 10.5 | ||||||||||
614.9 | 701.6 | 729.9 | |||||||||||
General corporate (expenses) revenues | (3.1 | ) | (4.4 | ) | 3.7 | ||||||||
$ | 611.8 | $ | 697.2 | $ | 733.6 | ||||||||
2003 | 2004 | 2005 | |||||||||||
Amortization: | |||||||||||||
Cable | $ | 177.7 | $ | 177.1 | $ | 179.7 | |||||||
Newspapers | 27.6 | 26.0 | 30.3 | ||||||||||
Broadcasting | 12.2 | 11.9 | 13.7 | ||||||||||
Leisure and Entertainment | 4.1 | 5.6 | 4.3 | ||||||||||
Interactive Technologies and Communications | 2.4 | 1.7 | 1.7 | ||||||||||
Internet/ Portals | 1.3 | 0.7 | 0.8 | ||||||||||
Head Office | 1.3 | 2.9 | 1.4 | ||||||||||
$ | 226.6 | $ | 225.9 | $ | 231.9 | ||||||||
2003 | 2004 | 2005 | |||||||||||
Additions to property, plant and equipment: | |||||||||||||
Cable | $ | 108.2 | $ | 144.5 | $ | 215.6 | |||||||
Newspapers | 14.3 | 18.8 | 74.0 | ||||||||||
Broadcasting | 5.7 | 10.1 | 12.9 | ||||||||||
Leisure and Entertainment | 1.3 | 3.3 | 7.9 | ||||||||||
Interactive Technologies and Communications | 0.9 | 1.2 | 1.4 | ||||||||||
Internet/ Portals | 0.3 | 0.8 | 0.7 | ||||||||||
Head Office | 0.5 | 2.4 | 3.0 | ||||||||||
$ | 131.2 | $ | 181.1 | $ | 315.5 | ||||||||
F-10
Table of Contents
2004 | 2005 | ||||||||
Assets: | |||||||||
Cable | $ | 4,179.0 | $ | 4,251.7 | |||||
Newspapers | 1,443.4 | 1,503.5 | |||||||
Broadcasting | 549.7 | 585.3 | |||||||
Leisure and Entertainment | 126.7 | 183.1 | |||||||
Interactive Technologies and Communications | 64.3 | 71.0 | |||||||
Internet/ Portals | 57.5 | 59.0 | |||||||
Head Office | 88.6 | 21.9 | |||||||
$ | 6,509.2 | $ | 6,675.5 | ||||||
F-11
Table of Contents
(a) Basis of presentation: |
(b) Foreign currency translation: |
(c) Use of estimates: |
(d) Impairment of long-lived assets: |
F-12
Table of Contents
(e) Revenue recognition: |
• | persuasive evidence of an arrangement exists; | |
• | delivery has occurred or services have been rendered; | |
• | the seller’s price to the buyer is fixed or determinable; and | |
• | the collection of the sale is reasonably assured. |
Cable segment |
Newspapers segment |
Broadcasting segment |
F-13
Table of Contents
Leisure and Entertainment segment |
(f) | Barter transactions: |
(g) | Cash and cash equivalents: |
(h) | Temporary investments: |
(i) | Trade receivable: |
(j) | Tax credits and government assistance |
F-14
Table of Contents
(k) | Inventories: |
(l) | Investments in televisual products and movies: |
(i) Programs produced and productions in progress |
(ii) Broadcast rights |
(iii) Distribution rights: |
F-15
Table of Contents
(m) | Income taxes: |
(n) | Long-term investments: |
(o) | Property, plant and equipment: |
Estimated | ||||
Asset | useful life | |||
Buildings | 25 to 40 years | |||
Machinery and equipment | 3 to 20 years | |||
Receiving, distribution and telecommunications networks | 3 to 20 years |
(p) | Goodwill and other intangible assets: |
F-16
Table of Contents
(q) | Deferredstart-up costs and financing fees: |
(r) | Stock-based compensation: |
(s) | Derivative financial instruments: |
F-17
Table of Contents
(t) | Pension plans and postretirement benefits: |
(i) Pension plans: |
• | Cost of pension plan benefits provided in exchange for employee services rendered during the year; | |
• | Amortization of the initial net transition asset, prior service costs and amendments on a straight-line basis over the expected average remaining service period of the active employee group covered by the plans; and | |
• | Interest cost of pension plan obligations, expected return on pension fund assets, and amortization of cumulative unrecognized net actuarial gains and losses in excess of 10% of the greater of the accrued benefit obligation or the fair value of plan assets over the expected average remaining service period of the active employee group covered by the plans. |
F-18
Table of Contents
(ii) Postretirement benefits: |
2. | FINANCIAL EXPENSES: |
2003 | 2004 | 2005 | ||||||||||
Interest on long-term debt | $ | 242.0 | $ | 224.1 | $ | 212.7 | ||||||
Amortization of deferred financing costs and long-term debt discount | 53.7 | 56.9 | 62.7 | |||||||||
(Gain) loss on ineffective derivative instruments and on foreign currency translation on unhedged long-term debt | (22.0 | ) | 8.0 | 4.4 | ||||||||
Loss on revaluation of the additional amount payable | 4.5 | 26.9 | 10.1 | |||||||||
Interest on redeemable preferred shares of a subsidiary | 27.5 | — | — | |||||||||
Other | 0.6 | 3.6 | 0.9 | |||||||||
Investment income | (6.2 | ) | (4.9 | ) | (4.5 | ) | ||||||
$ | 300.1 | $ | 314.6 | $ | 286.3 | |||||||
Interest capitalized to the cost of property, plant and equipment | — | — | (1.0 | ) | ||||||||
$ | 300.1 | $ | 314.6 | $ | 285.3 | |||||||
3. | RESERVE FOR RESTRUCTURING OF OPERATIONS, IMPAIRMENT OF ASSETS AND OTHER SPECIAL CHARGES: |
2003 |
2004 |
2005 |
F-19
Table of Contents
4. | GAIN (LOSS) ON DEBT REFINANCING AND ON REPURCHASE OF REDEEMABLE PREFERRED SHARES OF A SUBSIDIARY: |
(a) | Quebecor Media Inc. |
(b) | Videotron Ltd.: |
(c) | Sun Media Corporation: |
(d) | Videotron Telecom Ltd.: |
F-20
Table of Contents
5. | BUSINESS ACQUISITIONS AND DISPOSALS: |
Business acquisitions: |
2003 |
•�� | A total of 1,452,200 Class B Non-Voting Common Shares of TVA Group Inc. were repurchased for a cash consideration of $25.8 million, resulting in additional goodwill of $5.9 million. | |
• | On October 15, 2003, Quebecor Media Inc. increased its interest in CEC Publishing Inc., Leisure and Entertainment segment, from 50% to 100%, for a cash consideration of $15.0 million, resulting in a preliminary additional goodwill of $9.4 million, which was reduced by $5.5 million in 2004 when the purchase price allocation was finalized. | |
• | On November 3, 2003, Sun Media Corporation, Newspapers segment, completed the acquisition of the newspaper operations of Annex Publishing & Printing Inc. for a cash consideration of $34.2 million, subject to certain purchase equation adjustments, resulting in additional goodwill of $20.8 million. The newspaper operations are located in Southern Ontario and include two daily newspapers, one semi-weekly and six weekly publications, two shopping guides, as well as a commercial printing operation. | |
• | Other businesses were acquired for cash considerations totalling $3.6 million, resulting in additional goodwill of $0.1 million. |
2004 |
• | A total of 1,892,500 Class B non-voting Common Shares of TVA Group Inc. were repurchased for a cash consideration of $41.0 million, resulting in additional goodwill of $10.2 million. | |
• | All minority interests in Canoe Inc., Internet/ Portals segment, directly owned by minority shareholders, were acquired for a cash consideration of $25.2 million, resulting in additional goodwill of $4.8 million. | |
• | On December 2, 2004, TVA Group Inc. and Sun Media Corporation, two subsidiaries of the Company, completed the acquisition of Sun TV (formerly Toronto 1). The purchase price paid at the closing was $43.2 million, $32.4 million of which was paid in cash by TVA Group Inc. for its 75% interest in Sun TV. Sun Media Corporation paid $2.8 million in cash and transferred to CHUM Limited its 29.9% interest in CablePulse24 (CP24), a24-hour news station in Toronto, for its 25% interest in Sun TV. In December 2005, TVA Group Inc. and Sun Media Corporation recorded a balance payable of $3.6 million in respect with the final purchase price adjustment. The acquisition resulted in a preliminary goodwill of $11.2 million, which was reduced by $0.5 million in 2005 when the purchase price allocation was finalized. Also, the transfer of Sun Media Corporation’s interest in CP24 to CHUM Limited resulted in a gain on disposal of $8.0 million. | |
• | Other businesses were acquired for cash considerations totalling $13.3 million, resulting in additional goodwill of $8.8 million. |
F-21
Table of Contents
2005 |
• | A total of 3,739,599 Class B non-voting Common Shares of TVA Group Inc., Broadcasting segment, were repurchased for a cash consideration of $81.9 million, resulting in an additional goodwill of $22.3 million on a preliminary basis. | |
• | On December 12, 2005, the Company acquired Sogides Ltée, a major book publishing and distribution group in Quebec, for a cash consideration of $24.0 million and an additional contingent payment of $5.0 million based on the achievement of specific conditions in 2008. This acquisition resulted in an additional goodwill of $7.8 million on a preliminary basis. | |
• | Other businesses were acquired for cash considerations totalling $4.6 million and the operating assets of the community newspaper Beauport Express, resulting in additional goodwill of $3.5 million. |
2003 | 2004 | 2005 | |||||||||||
Assets acquired: | |||||||||||||
Cash and cash equivalents | $ | 2.4 | $ | 2.2 | $ | — | |||||||
Non-cash current operating assets | 10.0 | 11.4 | 20.5 | ||||||||||
Property, plant and equipment | 2.6 | 15.5 | 4.6 | ||||||||||
Other assets | 22.8 | 32.8 | 6.3 | ||||||||||
Future income taxes | — | 20.3 | — | ||||||||||
Goodwill | 30.7 | 35.0 | 33.1 | ||||||||||
Non-controlling interest | 23.3 | 31.8 | 60.3 | ||||||||||
91.8 | 149.0 | 124.8 | |||||||||||
Liabilities assumed: | |||||||||||||
Bank indebtedness | — | — | (0.4 | ) | |||||||||
Non-cash current operating liabilities | (5.9 | ) | (15.2 | ) | (7.1 | ) | |||||||
Other liabilities | (0.1 | ) | — | — | |||||||||
Future income taxes | (7.2 | ) | (11.1 | ) | (2.1 | ) | |||||||
(13.2 | ) | (26.3 | ) | (9.6 | ) | ||||||||
Net assets acquired at fair value | $ | 78.6 | $ | 122.7 | $ | 115.2 | |||||||
Consideration: | |||||||||||||
Cash | $ | 78.6 | $ | 114.7 | $ | 110.5 | |||||||
Balance payable | — | — | 3.6 | ||||||||||
Community newspaper (Beauport Express) | — | — | 1.1 | ||||||||||
Investment in CP24 | — | 8.0 | — | ||||||||||
$ | 78.6 | $ | 122.7 | $ | 115.2 | ||||||||
Business disposals |
• | In 2003 and 2005, the Company sold businesses for cash considerations of $2.0 million and $0.5 million, resulting in a loss on disposal of $1.1 million and a gain on disposal of $0.1 million, respectively. |
F-22
Table of Contents
6. | INCOME TAXES: |
2003 | 2004 | 2005 | ||||||||||
Current | $ | 15.5 | $ | 20.9 | $ | 19.0 | ||||||
Future | (28.0 | ) | 16.5 | 25.0 | ||||||||
$ | (12.5 | ) | $ | 37.4 | $ | 44.0 | ||||||
2003 | 2004 | 2005 | |||||||||||
Statutory tax rate | 33.1 | % | 31.0 | % | 31.0 | % | |||||||
Increase (reduction) resulting from: | |||||||||||||
Effect of provincial and foreign tax rates differences | — | 0.2 | (0.2 | ) | |||||||||
Effect of non-deductible charges and/or tax rate deductions | 2.7 | 4.4 | 4.2 | ||||||||||
Change in valuation allowance | (20.0 | ) | (6.3 | ) | (4.8 | ) | |||||||
Change in future income tax balances due to a tax rate increase | — | — | 7.6 | ||||||||||
Tax consolidation transaction with the parent company | — | — | (10.1 | ) | |||||||||
Other | (0.1 | ) | (5.7 | ) | 0.4 | ||||||||
Effective tax rate before the following items | 15.7 | 23.6 | 28.1 | ||||||||||
Effect of the non-taxable net gain on debt refinancing and on repurchase of redeemable preferred shares | (21.2 | ) | — | — | |||||||||
Effective tax rate | (5.5 | )% | 23.6 | % | 28.1 | % | |||||||
2004 | 2005 | |||||||
Loss carryforwards | $ | 257.1 | $ | 296.0 | ||||
Accounts payable and accrued charges | 32.3 | 32.2 | ||||||
Property, plant and equipment | (235.8 | ) | (226.0 | ) | ||||
Goodwill and other assets | (21.3 | ) | (33.2 | ) | ||||
Deferred charges | (7.1 | ) | (13.3 | ) | ||||
Other | 19.2 | 25.8 | ||||||
44.4 | 81.5 | |||||||
Valuation allowance | (82.4 | ) | (152.3 | ) | ||||
Net future income tax liabilities | $ | (38.0 | ) | $ | (70.8 | ) | ||
F-23
Table of Contents
2004 | 2005 | ||||||||
Future income tax assets: | |||||||||
Current | $ | 70.6 | $ | 98.7 | |||||
Long-term | 80.8 | 57.5 | |||||||
151.4 | 156.2 | ||||||||
Future income tax liabilities: | |||||||||
Long-term | (189.4 | ) | (227.0 | ) | |||||
Net future income tax liabilities | $ | (38.0 | ) | $ | (70.8 | ) | |||
F-24
Table of Contents
7. | DISCONTINUED OPERATIONS: |
2003 | 2004 | |||||||
Revenues | $ | 29.5 | $ | 8.0 | ||||
Cost of sales and selling and administrative expenses | (29.0 | ) | (9.7 | ) | ||||
Amortization | (1.1 | ) | (0.3 | ) | ||||
Financial income | — | 0.2 | ||||||
Reserve for restructuring of operations | 0.2 | — | ||||||
Loss before income taxes | (0.4 | ) | (1.8 | ) | ||||
Income taxes | 0.3 | 0.1 | ||||||
(0.7 | ) | (1.9 | ) | |||||
Non-controlling interest | 0.6 | 1.1 | ||||||
Gain (loss) on disposal of businesses (net of income taxes and of non-controlling interest) | 0.3 | (0.3 | ) | |||||
Income (loss) from discontinued operations | $ | 0.2 | $ | (1.1 | ) | |||
8. | ACCOUNTS RECEIVABLE: |
2004 | 2005 | |||||||
Trade | $ | 310.0 | $ | 360.5 | ||||
Other | 32.9 | 55.2 | ||||||
$ | 342.9 | $ | 415.7 | |||||
F-25
Table of Contents
9. | INVENTORIES AND INVESTMENTS IN TELEVISUAL PRODUCTS AND MOVIES: |
2004 | 2005 | |||||||
Raw materials and supplies | $ | 35.2 | $ | 32.0 | ||||
Work in process | 7.5 | 9.7 | ||||||
Finished goods | 56.2 | 68.7 | ||||||
Investments in televisual products and movies | 35.8 | 45.1 | ||||||
$ | 134.7 | $ | 155.5 | |||||
10. | PROPERTY, PLANT AND EQUIPMENT: |
2004 | ||||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net amount | ||||||||||
Land | $ | 33.0 | $ | — | $ | 33.0 | ||||||
Buildings and leasehold improvements | 169.9 | 33.5 | 136.4 | |||||||||
Machinery and equipment | 710.1 | 397.7 | 312.4 | |||||||||
Receiving, distribution and telecommunication networks | 1,384.2 | 359.2 | 1,025.0 | |||||||||
Projects under development | 15.3 | — | 15.3 | |||||||||
$ | 2,312.5 | $ | 790.4 | $ | 1,522.1 | |||||||
2005 | ||||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net amount | ||||||||||
Land | $ | 32.7 | $ | — | $ | 32.7 | ||||||
Buildings and leasehold improvements | 179.6 | 44.9 | 134.7 | |||||||||
Machinery and equipment | 818.3 | 476.2 | 342.1 | |||||||||
Receiving, distribution and telecommunication networks | 1,521.8 | 478.1 | 1,043.7 | |||||||||
Projects under development | 78.3 | — | 78.3 | |||||||||
$ | 2,630.7 | $ | 999.2 | $ | 1,631.5 | |||||||
11. | OTHER ASSETS: |
2004 | 2005 | |||||||
Broadcasting licenses | $ | 109.7 | $ | 109.3 | ||||
Deferred financing costs, net of accumulated amortization | 49.2 | 42.6 | ||||||
Investments in televisual products and movies | 22.3 | 28.0 | ||||||
Customer relationships and non-competition agreements, net of accumulated amortization | 20.9 | 21.9 | ||||||
Deferred connection costs | 9.4 | 15.5 | ||||||
Deferred asset related to the discontinuation of hedge accounting | 12.5 | 11.7 | ||||||
Deferred pension charge (note 23) | 8.1 | 8.2 | ||||||
Other | 7.9 | 11.0 | ||||||
$ | 240.0 | $ | 248.2 | |||||
F-26
Table of Contents
12. | GOODWILL: |
2003 | ||||||||||||||||||||||||
Adjustment of | ||||||||||||||||||||||||
Balance as at | Business | Purchase Price | Balance as at | |||||||||||||||||||||
December 31, | Acquisitions | Discontinued | Allocation and | December 31, | ||||||||||||||||||||
2002 | (Disposals) | Operations | Write-down | Other | 2003 | |||||||||||||||||||
Cable | $ | 2,663.6 | $ | (0.9 | ) | $ | — | $ | — | $ | (1.6 | ) | $ | 2,661.1 | ||||||||||
Newspapers | 1,000.1 | 20.8 | (10.1 | ) | — | — | 1,010.8 | |||||||||||||||||
Broadcasting | 158.6 | 6.7 | — | — | (0.3 | ) | 165.0 | |||||||||||||||||
Leisure and Entertainment | 34.9 | 8.7 | — | — | — | 43.6 | ||||||||||||||||||
Internet/ Portals | 26.2 | — | — | (0.5 | ) | — | 25.7 | |||||||||||||||||
Total | $ | 3,883.4 | $ | 35.3 | $ | (10.1 | ) | $ | (0.5 | ) | $ | (1.9 | ) | $ | 3,906.2 | |||||||||
2004 | ||||||||||||||||
Adjustment of | ||||||||||||||||
Balance as at | Business | Purchase Price | Balance as at | |||||||||||||
December 31, | Acquisitions | Allocation and | December 31, | |||||||||||||
2003 | (Disposals) | Other | 2004 | |||||||||||||
Cable | $ | 2,661.1 | $ | 5.2 | $ | (84.5 | )(1) | $ | 2,581.8 | |||||||
Newspapers | 1,010.8 | 0.4 | — | 1,011.2 | ||||||||||||
Broadcasting | 165.0 | 20.3 | — | 185.3 | ||||||||||||
Leisure and Entertainment | 43.6 | 1.0 | (5.5 | ) | 39.1 | |||||||||||
Interactive Technologies and Communications | — | 2.8 | 0.3 | 3.1 | ||||||||||||
Internet/ Portals | 25.7 | 4.8 | — | 30.5 | ||||||||||||
Total | $ | 3,906.2 | $ | 34.5 | $ | (89.7 | ) | $ | 3,851.0 | |||||||
2005 | ||||||||||||||||
Adjustment of | ||||||||||||||||
Balance as at | Business | Purchase Price | Balance as at | |||||||||||||
December 31, | Acquisitions | Allocation and | December 31, | |||||||||||||
2004 | (Disposals) | Other | 2005 | |||||||||||||
Cable | $ | 2,581.8 | $ | — | $ | — | $ | 2,581.8 | ||||||||
Newspapers | 1,011.2 | 1.0 | (10.2 | )(1) | 1,002.0 | |||||||||||
Broadcasting | 185.3 | 22.3 | (0.5 | ) | 207.1 | |||||||||||
Leisure and Entertainment | 39.1 | 7.8 | — | 46.9 | ||||||||||||
Interactive Technologies and Communications | 3.1 | 1.3 | (0.8 | ) | 3.6 | |||||||||||
Internet/ Portals | 30.5 | — | — | 30.5 | ||||||||||||
Total | $ | 3,851.0 | $ | 32.4 | $ | (11.5 | ) | $ | 3,871.9 | |||||||
(1) | Recognition of tax benefits not recognized as at the business acquisition date. |
F-27
Table of Contents
13. | ADDITIONAL AMOUNT PAYABLE: |
14. | LONG-TERM DEBT: |
Effective Interest | |||||||||||||||||
Rate as at | |||||||||||||||||
December 31, | Year of | ||||||||||||||||
2005 | Maturity | 2004 | 2005 | ||||||||||||||
Quebecor Media Inc.: | |||||||||||||||||
Credit facility(i) | 2007 | $ | — | $ | — | ||||||||||||
Senior Notes(ii) | 11.50 | % | 2011 | 844.7 | 672.0 | ||||||||||||
Senior Discount Notes(iii) | 13.75 | % | 2011 | 296.0 | 316.1 | ||||||||||||
1,140.7 | 988.1 | ||||||||||||||||
Videotron Ltd. and its subsidiaries(iv): | |||||||||||||||||
Credit facility(v) | 2009 | — | — | ||||||||||||||
Senior Notes(vi) | 6.59 | % | 2014 | 796.6 | 769.2 | ||||||||||||
Senior Notes(vii) | 6.44 | % | 2015 | — | 202.5 | ||||||||||||
Senior Secured First Priority Notes(viii) | 7.59 | % | 2007 | 92.3 | — | ||||||||||||
888.9 | 971.7 | ||||||||||||||||
Sun Media Corporation and its subsidiaries(iv): | |||||||||||||||||
Credit facilities(ix) | 6.24 | % | 2008-2009 | 241.6 | 231.1 | ||||||||||||
Senior Notes(x) | 7.88 | % | 2013 | 242.7 | 235.2 | ||||||||||||
484.3 | 466.3 | ||||||||||||||||
TVA Group Inc. and its subsidiaries(iv): | |||||||||||||||||
Revolving bank loan(xi) | 4.02 | % | 2010 | 34.9 | 107.1 | ||||||||||||
2,548.8 | 2,533.2 | ||||||||||||||||
Less current portion: | |||||||||||||||||
Sun Media Corporation and its subsidiaries | 2.8 | 2.7 | |||||||||||||||
$ | 2,546.0 | $ | 2,530.5 | ||||||||||||||
F-28
Table of Contents
(i) | The credit facility of $75.0 million ($135.0 million in 2004), available for general liquidity purposes, is a one-year revolving credit facility that can be extended on a yearly basis, which was refinanced in January 2006 (see note 24). The credit facility is secured by a first ranking moveable hypothec on all tangible and intangible assets, current and future, of the Company. As at December 31, 2005, the carrying value of assets guaranteeing the credit facility is $6,675.5 million. The credit facility in aggregate is secured by the Company’s shareholders. The borrowed amounts bear interest at floating rates based on bankers’ acceptance rate or bank prime rate. As at December 31, 2005, no amount was drawn on the credit facility. | |
(ii) | The Senior Notes, for a principal amount of US$586.8 million, net of the partial repurchase in July 2005 (see note 4 (a)) were issued at discount for net proceeds of US$573.8 million. These notes bear interest at a rate of 11.125%, payable semi-annually, since January 15, 2002. Notes contain certain restrictions for the Company, including limitations on its ability to incur additional indebtedness. The notes are unsecured and are redeemable at the option of the Company at a decreasing premium, commencing on July 15, 2006. The Company has fully hedged the foreign currency risk associated with the Senior Notes by using a cross-currency interest rate swap, under which all payments were set in Canadian dollars. On January 17, 2006, the Company repurchased US$561.6 million in aggregate principal amounts of the notes (note 24). | |
(iii) | The Senior Discount Notes, for a principal amount of US$282.9 million, net of the partial repurchase in July 2005 (see note 4(a)), were issued at discount for net proceeds of US$145.0 million. These notes bear interest at a rate of 13.75%, payable semi-annually, commencing January 15, 2007. Notes contain certain restrictions for the Company, including limitations on its ability to incur additional indebtedness. The notes are unsecured and are redeemable at the option of the Company at a decreasing premium, commencing on July 15, 2006. The Company has fully hedged the foreign currency risk associated with the Senior Discount Notes by using a cross-currency interest rate swap agreement, under which all payments were set in Canadian dollars. On January 17, 2006, the Company repurchased US$275.6 million in aggregate principal amounts at maturity of the notes (note 24). | |
(iv) | The debt of these subsidiaries is non-recourse to the parent company, Quebecor Media Inc. | |
(v) | The credit facility of $450.0 million is a revolving credit facility maturing in November 2009 and bears interest at bankers’ acceptance or LIBOR rates, plus a margin, depending on Videotron Ltd.’s leverage ratio. The credit facility is secured by a first ranking hypothec on the universality of all tangible and intangible assets, current and future, of Videotron Ltd. and its subsidiaries. As at December 31, 2005, the carrying value of assets guaranteeing the credit facility of Videotron Ltd. was $3,986.2 million. The credit facility contains covenants such as maintaining certain financial ratios and some restrictions on the payment of dividends and asset acquisitions and dispositions. As at December 31, 2005, no amount was drawn on the credit facility. | |
(vi) | In October 2003, a first series of Senior Notes was issued at discount for net proceeds of US$331.9 million, before issuance fees of US$5.7 million. In November 2004, a second series of Senior Notes was sold at premium on their face amount of US$315.0 million resulting in gross proceeds of US$331.0 million before accrued interest and issuance fees of US$6.2 million. These notes bear interest at a rate of 6.875%, payable every six months on January 15 and July 15, and mature in January 2014. The notes contain certain restrictions for Videotron Ltd., including limitations on its ability to incur additional indebtedness, and are unsecured. Videotron Ltd. has fully hedged the foreign currency risk associated with the Senior Notes by using cross-currency interest rate swaps, under which all payments were set in Canadian dollars. The notes are redeemable, in whole or in part, at any time on or after January 15, 2009, with a premium. |
F-29
Table of Contents
(vii) | On September 16, 2005, Senior Notes were issued at discount for net proceeds of US$174.1 million, before issuance fees of $3.8 million. These Notes bear interest at a rate of 6.375% payable every six months on December 15 and June 15, and mature on December 15, 2015. The Notes contain certain restrictions for Videotron Ltd., including limitations on its ability to incur additional indebtedness, and are unsecured. Videotron Ltd. has fully hedged the foreign currency risk associated with the Senior Notes by using cross-currency interest rate swaps, under which all payments were set in Canadian dollars. The notes are redeemable, in whole or in part, at any time on or after December 15, 2010, with a premium. | |
(viii) | The Senior Secured First Priority Notes were repurchased on July 15, 2005 (note 4 (b)). | |
(ix) | The bank credit facilities comprise a revolving credit facility amounting to $75.0 million, maturing in 2008, and a term loan “B” credit facility amounting to US$230.0 million, excluding issuance fees of US$0.5 million, maturing in 2009, and are collateralized by liens on all of the property and assets of Sun Media Corporation and its operating subsidiaries, now owned or hereafter acquired. The bank credit facilities contain covenants that restrict the declaration and payment of dividends and other distributions, as well as financial ratios. As at December 31, 2005, the carrying value of assets guaranteeing the bank credit facilities was $1,503.5 million. Any amount borrowed under the revolving credit facility bears interest at Canadian bankers’ acceptance and/or Canadian prime rate plus an applicable margin determined by financial ratios. On October 12, 2004, the bank credit facilities were amended such that advances under the term loan “B” credit facility bear interest at LIBOR plus a margin of 2.00% per annum, or at U.S. prime rate plus a margin of 1.00% per annum, with the possibility of such margins being reduced under certain circumstances. Sun Media Corporation has fully hedged the foreign currency risk associated with the term B loan by using cross-currency interest rate swaps, under which all payments were set in Canadian dollars. As at December 31, 2005, no amount had been drawn on the revolving credit facility, while the term loan “B” credit facility was in use for an amount of US$198.7 million. | |
(x) | The Senior Notes were issued at discount for net proceeds of US$201.5 million, before issuance fees of US$4.1 million. These notes bear interest at a rate of 7.625% and mature in 2013. The notes contain certain restrictions for Sun Media Corporation, including limitations on its ability to incur additional indebtedness, and are unsecured. The Senior Notes are guaranteed by specific subsidiaries of Sun Media Corporation Inc. Sun Media Corporation has fully hedged the foreign currency risk associated with the Senior Notes by using cross-currency interest rate swaps and a foreign exchange forward contract, under which all payments were set in Canadian dollars. The notes are redeemable, in whole or in part, at any time on or after February 15, 2008, with a premium. | |
(xi) | The credit agreement amended in 2005, consists of a revolving term bank loan of a maximum of $160.0 million ($65.0 million in 2004), bearing interest at the prime rate of a Canadian chartered bank or bankers’ acceptances rates, plus a variable margin determined by certain financial ratios. In 2005, the revolving term loan maturity was extended until June 15, 2010. The credit facility contains certain restrictions, including the obligation to maintain certain financial ratios. |
F-30
Table of Contents
2006 | $ | 2.7 | ||
2007 | 2.7 | |||
2008 | 2.7 | |||
2009 | 223.0 | |||
2010 | 107.1 | |||
2011 and thereafter | 2,195.0 |
15. | OTHER LIABILITIES: |
2004 | 2005 | |||||||
Cross-currency interest-rate swap agreements and other derivative instruments | $ | 209.8 | $ | 261.0 | ||||
Accrued stock-based compensation | 22.0 | 32.8 | ||||||
Deferred revenues | 16.0 | 23.4 | ||||||
Accrued post-retirement benefits liability (note 23) | 29.5 | 30.3 | ||||||
Accrued pension benefit liability (note 23) | 12.3 | 7.2 | ||||||
Other | 7.4 | 4.6 | ||||||
$ | 297.0 | $ | 359.3 | |||||
16. | NON-CONTROLLING INTEREST: |
Non-controlling | ||||||
Subsidiary | Segment | Interest | ||||
TVA Group Inc. | Broadcasting | 54.77 | % | |||
Nurun Inc. | Interactive Technologies and Communications | 42.10 | % |
17. | CAPITAL STOCK: |
(a) | Authorized capital stock: |
• | An unlimited number of Cumulative First Preferred Shares, Series A (“Preferred A Shares”), carrying a 12.5% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company; | |
• | An unlimited number of Cumulative First Preferred Shares, Series B (“Preferred B Shares”), carrying a fixed cumulative preferential dividend generally equivalent to the Company’s credit facility interest rate, redeemable at the option of the holder and retractable at the option of the Company |
F-31
Table of Contents
• | An unlimited number of Cumulative First Preferred Shares, Series C (“Preferred C Shares”), carrying an 11.25% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company; | |
• | An unlimited number of Cumulative First Preferred Shares, Series D (“Preferred D Shares”), carrying an 11.00% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company; | |
• | An unlimited number of Cumulative First Preferred Shares, Series F (“Preferred F Shares”), carrying a 10.85% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company. |
(b) | Issued capital stock: |
Common Shares | Preferred B Shares | |||||||||||||||
Number | Amount | Number | Amount | |||||||||||||
Balance as at December 31, 2002 | 95,131,972 | 1,341.8 | — | — | ||||||||||||
Issuance of new shares | 14,221,664 | 215.8 | 216,145,684 | 216.1 | ||||||||||||
Conversion of Preferred B Shares into Common Shares | 14,249,171 | 216.1 | (216,145,684 | ) | (216.1 | ) | ||||||||||
Balance as at December 31, 2003, 2004 and 2005 | 123,602,807 | $ | 1,773.7 | — | $ | — | ||||||||||
(c) | Transactions during the year: |
2003 |
F-32
Table of Contents
2004 |
2005 |
18. | SHARE PURCHASE PLANS: |
(a) | Quebecor Media Inc. stock option plan: |
F-33
Table of Contents
2004 | 2005 | |||||||||||||||
Weighted Average | Weighted Average | |||||||||||||||
Options | Exercise Price | Options | Exercise Price | |||||||||||||
Balance at beginning of year | 2,607,537 | $ | 16.93 | 3,135,040 | $ | 17.99 | ||||||||||
Granted | 663,930 | 21.84 | 255,630 | 28.96 | ||||||||||||
Cancelled | (136,427 | ) | 16.48 | (162,349 | ) | 17.13 | ||||||||||
Balance at end of year | 3,135,040 | $ | 17.99 | 3,228,321 | $ | 18.90 | ||||||||||
Vested options at end of year | 268,282 | $ | 16.51 | 939,965 | $ | 17.20 | ||||||||||
Outstanding options | Vested options | |||||||||||||||
Weighted | ||||||||||||||||
Average Years | Weighted Average | |||||||||||||||
Range of exercise price | Number | to Maturity | Number | Exercise Price | ||||||||||||
$15.19 to 21.77 | 2,921,392 | 7.0 | 936,335 | $ | 17.18 | |||||||||||
21.77 to 31.55 | 306,929 | 9.2 | 3,630 | 22.98 | ||||||||||||
$15.19 to 31.55 | 3,228,321 | 7.2 | 939,965 | $ | 17.20 | |||||||||||
(b) | TVA Group Inc. plans: |
(i) Stock option plan for senior executives |
F-34
Table of Contents
2004 | 2005 | |||||||||||||||
Weighted Average | Weighted Average | |||||||||||||||
Options | Exercise Price | Options | Exercise Price | |||||||||||||
Balance at beginning of year | 300,300 | $ | 16.55 | 215,000 | $ | 19.81 | ||||||||||
Granted | 126,500 | 20.75 | 115,630 | 20.85 | ||||||||||||
Exercised | (161,800 | ) | 16.52 | (6,000 | ) | 14.00 | ||||||||||
Cancelled | (50,000 | ) | 13.24 | (14,453 | ) | 20.85 | ||||||||||
Balance at end of year | 215,000 | $ | 19.81 | 310,177 | $ | 20.27 | ||||||||||
Vested options at end of year | 73,500 | $ | 19.39 | 72,500 | $ | 18.50 | ||||||||||
Outstanding Options | Vested Options | |||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||
Weighted | Average | Average | ||||||||||||||||||
Average Years | Exercise | Exercise | ||||||||||||||||||
Range of Exercise Price | Number | to Maturity | Price | Number | Price | |||||||||||||||
$14.00 to 18.85 | 47,500 | 4.7 | $ | 15.85 | 47,500 | $ | 15.85 | |||||||||||||
18.86 to 25.50 | 262,677 | 8.5 | 21.06 | 25,000 | 23.52 | |||||||||||||||
$14.00 to 25.50 | 310,177 | 7.9 | $ | 20.27 | 72,500 | $ | 18.50 | |||||||||||||
(ii) Share purchase plan for executives and employees |
(iii) Deferred share unit plan |
F-35
Table of Contents
19. | COMMITMENTS AND CONTINGENCIES: |
(a) | Leases: |
Other | ||||||||
Leases | Commitments | |||||||
2006 | $ | 38.8 | $ | 94.1 | ||||
2007 | 32.1 | 36.6 | ||||||
2008 | 26.7 | 7.5 | ||||||
2009 | 21.9 | 4.9 | ||||||
2010 | 17.7 | — | ||||||
2011 and thereafter | 51.1 | — |
(b) | Long-term agreement: |
(c) | Other commitments: |
(d) | Contingencies: |
F-36
Table of Contents
20. | GUARANTEES: |
Operating leases: |
Business and asset disposals: |
Long-term debt: |
Outsourcing companies and suppliers: |
F-37
Table of Contents
21. | FINANCIAL INSTRUMENTS: |
(a) | Description of derivative financial instruments: |
(i) Foreign exchange forward contracts: |
Average | Notional | ||||||||||||
Currencies (sold/bought) | Maturing | exchange Rate | amount | ||||||||||
Quebecor Media Inc. | |||||||||||||
$/Euro | August 2007 | 1.4310 | $ | 58.1 | |||||||||
$/CHF | February 2007 | 0.9050 | 11.9 | ||||||||||
Sun Media Corporation | |||||||||||||
$/US$ | February 15, 2013 | 1.5227 | 312.2 | ||||||||||
Videotron Ltd. and its subsidiaries: | |||||||||||||
$/US$ | Less than 1 year | 1.1790 | 10.4 |
F-38
Table of Contents
(ii) Cross-currency interest rate swaps: |
Exchange rate | ||||||||||||||||||||
of interest | ||||||||||||||||||||
Annual | and capital | |||||||||||||||||||
Annual | nominal | payments per | ||||||||||||||||||
Notional | effective | interest | CDN dollar for | |||||||||||||||||
Period covered | amount | interest Rate | Rate | one US dollar | ||||||||||||||||
Quebecor Media Inc.: | ||||||||||||||||||||
Senior Notes | 2001 to 2011 | US$ | 586.8 | 11.98 | % | 11.125 | % | 1.5255 | ||||||||||||
Senior Discount Notes | 2001 to 2011 | US$ | 282.9 | 14.60 | % | 13.75 | % | 1.5822 | (1) | |||||||||||
Videotron Ltd. and its subsidiaries: | ||||||||||||||||||||
Senior Notes | 2004 to 2014 | US$ | 190.0 | Bankers’ acceptances 3 months plus 2.80 | % | 6.875 | % | 1.2000 | ||||||||||||
Senior Notes | 2004 to 2014 | US$ | 125.0 | 7.45 | % | 6.875 | % | 1.1950 | ||||||||||||
Senior Notes | 2003 to 2014 | US$ | 200.0 | Bankers’ acceptances 3 months plus 2.73 | % | 6.875 | % | 1.3425 | ||||||||||||
Senior Notes | 2003 to 2014 | US$ | 135.0 | 7.66 | % | 6.875 | % | 1.3425 | ||||||||||||
Senior Notes | 2005 to 2015 | US$ | 175.0 | 5.98 | % | 6.375 | % | 1.1781 | ||||||||||||
Sun Media Corporation and its subsidiaries: | ||||||||||||||||||||
Senior Notes | 2003 to 2008 | US$ | 155.0 | 8.17 | % | 7.625 | % | 1.5227 | ||||||||||||
Senior Notes | 2008 to 2013 | US$ | 155.0 | Bankers’ acceptances 3 months plus 3.70 | % | 7.625 | % | 1.5227 | ||||||||||||
Senior Notes | 2003 to 2013 | US$ | 50.0 | Bankers’ acceptances 3 months plus 3.70 | % | 7.625 | % | 1.5227 | ||||||||||||
Term-loan B credit facility | 2003 to 2009 | US$ | 199.3 | Bankers’ acceptances 3 months plus 2.48 | % | LIBOR plus 2.00 | % | 1.5175 |
(1) | As per the agreement, the exchange rate includes an exchange fee. |
F-39
Table of Contents
(iii) Interest-rate swaps: |
�� | |||||||||||||||||
Notional | Fixed | ||||||||||||||||
Maturity | Amount | Pay/Receive | Rate | Floating Rate | |||||||||||||
Videotron Ltd. and its subsidiaries | |||||||||||||||||
May 2006 | $ | 90.0 | Pay fixed/ receive floating | 5.41% | Bankers’ acceptance 3 months | ||||||||||||
September 2007 | $ | 5.0 | Pay fixed/ receive floating | 3.75% | Bankers’ acceptance 3 months |
(b) | Fair value of financial instruments: |
F-40
Table of Contents
2004 | 2005 | ||||||||||||||||
Carrying | Carrying | ||||||||||||||||
Value | Fair value | Value | Fair value | ||||||||||||||
Quebecor Media Inc. | |||||||||||||||||
Long-term debt | (1,140.7 | ) | (1,332.9 | ) | (988.1 | ) | (1,078.8 | ) | |||||||||
Cross-currency interest rate swaps | (3.9 | ) | (241.9 | ) | (21.5 | ) | (261.3 | ) | |||||||||
Foreign forward exchange contracts | — | — | — | (1.8 | ) | ||||||||||||
Videotron Ltd. and its subsidiaries | |||||||||||||||||
Long-term debt | (888.9 | ) | (901.1 | ) | (971.7 | ) | (967.4 | ) | |||||||||
Interest rate swaps | (4.6 | ) | (4.6 | ) | (0.9 | ) | (0.9 | ) | |||||||||
Cross-currency interest rate swaps | (45.5 | ) | (72.3 | ) | (73.7 | ) | (135.0 | ) | |||||||||
Foreign exchange forward contract | (8.4 | ) | (8.4 | ) | — | (0.2 | ) | ||||||||||
Sun Media Corporation and its subsidiaries | |||||||||||||||||
Long-term debt(1) | (484.3 | ) | (507.7 | ) | (466.3 | ) | (476.1 | ) | |||||||||
Cross-currency interest rate swaps and foreign exchange forward contract | (147.4 | ) | (169.8 | ) | (154.1 | ) | (186.5 | ) | |||||||||
TVA Group Inc. and its subsidiaries | |||||||||||||||||
Long-term debt | (34.9 | ) | (34.9 | ) | (107.1 | ) | (107.1 | ) |
(1) | Including current portion |
(c) | Credit risk management: |
F-41
Table of Contents
22. | RELATED PARTY TRANSACTIONS: |
23. | PENSION PLANS AND POSTRETIREMENT BENEFITS: |
F-42
Table of Contents
23. | PENSION PLANS AND POSTRETIREMENT BENEFITS: |
Postretirement | |||||||||||||||||
Pension benefits | benefits | ||||||||||||||||
2004 | 2005 | 2004 | 2005 | ||||||||||||||
Change in benefit obligations: | |||||||||||||||||
Benefit obligations at beginning of year | $ | 410.8 | $ | 444.9 | $ | 28.6 | $ | 35.5 | |||||||||
Service costs | 11.9 | 15.3 | 1.5 | 1.8 | |||||||||||||
Interest costs | 26.2 | 27.7 | 1.9 | 2.2 | |||||||||||||
Plan participants’ contributions | 7.3 | 10.4 | — | — | |||||||||||||
Actuarial loss | 6.6 | 68.7 | 2.6 | 4.5 | |||||||||||||
Benefits and settlements paid | (18.2 | ) | (16.7 | ) | (1.0 | ) | (1.2 | ) | |||||||||
Plan amendments | 0.3 | 5.6 | — | ||||||||||||||
Curtailment gain | — | — | — | (2.4 | ) | ||||||||||||
Other | — | — | 1.9 | — | |||||||||||||
Benefit obligations at end of year | $ | 444.9 | $ | 555.9 | $ | 35.5 | $ | 40.4 | |||||||||
Postretirement | |||||||||||||||||
Pension benefits | benefits | ||||||||||||||||
2004 | 2005 | 2004 | 2005 | ||||||||||||||
Change in plan assets: | |||||||||||||||||
Fair value of plan assets at beginning of year | $ | 377.1 | $ | 421.8 | $ | — | $ | — | |||||||||
Actual return on plan assets | 38.6 | 47.2 | — | — | |||||||||||||
Employer contributions | 17.0 | 18.1 | 1.0 | 1.2 | |||||||||||||
Plan participants’ contributions | 7.3 | 10.4 | — | — | |||||||||||||
Benefits and settlements paid | (18.2 | ) | (16.7 | ) | (1.0 | ) | (1.2 | ) | |||||||||
Fair value of plan assets at end of year | $ | 421.8 | $ | 480.8 | $ | — | $ | — | |||||||||
2004 | 2005 | |||||||
Equity securities | 53.2 | % | 55.8 | % | ||||
Debt securities | 45.5 | 43.4 | ||||||
Other | 1.3 | 0.8 | ||||||
100.0 | % | 100.0 | % | |||||
F-43
Table of Contents
Postretirement | |||||||||||||||||
Pension benefits | benefits | ||||||||||||||||
2004 | 2005 | 2004 | 2005 | ||||||||||||||
Reconciliation of funded status: | |||||||||||||||||
Excess of benefit obligations over fair value of plan assets at end of year | $ | (23.1 | ) | $ | (75.1 | ) | $ | (35.5 | ) | $ | (40.4 | ) | |||||
Unrecognized actuarial loss | 27.4 | 81.1 | 7.3 | 11.2 | |||||||||||||
Unrecognized net transition (asset) obligation | (6.2 | ) | (5.7 | ) | 0.6 | 0.5 | |||||||||||
Unrecognized prior service cost (benefit) | 14.1 | 18.1 | (1.9 | ) | (1.6 | ) | |||||||||||
Valuation allowance | (16.4 | ) | (17.4 | ) | — | — | |||||||||||
Net amount recognized | $ | (4.2 | ) | $ | 1.0 | $ | (29.5 | ) | $ | (30.3 | ) | ||||||
Postretirement | ||||||||||||||||
Pension benefits | benefits | |||||||||||||||
2004 | 2005 | 2004 | 2005 | |||||||||||||
Benefit obligations | $ | (272.7 | ) | $ | (549.5 | ) | $ | (35.5 | ) | $ | (40.4 | ) | ||||
Fair value of plan assets | 240.6 | 473.6 | — | — | ||||||||||||
Funded status — plan deficit | $ | (32.1 | ) | $ | (75.9 | ) | $ | (35.5 | ) | $ | (40.4 | ) | ||||
Postretirement | ||||||||||||||||
Pension benefits | benefits | |||||||||||||||
2004 | 2005 | 2004 | 2005 | |||||||||||||
Accrued benefit liability | $ | (12.3 | ) | $ | (7.2 | ) | $ | (29.5 | ) | $ | (30.3 | ) | ||||
Deferred pension charge | 8.1 | 8.2 | — | — | ||||||||||||
Net amount recognized | $ | (4.2 | ) | $ | 1.0 | $ | (29.5 | ) | $ | (30.3 | ) | |||||
F-44
Table of Contents
Pension benefits | Postretirement benefits | ||||||||||||||||||||||||
2003 | 2004 | 2005 | 2003 | 2004 | 2005 | ||||||||||||||||||||
Service costs | $ | 8.1 | $ | 11.9 | $ | 15.3 | $ | 1.3 | $ | 1.5 | $ | 1.8 | |||||||||||||
Interest costs | 24.2 | 26.2 | 27.7 | 1.9 | 1.9 | 2.2 | |||||||||||||||||||
Actual return on plan assets | (56.4 | ) | (38.6 | ) | (47.2 | ) | — | — | — | ||||||||||||||||
Current actuarial loss | 30.4 | 6.6 | 68.7 | 0.9 | 2.6 | 4.5 | |||||||||||||||||||
Current prior service costs (benefits) | 2.3 | 0.3 | 5.6 | (0.3 | ) | — | — | ||||||||||||||||||
Curtailment (gain) loss and other | (0.2 | ) | — | — | — | 1.9 | (1.6 | ) | |||||||||||||||||
Elements of net benefit costs before adjustments to recognize the long-term nature and valuation allowance | 8.4 | 6.4 | 70.1 | 3.8 | 7.9 | 6.9 | |||||||||||||||||||
Difference between actual and expected return on plan assets | 31.7 | 9.2 | 15.1 | — | — | — | |||||||||||||||||||
Deferral of amounts arising during the period: | |||||||||||||||||||||||||
Actuarial gain | (30.4 | ) | (6.6 | ) | (68.7 | ) | (0.9 | ) | (2.6 | ) | (4.5 | ) | |||||||||||||
Prior service costs | (2.3 | ) | (0.3 | ) | (5.6 | ) | 0.3 | — | — | ||||||||||||||||
Amortization of previously deferred amounts: | |||||||||||||||||||||||||
Net actuarial loss | 0.8 | 1.3 | (0.2 | ) | 0.2 | — | (0.1 | ) | |||||||||||||||||
Prior service costs (benefits) | 1.2 | 1.2 | 1.6 | (0.3 | ) | (0.3 | ) | (0.3 | ) | ||||||||||||||||
Transitional obligations | (0.5 | ) | (0.5 | ) | (0.5 | ) | 0.1 | 0.1 | 0.1 | ||||||||||||||||
Other | 0.4 | — | — | — | — | — | |||||||||||||||||||
Total adjustments to recognize the long-term nature of benefit costs | 0.9 | 4.3 | (58.3 | ) | (0.6 | ) | (2.8 | ) | (4.8 | ) | |||||||||||||||
Valuation allowance | 1.1 | 2.6 | 1.0 | — | — | — | |||||||||||||||||||
Net benefit costs | $ | 10.4 | $ | 13.3 | $ | 12.8 | $ | 3.2 | $ | 5.1 | $ | 2.1 | |||||||||||||
F-45
Table of Contents
Pension Benefits | Postretirement Benefits | ||||||||||||||||||||||||
2003 | 2004 | 2005 | 2003 | 2004 | 2005 | ||||||||||||||||||||
Benefit obligations | |||||||||||||||||||||||||
Rates as at year-end: | |||||||||||||||||||||||||
Discount rate | 6.25 | % | 6.00 | % | 5.00 | % | 6.25 | % | 6.00 | % | 5.00 | % | |||||||||||||
Rate of compensation increase | 3.50 | 3.50 | 3.50 | 3.50 | 3.50 | 3.50 | |||||||||||||||||||
Current periodic costs | |||||||||||||||||||||||||
Rates as at preceding year-end: | |||||||||||||||||||||||||
Discount rate | 6.75 | % | 6.25 | % | 6.00 | % | 6.75 | % | 6.25 | % | 6.00 | % | |||||||||||||
Expected return on plan assets(1) | 7.75 | 7.75 | 7.50 | — | — | — | |||||||||||||||||||
Rate of compensation increase | 3.78 | 3.50 | 3.50 | 3.78 | 3.50 | 3.50 |
(1) | After management and professional fees |
Postretirement Benefits | ||||||||
Sensitivity analysis | 1% increase | 1% decrease | ||||||
Effect on service and interest costs | $ | 0.9 | $ | (0.8 | ) | |||
Effect on benefit obligations | 8.6 | (6.6 | ) | |||||
24. | SUBSEQUENT EVENTS |
F-46
Table of Contents
25. | SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES: |
(a) | Consolidated statements of income: |
2003 | 2004 | 2005 | |||||||||||
Net income, as reported in the consolidated statements of income per GAAP in Canada | $ | 203.9 | $ | 88.2 | $ | 96.5 | |||||||
Adjustments: | |||||||||||||
Development, pre-operating and start-up costs (i) | 3.2 | (2.1 | ) | (1.3 | ) | ||||||||
Pension and postretirement benefits (ii) | (0.4 | ) | 0.9 | 2.1 | |||||||||
Change in fair value and ineffective portion of derivative instruments (iii) | (167.5 | ) | 6.6 | 11.3 | |||||||||
Income taxes (iv)(v) | 1.3 | (4.4 | ) | 31.1 | |||||||||
Non-monetary transactions (vi) | — | — | 1.5 | ||||||||||
Gain on repurchase of redeemable preferred shares of a subsidiary (vii) | (153.7 | ) | — | — | |||||||||
Other | 16.7 | 6.9 | — | ||||||||||
Net (loss) income, as adjusted per GAAP in the United States (in Canadian dollars) | $ | (96.5 | ) | $ | 96.1 | $ | 141.2 | ||||||
(b) | Comprehensive (loss) income: |
2003 | 2004 | 2005 | ||||||||||
Net (loss) income, as adjusted per GAAP in the United States | $ | (96.5 | ) | $ | 96.1 | $ | 141.2 | |||||
Derivative instruments (iii) | (63.9 | ) | (105.7 | ) | (22.0 | ) | ||||||
Pension and post-retirement benefits (ii) | (0.1 | ) | (4.4 | ) | (18.8 | ) | ||||||
Translation adjustment(1) | 1.3 | 0.5 | (1.3 | ) | ||||||||
Income taxes (iv) | 3.5 | 2.2 | 73.3 | |||||||||
Comprehensive (loss) income per GAAP in the United States | $ | (155.7 | ) | $ | (11.3 | ) | $ | 172.4 | ||||
(1) | Change for the year. |
F-47
Table of Contents
2003 | 2004 | 2005 | ||||||||||
Derivative instruments (iii) | $ | (48.7 | ) | $ | (154.4 | ) | $ | (176.4 | ) | |||
Pension and post-retirement benefits (ii) | (7.0 | ) | (11.4 | ) | (30.2 | ) | ||||||
Translation adjustment | (1.5 | ) | (1.0 | ) | (2.3 | ) | ||||||
Income taxes (iv) | 2.3 | 4.5 | 77.8 | |||||||||
Accumulated other comprehensive loss at end of year | $ | (54.9 | ) | $ | (162.3 | ) | $ | (131.1 | ) | |||
(c) | Consolidated balance sheets: |
2004 | 2005 | |||||||||||||||
Canada | United States | Canada | United States | |||||||||||||
Goodwill | 3,851.0 | 3,846.3 | 3,871.9 | 3,868.0 | ||||||||||||
Future income tax assets | 80.8 | 81.7 | 57.5 | 57.5 | ||||||||||||
Other assets | 240.0 | 214.7 | 248.2 | 240.7 | ||||||||||||
Long-term debt | (2,546.0 | ) | (2,512.1 | ) | (2,530.5 | ) | (2,465.8 | ) | ||||||||
Other liabilities | (297.0 | ) | (541.5 | ) | (359.3 | ) | (684.5 | ) | ||||||||
Future income tax liabilities | (189.4 | ) | (189.0 | ) | (227.0 | ) | (103.8 | ) | ||||||||
Non-controlling interest | (192.7 | ) | (194.9 | ) | (144.3 | ) | (144.0 | ) | ||||||||
Contributed surplus (v)(vii) | (3,216.8 | ) | (3,370.5 | ) | (3,216.8 | ) | (3,386.4 | ) | ||||||||
Deficit | 2,529.6 | 2,763.5 | 2,538.1 | 2,727.3 | ||||||||||||
Accumulated other comprehensive loss | 1.0 | 162.3 | 2.3 | 131.1 | ||||||||||||
(i) | Under GAAP in Canada, certain development and pre-operating costs that satisfy specified criteria for recoverability are deferred and amortized. Also, under GAAP in Canada, certainstart-up costs incurred in connection with various projects have been recorded in the consolidated balance sheets under the item “Other assets”, and are amortized over a period not exceeding five years. Under GAAP in the United States, these costs must be included in income as incurred. | |
(ii) | Under GAAP in Canada, when a defined benefit plan gives rise to an accrued benefit asset, a company must recognize a valuation allowance for the excess of the adjusted benefit asset over the expected future benefit to be realized from the plan asset. GAAP in the United States does not provide for a valuation allowance against pension assets. | |
Under GAAP in the United States, if the accumulated benefit obligation exceeds the fair value of a pension plan’s assets, the Company is required to recognize a minimum accrued liability equal to the unfunded accumulated benefit obligation, which is recorded in accumulated other comprehensive loss. | ||
Further differences result from the different transition rules and timing of the adoption of the current standards in Canada and in the United States for pension and postretirement benefits. | ||
(iii) | Under GAAP in United States, Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) establishes accounting and reporting standards for derivative instruments and hedging activities and requires that all derivatives be recorded as either assets or liabilities in the balance sheet at fair value. In accordance with SFAS 133, for derivative instruments designated as fair value hedges, such as certain cross-currency interest rate swaps of Videotron Ltd. and Sun Media Corporation, changes in the fair value of the derivative instrument are substantially offset in the statement of income by changes in the fair value of the hedged item. For derivative instruments designated as cash flow hedges, such as the Company’s cross-currency interest rate swaps and certain cross-currency interest rate swaps or forward exchange contracts of Videotron Ltd. and Sun Media Corporation, the effective portion of any hedge is reported in other comprehensive income |
F-48
Table of Contents
(loss) until it is recognized in income during the same period in which the hedged item affects income, while the current ineffective portion of hedges is recognized in the statement of income each period. | ||
Under GAAP in Canada, derivative financial instruments are accounted for on an accrual basis. Realized and unrealized gains and losses are deferred and recognized in income in the same period and in the same financial statement category as the income or expense arising from the corresponding hedged positions. | ||
Further differences result from the different transition rules and timing of the adoption of the current standards in Canada and in the United States for derivative financial instruments and hedge accounting. | ||
(iv) | This adjustment represents the tax impact of United States GAAP adjustments. Furthermore, the Company concluded, in 2005, that the realization of future income tax assets related to its derivative financial instruments was now considered “more likely than not”. Consequently, the tax benefits were recognized in the statement of income and in the statement of comprehensive income. | |
(v) | In 2005, the Company entered into a tax consolidation transaction by which the Company has transferred to its parent company capital losses for a cash consideration of $15.9 million (note 6). Under GAAP in Canada, the transaction was recorded in accordance with CICA Handbook 3840, Related Party Transactions, and resulted in a reduction of $15.9 million of the Company’s income tax expense. Under GAAP in the United States, since this transaction related to an asset transfer from a subsidiary to its parent company, the difference between the carrying value of the tax benefits transferred and the cash consideration received has been recognized in contributed surplus. | |
(vi) | In April 2005, Sun Media Corporation, Newspaper segment, exchanged a community publication for another community publication. Under U.S. GAAP, this exchange of businesses is recorded in accordance with FASB Statement No. 141, Business Combinations and the cost of the purchase should be determined as the fair value of the consideration given or the fair value of the net assets or equity interest received, whichever is more reliably measurable. Under Canadian GAAP, since this exchange of businesses is a non-monetary transaction, it is accounted for in accordance with CICA Handbook 3830, Non-monetary Transactions, and recorded at the carrying value of the asset or service given up in the exchange adjusted by any monetary consideration received or given. | |
Accordingly, under US GAAP, this transaction resulted in a gain on disposal of a publication and also resulted in an increase of the purchase price of the publication acquired. | ||
(vii) | Under GAAP in Canada, the gain on repurchase of redeemable preferred shares of a subsidiary is included in income. Under GAAP in the United States, any such gain would be included in contributed surplus. |
(d) | Additional disclosures required under GAAP in the United States: |
(i) Pension plans |
F-49
Table of Contents
2006 | $ | 19.6 | ||
2007 | 19.3 | |||
2008 | 20.5 | |||
2009 | 21.3 | |||
2010 | 23.1 | |||
2011-2015 | 143.2 |
(ii) Allowance for doubtful accounts |
(iii) Accrued liabilities |
(iv) Statement of cash flows |
(v) Advertising cost |
(vi) | Under GAAP in the United States, cost of sales and other expenses must be disclosed separately in the statement of income. |
2003 | 2004 | 2005 | ||||||||||
Cost of sales | $ | 1,092.9 | $ | 1,130.2 | $ | 1,233.8 | ||||||
General, selling and administrative expenses | 593.4 | 635.0 | 735.5 | |||||||||
$ | 1,686.3 | $ | 1,765.2 | $ | 1,969.3 | |||||||
F-50
Table of Contents
(vii) Derivative instruments |
Accumulated comprehensive derivative gain as at December 31, 2002 | $ | 15.2 | ||
Reclassification to income | (15.2 | ) | ||
Effective portion of hedges | (48.7 | ) | ||
Accumulated comprehensive derivative loss as at December 31, 2003 | (48.7 | ) | ||
Reclassification to income | 0.3 | |||
Effective portion of hedges | (106.0 | ) | ||
Accumulated comprehensive derivative loss as at December 31, 2004 | (154.4 | ) | ||
Reclassification to income | 29.2 | |||
Effective portion of hedges | (51.2 | ) | ||
Accumulated comprehensive derivative loss as at December 31, 2005 | $ | (176.4 | ) | |
(viii) Restrictions of dividends payments |
26. | NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY: |
F-51
Table of Contents
2003 | 2004 | 2005 | |||||||||||
Revenues | |||||||||||||
Management fees | $ | 17.1 | $ | 20.4 | $ | 30.0 | |||||||
Interest on loan to subsidiaries | 5.5 | 6.0 | 6.9 | ||||||||||
Other | 20.1 | 20.8 | 28.0 | ||||||||||
42.7 | 47.2 | 64.9 | |||||||||||
Expenses | |||||||||||||
General and administrative | (40.5 | ) | (46.4 | ) | (53.7 | ) | |||||||
Depreciation and amortization | (1.7 | ) | (1.4 | ) | (1.2 | ) | |||||||
Financial | (181.2 | ) | (181.0 | ) | (171.3 | ) | |||||||
Loss before undernoted items | (180.7 | ) | (181.6 | ) | (161.3 | ) | |||||||
Gain on disposal of investments | — | 1.4 | — | ||||||||||
Loss on debt refinancing | — | — | (60.8 | ) | |||||||||
Loss before income taxes | (180.7 | ) | (180.2 | ) | (222.1 | ) | |||||||
Income taxes | (28.2 | ) | (48.2 | ) | (24.9 | ) | |||||||
(152.5 | ) | (132.0 | ) | (197.2 | ) | ||||||||
Equity income from subsidiaries | 356.4 | 220.2 | 293.7 | ||||||||||
Net income | $ | 203.9 | $ | 88.2 | $ | 96.5 | |||||||
F-52
Table of Contents
2003 | 2004 | 2005 | |||||||||||
Cash flows related to operations | |||||||||||||
Net income | $ | 203.9 | $ | 88.2 | $ | 96.5 | |||||||
Amortization of plant, property and equipment | 1.7 | 1.4 | 1.2 | ||||||||||
Amortization of deferred financing costs and of long term debt discount | 48.3 | 55.0 | 61.2 | ||||||||||
Gain on disposal of investments | — | (1.4 | ) | — | |||||||||
Loss on debt refinancing | — | — | 60.8 | ||||||||||
Future income taxes | (29.4 | ) | (48.5 | ) | (25.7 | ) | |||||||
Excess (shortage) of equity distribution over equity income from subsidiaries | 57.0 | (76.1 | ) | (111.2 | ) | ||||||||
Net change in non-cash balances related to operations | (83.5 | ) | 9.4 | (29.7 | ) | ||||||||
Cash flows provided by operations | 198.0 | 28.0 | 53.1 | ||||||||||
Cash flows related to financing activities Proceeds from issuance of redeemable preferred shares | 431.9 | 1,370.0 | 316.9 | ||||||||||
Repurchases of redeemable preferred shares | (360.0 | ) | (1,550.0 | ) | (334.0 | ) | |||||||
Net borrowings (repayments) of revolving credit facilities | 97.0 | (97.0 | ) | — | |||||||||
Repayments of long-term debt and unwinding of hedging contracts | (429.0 | ) | — | (215.7 | ) | ||||||||
Net increase in prepayments under cross-currency swap agreements | (118.8 | ) | (184.4 | ) | (34.1 | ) | |||||||
Dividends on common shares | — | (20.0 | ) | (45.0 | ) | ||||||||
(Increase) decrease in advances to subsidiaries | (150.2 | ) | 180.0 | (1.5 | ) | ||||||||
(Decrease) increase in advances from subsidiaries | (1.2 | ) | 74.3 | (18.3 | ) | ||||||||
Cash flows used in financing activities | (530.3 | ) | (227.1 | ) | (331.7 | ) | |||||||
Cash flows related to investing activities | |||||||||||||
Net acquisitions of investments in subsidiaries | (17.7 | ) | (26.3 | ) | (39.9 | ) | |||||||
Dividends received in excess of accumulated equity income from subsidiaries | 20.0 | 205.2 | 210.0 | ||||||||||
Proceeds from disposal of investments in subsidiaries | 361.0 | — | — | ||||||||||
Proceeds from disposal of tax deductions to a subsidiary | — | — | 35.2 | ||||||||||
Net (increase) decrease in temporary investments | (18.4 | ) | (59.9 | ) | 78.4 | ||||||||
Other | 3.7 | 1.4 | (1.6 | ) | |||||||||
Cash flows provided by investing activities | 348.6 | 120.4 | 282.1 | ||||||||||
Net increase (decrease) in cash and cash equivalents | 16.3 | (78.7 | ) | 3.5 | |||||||||
Cash and cash equivalents at beginning of year | 76.9 | 93.2 | 14.5 | ||||||||||
Cash and cash equivalents at end of year | $ | 93.2 | $ | 14.5 | $ | 18.0 | |||||||
F-53
Table of Contents
2004 | 2005 | |||||||
ASSETS | ||||||||
Current assets | $ | 221.5 | $ | 153.6 | ||||
Advances to subsidiaries | 157.3 | 175.9 | ||||||
Investments in subsidiaries | 3,684.2 | 3,372.9 | ||||||
Convertible obligation and notes receivable — subsidiaries | 1,410.0 | 1,392.9 | ||||||
Other assets | 71.7 | 84.8 | ||||||
$ | 5,544.7 | $ | 5,180.1 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | $ | 144.1 | $ | 207.8 | ||||
Long-term debt | 1,140.7 | 988.2 | ||||||
Advances from subsidiaries | 354.4 | 77.7 | ||||||
Other liabilities | 35.6 | 63.4 | ||||||
Redeemable preferred shares issued to subsidiaries | 1,410.0 | 1,392.9 | ||||||
Shareholders’ equity | 2,459.9 | 2,450.1 | ||||||
$ | 5,544.7 | $ | 5,180.1 | |||||
27. | RESTRICTED AND UNRESTRICTED SUBSIDIARIES: |
F-54
Table of Contents
Restricted Subsidiaries and the Company: |
2003 | 2004 | 2005 | ||||||||||
Revenues | $ | 2,253.3 | $ | 2,411.5 | $ | 2,637.8 | ||||||
Cost of sales and selling and administrative expenses | (1,642.6 | ) | (1,716.6 | ) | (1,908.1 | ) | ||||||
Amortization | (224.2 | ) | (224.2 | ) | (230.2 | ) | ||||||
Financial expenses | (299.9 | ) | (315.1 | ) | (286.1 | ) | ||||||
Reserve for restructuring of operations, impairment of assets, and other special charges | (0.8 | ) | (2.8 | ) | 0.2 | |||||||
Gain (loss) on debt refinancing and on repurchase of redeemable preferred shares of a subsidiary | 144.1 | (4.8 | ) | (60.0 | ) | |||||||
(Loss) gain on sale of businesses and other assets | (1.1 | ) | 8.0 | 0.1 | ||||||||
Write-down of goodwill | (0.5 | ) | — | — | ||||||||
Income before income taxes | 228.3 | 156.0 | 153.7 | |||||||||
Income taxes (credit) | (12.9 | ) | 37.2 | 44.7 | ||||||||
241.2 | 118.8 | 109.0 | ||||||||||
Non-controlling interest | (35.6 | ) | (31.4 | ) | (14.6 | ) | ||||||
Income from continuing operations | 205.6 | 87.4 | 94.4 | |||||||||
Income from discontinued operations | 0.7 | — | — | |||||||||
Net income | $ | 206.3 | $ | 87.4 | $ | 94.4 | ||||||
2003 | 2004 | 2005 | ||||||||||
Cable | $ | 289.7 | $ | 363.8 | $ | 413.3 | ||||||
Newspapers | 224.8 | 227.8 | 222.2 | |||||||||
Broadcasting | 81.5 | 80.5 | 53.0 | |||||||||
Leisure and Entertainment | 14.7 | 22.7 | 27.0 | |||||||||
Internet/ Portals | 3.1 | 4.5 | 10.5 | |||||||||
613.8 | 699.3 | 726.0 | ||||||||||
General corporate expenses | (3.1 | ) | (4.4 | ) | 3.7 | |||||||
$ | 610.7 | $ | 694.9 | $ | 729.7 | |||||||
F-55
Table of Contents
Restricted Subsidiaries and the Company: |
2004 | 2005 | |||||||
ASSETS | ||||||||
Current assets | $ | 747.9 | $ | 794.0 | ||||
Property, plant and equipment | 1,519.0 | 1,628.6 | ||||||
Other assets | 329.7 | 313.3 | ||||||
Goodwill | 3,847.9 | 3,868.3 | ||||||
6,444.5 | 6,604.2 | |||||||
LIABILITIES | ||||||||
Current liabilities | 810.7 | 946.8 | ||||||
Long-term debt | 2,546.0 | 2,530.5 | ||||||
Other liabilities | 486.4 | 586.3 | ||||||
Non-controlling interest | 169.0 | 118.8 | ||||||
4,012.1 | 4,182.4 | |||||||
Net investment in Restricted Subsidiaries and the Company | $ | 2,432.4 | $ | 2,421.8 | ||||
Unrestricted Subsidiary: |
2003 | 2004 | 2005 | ||||||||||
Revenues | $ | 44.8 | $ | 51.9 | $ | 65.1 | ||||||
Cost of sales and selling and administrative expenses | (43.7 | ) | (49.6 | ) | (61.2 | ) | ||||||
Amortization | (2.4 | ) | (1.7 | ) | (1.7 | ) | ||||||
Financial (expenses) revenues | (0.2 | ) | 0.5 | 0.8 | ||||||||
Reserve for restructuring of operations | (1.0 | ) | — | — | ||||||||
Gain on disposal of a portfolio investment | — | 1.3 | — | |||||||||
(Loss) income before income taxes | (2.5 | ) | 2.4 | 3.0 | ||||||||
Income taxes | 0.4 | 0.2 | (0.7 | ) | ||||||||
(2.9 | ) | 2.2 | 3.7 | |||||||||
Non-controlling interest | 1.0 | (0.3 | ) | (1.6 | ) | |||||||
(Loss) income from continuing operations | (1.9 | ) | 1.9 | 2.1 | ||||||||
Loss from discontinued operations | (0.5 | ) | (1.1 | ) | — | |||||||
Net (loss) income | $ | (2.4 | ) | $ | 0.8 | $ | 2.1 | |||||
F-56
Table of Contents
2004 | 2005 | |||||||
ASSETS | ||||||||
Current assets | $ | 54.4 | $ | 61.2 | ||||
Property, plant and equipment | 3.1 | 2.9 | ||||||
Other assets | 4.1 | 3.6 | ||||||
Goodwill | 3.1 | 3.6 | ||||||
64.7 | 71.3 | |||||||
LIABILITIES | ||||||||
Current liabilities | 13.5 | 17.5 | ||||||
Non-controlling interest | 23.7 | 25.5 | ||||||
37.2 | 43.0 | |||||||
Net investment in Unrestricted Subsidiary | $ | 27.5 | $ | 28.3 | ||||
F-57
Table of Contents
Three months ended | |||||||||
March 31, | |||||||||
2005 | 2006 | ||||||||
(in millions of | |||||||||
Canadian dollars) | |||||||||
(unaudited) | |||||||||
Revenues | |||||||||
Cable | $ | 251.3 | $ | 301.6 | |||||
Newspapers | 212.6 | 219.7 | |||||||
Broadcasting | 96.7 | 90.9 | |||||||
Leisure and Entertainment | 49.2 | 70.8 | |||||||
Interactive Technologies and Communications | 15.5 | 18.0 | |||||||
Internet/ Portals | 11.1 | 15.7 | |||||||
Head office and inter-segment | (11.7 | ) | (18.0 | ) | |||||
624.7 | 698.7 | ||||||||
Cost of sales and selling and administrative expenses | (473.7 | ) | (539.1 | ) | |||||
Amortization | (54.6 | ) | (64.6 | ) | |||||
Financial expenses (note 2) | (74.7 | ) | (52.3 | ) | |||||
Loss on debt refinancing (note 6) | — | (331.6 | ) | ||||||
Other | — | 0.4 | |||||||
Income (Loss) before Income Taxes | 21.7 | (288.5 | ) | ||||||
Income taxes: | |||||||||
Current | 3.4 | 0.9 | |||||||
Future | 4.1 | (109.5 | ) | ||||||
7.5 | (108.6 | ) | |||||||
14.2 | (179.9 | ) | |||||||
Non-controlling interest | (1.4 | ) | 1.5 | ||||||
Net Income (Loss) | $ | 12.8 | $ | (178.4 | ) | ||||
F-58
Table of Contents
Three months ended | |||||||||
March 31, | |||||||||
2005 | 2006 | ||||||||
(in millions of | |||||||||
Canadian dollars) | |||||||||
(unaudited) | |||||||||
Income before amortization, financial expenses, loss on debt refinancing and other | |||||||||
Cable | $ | 99.1 | $ | 117.8 | |||||
Newspapers | 41.7 | 37.1 | |||||||
Broadcasting | 6.8 | (0.4 | ) | ||||||
Leisure and Entertainment | 2.0 | 1.0 | |||||||
Interactive Technologies and Communications | 0.7 | 1.5 | |||||||
Internet/ Portals | 2.2 | 3.9 | |||||||
General corporate expenses | (1.5 | ) | (1.3 | ) | |||||
$ | 151.0 | $ | 159.6 | ||||||
Amortization | |||||||||
Cable | $ | 43.0 | $ | 49.8 | |||||
Newspapers | 6.4 | 8.5 | |||||||
Broadcasting | 3.4 | 3.6 | |||||||
Leisure and Entertainment | 1.0 | 1.7 | |||||||
Interactive Technologies and Communications | 0.4 | 0.4 | |||||||
Internet/ Portals | 0.2 | 0.2 | |||||||
Head Office | 0.2 | 0.4 | |||||||
$ | 54.6 | $ | 64.6 | ||||||
Additions to property, plant and equipment | |||||||||
Cable | $ | 37.3 | $ | 59.3 | |||||
Newspapers | 2.6 | 30.6 | |||||||
Broadcasting | 4.2 | 1.7 | |||||||
Leisure and Entertainment | 1.7 | 0.7 | |||||||
Interactive Technologies and Communications | 0.5 | 0.3 | |||||||
Internet/ Portals | — | 0.2 | |||||||
Head Office | 1.5 | 0.3 | |||||||
$ | 47.8 | $ | 93.1 | ||||||
F-59
Table of Contents
Total | ||||||||||||||||||||
Contributed | Translation | shareholders’ | ||||||||||||||||||
Capital Stock | surplus | Deficit | adjustment | equity | ||||||||||||||||
(in millions of Canadian dollars) | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||
Balance as at December 31, 2004 | $ | 1,773.7 | $ | 3,216.8 | $ | (2,529.6 | ) | $ | (1.0 | ) | $ | 2,459.9 | ||||||||
Net income | — | — | 12.8 | — | 12.8 | |||||||||||||||
Dividends | — | — | (5.0 | ) | — | (5.0 | ) | |||||||||||||
Translation adjustment | — | — | — | (0.5 | ) | (0.5 | ) | |||||||||||||
Balance as at March 31, 2005 | 1,773.7 | 3,216.8 | (2,521.8 | ) | (1.5 | ) | 2,467.2 | |||||||||||||
Net income | — | — | 83.7 | — | 83.7 | |||||||||||||||
Dividends | — | — | (100.0 | ) | — | (100.0 | ) | |||||||||||||
Translation adjustment | — | — | — | (0.8 | ) | (0.8 | ) | |||||||||||||
Balance as at December 31, 2005 | 1,773.7 | 3,216.8 | (2,538.1 | ) | (2.3 | ) | 2,450.1 | |||||||||||||
Net loss | — | — | (178.4 | ) | — | (178.4 | ) | |||||||||||||
Dividends | — | — | (10.0 | ) | — | (10.0 | ) | |||||||||||||
Translation adjustment | — | — | — | 0.1 | 0.1 | |||||||||||||||
Balance as at March 31, 2006 | $ | 1,773.7 | $ | 3,216.8 | $ | (2,726.5 | ) | $ | (2.2 | ) | $ | 2,261.8 | ||||||||
F-60
Table of Contents
Three months ended | ||||||||||
March 31, | ||||||||||
2005 | 2006 | |||||||||
(In millions of | ||||||||||
Canadian dollars) | ||||||||||
(unaudited) | ||||||||||
Cash flows related to operations | ||||||||||
Net income (loss) | $ | 12.8 | $ | (178.4 | ) | |||||
Adjustments for: | ||||||||||
Amortization of property, plant and equipment | 53.1 | 62.7 | ||||||||
Amortization of deferred charges and of other assets | 1.5 | 1.9 | ||||||||
Amortization of deferred financing costs and long-term debt discount | 15.3 | 3.9 | ||||||||
Loss on ineffective derivative instruments and on foreign currency translation on unhedged long-term debt | 2.8 | 3.1 | ||||||||
Loss (gain) on revaluation of the additional amount payable | 1.8 | (8.2 | ) | |||||||
Loss on debt refinancing | — | 331.6 | ||||||||
Repayment of accrued interest on Senior Discount Notes | — | (191.3 | ) | |||||||
Non-controlling interest | 1.4 | (1.5 | ) | |||||||
Future income taxes | 4.1 | (109.5 | ) | |||||||
Other | 0.1 | 0.2 | ||||||||
92.9 | (85.5 | ) | ||||||||
Net change in non-cash balances related to operations (net of effect of business acquisitions and disposals) | (116.8 | ) | (105.1 | ) | ||||||
Cash flows used in operations | (23.9 | ) | (190.6 | ) | ||||||
Cash flows related to financing activities | ||||||||||
Net increase in bank indebtedness | 16.1 | 9.9 | ||||||||
Issuance of long-term debt, net of financing fees | — | 1,169.8 | ||||||||
Net borrowings under revolving bank facilities | 4.7 | 242.4 | ||||||||
Repayment of long-term debt and unwinding of hedging contracts | (0.9 | ) | (1,129.3 | ) | ||||||
Net (increase) reduction in prepayments under cross-currency swap agreements | (0.1 | ) | 21.6 | |||||||
Dividends | (5.0 | ) | (70.0 | ) | ||||||
Dividends paid to non-controlling shareholders | (1.3 | ) | (0.9 | ) | ||||||
Other | (1.5 | ) | (1.0 | ) | ||||||
Cash flows provided by financing activities | 12.0 | 242.5 | ||||||||
Cash flows related to investing activities | ||||||||||
Business acquisitions, net of cash and cash equivalents (note 5) | (6.1 | ) | (2.8 | ) | ||||||
Proceeds from disposal of businesses, net of cash and cash equivalents | 3.8 | — | ||||||||
Additions to property, plant and equipment | (47.8 | ) | (93.1 | ) | ||||||
Net decrease in temporary investments | 55.4 | — | ||||||||
Proceeds from disposal of assets | 0.2 | 0.5 | ||||||||
Other | (0.8 | ) | (0.7 | ) | ||||||
Cash flows provided by (used in) investing activities | 4.7 | (96.1 | ) | |||||||
Net decrease in cash and cash equivalents | (7.2 | ) | (44.2 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies | — | 0.1 | ||||||||
Cash and cash equivalents at beginning of period | 108.8 | 97.4 | ||||||||
Cash and cash equivalents at end of period | $ | 101.6 | �� | $ | 53.3 | |||||
Cash and cash equivalents consist of | ||||||||||
Cash | $ | 2.1 | $ | 16.1 | ||||||
Cash equivalents | 99.5 | 37.2 | ||||||||
$ | 101.6 | $ | 53.3 | |||||||
Cash interest payments | $ | 112.4 | $ | 287.6 | ||||||
Cash income tax payments (net of refunds) | 15.7 | 4.7 | ||||||||
F-61
Table of Contents
December 31, | March 31, | ||||||||
2005 | 2006 | ||||||||
(In millions of | |||||||||
Canadian dollars) | |||||||||
(audited) | (unaudited) | ||||||||
ASSETS | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 97.4 | $ | 53.3 | |||||
Temporary investments (market value of $40.6 million in 2005 and 2006)) | 40.6 | 40.6 | |||||||
Accounts receivable (net of allowance for doubtful accounts of $19.8 million in 2005 and $21.4 million in 2006) | 415.7 | 367.8 | |||||||
Income taxes | 9.3 | 8.1 | |||||||
Advances receivable from parent company and companies under common control | 15.6 | 23.0 | |||||||
Inventories and investments in televisual products and movies (note 4) | 155.5 | 141.6 | |||||||
Prepaid expenses | 22.4 | 29.4 | |||||||
Future income taxes | 98.7 | 101.0 | |||||||
855.2 | 764.8 | ||||||||
Long-term investments (market value of $11.2 million in 2005 and $11.3 million in 2006) | 11.2 | 11.3 | |||||||
Property, plant and equipment (net of accumulated amortization of $999.2 million in 2005 and $1,051.8 million in 2006) | 1,631.5 | 1,663.1 | |||||||
Future income taxes | 57.5 | 60.7 | |||||||
Other assets | 248.2 | 254.9 | |||||||
Goodwill | 3,871.9 | 3,874.7 | |||||||
$ | 6,675.5 | $ | 6,629.5 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||
Current liabilities | |||||||||
Bank indebtedness | $ | 12.7 | $ | 22.6 | |||||
Accounts payable and accrued charges | 608.8 | 446.6 | |||||||
Deferred revenue | 155.2 | 162.5 | |||||||
Income taxes | 13.4 | 8.3 | |||||||
Dividends payable | 60.0 | — | |||||||
Additional amount payable | 111.5 | 103.3 | |||||||
Current portion of long-term debt (note 6) | 2.7 | 19.7 | |||||||
964.3 | 763.0 | ||||||||
Long-term debt (note 6) | 2,530.5 | 2,997.1 | |||||||
Other liabilities | 359.3 | 342.2 | |||||||
Future income taxes | 227.0 | 122.9 | |||||||
Non-controlling interest | 144.3 | 142.5 | |||||||
Shareholders’ equity | |||||||||
Capital stock (note 8) | 1,773.7 | 1,773.7 | |||||||
Contributed surplus | 3,216.8 | 3,216.8 | |||||||
Deficit | (2,538.1 | ) | (2,726.5 | ) | |||||
Translation adjustment | (2.3 | ) | (2.2 | ) | |||||
2,450.1 | 2,261.8 | ||||||||
Guarantees (note 9) | |||||||||
Subsequent event (note 10) | |||||||||
$ | 6,675.5 | $ | 6,629.5 | ||||||
F-62
Table of Contents
F-63
Table of Contents
Three months ended | ||||||||
March 31, | ||||||||
2005 | 2006 | |||||||
Interest on long-term debt | $ | 55.6 | $ | 53.4 | ||||
Amortization of deferred financing costs and long-term debt discount | 15.3 | 3.9 | ||||||
Loss on ineffective derivative instruments and on foreign currency translation on unhedged long-term debt | 2.8 | 3.1 | ||||||
Loss (gain) on revaluation of the additional amount payable | 1.8 | (8.2 | ) | |||||
Investment income | (0.8 | ) | (0.5 | ) | ||||
Other | — | 2.1 | ||||||
74.7 | 53.8 | |||||||
Interest capitalized to the cost of property, plant and equipment | — | (1.5 | ) | |||||
$ | 74.7 | $ | 52.3 | |||||
Three months ended | |||||||||
March 31, | |||||||||
2005 | 2006 | ||||||||
Pension plans: | |||||||||
Defined benefit plan | $ | 3.9 | $ | 5.7 | |||||
Defined contribution plan | 2.6 | 2.6 | |||||||
$ | 6.5 | $ | 8.3 | ||||||
December 31, | March 31, | |||||||
2005 | 2006 | |||||||
Raw materials and supplies | $ | 32.0 | 28.7 | |||||
Work in process | 9.7 | 12.1 | ||||||
Finished goods | 68.7 | 61.4 | ||||||
Investments in televisual products and movies | 45.1 | 39.4 | ||||||
155.5 | 141.6 | |||||||
F-64
Table of Contents
• | The Company issued new Senior Notes of US$525.0 million in aggregate principal amount, before issuance fees of $8.6 million. The notes bear interest at 7.75% and mature in March 2016. These notes contain certain restrictions for the Company, including limitations on its ability to incur additional indebtedness and pay dividends and other distributions. The notes are unsecured and are redeemable at the option of the Company at a decreasing premium, commencing on March 15, 2011. The Company has fully hedged the foreign currency risk associated with the new Senior Notes by using cross-currency interest rate swaps, under which all payments were set in Canadian dollars. | |
• | The Company entered into new credit facilities comprised of (i) a $125.0 million term loan “A” credit facility, bearing interest at Bankers’ Acceptance Rate or Canadian Prime Rate, plus a premium determined by a leverage ratio, and maturing in January 2011, (ii) a US$350.0 million term loan “B” credit facility, bearing interest at US Prime Rate, plus a premium of 1%, or London Interbanking Offered Rate (“LIBOR”), plus a premium of 2%, and maturing in January 2013, and (iii) a new $100.0 million five-year revolving credit facility. These new credit facilities contain covenants that restrict the declaration and payment of dividends and other distributions and are collateralized by liens on all of the property and assets of the Company and its subsidiaries, now owned or hereafter acquired. The Company shall repay the term loan “A” principal in quarterly repayments equal to 2.5% of the full principal amount during the term first three years, 5.0% in 2009 and 12.5% in 2010. It shall repay the term loan “B” principal in quarterly repayments of 0.25% of the full principal amount and the balance at the end of the term. The Company has fully hedged the foreign currency risk associated with the new term “B” loan by using cross-currency interest rate swaps, under which all payments were set in Canadian dollars. | |
• | The Company borrowed $237.0 million from Videotron Ltd.’s existing revolving credit facility and $40.0 million from a new term loan “C” credit facility at Sun Media Corporation (with similar conditions as Sun Media Corporation’s existing credit facilities). | |
• | The proceeds from the new Senior Notes and the full amount of the new term loan “A” and term loan “B”, and from Videotron Ltd.’s existing revolving credit facility and Sun Media Corporation’s new term loan “C”, were used to repurchase US$561.6 in aggregate principal amounts of the Company’s 11.125% Senior Notes and US$275.6 million in aggregate principal amounts at maturity of the Company’s outstanding 13.75% Senior Discount Notes pursuant to tenders offers announced on December 16, 2005. In the tender offers, the total consideration per US$1,000 principal amount of Senior Notes was US$1,083.49 and the total consideration per US$1,000 principal amount at maturity of Senior Discount Notes was US$1,042.64, which includes a tender premium of US$30.00 per US$1,000 of principal, or principal amount at maturity in the case of the Discount Notes, in respect of notes tendered on or prior to December 30, 2005. |
F-65
Table of Contents
2007 | $ | 19.7 | ||
2008 | 19.3 | |||
2009 | 19.3 | |||
2010 | 599.1 | |||
2011 | 108.5 | |||
2012 and thereafter | 2,250.9 |
Exchange rate | ||||||||||||||||||||
of interest | ||||||||||||||||||||
Annual | Annual | and capital | ||||||||||||||||||
effective | nominal | payments per | ||||||||||||||||||
Period | Notional | interest | interest | CDN dollar for | ||||||||||||||||
covered | amount | rate | rate | one US dollar | ||||||||||||||||
Senior Notes | 2006 to 2011 | US$ | 525.0 | 7.39% | 7.75% | 1.1600 | ||||||||||||||
Term loan B credit | 2006 to 2009 | US$ | 200.0 | 6.27% | LIBOR | 1.1625 | ||||||||||||||
plus 2.00% | ||||||||||||||||||||
Term loan B credit | 2009 to 2013 | US$ | 200.0 | Bankers’ | LIBOR | 1.1625 | ||||||||||||||
acceptances | plus 2.00% | |||||||||||||||||||
3 months | ||||||||||||||||||||
plus 2.22% | ||||||||||||||||||||
Term loan B credit | 2006 to 2013 | US$ | 150.0 | 6.44% | LIBOR | 1.1625 | ||||||||||||||
plus 2.00% |
• | An unlimited number of Cumulative First Preferred Shares, Series A (“Preferred A Shares”), carrying a 12.5% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company; | |
• | An unlimited number of Cumulative First Preferred Shares, Series B (“Preferred B Shares”), carrying a fixed cumulative preferential dividend generally equivalent to the Company’s credit facility interest rate, redeemable at the option of the holder and retractable at the option of the Company; | |
• | An unlimited number of Cumulative First Preferred Shares, Series C (“Preferred C Shares”), carrying an 11.25% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company; |
F-66
Table of Contents
• | An unlimited number of Cumulative First Preferred Shares, Series D (“Preferred D Shares”), carrying an 11.00% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company; | |
• | An unlimited number of Cumulative First Preferred Shares, Series F (“Preferred F Shares”), carrying a 10.85% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company. |
Common Shares | ||||||||
Number | Amount | |||||||
Balance as at December 31, 2005 and March 31, 2006 | 123,602,807 | $ | 1,773.7 | |||||
Outstanding options | |||||||||
Weighted average | |||||||||
Number | exercise price | ||||||||
Quebecor Media inc. | |||||||||
As at December 31, 2005 | 3,228,321 | $ | 18.90 | ||||||
Granted | 275,569 | 30.47 | |||||||
Cancelled | (1,176 | ) | 22.98 | ||||||
As at March 31, 2006 | 3,502,714 | $ | 19.81 | ||||||
Vested options as at March 31, 2006 | 1,455,737 | $ | 17.42 | ||||||
TVA Group Inc. | |||||||||
As at December 31, 2005 | 310,177 | $ | 20.27 | ||||||
Granted | 376,765 | 15.88 | |||||||
As at March 31, 2006 | 686,942 | $ | 17.86 | ||||||
Vested options as at March 31, 2006 | 72,500 | $ | 18.50 | ||||||
Nurun inc. | |||||||||
As at December 31, 2005 | 1,086,950 | $ | 3.77 | ||||||
Granted | 364,500 | 3.39 | |||||||
Exercised | (26,875 | ) | 1.55 | ||||||
Cancelled | (6,000 | ) | 8.98 | ||||||
As at March 31, 2006 | 1,418,575 | $ | 3.69 | ||||||
Vested options as at March 31, 2006 | 555,138 | $ | 5.70 | ||||||
F-67
Table of Contents
F-68
Table of Contents
11. | SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES |
Three month ended | |||||||||
March 31, | |||||||||
2005 | 2006 | ||||||||
Net income (loss) as reported in the consolidated statements of income as per GAAP in Canada | $ | 12.8 | $ | (178.4 | ) | ||||
Adjustments: | |||||||||
Development, pre-operating and start-up costs (i) | (0.3 | ) | (0.1 | ) | |||||
Change in fair value related to derivative instruments (ii) | (5.1 | ) | 76.6 | ||||||
Pension and postretirement benefits (iii) | 0.1 | 0.2 | |||||||
Income taxes (iv) | 0.1 | (33.7 | ) | ||||||
Net income (loss) as adjusted as per GAAP in the United States (in Canadian dollars) | $ | 7.6 | $ | (135.4 | ) | ||||
Three months ended | ||||||||
March 31, | ||||||||
2005 | 2006 | |||||||
Net income (loss) as adjusted as per GAAP in the United States (in Canadian dollars) | $ | 7.6 | $ | (135.4 | ) | |||
Derivative instruments (ii) | (23.2 | ) | 130.3 | |||||
Pension and postretirement benefits (iii) | 1.9 | 2.0 | ||||||
Translation adjustment | (0.5 | ) | 0.1 | |||||
Income taxes (iv) | (0.6 | ) | (56.9 | ) | ||||
Comprehensive loss as per GAAP in the United States | $ | (14.8 | ) | $ | (59.9 | ) | ||
F-69
Table of Contents
December 31, | March 31, | |||||||
2005 | 2006 | |||||||
Derivative instruments (ii) | $ | (176.4 | ) | $ | (46.1 | ) | ||
Pension and postretirement benefits (iii) | (30.2 | ) | (28.2 | ) | ||||
Translation adjustment | (2.3 | ) | (2.2 | ) | ||||
Income taxes (iv) | 77.8 | 20.9 | ||||||
Accumulated other comprehensive loss at end of period | $ | (131.1 | ) | $ | (55.6 | ) | ||
December 31, 2005 | March 31, 2006 | |||||||||||||||
Canada | United States | Canada | United States | |||||||||||||
Other assets | $ | 248.2 | $ | 240.7 | $ | 254.9 | $ | 246.9 | ||||||||
Goodwill | 3,871.9 | 3,868.0 | 3,874.7 | 3,870.7 | ||||||||||||
Long-term debt | (2,530.5 | ) | (2,465.8 | ) | (2,997.2 | ) | (2,908.2 | ) | ||||||||
Other liabilities | (359.3 | ) | (684.5 | ) | (342.2 | ) | (481.3 | ) | ||||||||
Future income tax liabilities | (227.0 | ) | (103.8 | ) | (122.9 | ) | (90.7 | ) | ||||||||
Non-controlling interest | (144.3 | ) | (144.0 | ) | (142.5 | ) | (142.8 | ) | ||||||||
Contributed surplus (v) | (3,216.8 | ) | (3,386.4 | ) | (3,216.8 | ) | (3,386.4 | ) | ||||||||
Deficit | 2,538.1 | 2,727.3 | 2,726.5 | 2,872.9 | ||||||||||||
Accumulated other comprehensive loss | 2.3 | 131.1 | 2.2 | 55.6 |
(i) | Under GAAP in Canada, certain development and pre-operating costs that satisfy specified criteria for recoverability are deferred and amortized. Also, under GAAP in Canada, certainstart-up costs incurred in connection with various projects have been recorded in the consolidated balance sheets under the item “Other assets,” and are amortized over a period not exceeding five years. Under GAAP in the United States, these costs must be included in income as incurred. | |
(ii) | Under GAAP in United States, Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) establishes accounting and reporting standards for derivative instruments and hedging activities and requires that all derivatives be recorded as either assets or liabilities in the balance sheet at fair value. In accordance with SFAS 133, for derivative instruments designated as fair value hedges, such as certain cross-currency interest rate swaps of the Company, Videotron Ltd. and Sun Media Corporation, changes in the fair value of the derivative instrument are substantially offset in the statement of income by changes in the fair value of the hedged item. For derivative instruments designated as cash flow hedges, such as certain cross-currency interest rate swaps or forward exchange contracts of the Company, Videotron Ltd. and Sun Media Corporation, the effective portion of any hedge is reported in other comprehensive income (loss) until it is recognized in income during the same period in which the hedged item affects income, while the current ineffective portion of hedges is recognized in the statement of income each period. |
Under GAAP in Canada, derivative financial instruments are accounted for on an accrual basis. Realized and unrealized gains and losses are deferred and recognized in income in the same period and in the same financial statement category as the income or expense arising from the corresponding hedged positions. | |
Further differences result from the different transition rules and timing of the adoption of the current standards in Canada and in the United States for derivative financial instruments and hedge accounting. |
F-70
Table of Contents
The fair value of the Company’s financial instruments as at March 31, 2006 is as follows: |
Asset (liability) | |||||
Interest rate swap agreements | $ | — | |||
Foreign exchange forward contracts | |||||
in US | 1.2 | ||||
in euros | (0.3 | ) | |||
in CHF | (0.1 | ) | |||
Cross-currency interest rate swaps agreements | (354.3 | ) |
(iii) | Under GAAP in Canada, when a defined benefit plan gives rise to an accrued benefit asset, a company must recognize a valuation allowance for the excess of the adjusted benefit asset over the expected future benefit to be realized from the plan asset. GAAP in the United States does not provide for a valuation allowance against pension assets. |
Under GAAP in the United States, if the accumulated benefit obligation exceeds the fair value of a pension plan’s assets, the Company is required to recognize a minimum accrued liability equal to the unfunded accumulated benefit obligation, which is recorded in accumulated other comprehensive loss. | |
Further differences result from the different transition rules and timing of the adoption of the current standards in Canada and in the United States for pension and postretirement benefits. |
(iv) | This adjustment represents the tax impact of United States GAAP adjustments. | |
(v) | Under GAAP in Canada, a gain on repurchase of redeemable preferred shares of a subsidiary was included in income in 2003. Under GAAP in the United States, any such gain is included in contributed surplus. | |
(vi) | Under GAAP in the United States, items which comprise more than 5% of total current liabilities must be disclosed separately. Accrued interest expenses of $82.6 million and $38.3 million and employees’ salaries and dues of $101.7 million and $89.1 million as at December 31, 2005 and March 31, 2006, respectively, are included in accounts payable and accrued charges. | |
(vii) | Under GAAP in the United States, cost of sales and other expenses must be disclosed separately in the statement of income. These costs are as follows: |
Three months ended | ||||||||
March 31, | ||||||||
2005 | 2006 | |||||||
Cost of sales | $ | 299.9 | $ | 334.9 | ||||
General, selling and administrative expenses | 173.8 | 204.2 | ||||||
$ | 473.7 | $ | 539.1 | |||||
F-71
Table of Contents
Three months ended | ||||||||
March 31, | ||||||||
2005 | 2006 | |||||||
Revenues | $ | 609.2 | $ | 680.7 | ||||
Cost of sales and selling and administrative expenses | (458.9 | ) | (522.6 | ) | ||||
Amortization | (54.2 | ) | (64.2 | ) | ||||
Financial expenses | (75.0 | ) | (52.4 | ) | ||||
Loss on debt refinancing | — | (331.6 | ) | |||||
Other | — | 0.4 | ||||||
Income (loss) before income taxes | 21.1 | (289.7 | ) | |||||
Income taxes | 7.2 | (108.8 | ) | |||||
13.9 | (180.9 | ) | ||||||
Non-controlling interest | (1.3 | ) | 1.9 | |||||
Net income (loss) | $ | 12.6 | $ | (179.0 | ) | |||
Three months ended | ||||||||
March 31, | ||||||||
2005 | 2006 | |||||||
Cable | $ | 99.1 | $ | 117.8 | ||||
Newspapers | 41.7 | 37.1 | ||||||
Broadcasting | 6.8 | (0.4 | ) | |||||
Leisure and Entertainment | 2.0 | 1.0 | ||||||
Internet/ Portals | 2.2 | 3.9 | ||||||
151.8 | 159.4 | |||||||
General corporate expenses | (1.5 | ) | (1.3 | ) | ||||
$ | 150.3 | $ | 158.1 | |||||
December 31, | March 31, | ||||||||
2005 | 2006 | ||||||||
Assets | |||||||||
Current assets | $ | 794.0 | $ | 700.8 | |||||
Property, plant and equipment | 1,628.6 | 1,660.2 | |||||||
Other assets | 313.3 | 323.2 | |||||||
Goodwill | 3,868.3 | 3,868.1 | |||||||
6,604.2 | 6,552.3 | ||||||||
Liabilities | |||||||||
Current liabilities | 946.8 | 741.8 | |||||||
Long-term debt | 2,530.5 | 2,997.1 | |||||||
Other liabilities | 586.3 | 465.1 | |||||||
Non-controlling interest | 118.8 | 115.8 | |||||||
4,182.4 | 4,319.8 | ||||||||
Net investment in Restricted Subsidiaries and the Company | $ | 2,421.8 | $ | 2,232.5 | |||||
F-72
Table of Contents
Three months ended | ||||||||
March 31, | ||||||||
2005 | 2006 | |||||||
Revenues | $ | 15.5 | $ | 18.0 | ||||
Cost of sales and selling and administrative expenses | (14.8 | ) | (16.5 | ) | ||||
Amortization | (0.4 | ) | (0.4 | ) | ||||
Financial revenues | 0.3 | 0.1 | ||||||
Income before income taxes | 0.6 | 1.2 | ||||||
Income taxes | 0.3 | 0.2 | ||||||
0.3 | 1.0 | |||||||
Non-controlling interest | (0.1 | ) | (0.4 | ) | ||||
Net income | $ | 0.2 | $ | 0.6 | ||||
December 31, | March 31, | ||||||||
2005 | 2006 | ||||||||
Assets | |||||||||
Current assets | $ | 61.2 | $ | 64.0 | |||||
Property, plant and equipment | 2.9 | 2.9 | |||||||
Other assets | 3.6 | 3.7 | |||||||
Goodwill | 3.6 | 6.6 | |||||||
71.3 | 77.2 | ||||||||
Liabilities | |||||||||
Current liabilities | 17.5 | 21.2 | |||||||
Non-controlling interest | 25.5 | 26.7 | |||||||
43.0 | 47.9 | ||||||||
Net investment in Unrestricted Subsidiaries | $ | 28.3 | $ | 29.3 | |||||
F-73
Table of Contents
![(LOGO)](https://capedge.com/proxy/424B3/0001206212-06-000146/m31895b3m3189500.gif)