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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F/A
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year endedDecember 31, 2006
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
OR
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission file number: 333-13792
QUEBECOR MEDIA INC.
(Exact name of Registrant as specified in its charter)
Province of Québec, Canada
(Jurisdiction of incorporation or organization)
(Jurisdiction of incorporation or organization)
612 Saint-Jacques Street
Montréal, Québec, Canada H3C 4M8
(Address of principal executive offices)
Montréal, Québec, Canada H3C 4M8
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | Name of each exchange on which registered | |
None | None |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
73/4% Senior Notes due March 2016
(Title of Class)
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
123,602,807 Common Shares
235,000 Cumulative First Preferred Shares, Series A
275,000 Cumulative First Preferred Shares, Series C
320,000 Cumulative First Preferred Shares, Series F
235,000 Cumulative First Preferred Shares, Series A
275,000 Cumulative First Preferred Shares, Series C
320,000 Cumulative First Preferred Shares, Series F
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes þ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
o Yes þ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filero Accelerated filero Non-accelerated filerþ
Indicate by check mark which financial statement item the registrant has elected to follow.
þ Item 17 o Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes þ No
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Certification of Pierre Karl Peladeau | ||||||||
Certification of Louis Morin | ||||||||
Certification of Pierre Karl Peladeau | ||||||||
Certification of Louis Morin |
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AMENDMENT EXPLANATORY NOTE
Restatement of U.S. GAAP Reconciliation Note to Financial Statements Relating to Accounting for Fair Value Hedge Relationships
This Amendment No. 2 (this “Form 20-F/A”) to our Annual Report on Form 20-F for the year ended December 31, 2006 that was originally filed on March 30, 2007 (and amended and refiled on the same date to correct a clerical error) (the “Original Filing”), is being filed to reflect a restatement of note 26, “Significant Differences Between GAAP in Canada and in the United States”, as at December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004. In the context of its continuous review of accounting standards, Quebecor Media determined that corrections to previously reported financial information relating to the accounting of certain fair value hedge relationships were appropriate. Restated note 26 also includes tables that set forth Quebecor Media’s previously reported and restated unaudited consolidated statements of income calculated in accordance with GAAP in the United States for each of the quarters in fiscal year 2006. Management of Quebecor Media is of the opinion that this restatement of U.S. GAAP financial information is appropriate to correct a misinterpretation of the applicable GAAP and has concluded that the restatement does not result from a deficiency in internal controls over financial reporting.
For a description of the restatement, see “Significant Differences Between GAAP in Canada and in the United States — Restatement of U.S. GAAP Reconciliation Note to Financial Statements Relating to Accounting for Fair Value Hedge Relationships” in restated note 26 to the accompanying audited consolidated financial statements in this Amendment No. 2. No adjustments are required to financial information prepared in accordance with GAAP in Canada due to the subject matter of the restatement. Although the financial statements in their entirety are included in this Amendment No. 2, the only modifications from the Original Filing are the changes to Note 26 as a result of the restatement and the addition of Note 28, "Subsequent events", to disclose material probable business acquisitions that have occurred since the date of the Original Filing.
This Amendment No. 2 amends and restates Item 3A, Item 17 and Item 19 (for the inclusion of new certifications only) of the Original Filing and, except for such items, this Amendment No. 2 does not, and does not purport to, amend, update or restate the information in any other item of the Original Filing. The explanatory caption at the beginning of each item of this Amendment No. 2 sets forth the nature of the revisions to that item.
Except for the certifications and for the note 28, “Subsequent events”, this Amendment No. 2 speaks as of the filing date of the Original Filing.
On the date hereof, we are also furnishing to the SEC a report on Form 6-K/A containing an amended and restated Quarterly Report for the three months ended March 31, 2007 and 2006, as well as restated unaudited quarterly financial statements.
All references in this Amendment No. 2 to “Quebecor Media”, “QMI” or the “Company”, as well as use of the terms “we”, “us”, “our” or similar terms, are references to Quebecor Media Inc., a company incorporated in Canada in August 2000 under Part 1A of theCompanies Act(Québec), and, unless the context otherwise requires, its subsidiaries and operating companies.
PRESENTATION OF FINANCIAL INFORMATION
Our consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in Canada, or Canadian GAAP. For a discussion of the principal differences between Canadian GAAP and the accounting principles generally accepted in the United States, or U.S. GAAP, see Note 26 to our audited consolidated financial statements for the years ended December 31, 2004, 2005 and 2006 included under “Item 17. Financial Statements”. We prepare our financial statements in Canadian dollars. In this annual report, references to Canadian
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dollars, Cdn$ or $ are to the currency of Canada, and references to U.S. dollars or US$ are to the currency of the United States.
We use certain financial measures that are not calculated in accordance with Canadian GAAP or U.S. GAAP to assess our financial performance. We use these non-GAAP financial measures, such as operating income, free cash flow from operations and average monthly revenue per user, because we believe that they are meaningful measures of our performance. Our method of calculating these non-GAAP financial measures may differ from the methods used by other companies and, as a result, the non-GAAP financial measures presented in this annual report may not be comparable to other similarly titled measures disclosed by other companies. We provide a definition of the non-GAAP financial measures used in this annual report under “Item 5. Operating and Financial Review and Prospects”. We provide a definition of operating income, and a reconciliation of operating income to the most directly comparable financial measure under Canadian GAAP and under U.S. GAAP principles in Note 1 to the tables under “Item 3. Key Information — A. Selected Financial Data”. When we discuss free cash flow from operations in this annual report, we provide a reconciliation to the most directly comparable GAAP financial measure in the same section.
Unless otherwise indicated, information provided in this annual report, including all operating data presented, is as of December 31, 2006.
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PART I
ITEM 3 — KEY INFORMATION
The U.S. GAAP “selected financial data” as at and for the years ended December 31, 2006, 2005, 2004, 2003 and 2002 set forth in this Item 3A has been revised to reflect the restatement described under “Amendment Explanatory Note”. Except for such revisions and cross-references to the relevant notes to our consolidated financial statements, this Item 3A has not been revised and does not reflect events or developments subsequent to the date of the Original Filing.
Selected Financial Data
The following table presents selected consolidated financial information for our business for each of the years 2002 through 2006. Our selected historical consolidated financial data presented below under the captions “Statement of Income Data” for the years ended December 31, 2004, 2005 and 2006 and “Balance Sheet Data” as at December 31, 2005 and 2006 are derived from our consolidated financial statements, which have been audited by KPMG LLP, an independent registered public accounting firm, and are included in “Item 17. Financial Statements” of this annual report. KPMG LLP’s report on our consolidated financial statements is included in this annual report. The selected consolidated statement of income data presented below for the years ended December 31, 2002 and 2003 and consolidated balance sheet data as at December 31, 2002, 2003 and 2004 are derived from our audited consolidated financial statements not included in this annual report. The selected financial data presented below should be read in conjunction with the information contained in “Item 5. Operating and Financial Review and Prospects” and our audited consolidated financial statements and notes thereto contained in “Item 17. Financial Statements” of this annual report (beginning on page F-1).
Our consolidated financial statements have been prepared in accordance with Canadian GAAP. For a discussion of the principal differences between Canadian GAAP and U.S. GAAP, see Note 26 to our audited consolidated financial statements contained in “Item 17. Financial Statements” of this annual report.
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CANADIAN GAAP DATA
Years Ended December 31, | ||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
(in millions, except ratio) | ||||||||||||||||||||
STATEMENT OF INCOME DATA: | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Cable | $ | 1,309.5 | $ | 1,080.3 | $ | 937.6 | $ | 862.8 | $ | 843.1 | ||||||||||
Newspapers | 928.2 | 915.6 | 888.1 | 845.9 | 831.6 | |||||||||||||||
Broadcasting | 393.3 | 401.4 | 358.0 | 340.9 | 323.4 | |||||||||||||||
Leisure and Entertainment | 315.8 | 255.4 | 241.7 | 205.0 | 206.3 | |||||||||||||||
Interactive Technologies and Communications | 73.9 | 65.1 | 51.9 | 44.8 | 49.9 | |||||||||||||||
Internet/Portals | 64.9 | 50.0 | 34.5 | 28.2 | 26.8 | |||||||||||||||
Head Office and inter-segment | (74.7 | ) | (64.9 | ) | (49.4 | ) | (29.5 | ) | (28.1 | ) | ||||||||||
3,010.9 | 2,702.9 | 2,462.4 | 2,298.1 | 2,253.0 | ||||||||||||||||
Cost of sales, selling and administrative expenses | (2,208.1 | ) | (1,969.3 | ) | (1,765.2 | ) | (1,686.3 | ) | (1,680.6 | ) | ||||||||||
Amortization | (260.7 | ) | (231.9 | ) | (225.9 | ) | (226.6 | ) | (224.6 | ) | ||||||||||
Financial expenses | (224.6 | ) | (285.3 | ) | (314.6 | ) | (300.1 | ) | (323.4 | ) | ||||||||||
Reserve for restructuring of operations, impairment of assets and other special charges | (18.9 | ) | 0.2 | (2.8 | ) | (1.8 | ) | (36.9 | ) | |||||||||||
(Loss) gain on debt refinancing and on repurchase of redeemable preferred shares of a subsidiary | (342.6 | ) | (60.0 | ) | (4.8 | ) | 144.1 | — | ||||||||||||
Gain (loss) on sales of businesses and other assets | 2.2 | 0.1 | 9.3 | (1.1 | ) | 3.6 | ||||||||||||||
Depreciation of goodwill and intangible assets | (180.0 | ) | — | — | (0.5 | ) | (178.1 | ) | ||||||||||||
Income taxes | 52.6 | (44.0 | ) | (37.4 | ) | 12.5 | (4.4 | ) | ||||||||||||
Non-controlling interest | (0.4 | ) | (16.2 | ) | (31.7 | ) | (34.6 | ) | (30.5 | ) | ||||||||||
(Loss) income from discontinued operations | (0.1 | ) | — | (1.1 | ) | 0.2 | (7.9 | ) | ||||||||||||
�� | ||||||||||||||||||||
Net (loss) income | (169.7 | ) | $ | 96.5 | $ | 88.2 | $ | 203.9 | $ | (229.8 | ) | |||||||||
OTHER FINANCIAL DATA AND RATIO: | ||||||||||||||||||||
Operating income(1) | $ | 802.8 | $ | 733.6 | $ | 697.2 | $ | 611.8 | $ | 572.4 | ||||||||||
Additions to property, plant and equipment | 435.5 | 319.8 | 181.1 | 131.2 | 135.8 | |||||||||||||||
Ratio of earnings to fixed charges(2) | — | 1.5x | 1.5x | 1.7x | 0.4x |
As at December 31, | ||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
BALANCE SHEET DATA: | ||||||||||||||||||||
Cash and cash equivalents | $ | 34.1 | $ | 97.4 | $ | 108.8 | $ | 103.6 | $ | 188.3 | ||||||||||
Total assets | 6,583.9 | 6,675.5 | 6,509.2 | 6,610.6 | 6,742.8 | |||||||||||||||
Total debt | 2,796.1 | 2,533.2 | 2,548.8 | 2,756.8 | 3,506.6 | |||||||||||||||
Capital stock | 1,752.4 | 1,773.7 | 1,773.7 | 1,773.7 | 1,341.8 | |||||||||||||||
Shareholders’ equity | 2,237.0 | 2,450.1 | 2,459.9 | 2,395.0 | 1,751.9 |
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U.S. GAAP DATA
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(restated)(3) | (restated)(3) | (restated)(3) | ||||||||||
(in millions, except ratio) | ||||||||||||
STATEMENT OF INCOME DATA: | ||||||||||||
Revenues | ||||||||||||
Cable | $ | 1,312.2 | $ | 1,086.5 | $ | 946.9 | ||||||
Newspapers | 928.2 | 915.6 | 888.1 | |||||||||
Broadcasting | 393.3 | 401.4 | 358.0 | |||||||||
Leisure and Entertainment | 315.8 | 255.4 | 241.7 | |||||||||
Interactive Technologies and Communications | 73.9 | 65.1 | 51.9 | |||||||||
Internet/Portals | 64.9 | 50.0 | 34.5 | |||||||||
Head Office and inter-segment | (74.7 | ) | (64.9 | ) | (49.4 | ) | ||||||
3,013.6 | 2,709.1 | 2,471.7 | ||||||||||
Cost of sales, selling and administrative expenses | (2,216.9 | ) | (1,973.5 | ) | (1,764.3 | ) | ||||||
Amortization | (257.9 | ) | (229.6 | ) | (225.7 | ) | ||||||
Financial expenses | (220.0 | ) | (304.0 | ) | (322.2 | ) | ||||||
Reserve for restructuring of operations, impairment of assets and other special charges | (18.9 | ) | 0.2 | (2.8 | ) | |||||||
Loss on debt refinancing | (275.7 | ) | (48.5 | ) | (4.8 | ) | ||||||
Gain on sales of businesses and other assets | 2.2 | 1.6 | 9.3 | |||||||||
Depreciation of goodwill and intangible assets | (180.0 | ) | — | — | ||||||||
Income taxes | 12.2 | (8.1 | ) | (43.4 | ) | |||||||
Non-controlling interest | (1.3 | ) | (18.4 | ) | (35.1 | ) | ||||||
Loss from discontinued operations | (0.1 | ) | — | (0.8 | ) | |||||||
Net (loss) income | $ | (142.8 | ) | $ | 128.8 | $ | 81.9 | |||||
OTHER FINANCIAL DATA AND RATIOS: | ||||||||||||
Operating income(1) | $ | 796.7 | $ | 735.6 | $ | 707.4 | ||||||
Additions to property, plant and equipment | 435.5 | 319.8 | 181.1 | |||||||||
Comprehensive (loss) income | (56.4 | ) | 160.0 | (25.5 | ) | |||||||
Ratio of earnings to fixed charges(2) | — | 1.5 | x | 1.5 | x |
As of December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(restated) (3) | (restated) (3) | (restated) (3) | ||||||||||
(in millions) | ||||||||||||
BALANCE SHEET DATA: | ||||||||||||
Cash and cash equivalents | $ | 34.1 | $ | 97.4 | $ | 108.8 | ||||||
Total assets | 6,533.4 | 6,664.1 | 6,480.1 | |||||||||
Long-term debt | 2,766.3 | 2,501.1 | 2,529.0 | |||||||||
Capital stock | 1,752.4 | 1,773.7 | 1,773.7 | |||||||||
Shareholders’ equity | 2,155.3 | 2,275.2 | 2,204.3 |
(1) | Quebecor Media defines operating income, as reconciled to net (loss) income under Canadian GAAP, as net (loss) income 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 |
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businesses and other assets, depreciation of goodwill and intangible assets, income taxes, non-controlling interest and (loss) income from discontinued operations. Quebecor Media defines operating income, as reconciled to net (loss) income under U.S. GAAP, as net (loss) income before amortization, financial expenses, reserve for restructuring of operations, impairment of assets and other special charges, loss on debt refinancing, gain on sales of businesses and other assets, depreciation of goodwill and intangible assets, income taxes, non-controlling interest and loss from discontinued operations. 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 or distributions, 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 Inc., 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. The Company uses other measures that do reflect such costs, such as 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 (loss) income as disclosed in our financial statements:
Three Month | ||||||||||||||||||||||||||||
Period | ||||||||||||||||||||||||||||
Ended December | ||||||||||||||||||||||||||||
Years Ended December 31, | 31, | |||||||||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | 2006 | 2005 | ||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
Reconciliation between net (loss) income and operating income disclosed herein (Canadian GAAP) | ||||||||||||||||||||||||||||
Net (loss) income | $ | (169.7 | ) | $ | 96.5 | $ | 88.2 | $ | 203.9 | $ | (229.8 | ) | $ | (97.1 | ) | $ | 58.4 | |||||||||||
Amortization | 260.7 | 231.9 | 225.9 | 226.6 | 224.6 | 68.3 | 64.7 | |||||||||||||||||||||
Financial expenses | 224.6 | 285.3 | 314.6 | 300.1 | 323.4 | 57.6 | 68.3 | |||||||||||||||||||||
Reserve for restructuring of operations, impairment of assets and other special charges | 18.9 | (0.2 | ) | 2.8 | 1.8 | 36.9 | 9.5 | (0.2 | ) | |||||||||||||||||||
Loss (gain) on debt refinancing and on repurchase of redeemable preferred shares of a subsidiary | 342.6 | 60.0 | 4.8 | (144.1 | ) | — | 0.5 | — | ||||||||||||||||||||
(Gain) loss on sale of businesses and other assets | (2.2 | ) | (0.1 | ) | (9.3 | ) | 1.1 | (3.6 | ) | (0.4 | ) | — | ||||||||||||||||
Depreciation of goodwill and intangible assets | 180.0 | — | — | 0.5 | 178.1 | 179.2 | — |
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Three Month | ||||||||||||||||||||||||||||
Period | ||||||||||||||||||||||||||||
Ended December | ||||||||||||||||||||||||||||
Years Ended December 31, | 31, | |||||||||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | 2006 | 2005 | ||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
Income taxes | (52.6 | ) | 44.0 | 37.4 | (12.5 | ) | 4.4 | 29.0 | 16.8 | |||||||||||||||||||
Non-controlling interest | 0.4 | 16.2 | 31.7 | 34.6 | 30.5 | (6.8 | ) | 5.4 | �� | |||||||||||||||||||
Loss (income) from discontinued operations | 0.1 | — | 1.1 | (0.2 | ) | 7.9 | (0.4 | ) | — | |||||||||||||||||||
Operating income | $ | 802.8 | $ | 733.6 | $ | 697.2 | $ | 611.8 | $ | 572.4 | $ | 239.4 | $ | 213.4 | ||||||||||||||
The following table provides a reconciliation under U.S. GAAP of operating income to net (loss) income as disclosed in our financial statements:
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(restated)(3) | (restated)(3) | (restated)(3) | ||||||||||
(in millions) | ||||||||||||
Reconciliation between net (loss) income and operating income disclosed herein (U.S. GAAP) | ||||||||||||
Net (loss) income | $ | (142.8 | ) | $ | 128.8 | $ | 81.9 | |||||
Amortization | 257.9 | 229.6 | 225.7 | |||||||||
Financial expenses | 220.0 | 304.0 | 322.2 | |||||||||
Reserve for restructuring of operations, impairment of assets and other special charges | 18.9 | (0.2 | ) | 2.8 | ||||||||
Loss on debt refinancing | 275.7 | 48.5 | 4.8 | |||||||||
Gain on sales of businesses and other assets | (2.2 | ) | (1.6 | ) | (9.3 | ) | ||||||
Depreciation of goodwill and intangible assets | 180.0 | — | — | |||||||||
Income taxes | (12.2 | ) | 8.1 | 43.4 | ||||||||
Non-controlling interest | 1.3 | 18.4 | 35.1 | |||||||||
Loss from discontinued operations | 0.1 | — | 0.8 | |||||||||
Operating income | $ | 796.7 | $ | 735.6 | $ | 707.4 | ||||||
(2) | For the purpose of calculating the ratio of earnings to fixed charges, (i) earnings consist of net (loss) income 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, 2002 and 2006, earnings, as calculated under Canadian GAAP, were inadequate to cover our fixed charges, and the coverage deficiency was $209.2 million and $231.1 million. For the year ended December 31, 2006, earnings, as calculated under U.S. GAAP, were inadequate to cover our fixed charges, and the coverage deficiency was $162.9 million. | |
(3) | Refer to note 26 of the audited consolidated financial statements for the year ended December 31, 2006. |
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PART III
ITEM 17 — FINANCIAL STATEMENTS
The consolidated financial statements included in this Item 17 include a new report of the auditors. In addition, note 26 “Significant Differences Between GAAP in Canada and in the United States” has been revised to reflect the restatement and a note 28, “Subsequent events” has been included. Except for those revisions, the consolidated financial statements included in this Item 17 have not been restated.
The consolidated financial statements of Quebecor Media, together with the notes thereto and the auditor’s report thereon, are set forth beginning on pages F-1 of this Amendment No. 2 and under Item 17 of the Original Filing, as amended and restated hereby.
ITEM 19—EXHIBITS
Other than the certifications, which are updated for this filing, no other new exhibits are filed and all other exhibits to the Original Filing remain unchanged.
The following documents are filed as exhibits to this annual report on Form 20-F:
Exhibit | ||
Number | Description | |
12.1 | Certification of Pierre Karl Péladeau, Vice Chairman and Chief Executive Officer of Quebecor Media Inc., pursuant to 15 U.S.C. Section 78(m)(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
12.2 | Certification of Louis Morin, Vice President and Chief Financial Officer of Quebecor Media Inc., pursuant to 15 U.S.C. Section 78(m)(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
13.1 | Certification of Pierre Karl Péladeau, Vice Chairman and Chief Executive Officer of Quebecor Media Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
13.2 | Certification of Louis Morin, Vice President and Chief Financial Officer of Quebecor Media Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
QUEBECOR MEDIA INC. | ||||
By: | /s/ Louis Morin | |||
Name: | Louis Morin | |||
Title: Vice President and Chief Financial Officer | ||||
Dated: June 22, 2007
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2006, 2005 and 2004
F-1 | ||||
Financial Statements | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-6 | ||||
F-8 | ||||
F-11 |
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Report of Independent Registered Public Accounting Firm
to the Board of Directors and to the shareholders of Quebecor Media Inc.
We have audited the accompanying consolidated balance sheets of Quebecor Media Inc. and its subsidiaries as at December 31, 2006 and 2005 and the related consolidated statements of income, shareholders’ equity and cash flows for the years ended December 31, 2006, 2005 and 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements refer to above present fairly, in all material respects, the financial position of the Company and its subsidiaries as at December 31, 2006 and 2005 and the results of their operations and their cash flows for the years ended December 31, 2006, 2005 and 2004 in conformity with Canadian generally accepted accounting principles.
Canadian generally accepted accounting principles vary in certain significant respects from US generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in Note 26 to the consolidated financial statements. Also, as discussed in Note 26 to the consolidated financial statements, in 2006 the Company changed in its US GAAP reconciliation (i) its method of accounting for share-based payment; and (ii) its method of accounting for pensions and other postretirement benefits plans. As described in Note 26, the Company has restated its US GAAP reconciliation from that previously issued.
/s/ KPMG LLP
Chartered Accountants
Chartered Accountants
Montreal, Canada
February 16, 2007, except as to notes 26 and 28, which are as of June 21, 2007
F-1
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Consolidated statements of income
Years ended December 31, 2006, 2005 and 2004
(in millions of Canadian dollars)
(in millions of Canadian dollars)
2006 | 2005 | 2004 | ||||||||||
Revenues | $ | 3,010.9 | $ | 2,702.9 | $ | 2,462.4 | ||||||
Cost of sales and selling and administrative expenses | (2,208.1 | ) | (1,969.3 | ) | (1,765.2 | ) | ||||||
Amortization | (260.7 | ) | (231.9 | ) | (225.9 | ) | ||||||
Financial expenses (note 2) | (224.6 | ) | (285.3 | ) | (314.6 | ) | ||||||
Reserve for restructuring of operations, impairment of assets and other special charges (note 3) | (18.9 | ) | 0.2 | (2.8 | ) | |||||||
Loss on debt refinancing (note 4) | (342.6 | ) | (60.0 | ) | (4.8 | ) | ||||||
Gain on sale of businesses and other assets | 2.2 | 0.1 | 9.3 | |||||||||
Impairment of goodwill and intangible assets (note 5) | (180.0 | ) | — | — | ||||||||
(Loss) income before income taxes | (221.8 | ) | 156.7 | 158.4 | ||||||||
Income taxes (note 7) | (52.6 | ) | 44.0 | 37.4 | ||||||||
(169.2 | ) | 112.7 | 121.0 | |||||||||
Non-controlling interest | (0.4 | ) | (16.2 | ) | (31.7 | ) | ||||||
(Loss) income from continuing operations | (169.6 | ) | 96.5 | 89.3 | ||||||||
Loss from discontinued operations (note 8) | (0.1 | ) | — | (1.1 | ) | |||||||
Net (loss) income | $ | (169.7 | ) | $ | 96.5 | $ | 88.2 | |||||
See accompanying notes to consolidated financial statements.
F-2
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Consolidated statements of shareholders’ equity
Years ended December 31, 2006, 2005 and 2004
(in millions of Canadian dollars)
(in millions of Canadian dollars)
Contributed | Translation | Total shareholder’s | ||||||||||||||||||
Capital Stock | surplus | Deficit | adjustment | equity | ||||||||||||||||
Balance as at December 31, 2003 | $ | 1,773.7 | $ | 3,220.6 | $ | (2,597.8 | ) | $ | (1.5 | ) | $ | 2,395.0 | ||||||||
Net income | — | — | 88.2 | — | 88.2 | |||||||||||||||
Dividends | — | — | (20.0 | ) | — | (20.0 | ) | |||||||||||||
Purchase of tax credits from a company under common control | — | (3.8 | ) | — | — | (3.8 | ) | |||||||||||||
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 | |||||||||||||
Net income | — | — | 96.5 | — | 96.5 | |||||||||||||||
Dividends | — | — | (105.0 | ) | — | (105.0 | ) | |||||||||||||
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 | |||||||||||||
Net loss | — | — | (169.7 | ) | — | (169.7 | ) | |||||||||||||
Dividends | — | — | (23.7 | ) | — | (23.7 | ) | |||||||||||||
Reduction in paid-up capital | (21.3 | ) | — | — | — | (21.3 | ) | |||||||||||||
Purchase of tax credits from a company under common control | — | 0.4 | — | — | 0.4 | |||||||||||||||
Translation adjustment | — | — | — | 1.2 | 1.2 | |||||||||||||||
Balance as at December 31, 2006 | $ | 1,752.4 | $ | 3,217.2 | $ | (2,731.5 | ) | $ | (1.1 | ) | $ | 2,237.0 | ||||||||
See accompanying notes to consolidated financial statements.
F-3
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Consolidated statements of cash flows
Years ended December 31, 2006, 2005 and 2004
(in millions of Canadian dollars)
(in millions of Canadian dollars)
2006 | 2005 | 2004 | ||||||||||
Cash flows related to operations: | ||||||||||||
(Loss) income from continuing operations | $ | (169.6 | ) | $ | 96.5 | $ | 89.3 | |||||
Adjustments for: | ||||||||||||
Amortization of property, plant and equipment | 251.2 | 225.3 | 218.1 | |||||||||
Amortization of deferred charges and other assets | 9.5 | 6.6 | 7.8 | |||||||||
Impairment of goodwill and intangible assets (note 5) | 180.0 | — | — | |||||||||
Net loss on derivative instruments and on foreign currency translation on financial instruments | 1.2 | 4.4 | 8.0 | |||||||||
Loss on revaluation of the Additional Amount payable (note 14) | 10.5 | 10.1 | 26.9 | |||||||||
(Gain) loss on sale of businesses and other assets | (0.4 | ) | (1.7 | ) | 3.1 | |||||||
Loss on debt refinancing (note 4) | 342.6 | 60.0 | 4.8 | |||||||||
Repayment of accrued interest on Senior Discount Notes | (197.3 | ) | (3.0 | ) | — | |||||||
Amortization of deferred financing costs and of long-term debt discount | 7.3 | 62.7 | 56.9 | |||||||||
Future income taxes | (58.0 | ) | 25.0 | 16.5 | ||||||||
Non-controlling interest | 0.4 | 16.2 | 31.7 | |||||||||
Other | 0.3 | (1.5 | ) | (1.8 | ) | |||||||
377.7 | 500.6 | 461.3 | ||||||||||
Net change in non-cash balances related to operations | (23.3 | ) | (27.9 | ) | 38.6 | |||||||
Cash flows provided by continuing operations | 354.4 | 472.7 | 499.9 | |||||||||
Cash flows provided by discontinued operations | — | — | 0.6 | |||||||||
Cash flows provided by operations | 354.4 | 472.7 | 500.5 | |||||||||
Cash flows related to investing activities: | ||||||||||||
Business acquisitions, net of cash and cash equivalents (note 6) | (10.5 | ) | (110.5 | ) | (112.5 | ) | ||||||
Proceeds from disposal of businesses, net of cash and cash equivalents (note 8) | 0.5 | 4.3 | (7.8 | ) | ||||||||
Additions to property, plant and equipment | (435.5 | ) | (319.8 | ) | (181.1 | ) | ||||||
Net decrease in temporary investments | 39.2 | 59.1 | 94.5 | |||||||||
Proceeds from disposal of assets | 9.4 | 5.5 | 7.5 | |||||||||
Acquisition of tax deductions from parent company (note 23) | (16.1 | ) | — | — | ||||||||
Decrease (increase) in advances receivable from parent company | 15.9 | (15.9 | ) | — | ||||||||
Proceeds from disposal of tax deductions to the parent company (note 23) | — | 15.9 | — | |||||||||
Other | (3.4 | ) | (3.6 | ) | (3.7 | ) | ||||||
Cash flows used in investing activities | (400.5 | ) | (365.0 | ) | (203.1 | ) | ||||||
Sub-total, balance carried forward | $ | (46.1 | ) | $ | 107.7 | $ | 297.4 |
F-4
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Consolidated statements of cash flows(continued)
Consolidated statements of cash flows(continued)
Years ended December 31, 2006, 2005 and 2004
(in millions of Canadian dollars)
(in millions of Canadian dollars)
2006 | 2005 | 2004 | ||||||||||
Sub-total, balance brought forward | $ | (46.1 | ) | $ | 107.7 | $ | 297.4 | |||||
Cash flows related to financing activities: | ||||||||||||
Net increase (decrease) in bank indebtedness | 7.9 | 12.3 | (4.2 | ) | ||||||||
Net borrowings (repayments) under revolving bank facilities | 38.4 | 72.2 | (86.4 | ) | ||||||||
Issuance of long-term debt, net of financing fees | 1,225.8 | 200.9 | 389.5 | |||||||||
Repayments of long-term debt and unwinding of hedging contracts | (1,201.2 | ) | (315.9 | ) | (384.9 | ) | ||||||
Net decrease (increase) in prepayments under cross-currency swap agreements | 21.6 | (34.1 | ) | (184.4 | ) | |||||||
Dividends and reduction of Common Shares paid-up capital | (105.0 | ) | (45.0 | ) | (20.0 | ) | ||||||
Dividends paid to non-controlling shareholders | (4.5 | ) | (5.2 | ) | (5.0 | ) | ||||||
Issuance of capital stock by subsidiaries | 0.1 | — | 2.6 | |||||||||
Other | (0.7 | ) | (3.6 | ) | — | |||||||
Cash flows used in financing activities | (17.6 | ) | (118.4 | ) | (292.8 | ) | ||||||
Net (decrease) increase in cash and cash equivalents | (63.7 | ) | (10.7 | ) | 4.6 | |||||||
Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies | 0.4 | (0.7 | ) | 0.6 | ||||||||
Cash and cash equivalents at beginning of year | 97.4 | 108.8 | 103.6 | |||||||||
Cash and cash equivalents at end of year | $ | 34.1 | $ | 97.4 | $ | 108.8 | ||||||
Cash and cash equivalents consist of: | ||||||||||||
Cash | $ | 13.9 | $ | 14.9 | $ | 8.0 | ||||||
Cash equivalents | 20.2 | 82.5 | 100.8 | |||||||||
$ | 34.1 | $ | 97.4 | $ | 108.8 | |||||||
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 | $ | (14.5 | ) | $ | (57.6 | ) | $ | (10.9 | ) | |||
Inventories and investments in televisual products and movies | (2.7 | ) | (20.3 | ) | 5.3 | |||||||
Accounts payable and accrued charges | (15.8 | ) | 43.7 | 15.0 | ||||||||
Other | 9.7 | 6.3 | 29.2 | |||||||||
$ | (23.3 | ) | $ | (27.9 | ) | $ | 38.6 | |||||
Cash interest payments | $ | 446.3 | $ | 233.5 | $ | 239.6 | ||||||
Cash income taxes payments (net of refunds) | 7.0 | 13.5 | 8.8 | |||||||||
See accompanying notes to consolidated financial statements.
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Consolidated balance sheets
December 31, 2006 and 2005
(in millions of Canadian dollars)
(in millions of Canadian dollars)
2006 | 2005 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 34.1 | $ | 97.4 | ||||
Temporary investments | 1.4 | 40.6 | ||||||
Accounts receivable (note 9) | 426.2 | 415.7 | ||||||
Income taxes | 17.3 | 9.3 | ||||||
Amounts receivable from parent company and companies under common control | — | 15.6 | ||||||
Inventories and investments in televisual products and movies (note 10) | 158.7 | 155.5 | ||||||
Prepaid expenses | 24.4 | 22.4 | ||||||
Future income taxes (note 7) | 65.9 | 98.7 | ||||||
728.0 | 855.2 | |||||||
Property, plant and equipment (note 11) | 1,830.1 | 1,631.5 | ||||||
Future income taxes (note 7) | 61.1 | 57.5 | ||||||
Other assets (note 12) | 243.6 | 259.4 | ||||||
Goodwill (note 13) | 3,721.1 | 3,871.9 | ||||||
$ | 6,583.9 | $ | 6,675.5 | |||||
F-6
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
consolidated balance sheets(continued)
consolidated balance sheets(continued)
December 31, 2006 and 2005
(in millions of Canadian dollars)
(in millions of Canadian dollars)
2006 | 2005 | |||||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Bank indebtedness | $ | 20.6 | $ | 12.7 | ||||
Accounts payable and accrued charges | 592.4 | 608.8 | ||||||
Deferred revenue | 177.6 | 155.2 | ||||||
Income taxes | 8.8 | 13.4 | ||||||
Dividends payable | — | 60.0 | ||||||
Amounts payable to parent company and companies under common control | 11.9 | — | ||||||
Additional Amount payable (note 14) | 122.0 | 111.5 | ||||||
Current portion of long-term debt (note 15) | 23.1 | 2.7 | �� | |||||
956.4 | 964.3 | |||||||
Long-term debt (note 15) | 2,773.0 | 2,530.5 | ||||||
Other liabilities (note 16) | 356.5 | 359.3 | ||||||
Future income taxes (note 7) | 118.9 | 227.0 | ||||||
Non-controlling interest (note 17) | 142.1 | 144.3 | ||||||
Shareholders’ equity: | ||||||||
Capital stock (note 18) | 1,752.4 | 1,773.7 | ||||||
Contributed surplus | 3,217.2 | 3,216.8 | ||||||
Deficit | (2,731.5 | ) | (2,538.1 | ) | ||||
Translation adjustment | (1.1 | ) | (2.3 | ) | ||||
2,237.0 | 2,450.1 | |||||||
Commitments and contingencies (note 20) | ||||||||
Guarantees (note 21) | ||||||||
Subsequent events (note 28) | ||||||||
$ | 6,583.9 | $ | 6,675.5 | |||||
See accompanying notes to consolidated financial statements.
F-7
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Segmented information
Years ended December 31, 2006, 2005 and 2004
(in millions of Canadian dollars)
(in millions of Canadian dollars)
Quebecor Media Inc. (the “Company”) operates in the following industry segments: Cable, Newspapers, Broadcasting, Leisure and Entertainment, Interactive Technologies and Communications and Internet/Portals. The Cable segment offers television distribution, Internet, business solutions, telephony and wireless services in Canada and operates in the rental of videocassettes, digital video discs (“DVD” units) and games. The Newspapers segment includes the printing, publishing and distribution of daily and weekly newspapers in Canada. The Broadcasting segment operates French- and English-language general-interest television networks, specialized television networks, magazine publishing and movie distribution businesses in Canada. The Leisure and Entertainment segment combines book publishing and distribution, and music production and distribution in Canada and Europe. The Interactive Technologies and Communications segment offers e-commerce solutions through a combination of strategies, technology integration, IP solutions and creativity on the Internet and is active in Canada, the United States, Europe and Asia. The Internet/Portals segment operates Internet sites in Canada, including French- and English-language portals and specialized sites.
These segments are managed separately since they all require specific market strategies. The Company assesses the performance of each segment based on income before amortization, financial expenses, reserve for restructuring of operations, impairment of assets and other special charges, loss on debt refinancing, gain on sale of businesses and other assets and impairment of goodwill and intangible assets.
On January 1, 2006, the operations of Videotron Telecom Ltd., previously the Business Telecommunications segment, were folded into the Cable segment. Accordingly, prior period figures in the Company’s segmented financial information were reclassified to reflect this change.
The accounting policies of each segment are the same as the accounting policies used for the consolidated financial statements.
Segment income includes income from sales to third parties and inter-segment sales. Transactions between segments are negotiated and measured as if they were transactions between unrelated parties.
2006 | 2005 | 2004 | ||||||||||
Revenues: | ||||||||||||
Cable | $ | 1,309.5 | $ | 1,080.3 | $ | 937.6 | ||||||
Newspapers | 928.2 | 915.6 | 888.1 | |||||||||
Broadcasting | 393.3 | 401.4 | 358.0 | |||||||||
Leisure and Entertainment | 315.8 | 255.4 | 241.7 | |||||||||
Interactive Technologies and Communications | 73.9 | 65.1 | 51.9 | |||||||||
Internet/Portals | 64.9 | 50.0 | 34.5 | |||||||||
Head Office and inter-segment | (74.7 | ) | (64.9 | ) | (49.4 | ) | ||||||
$ | 3,010.9 | $ | 2,702.9 | $ | 2,462.4 | |||||||
F-8
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Segmented information(continued)
Segmented information(continued)
Years ended December 31, 2006, 2005 and 2004
(in millions of Canadian dollars)
(in millions of Canadian dollars)
2006 | 2005 | 2004 | ||||||||||
Income before amortization, financial expenses, reserve for restructuring of operations, impairment of assets and other special charges, loss on debt refinancing, gain on sale of businesses and other assets and impairment of goodwill and intangible assets: | ||||||||||||
Cable | $ | 512.5 | $ | 413.3 | $ | 363.8 | ||||||
Newspapers | 207.6 | 222.2 | 227.8 | |||||||||
Broadcasting | 42.1 | 53.0 | 80.5 | |||||||||
Leisure and Entertainment | 19.3 | 27.0 | 22.7 | |||||||||
Interactive Technologies and Communications | 7.5 | 3.9 | 2.3 | |||||||||
Internet/Portals | 13.3 | 10.5 | 4.5 | |||||||||
802.3 | 729.9 | 701.6 | ||||||||||
General corporate revenues (expenses) | 0.5 | 3.7 | (4.4 | ) | ||||||||
$ | 802.8 | $ | 733.6 | $ | 697.2 | |||||||
2006 | 2005 | 2004 | ||||||||||
Amortization: | ||||||||||||
Cable | $ | 198.4 | $ | 179.7 | $ | 177.1 | ||||||
Newspapers | 36.5 | 30.3 | 26.0 | |||||||||
Broadcasting | 14.3 | 13.7 | 11.9 | |||||||||
Leisure and Entertainment | 7.2 | 4.3 | 5.6 | |||||||||
Interactive Technologies and Communications | 2.3 | 1.7 | 1.7 | |||||||||
Internet/Portals | 1.1 | 0.8 | 0.7 | |||||||||
Head Office | 0.9 | 1.4 | 2.9 | |||||||||
$ | 260.7 | $ | 231.9 | $ | 225.9 | |||||||
2006 | 2005 | 2004 | ||||||||||
Additions to property, plant and equipment: | ||||||||||||
Cable | $ | 302.6 | $ | 219.9 | $ | 144.5 | ||||||
Newspapers | 116.3 | 74.0 | 18.8 | |||||||||
Broadcasting | 9.0 | 12.9 | 10.1 | |||||||||
Leisure and Entertainment | 3.4 | 7.9 | 3.3 | |||||||||
Interactive Technologies and Communications | 1.8 | 1.4 | 1.2 | |||||||||
Internet/Portals | 1.9 | 0.7 | 0.8 | |||||||||
Head Office | 0.5 | 3.0 | 2.4 | |||||||||
$ | 435.5 | $ | 319.8 | $ | 181.1 | |||||||
F-9
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Segmented information (continued)
Segmented information (continued)
Years ended December 31, 2006, 2005 and 2004
(in millions of Canadian dollars)
(in millions of Canadian dollars)
2006 | 2005 | |||||||
Assets: | ||||||||
Cable | $ | 4,253.5 | $ | 4,251.7 | ||||
Newspapers | 1,579.2 | 1,503.5 | ||||||
Broadcasting | 408.9 | 585.3 | ||||||
Leisure and Entertainment | 178.0 | 183.1 | ||||||
Interactive Technologies and Communications | 92.8 | 71.0 | ||||||
Internet/Portals | 59.8 | 59.0 | ||||||
Head Office | 11.7 | 21.9 | ||||||
$ | 6,583.9 | $ | 6,675.5 | |||||
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
Quebecor Media Inc. (the “Company”) is incorporated under the laws of Quebec and is a subsidiary of Quebecor Inc.
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: | |
The consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). The significant differences between generally accepted accounting principles in Canada and in the United States are described in note 26. |
(a) | Basis of presentation: | ||
The consolidated financial statements include the accounts of the Company and all its subsidiaries. Intercompany transactions and balances are eliminated on consolidation. | |||
Certain comparative figures for the years 2005 and 2004 have been reclassified to conform to the presentation adopted for the year ended December 31, 2006. | |||
(b) | Foreign currency translation: | ||
Financial statements of self-sustaining foreign operations are translated using the rate in effect at the balance sheet date for asset and liability items, and using the average exchange rates during the year for revenues and expenses. Adjustments arising from this translation are deferred and recorded in translation adjustment and are included in income only when a reduction in the investment in these foreign operations is realized. | |||
Other foreign currency transactions are translated using the temporal method. Translation gains and losses are included in financial expenses. | |||
(c) | Use of estimates: | ||
The preparation of consolidated financial statements in accordance with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, related amounts of revenues and expenses, and disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates relate to the determination of pension and post-retirements benefits costs, key economic assumptions used in determining the allowance for doubtful accounts, the allowance for sales returns, reserves for the restructuring of operations, the useful life of assets for amortization and evaluation of expected future cash flows to be generated by those assets, the determination of the fair value of assets acquired and liabilities assumed in business combinations, implied fair value of goodwill, fair value of long-lived assets, broadcasting licences and goodwill for impairment tests purposes, provisions for income taxes and determination of future income tax assets and liabilities, and the determination of fair value of financial instruments. Actual results could differ from these estimates. | |||
(d) | Impairment of long-lived assets: | ||
The Company reviews long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. An impairment loss is recognized when the carrying amount of a group of assets held for use exceeds the sum of the undiscounted cash flows expected from its use and eventual disposition. Measurement of an impairment loss is based on the amount by which the group of assets carrying amount exceeds its fair value. Fair value is determined using quoted market prices, when available, or using accepted valuation techniques such as the discounted future cash flows method. |
F-11
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): |
(e) | Revenue recognition: | ||
The Company recognizes its operating revenues when the following criteria are met: |
• | 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. |
The portion of unearned revenue is recorded under “Deferred revenue” when customers are invoiced. | |||
Revenue recognition policies for each of the Company’s main segments are as follows: | |||
Cable segment | |||
The Cable segment provides services under arrangements with multiple deliverables, which are comprised of two separate accounting units: one for subscriber services (cable connecting fees and operating services) and the other for equipment sales to subscribers including activation fees related to wireless phones. | |||
Cable connection fee revenues of the Cable segment are deferred and recognized as revenues over the estimated average 30-month period that subscribers are expected to remain connected to the network. The incremental and direct costs related to cable connection fees, in an amount not exceeding the revenue, are deferred and recognized as an operating expense over the same 30-month period. Operating revenues from cable and other services, such as Internet access, telephony and wireless, are recognized when services are rendered. Revenue from equipment sales to subscribers and their costs are recognized in income when the equipment is delivered. Revenues from video rentals are recorded as revenue when services are provided. Promotion offers are accounted for as a reduction in the related service revenue when customers take advantage of the offer. Operating revenues related to service contracts are recognized in income over the life of the specific contracts on a straight-line basis over the period in which the services are provided. | |||
Newspapers segment | |||
Revenues of the Newspapers segment, derived from circulation and advertising from publishing activities, are recognized when the publication is delivered, net of provisions for estimated returns. Revenue from the distribution of publications and products is recognized upon delivery. | |||
Broadcasting segment | |||
Revenues of the Broadcasting segment derived from the sale of advertising airtime are recognized when the advertisement has been broadcast. Revenues derived from subscription to speciality television channels are recognized on a monthly basis at the time service is rendered. Revenues derived from circulation and advertising from publishing activities are recognized when publication is delivered. | |||
Revenues derived from the sale and distribution of film and from television program rights are recognized when the following conditions are met: (a) persuasive evidence of a sale or a licensing agreement with a customer exists and is provided solely by a contract or other legally enforceable documentation that sets forth, at a minimum (i) the licence period, (ii) the film or group of films affected, (iii) the consideration to be received for the rights transferred; (b) the film is complete and has been delivered or is available for delivery; (c) the licence period of the arrangement has begun and the customer can begin its exploitation, exhibition, or sale; (d) the arrangement fee is fixed or determinable; (e) the collection of the arrangement fee is reasonably assured. |
F-12
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements (continued)
Notes to consolidated financial statements (continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): |
(e) | Revenue recognition (continued): | ||
Broadcasting segment (continued) | |||
Theatrical revenues are recognized over the period of presentation and are based on a percentage of revenues generated by movie theatres. Revenues generated from the sale of video are recognized at the time of delivery of the videocassettes and DVDs, less a provision for future returns, or are accounted for based on a percentage of retail sales. | |||
Leisure and Entertainment segment | |||
Revenues derived from retail stores, book publishing and distribution activities are recognized on delivery of the products, net of provisions for estimated returns based on the segment’s historical rate of products return. | |||
(f) | Barter transactions: | ||
In the normal course of operations, the Newspapers, the Broadcasting and the Internet/Portals segments offer advertising in exchange for goods and services. Revenues thus earned and expenses incurred are accounted for on the basis of the fair value of the goods and services obtained. | |||
For the year ended December 31, 2006, the Company recorded $19.5 million of barter advertising ($17.7 million in 2005 and $13.1 million in 2004). | |||
(g) | Cash and cash equivalents: | ||
Cash and cash equivalents include highly liquid investments purchased three months or less from maturity and are stated at cost, which approximates market value. As at December 31, 2006, these highly liquid investments consisted mainly of commercial paper and bankers’ acceptance. | |||
(h) | Temporary investments: | ||
Temporary investments are recorded at the lower of cost and market value and as at December 31, 2006, these temporary investments consisted mainly of commercial paper. | |||
(i) | Trade receivable: | ||
The Company establishes an allowance for doubtful accounts based on the specific credit risk of its customers and historical trends. | |||
(j) | Tax credits and government assistance | ||
The Broadcasting and Leisure and Entertainment segments have access to several government programs designed to support production and distribution of televisual products and movies and magazine and book publishing in Canada. The financial aid for production is accounted for as a reduction of expenses. The financial aid for broadcast rights is applied against investments in televisual products or used directly to reduce operating expenses during the year. The financial aid for magazine and book publishing is accounted for in revenues when the conditions for acquiring the government assistance are met. |
F-13
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): |
(j) | Tax credits and government assistance (continued): | ||
The Interactive Technologies and Communications and Leisure and Entertainment segments receive tax credits mainly related to their research and development activities and publishing activities. These tax credits are accounted for using the cost reduction method. Under this method, tax credits related to eligible expenses are accounted for as a reduction in related costs, whether they are capitalized or expensed, in the year the expenses are incurred, as long as there is reasonable assurance of their realization. | |||
(k) | Inventories: | ||
Inventories are valued at the lower of cost, determined by the first-in, first-out method or the weighted-average cost method, and net realizable value. Net realizable value represents the market value for all inventories, except for raw materials and supplies, for which it is replacement cost. Work in progress is valued at the pro-rata billing value of the work completed. | |||
(l) | Investments in televisual products and movies: |
(i) | Programs produced and productions in progress | ||
Programs produced and productions in progress related to broadcast activities are accounted for at the lower of cost and net realizable value. Cost includes direct charges for goods and services and the share of labour and general expenses relating to each production. The cost of each program is charged to cost of sales when the program is broadcasted. | |||
(ii) | Broadcast rights | ||
Broadcast rights are essentially contractual rights allowing limited or unlimited broadcast of televisual products or movies. The Broadcasting segment records the broadcast rights acquired as an asset and the obligations incurred under a licence agreement as a liability when the broadcast licence period begins and all of the following conditions have been met: the cost of each program, movies or series is known or can be reasonably determined; the programs, movies or series have been accepted in accordance with the conditions of the broadcast licence agreement; the programs, movies or series are available for the first showing or telecast. | |||
Amounts paid for broadcast rights before all of the above conditions are met are recorded as prepaid broadcast rights. | |||
Broadcast rights are classified as short or long term, based on management’s estimates of the broadcast period. These rights are amortized when televisual products and movies are broadcast over the contract period, based on the estimated number of showings, using an amortization method based on future revenues. This amortization is presented in cost of sales and selling and administrative expenses. Broadcast rights are valued at the lower of unamortized cost or net realizable value. Broadcast rights payable are classified as current or long-term liabilities based on the payment terms included in the licence. |
F-14
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): |
(l) | Investment in televisual products and movies (continued): |
(iii) | Distribution rights: | ||
Distribution rights relate to the distribution of televisual products and movies. The costs include costs for movies distribution rights and other operating costs incurred, which provide future economic benefits. The net realizable value of distribution rights represents the Broadcasting segment’s share of future estimated revenues to be derived, net of future costs. The Broadcasting segment records an asset and a liability for the distribution rights and obligations incurred under a licence agreement when the televisual product and movie has been accepted in accordance with the conditions of the licence agreement, the televisual product or movie is available for broadcast and the cost of the licence is known or can be reasonably estimated. | |||
Amounts paid for distribution rights before all of the above conditions are met are recorded as prepaid distribution rights. Distribution rights are amortized using the individual film forecast computation method based on actual revenues realized over total expected revenues. | |||
Estimates of revenues related to television products and movies are examined periodically by Broadcasting segment management and revised as necessary. The value of unamortized costs is reduced to net realizable value, as necessary, based on this assessment. The amortization of distribution rights is presented in cost of sales and selling and administrative expenses. |
(m) | Income taxes: | ||
The Company follows the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on future income tax assets and liabilities is recognized in income in the period that includes the enactment or substantive enactment date. A valuation allowance is established, if necessary, to reduce any future income tax asset to an amount that is more likely than not to be realized. | |||
(n) | Long-term investments: | ||
Investments in joint ventures are accounted for using the proportionate consolidation method. Joint ventures represent a negligible portion of the Company’s operations. Investments in companies subject to significant influence are accounted for by the equity method. Portfolio investments are accounted for by the cost method. Carrying values of investments accounted for by the equity or cost method are reduced to estimated market values if there is other than a temporary decline in the value of the investment. | |||
(o) | Property, plant and equipment: | ||
Property, plant and equipment are stated at cost, net of government grants and investment tax credits. Cost represents acquisition or construction costs, including preparation, installation and testing costs and interest incurred with respect to the property, plant and equipment until they are ready for commercial production. In the case of projects to construct and connect receiving and distribution networks of cable, cost includes equipment, direct labour and direct overhead costs. Projects under development may also be comprised of advances for equipment under construction. Expenditures for additions, improvements and replacements are capitalized, whereas maintenance and repair expenditures are expensed as incurred. |
F-15
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): |
(o) | Property, plant and equipment (continued): | ||
Amortization is principally calculated on the straight-line basis over the following estimated useful lives: |
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 | |||
Leasehold improvements are amortized over the term of the lease. | |||
The Company does not record an asset retirement obligation in connection with its cable distribution networks. The Company expects to renew all of its agreements with utility companies to access their support structures in the future, making the retirement date, relating to these assets, undeterminable. | |||
(p) | Goodwill and other intangible assets: | ||
Goodwill and intangible assets with indefinite useful lives are not amortized. | |||
Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is carried out in two steps. In the first step, the carrying amount of the reporting unit is compared to its fair value. When the fair value of a reporting unit exceeds its carrying amount, then the goodwill of the reporting unit is considered not to be impaired and the second step is not required. The second step of the impairment test is carried out when the carrying amount of a reporting unit exceeds its fair value, in which case the implied fair value of the reporting unit’s goodwill is compared to its carrying amount to measure the amount of the impairment loss, if any. When the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess. | |||
Intangible assets acquired, such as broadcasting licences, that have an indefinite useful life, are also tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test compares the carrying amount of the intangible asset to its fair value, and an impairment loss is recognized in the statement of income for the excess, if any. | |||
Intangible assets with definite useful lives, such as customer relationships and non-competition agreements, are amortized over their useful life using the straight-line method over a period of 3 to 10 years. | |||
(q) | Deferred start-up costs and financing fees: | ||
Deferred start-up costs are recorded at cost and include development costs related to new specialty services and pre-operating expenditures and are amortized when commercial operations begin using the straight-line method over periods of three to five years. Financing fees related to long-term financing are amortized using the interest rate method and the straight-line method over the term of the related long-term debt. |
F-16
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of canadian dollars, except for option data)
(tabular amounts in millions of canadian dollars, except for option data)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): |
(r) | Stock-based compensation: | ||
The compensation cost attributable to stock-based awards to employees that call for settlement in cash or other assets, at the option of the employee is recognized in operating expenses over the vesting period. Changes in the intrinsic value of the stock option awards between the grant date and the measurement date result in a change in the measurement of the liability and compensation cost. Other stock option awards to employees are measured based on the fair value of the options at the grant date and a compensation expense is recognized over the vesting period of the options, with a corresponding increase to additional contributed surplus. When the stock options are exercised, capital stock is credited by the sum of the consideration paid, together with the related portion previously recorded to contributed surplus. | |||
In the case of the employee share purchase plans of the Company’s subsidiaries, the contribution paid by the subsidiary on behalf of its employees is considered a compensation expense. The contribution paid by employees for the purchase of shares is credited to the subsidiary’s capital stock. | |||
(s) | Derivative financial instruments: | ||
The Company uses various derivative financial instruments to manage its exposure to fluctuations in foreign currency exchange rates and interest rates. The Company does not hold or use any derivative instruments for trading purposes. Under hedge accounting, the Company documents all hedging relationships between derivatives and hedged items, its strategy for using hedges and its risk-management objective. The Company assesses the effectiveness of derivatives when the hedge is put in place and on an ongoing basis. | |||
The Company enters into foreign exchange forward contracts to hedge anticipated foreign-denominated equipment purchases. Under hedge accounting, foreign exchange translation gains and losses are recognized as an adjustment to the cost of property, plant and equipment or inventories, when the transaction is recorded. | |||
The Company enters into foreign exchange forward contracts and cross-currency swaps to hedge some of its long-term debt. Under hedge accounting, foreign exchange translation gains and losses are deferred and recorded as derivative instruments under other assets or other liabilities. The fees on forward foreign exchange contracts and on cross-currency swaps are recognized as an adjustment to interest expenses over the term of the agreement. | |||
The Company also enters into interest rate swaps to manage the impact of fluctuations in interest rates on its long-term debt. These swap agreements require the periodic exchange of payments without the exchange of the notional principal amount on which the payments are based. The Company designates its interest rate hedge agreements as hedges of the interest cost on the underlying debt. Interest expense on the debt is adjusted to include payments made or received under interest rate swaps. | |||
Some of the Company’s cross-currency swap agreements repurchased in 2006 were subject to a floor limit on negative fair market value, below which the Company was required to make prepayments to reduce the lenders’ exposure. Such prepayments were reimbursed by reductions in the Company’s future payments under the agreements. The portion of these reimbursements related to interest was accounted for as a reduction in financial expenses. The prepayments were presented on the balance sheet as a reduction of the derivative instrument liability. |
F-17
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): |
(s) | Derivative financial instruments (continued): | ||
Realized and unrealized gains or losses associated with derivative instruments that have been terminated or cease to be effective prior to maturity, are deferred under other current or non-current assets or liabilities on the balance sheet and recognized in income in the period in which the underlying hedged transaction is recognized. In the event a designated hedged item is sold, extinguished or matures prior to the termination of the related derivative instrument, any realized or unrealized gain or loss on such derivative instrument is recognized in income. | |||
Derivative instruments that are ineffective or that are not designated as an hedge are reported on a market-to-market basis in the consolidated financial statements. Any change in the fair value of these derivative instruments is recorded in income. | |||
(t) | Pension plans and postretirement benefits: |
(i) | Pension plans: | ||
The Company offers defined benefit pension plans and defined contribution pension plans to some of its employees. Defined benefit pension plan costs are determined using actuarial methods and are funded through contributions determined in accordance with the projected benefit method pro-rated on service, which incorporates management’s best estimate of future salary levels, other cost escalations, retirement ages of employees and other actuarial factors. Pension plan expense is charged to operations and includes: |
• | 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. | ||
• | 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 10.0% 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. |
When an event gives rise to both a curtailment and a settlement, the curtailment is accounted for prior to the settlement. | |||
Actuarial gains and losses arise from the difference between the actual rate of return on plan assets for a period and the expected rate of return on plan assets for that period, or from changes in actuarial assumptions used to determine the accrued benefit obligation. | |||
The Company uses the fair value at year-end to evaluate plan assets for the purpose of calculating the expected return on plan assets. | |||
(ii) | Postretirement benefits: | ||
The Company offers health, life and dental insurance plans to some of its retired employees. The cost of postretirement benefits is determined using actuarial methods and the related benefits are funded by the Company as they become due. The Company amortizes the cumulative unrecognized net actuarial gains and losses in excess of 10.0% of the accrued benefit obligation over the expected average remaining service life of the active employee group covered by the plans. |
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
2. | FINANCIAL EXPENSES: |
2006 | 2005 | 2004 | ||||||||||
Interest on long-term debt | $ | 215.0 | $ | 212.7 | $ | 224.1 | ||||||
Amortization of deferred financing costs and long-term debt discount | 7.3 | 62.7 | 56.9 | |||||||||
Net loss on derivative instruments and on foreign currency translation on financial instruments1 | 1.2 | 4.4 | 8.0 | |||||||||
Loss on revaluation of the Additional Amount payable | 10.5 | 10.1 | 26.9 | |||||||||
Other | 1.3 | 0.9 | 3.6 | |||||||||
Investment income | (1.5 | ) | (4.5 | ) | (4.9 | ) | ||||||
233.8 | 286.3 | 314.6 | ||||||||||
Interest capitalized to the cost of property, plant and equipment | (9.2 | ) | (1.0 | ) | — | |||||||
$ | 224.6 | $ | 285.3 | $ | 314.6 | |||||||
1 | During the year ended December 31, 2006, the Company recorded a loss of $4.1 million on derivative instruments for which hedge accounting is not used ($13.1 million in 2005 and $30.2 million in 2004). |
3. | RESERVE FOR RESTRUCTURING OF OPERATIONS, IMPAIRMENT OF ASSETS AND OTHER SPECIAL CHARGES: |
2006 |
(a) | Newspapers segment | ||
In August 2005, the Company announced a plan to invest in two new printing facilities located in Toronto (Ontario) and Saint-Janvier-de-Mirabel (Québec). As part of the plan, Sun Media Corporation will outsource the printing of certain of its publications in Ontario and Québec to the new facilities. In 2006, a charge for contractual termination benefits of $11.0 million was recorded in connection with the elimination of production positions atThe London Free Press,The Toronto Sunand atThe Ottawa Sun, and inserters’ positions atLe Journal de Montréal, in relation to these projects. | |||
In June 2006, the Newspapers segment announced a plan to restructure its news production operations by introducing new content management technologies, and streamlining the news gathering process. The Newspapers segment expects the restructuring to be complete by early 2007. In 2006, the Newspapers segment recorded severance costs of $2.8 million relating to the elimination of editorial positions in operations across the organization. | |||
Finally, in 2006, Sun Media Corporation implemented a voluntary workforce reduction program atThe London Free Pressand several smaller involuntary workforce reduction programs, namely atThe Toronto Sunand Bowes Publishers. The Newspapers segment has recorded termination benefits of $3.2 million relating to these workforce reduction initiatives. |
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
3. | RESERVE FOR RESTRUCTURING OF OPERATIONS, IMPAIRMENT OF ASSETS AND OTHER SPECIAL CHARGES (continued): | |
2006 (continued) |
(a) | Newspaper segment (continued) | ||
Continuity of reserve for restructuring and other special charges |
2006 | ||||
Balance at beginning of year | $ | — | ||
Work-force reduction initiatives | 17.0 | |||
Payments | (4.3 | ) | ||
Balance at end of year | $ | 12.7 | ||
(b) | Other segments | ||
In 2006, other segments recorded restructuring costs of $1.9 million mainly related to the elimination of management positions in the Broadcasting segment. |
F-20
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
4. | LOSS ON DEBT REFINANCING |
(a) | Quebecor Media Inc. | ||
On January 17, 2006, the Company recorded a loss of $331.6 million as a result of the refinancing of substantially all of its 11.125% Senior Notes and 13.75% Senior Discount Notes. The loss represents the excess of the consideration paid of $1.3 billion, including premiums and disbursements for unwinding hedging contracts, over the book value of the notes and the hedging contracts, and the write-off of deferred financing costs. The refinancing transactions carried out were as follows: |
• | The Company issued new 7.75% Senior Notes of US$525.0 million in aggregate principal amount (note 15 (iii)). | ||
• | The Company entered into new credit facilities comprised of (i) a five-year $125.0 million term loan “A” credit facility, (ii) a seven-year US$350.0 million term loan “B” credit facility and (iii) a new $100.0 million five-year revolving credit facility (note 15 (i)). | ||
• | Videotron Ltd. borrowed $237.0 million under its existing revolving credit facility and Sun Media Corporation amended its existing credit facilities to borrow $40.0 million under a new term loan “C” maturing in 2009 (note 15 (x)). | ||
• | The proceeds from new Senior Notes, the full amount of new term loans “A” and “B”, the Videotron Ltd. drawing from its existing revolving credit facility and Sun Media Corporation’s new term loan “C” were used to repurchase US$561.6 million in aggregate principal amount of the Company’s 11.125% Senior Notes and US$275.6 million in aggregate principal amount at maturity of the Company’s 13.75% Senior Discount Notes. Total consideration offered per US$1,000.00 principal amount of Senior Notes was US$1,083.49 and total consideration per US$1,000.00 principal amount at maturity of Senior Discount Notes was US$1,042.64, which included an early tender premium of US$30.00 per US$1,000.00 of principal, or principal amount at maturity in the case of the Discount Notes. |
On July 15, 2006, the Company repurchased the remaining balances of its 11.125% Senior Notes and 13.75% Senior Discount Notes for a total cash consideration of $39.3 million. The repurchase resulted in a loss of $10.5 million. | |||
On July 19, 2005, as a result of the repurchase of a first portion of its 11.125% Senior Notes and its 13.75% Discount Notes, the Company recorded a loss of $60.8 million, comprised of the excess of the consideration paid of $215.3 million, including premiums and disbursements for unwinding hedging contracts, over the carrying value of the notes and of the hedging contracts, and the write-off of related deferred financing costs. The Company repurchased US$128.2 million and US$12.1 million, respectively, in aggregate principal amounts of its Senior Notes and Senior Discount Notes. The total consideration was a fixed price of US$1,112.50 per US$1,000.00 principal amount for each Senior Note and a fixed price of US$1,007.50 per US$1,000.00 principal amount at maturity for each Discount Note, which included an early tender premium in the amount of US$30.00 per US$1,000.00 of principal, or principal amount at maturity in the case of the Discount Notes. |
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
4. | LOSS ON DEBT REFINANCING (continued): |
(b) | Videotron Ltd.: | ||
On July 15, 2005, Videotron Ltd., Cable segment, repurchased the entire aggregate principal amount of its subsidiary, CF Cable TV Inc., Senior Secured First Priority Notes, which bore interest at 9.125%, for a total cash consideration of $99.3 million, including the cost of unwinding a hedging contract. The repurchase resulted in a gain of $0.8 million. | |||
On November 19, 2004, the net proceeds from the issuance of a second series of the 6.875% Senior Notes (note 15 (viii)) were used to repay in full Videotron Ltd.’s term loan credit facility “C” in place as at December 31, 2003. As a result of the refinancing of the term loan, Videotron Ltd. recorded a loss of $4.8 million, comprised of a loss of $4.6 million on the marked-to-market of a derivative instrument and the write-off of $0.2 million in deferred financing costs. | |||
(c) | Sun Media Corporation: | ||
On December 29, 2006, Sun Media Corporation made a partial repayment of US$15.0 million on its term loan “B” credit facility (note 15 (x)) and settled a corresponding portion of its hedging contracts. As a result, a loss of $0.5 million was recorded. |
5. | IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS: | |
During the fourth quarter of 2006, the Company completed its annual impairment test for its broadcasting licenses and goodwill. Based on the results, the Company concluded that the carrying values of the broadcasting licenses and goodwill of its Broadcasting segment were impaired. Conventional television broadcasters are experiencing pressures on their advertising revenues caused by the fragmentation of the television market. Accordingly, the Company reviewed its business plan and recorded a total impairment charge of $179.2 million: $30.8 million for one of its broadcasting licenses and $148.4 million for the goodwill. | ||
In addition, during the third quarter of 2006, the Broadcasting segment recorded an impairment charge of $0.8 million related to an operating licence co-owned with another entity. |
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
6. | BUSINESS ACQUISITIONS: | |
During the years ended December 31, 2006, 2005 and 2004, the Company acquired or increased its interest in several businesses and has accounted for these by the purchase method. Certain purchase price allocations related to the 2006 acquisitions are preliminary and should be finalized as soon as Company’s management has gathered all the significant information believed to be available and considered necessary. The results of operations of these businesses have been included in the Company’s consolidated financial statements from the dates of their respective acquisitions. | ||
2006 |
• | Several businesses, mainly in the Interactive Technologies and Communications segment, were acquired for a total consideration of $14.0 million, including $12.6 million in cash and $1.4 million in Common Shares of a subsidiary, resulting in additional goodwill of $7.6 million. |
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 preliminary additional goodwill of $22.3 million, which was reduced by $7.3 million in 2006 when the purchase price allocation was finalized. | ||
• | 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 a preliminary additional goodwill of $7.8 million, which was reduced by $2.9 million in 2006 when the purchase price allocation was finalized. | ||
• | Other businesses were acquired for considerations including cash of $4.6 million and the operating assets of the community newspaperBeauport Express, resulting in additional goodwill of $3.5 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 its 29.9% interest in CablePulse24 (CP24), a 24-hour news station in Toronto, for its 25.0% interest in Sun TV. The balance payable of $3.6 million with respect to the final purchase price adjustment was paid in January 2007. The transfer of Sun Media Corporation’s interest in CP24 resulted in a gain on disposal of $8.0 million. The acquisition resulted in goodwill of $10.7 million. | ||
• | Other businesses were acquired for cash considerations totalling $13.3 million, resulting in additional goodwill of $8.8 million. |
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
6. | BUSINESS ACQUISITIONS (continued): | |
Business acquisitions are summarized as follows: |
2006 | 2005 | 2004 | ||||||||||
Assets acquired: | ||||||||||||
Cash and cash equivalents | $ | 2.1 | $ | — | $ | 2.2 | ||||||
Non-cash current operating assets | 2.5 | 13.0 | 11.4 | |||||||||
Property, plant and equipment | 0.2 | 8.0 | 15.5 | |||||||||
Other assets | 4.4 | 19.9 | 32.8 | |||||||||
Future income taxes | — | — | 20.3 | |||||||||
Goodwill | 7.6 | 22.9 | 35.0 | |||||||||
Non-controlling interest | 1.2 | 60.3 | 31.8 | |||||||||
18.0 | 124.1 | 149.0 | ||||||||||
Liabilities assumed: | ||||||||||||
Bank indebtedness | — | (0.4 | ) | — | ||||||||
Non-cash current operating liabilities | (3.1 | ) | (3.2 | ) | (15.2 | ) | ||||||
Other liabilities | — | — | — | |||||||||
Future income taxes | (0.9 | ) | (5.3 | ) | (11.1 | ) | ||||||
(4.0 | ) | (8.9 | ) | (26.3 | ) | |||||||
Net assets acquired at fair value | $ | 14.0 | $ | 115.2 | $ | 122.7 | ||||||
Consideration: | ||||||||||||
Cash | $ | 12.6 | $ | 110.5 | $ | 114.7 | ||||||
Issuance of Common Shares by Nurun Inc. | 1.4 | — | — | |||||||||
Balance payable | — | 3.6 | — | |||||||||
Community newspaper (Beauport Express) | — | 1.1 | — | |||||||||
Investment in CP24 | — | — | 8.0 | |||||||||
$ | 14.0 | $ | 115.2 | $ | 122.7 | |||||||
F-24
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
7. | INCOME TAXES: | |
Income taxes on continuing operations are as follows: |
2006 | 2005 | 2004 | ||||||||||
Current | $ | 5.4 | $ | 19.0 | $ | 20.9 | ||||||
Future | (58.0 | ) | 25.0 | 16.5 | ||||||||
$ | (52.6 | ) | $ | 44.0 | $ | 37.4 | ||||||
The following table reconciles the difference between the domestic statutory tax rate and the effective tax rate of the Company and its subsidiaries in the determination of consolidated net (loss) income: |
2006 | 2005 | 2004 | ||||||||||
Statutory tax rate | 32.0 | % | 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, non-taxable income and tax rate variations | 4.4 | 4.2 | 4.4 | |||||||||
Change in valuation allowance | 3.5 | (4.8 | ) | (6.3 | ) | |||||||
Change in future income tax balances due to a change in enacted tax rates | 5.8 | 7.6 | — | |||||||||
Tax consolidation transaction with the parent company | — | (10.1 | ) | — | ||||||||
Impairment of goodwill | (21.4 | ) | — | — | ||||||||
Other | (0.5 | ) | 0.4 | (5.7 | ) | |||||||
Effective tax rate | 23.8 | % | 28.1 | % | 23.6 | % | ||||||
F-25
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
7. | INCOME TAXES (continued): | |
The tax effects of significant items comprising the Company’s net future income tax positions are as follows: |
2006 | 2005 | |||||||
Loss carryforwards | $ | 336.1 | $ | 296.0 | ||||
Accounts payable and accrued charges | 36.2 | 32.2 | ||||||
Deferred charges | 10.3 | (13.3 | ) | |||||
Property, plant and equipment | (217.5 | ) | (226.0 | ) | ||||
Goodwill and other assets | (27.5 | ) | (33.2 | ) | ||||
Other | 13.6 | 25.8 | ||||||
151.2 | 81.5 | |||||||
Valuation allowance | (143.1 | ) | (152.3 | ) | ||||
Net future income tax assets (liabilities) | $ | 8.1 | $ | (70.8 | ) | |||
The current and long-term future income tax assets and liabilities are as follows: |
2006 | 2005 | |||||||
Future income tax assets: | ||||||||
Current | $ | 65.9 | $ | 98.7 | ||||
Long-term | 61.1 | 57.5 | ||||||
127.0 | 156.2 | |||||||
Future income tax liabilities: | ||||||||
Long-term | (118.9 | ) | (227.0 | ) | ||||
Net future income tax assets (liabilities) | $ | 8.1 | $ | (70.8 | ) | |||
Subsequent recognition of tax benefits relating to the valuation allowance as at December 31, 2006 will be mainly reported in the consolidated statement of income. | ||
As at December 31, 2006, the Company had loss carryforwards for income tax purposes available to reduce future taxable income, including $599.1 million that will expire between 2007 and 2026 and $689.5 million that can be carried forward indefinitely. Of the latter amount, $665.7 million represent capital losses to be applied against future capital gains. |
F-26
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
7. | INCOME TAXES (continued): | |
The Company has not recognized a future income tax liability for the undistributed earnings of its subsidiaries in the current or prior years since the Company does not expect to sell or repatriate funds from those investments. Any such liability cannot reasonably be determined at the present time. | ||
8. | DISCONTINUED OPERATIONS AND BUSINESS DISPOSALS: | |
Discontinued operations | ||
On May 25, 2004, 6.75 million Common Shares of Mindready Solutions Inc. held by Nurun Inc., Interactive Technologies and Communications segment, were sold for a cash consideration of $7.8 million, of which $4.4 million was received on the closing date of the bid and the balance of $3.4 million in February 2005. In March 2005, Nurun Inc. sold its 9.6% remaining interest in Mindready Solutions Inc. for cash proceeds of $0.4 million. The sale resulted in a loss on disposal of $0.3 million (net of income taxes and non-controlling interest) in 2004. | ||
As of May 25, 2004, the results of this disposed business were reclassified and disclosed in the consolidated statements of income as “Income (loss) from discontinued operations”, while the cash flows related to the operations of this disposed business were reclassified and disclosed in the consolidated statements of cash flows as “Cash flows provided by discontinued operations”. |
F-27
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
9. | ACCOUNTS RECEIVABLE: |
2006 | 2005 | |||||||
Trade | $ | 383.3 | $ | 360.5 | ||||
Other | 42.9 | 55.2 | ||||||
$ | 426.2 | $ | 415.7 | |||||
10. | INVENTORIES AND INVESTMENTS IN TELEVISUAL PRODUCTS AND MOVIES: |
2006 | 2005 | |||||||
Raw materials and supplies | $ | 42.0 | $ | 32.0 | ||||
Work in progress | 12.8 | 9.7 | ||||||
Finished goods | 63.8 | 68.7 | ||||||
Investments in televisual products and movies | 40.1 | 45.1 | ||||||
$ | 158.7 | $ | 155.5 | |||||
11. | PROPERTY, PLANT AND EQUIPMENT: |
2006 | ||||||||||||
Accumulated | ||||||||||||
Cost | amortization | Net amount | ||||||||||
Land | $ | 26.4 | $ | — | $ | 26.4 | ||||||
Buildings and leasehold improvements | 185.2 | 48.3 | 136.9 | |||||||||
Machinery and equipment | 698.8 | 409.1 | 289.7 | |||||||||
Receiving, distribution and telecommunication networks | 1,952.2 | 756.9 | 1,195.3 | |||||||||
Projects under development | 181.8 | — | 181.8 | |||||||||
$ | 3,044.4 | $ | 1,214.3 | $ | 1,830.1 | |||||||
2005 | ||||||||||||
Accumulated | ||||||||||||
Cost | amortization | Net amount | ||||||||||
Land | $ | 32.7 | $ | — | $ | 32.7 | ||||||
Buildings and leasehold improvements | 176.6 | 41.9 | 134.7 | |||||||||
Machinery and equipment | 694.8 | 352.7 | 342.1 | |||||||||
Receiving, distribution and telecommunication networks | 1,648.3 | 604.6 | 1,043.7 | |||||||||
Projects under development | 78.3 | — | 78.3 | |||||||||
$ | 2,630.7 | $ | 999.2 | $ | 1,631.5 | |||||||
F-28
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
12. | OTHER ASSETS: |
2006 | 2005 | |||||||
Broadcasting licenses | $ | 84.2 | $ | 109.3 | ||||
Deferred financing costs, net of accumulated amortization | 33.6 | 42.6 | ||||||
Investments in televisual products and movies | 29.4 | 28.0 | ||||||
Customer relationships and non-competition agreements, net of accumulated amortization | 27.4 | 21.9 | ||||||
Deferred connection costs | 18.2 | 15.5 | ||||||
Derivative instruments | 16.7 | 11.7 | ||||||
Long-term investments | 13.0 | 11.2 | ||||||
Deferred pension charge (note 24) | 9.5 | 8.2 | ||||||
Other | 11.6 | 11.0 | ||||||
$ | 243.6 | $ | 259.4 | |||||
13. | GOODWILL: | |
For the years ended December 31, 2006, 2005 and 2004, the changes in the carrying amounts of goodwill were as follows: |
2006 | ||||||||||||||||||||
Adjustment of | ||||||||||||||||||||
Balance as at | Business | purchase price | Balance as at | |||||||||||||||||
December 31, | acquisitions | allocation and | December 31, | |||||||||||||||||
2005 | (disposals) | Impairment | other | 2006 | ||||||||||||||||
Cable | $ | 2,581.8 | $ | (0.1 | ) | $ | — | $ | — | $ | 2,581.7 | |||||||||
Newspapers | 1,002.0 | 0.5 | — | — | 1,002.5 | |||||||||||||||
Broadcasting | 207.1 | — | (148.4 | ) | (7.3 | ) | 51.4 | |||||||||||||
Leisure and Entertainment | 46.9 | (0.6 | ) | — | (2.9 | ) | 43.4 | |||||||||||||
Interactive Technologies and Communications | 3.6 | 6.7 | — | 0.9 | 11.2 | |||||||||||||||
Internet/Portals | 30.5 | 0.4 | — | — | 30.9 | |||||||||||||||
Total | $ | 3,871.9 | $ | 6.9 | $ | (148.4 | ) | $ | (9.3 | ) | $ | 3,721.1 | ||||||||
F-29
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
13. | GOODWILL (continued): |
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 | |||||||
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 | |||||||
1 | Recognition of tax benefits not recognized as at the business acquisition date. |
F-30
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
14. | ADDITIONAL AMOUNT PAYABLE: | |
The value of the Additional Amount payable resulting from the repurchase of the redeemable preferred shares of a subsidiary in 2003 fluctuates based on the market value of the Company’s Common Shares. Until the Company is listed on a stock exchange, the value of the Additional Amount payable is based on a formula established as per the repurchase agreement. At the date of the transaction, both parties had agreed to an initial value of $70.0 million. As at December 31, 2006, the Additional Amount payable is valued at $122.0 million ($111.5 million as at December 31, 2005). Changes in the amount payable are recorded as financial expenses in the statement of income. The Additional Amount payable matures on December 15, 2008. The holder has had the right to require payment at any time since December 15, 2004. If the Company files a prospectus for an initial public offering, the holder has the right to require the Company to pay the Additional Amount payable by delivering 3,740,682 Common Shares of the Company, adjusted to take into account certain shareholders’ equity transactions. The Company holds an option to pay this Additional Amount in cash, for a period of 30 days following each of June 15, 2007 and June 15, 2008. The Company may, under certain conditions and if its shares are publicly traded at that time, pay the Additional Amount by delivering 3,740,682 Common Shares to the holder. |
15. | LONG-TERM DEBT: |
Effective | ||||||||||||||||
interest rate as at | Year of | |||||||||||||||
December 31, 2006 | maturity | 2006 | 2005 | |||||||||||||
Quebecor Media Inc.: | ||||||||||||||||
Bank credit facilities (i) | 7.09 | % | 2011-2013 | $ | 520.6 | $ | — | |||||||||
Other credit facility (ii) | 4.77 | % | 2015 | 59.2 | — | |||||||||||
Senior Notes (iii) | 7.75 | % | 2016 | 611.8 | — | |||||||||||
Senior Notes (iv) | — | % | 2011 | — | 672.0 | |||||||||||
Senior Discount Notes (v) | — | % | 2011 | — | 316.1 | |||||||||||
1,191.6 | 988.1 | |||||||||||||||
Videotron Ltd. and its subsidiaries (vi): | ||||||||||||||||
Bank credit facility (vii) | 5.21 | % | 2009 | 49.0 | — | |||||||||||
Senior Notes (viii) | 6.59 | % | 2014 | 769.1 | 769.2 | |||||||||||
Senior Notes (ix) | 6.44 | % | 2015 | 203.1 | 202.5 | |||||||||||
1,021.2 | 971.7 | |||||||||||||||
Sun Media Corporation and its subsidiaries (vi): | ||||||||||||||||
Bank credit facilities (x) | 6.92 | % | 2008-2009 | 250.8 | 231.1 | |||||||||||
Senior Notes (xi) | 7.88 | % | 2013 | 236.0 | 235.2 | |||||||||||
486.8 | 466.3 | |||||||||||||||
TVA Group Inc. and its subsidiaries (vi): | ||||||||||||||||
Revolving bank loan (xii) | 5.46 | % | 2010 | 96.5 | 107.1 | |||||||||||
2,796.1 | 2,533.2 | |||||||||||||||
Less current portion: | ||||||||||||||||
Quebecor Media Inc. | 20.0 | — | ||||||||||||||
Sun Media Corporation and its subsidiaries | 3.1 | 2.7 | ||||||||||||||
$ | 2,773.0 | $ | 2,530.5 | |||||||||||||
F-31
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
15. | LONG-TERM DEBT (continued): |
(i) | In January 2006, the Company entered into new bank credit facilities comprised of (i) a $125.0 million term loan “A” credit facility, bearing interest at bankers’ acceptance rate, London Interbanking Offered Rate (“LIBOR”) 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 1.0%, or at LIBOR, plus a premium of 2.0%, and maturing in January 2013, and (iii) a new $100.0 million revolving credit facility, bearing interest at bankers’ acceptance rate, LIBOR or Canadian prime rate, plus a premium determined by a leverage ratio, and maturing in January 2011. Financing fees of $2.1 million were paid. These new credit facilities contain covenants concerning certain financial ratios and restricting the declaration and payment of dividends and other distributions. They are collateralized by liens on all of the movable property and assets of the Company (primarily shares of its subsidiaries), now owned or hereafter acquired. As at December 31, 2006, the carrying value of the Company’s assets guaranteeing the credit facilities was $5,317.0 million. The Company shall repay the term loan “A” in quarterly repayments equal to 2.5% of the principal amount during the first three years term, 5.0% in the fourth year and 12.5% in the fifth year term. It shall repay the principal amount of its term loan “B” in quarterly repayments of 0.25% of the 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 have been set in Canadian dollars. As at December 31, 2006, no amount had been drawn on the revolving credit facility, while $115.6 million and US$347.4 million were drawn down on the term “A” and “B” credit facilities, respectively. | ||
(ii) | In April 2006, the Company entered into a long-term committed credit facility with Société Générale (Canada) for the Canadian dollar equivalent of €59.4 million, bearing interest at bankers’ acceptance rate, plus a premium, and maturing in 2015. The facility is secured by all the property and assets of the Company, now owned and hereafter acquired. This facility mostly contains the same covenants as the bank facilities described in (i). | ||
(iii) | In January 2006, the Company issued new Senior Notes of US$525.0 million in aggregate principal amount, before issuance fees of $9.0 million. The notes bear interest at 7.75% and mature in March 2016. These notes contain certain restrictions on the Company, including limitations on its ability to incur additional indebtedness and pay dividends or make 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 have been set in Canadian dollars. | ||
(iv) | The Senior Notes were repurchased during the year (note 4 (a)). | ||
(v) | The Senior Discount Notes were repurchased during the year (note 4 (a)). | ||
(vi) | The debts of these subsidiaries are non-recourse to the parent company, Quebecor Media Inc. | ||
(vii) | The credit facility of $450.0 million is a revolving credit facility maturing in November 2009 and bears interest at bankers’ acceptance or Canadian prime 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, 2006, the carrying value of assets guaranteeing the credit facility of Videotron Ltd. was $4,253.5 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. |
F-32
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
15. | LONG-TERM DEBT (continued): |
(viii) | 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 issued 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 on Videotron Ltd., including limitations on its ability to incur additional indebtedness, and are unsecured. The Senior Notes are guaranteed by specific subsidiaries of Videotron Ltd. 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, at a decreasing premium. | ||
(ix) | 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. The Senior Notes are guaranteed by specific subsidiaries of Videotron Ltd. 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, at a decreasing premium. | ||
(x) | The bank credit facilities amended on January 17, 2006, are comprised of (i) a revolving credit facility amounting to $75.0 million, maturing in 2008, (ii) a term loan “B” credit facility amounting to US$230.0 million maturing in 2009, and (iii) a new term loan “C” credit facility amounting to $40.0 million entered into in January 2006 and maturing in 2009. The credit facilities 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 concerning certain financial ratios and restrictions on the declaration and payment of dividends and other distributions. As at December 31, 2006, the carrying value of assets guaranteeing the bank credit facilities was $1,579.2 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. Advances under the term loan “B” credit facility bear interest at LIBOR plus a margin of 1.75% per annum (margin was reduced by 0.25% to 1.75% on April 27, 2006), or at US prime rate plus a margin of 0.75% per annum, while advances under the term “C” credit facility bear interest at Canadian bankers’ acceptance rate plus a margin of 1.50% per annum or Canadian prime rate plus a margin of 0.50% per annum. 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, 2006, no amount had been drawn on the revolving credit facility, while US$181.4 million and $39.3 million were drawn down on the term loans “B” and “C” credit facilities, respectively. | ||
(xi) | 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 to make other distributions, 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, at a decreasing premium. |
F-33
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
15. | LONG-TERM DEBT (continued): |
(xii) | The revolving term bank loan of a maximum of $160.0 million bears 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 as extended to June 15, 2010. The credit facility contains certain restrictions, including the obligation to maintain certain financial ratios. |
Certain debts of the Company and its subsidiaries contain restrictions on the payment of dividends. On December 31, 2006, the Company and its subsidiaries were in compliance with all debt covenants.
Principal repayments on long-term debt over the next years are as follows:
2007 | $ | 23.1 | ||
2008 | 26.6 | |||
2009 | 326.8 | |||
2010 | 160.7 | |||
2011 | 26.7 | |||
2012 and thereafter | 2,232.2 | |||
16. | OTHER LIABILITIES: |
2006 | 2005 | |||||||
Derivative instruments | $ | 231.3 | $ | 261.0 | ||||
Accrued stock-based compensation | 57.2 | 32.8 | ||||||
Accrued post-retirement benefits liability (note 24) | 32.3 | 30.3 | ||||||
Deferred revenues | 24.0 | 23.4 | ||||||
Accrued pension benefits liability (note 24) | 4.7 | 7.2 | ||||||
Other | 7.0 | 4.6 | ||||||
$ | 356.5 | $ | 359.3 | |||||
17. | NON-CONTROLLING INTEREST: | |
Non-controlling interest represents the interest of non-controlling shareholders in the participating shares of the Company’s subsidiaries. As at December 31, 2006, the most significant non-controlling interests were as follows: |
Non-controlling interest | ||||||||||
Subsidiary | Segment | % voting | % equity | |||||||
TVA Group Inc. | Broadcasting | 0.08 | % | 54.76 | % | |||||
Nurun Inc. | Interactive Technologies and Communications | 42.26 | % | 42.26 | % | |||||
F-34
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
18. | CAPITAL STOCK: |
(a) | Authorized capital stock: |
An unlimited number of Common Shares, without par value;
An unlimited number of Cumulative First Preferred Shares, without par value; the number of preferred shares in each series and the related characteristics, rights and privileges are to be determined by the Board of Directors prior to each issue;
• | 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; | ||
• | 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. |
An unlimited number of Preferred Shares, Series E (“Preferred E Shares”), carrying a non-cumulative dividend subsequent to the holders of Cumulative First Preferred Shares, redeemable at the option of the holder and retractable at the option of the Company.
(b) | Issued capital stock: |
Common Shares | ||||||||
Number | Amount | |||||||
Balance as at December 31, 2004 and 2005 | 123,602,807 | $ | 1,773.7 | |||||
Reduction of paid-up capital | — | (21.3 | ) | |||||
Balance as at December 31, 2006 | 123,602,807 | $ | 1,752.4 | |||||
In 2006, the Company reduced its Common Share paid-up capital by $21.3 million in the form of cash distributions to its shareholders.
As at December 31, 2006, Sun Media Corporation and its subsidiaries, Newspaper segment, owned 235,000 Preferred A Shares (990,000 Preferred A Shares in 2005) and 320,000 Preferred F Shares (255,000 Preferred F Shares in 2005), for a total amount of $555.0 million (1,245.0 million in 2005), and 9101-0835 Quebec Inc., Leisure and Entertainment segment, owned 275,000 Preferred C Shares (147,950 Preferred C Shares in 2005) for an amount of $275.0 million (147,9 million in 2005). These shares are eliminated on consolidation.
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Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
18. | CAPITAL STOCK (continued): |
(c) | Transactions during the year: | ||
2006 | |||
On June 12 and December 28, 2006, the Company redeemed 255,000 and 500,000 Preferred A Shares, respectively, owned by Sun Media Corporation and its subsidiaries, for a total amount of $755.0 million. On the same respective days, the Company issued 120,000 Preferred F shares for an amount of $120.0 million and redeemed 55,000 Preferred F shares for an amount of $55.0 million to Sun Media Corporation and its subsidiaries. | |||
On April 25, April 30, June 9 and June 29, 2006, the Company issued 25,000, 44,000, 50,000 and 40,000 Preferred C Shares respectively, for a total amount of $159.0 million, to 9101-0835 Québec Inc. On October 12, 2006, the Company redeemed 31,950 Preferred C Shares owned by 9101-0835 Quebec inc. for an amount of $32.0 million. | |||
2005 | |||
On January 14, 2005, the Company redeemed 150,000 Preferred A Shares for an amount of $150.0 million from Sun Media Corporation and its subsidiaries and issued 255,000 Preferred F Shares for an amount of $255.0 million to Sun Media Corporation and its subsidiaries. | |||
On March 9, 2005 and April 29, 2005, the Company issued 61,950 Preferred C Shares respectively, to 9101-0835 Quebec inc. for a total amount of $61.9 million. On August 2, 2005, the Company redeemed 184,000 Preferred C Shares for an amount of $184.0 million. | |||
2004 | |||
On January 14, 2004, the Company redeemed 450,000 Preferred A Shares owned by Sun Media Corporation for an amount of $450.0 million. | |||
On January 16, June 1 and October 7, 2004, the Company issued 70,000, 100,000 and 100,000 Preferred C Shares respectively, for a total amount of $270.0 million, to 9101-0835 Québec Inc. | |||
On January 16, 2004, the Company issued 1,100,000 Preferred D Shares, for an amount of $1,100.0 million, to Vidéotron (1998) ltée. On December 16, 2004, the Company redeemed the shares for an amount of $1,100.0 million. | |||
On November 30, 2004, the Company issued one Preferred E share, for an amount of $3.6 million to Sun Media Corporation and its subsidiaries. On the same day, the Company redeemed the shares for an amount of $3.6 million. |
F-36
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
19. | STOCK-BASED COMPENSATION PLANS: |
(a) | Quebecor Media Inc. stock option plan: | ||
Under a stock option plan established by the Company, 6,185,714 Common Shares of the Company were set aside for officers, senior employees, directors and other key employees of the Company and its subsidiaries. Each option may be exercised within a maximum period of 10 years following the date of grant at an exercise price not lower than, as the case may be, the fair market value of the Common Shares of Quebecor Media Inc. at the date of grant, as determined by its Board of Directors (if the Common Shares of Quebecor Media Inc. are not listed on a stock exchange at the time of the grant) or the five-day weighted average closing price ending on the day preceding the date of grant of the Common Shares of the Company on the stock exchanges where such shares are listed at the time of grant. Unless authorized by the Company Compensation Committee in the context of a change of control, no options may be exercised by an optionee if the shares of the Company have not been listed on a recognized stock exchange. Should the Common Shares of Quebecor Media Inc. have not been so listed on March 1, 2008, optionees may exercise from March 1 to March 30, from June 1 to June 29, from September 1 to September 29 and from December 1 to December 30 of each year, starting March 1, 2008, their right to receive an amount in cash (equal to the difference between the fair market value, as determined by the Company’s Board of Directors, and the exercise price of their vested options) or, subject to certain stated conditions, Common Shares of Quebecor Media Inc. Except under specific circumstances, and unless the Compensation Committee decides otherwise, options vest over a five-year period in accordance with one of the following vesting schedules as determined by the Compensation Committee at the time of grant: (i) equally over five years with the first 20% vesting on the first anniversary of the date of the grant; (ii) equally over four years with the first 25.0% vesting on the second anniversary of the date of grant; and (iii) equally over three years with the first 33.0% vesting on the third anniversary of the date of grant. | |||
The following table gives summary information on outstanding options granted as at December 31, 2006 and 2005: |
2006 | 2005 | |||||||||||||||
Weighted average | Weighted average | |||||||||||||||
Options | exercise price | Options | exercise price | |||||||||||||
Balance at beginning of year | 3,228,321 | $ | 18.90 | 3,135,040 | $ | 17.99 | ||||||||||
Granted | 795,393 | 31.60 | 255,630 | 28.96 | ||||||||||||
Cancelled | (241,947 | ) | 21.86 | (162,349 | ) | 17.13 | ||||||||||
Balance at end of year | 3,781,767 | $ | 21.38 | 3,228,321 | $ | 18.90 | ||||||||||
Vested options at end of year | 1,639,460 | $ | 17.59 | 939,965 | $ | 17.20 | ||||||||||
F-37
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
19. | STOCK-BASED COMPENSATION PLANS (continued): |
(a) | Quebecor Media Inc. stock option plan (continued): | ||
The following table gives summary information on outstanding options as at December 31, 2006: |
Outstanding options | Vested options | |||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||
Weighted | average | average | ||||||||||||||||||
Range of | average years | exercise | exercise | |||||||||||||||||
exercise price | Number | to maturity | price | Number | price | |||||||||||||||
$15.19 to 21.77 | 2,752,905 | 6.00 | $ | 17.96 | 1,612,837 | $ | 17.43 | |||||||||||||
22.98 to 33.41 | 1,028,862 | 9.04 | 30.56 | 26,623 | 26.80 | |||||||||||||||
$15.19 to 33.41 | 3,781,767 | 6.82 | $ | 21.38 | 1,639,460 | $ | 17.59 | |||||||||||||
For the year ended December 31, 2006, a charge of $24.4 million related to the plan is included in income ($10.8 million in 2005 and $15.1 million in 2004). | |||
(b) | TVA Group Inc. plans: |
(i) | Stock option plan for senior executives and directors | ||
Under this stock option plan, 1,400,000 Class B shares of TVA Group Inc. have been set aside for senior executives and directors of TVA Group Inc. and its subsidiaries. The terms and the conditions of options granted are determined by TVA Group Inc.’s Compensation Committee. The subscription price of an option cannot be less than the closing price of Class B shares on the Toronto Stock Exchange the day before the option is granted. Options granted under the plan may generally vest over a five-year period on the basis of 25% each year, starting on the second anniversary of the grant. The term of an option cannot exceed 10 years. Holders of options under the plan have the choice, at the time of exercising their options, to opt to receive from TVA Group Inc. a cash payment equal to the number of shares corresponding to the options exercised, multiplied by the difference between the market value and the purchase price of the shares under the option. The market value is defined by the average closing market price of the Class B share for the last five trading days preceding the date on which the option was exercised. | |||
On December 13, 2006, the Board of Directors adopted a resolution amending the stock option plan. One of these amendments provides that, except under specific circumstances, and unless the Compensation Committee decides otherwise, options will vest over a five-year period in accordance with one of the following vesting schedules as determined by the Compensation Committee at the time of grant: (i) equally over five years with the first 20% vesting on the first anniversary of the date of the grant; (ii) equally over four years with the first 25% vesting on the second anniversary of the date of grant; and (iii) equally over three years with the first 33% vesting on the third anniversary of the grant. The proposed amendments to the stock option plan are subject to the approval of TVA Group Inc.’ shareholders and the Toronto Stock Exchange. |
F-38
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
19. | STOCK-BASED COMPENSATION PLANS (continued): |
(b) | TVA Group Inc. plans (continued): |
(i) | Stock option plan for senior executives and directors (continued) | ||
The following table gives details on changes to outstanding options for the years ended December 31, 2006 and 2005: |
2006 | 2005 | |||||||||||||||
Weighted average | Weighted average | |||||||||||||||
Options | exercise price | Options | exercise price | |||||||||||||
Balance at beginning of year | 310,177 | $ | 20.27 | 215,000 | $ | 19.81 | ||||||||||
Granted | 503,684 | 15.62 | 115,630 | 20.85 | ||||||||||||
Exercised | (27,500 | ) | 14.00 | (6,000 | ) | 14.00 | ||||||||||
Cancelled | (296,666 | ) | 17.36 | (14,453 | ) | 20.85 | ||||||||||
Balance at end of year | 489,695 | $ | 17.59 | 310,177 | $ | 20.27 | ||||||||||
Vested options at end of year | 31,625 | $ | 20.75 | 72,500 | $ | 18.50 | ||||||||||
The following table gives summary information on outstanding options as at December 31, 2006:
Outstanding options | Vested options | |||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||
Weighted | average | average | ||||||||||||||||||
Range of | average years | exercise | exercise | |||||||||||||||||
exercise price | Number | to maturity | price | Number | price | |||||||||||||||
$14.00 to 18.85 | 295,564 | 9.34 | $ | 15.44 | — | $ | — | |||||||||||||
18.86 to 25.20 | 194,131 | 7.85 | 20.87 | 31,625 | 20.75 | |||||||||||||||
$14.00 to 25.20 | 489,695 | 8.75 | $ | 17.59 | 31,625 | $ | 20.75 | |||||||||||||
F-39
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
19. | STOCK-BASED COMPENSATION PLANS (continued): |
(b) | TVA Group Inc. plans (continued): |
(i) | Stock option plan for senior executives and directors (continued) | ||
Had the vested options been exercised as at December 31, 2006, Quebecor Media Inc.’s interest in TVA Group Inc. would have decreased from 45.24% to 45.23% (45.23% to 45.11% as at December 31, 2005). | |||
No charge was recorded for the TVA Group Inc. plan for the year ended December 31, 2006 (a charge reversal of $0.1 million in 2005 and a charge of $0.2 million in 2004). | |||
(ii) | Share purchase plan for executives and employees | ||
In 1998, TVA Group Inc. introduced a share purchase plan relating to 375,000 TVA Group Inc. Class B shares for its executives and a share purchase plan relating to 375,000 TVA Group Inc. Class B shares for its employees. The plans provide that participants can acquire shares on certain terms related to their salary. The shares can be acquired at a price equal to 90% of the average closing market price of TVA Group Inc. Class B shares. The plans also provide financing terms free of interest. No Class B shares were issued under the plans during the years ended December 31, 2006, 2005 and 2004. The remaining balance that may be issued under the share purchase plan for executives is 332,643 TVA Group Inc. Class B shares as at December 31, 2006 and 2005. The remaining balance that may be issued under the share purchase plan for employees is 229,753 TVA Group Inc. Class B shares as at December 31, 2006 and 2005. | |||
(iii) | Deferred share unit plan | ||
In 2000, TVA Group Inc. introduced a long-term profit sharing plan for certain members of senior management of TVA Group Inc., and its subsidiaries. The deferred share units (“DSU”s) are redeemable only upon termination of the participant’s employment. The redemption price is payable in cash or, at TVA Group Inc.’s discretion, in Class B shares of TVA Group Inc. or by a combination of cash and shares. Under this plan, a maximum of 25,000 Class B shares of TVA Group Inc. can be issued. No DSUs were issued under this plan during the years ended December 31, 2006, 2005 and 2004. |
F-40
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
20. | COMMITMENTS AND CONTINGENCIES: |
(a) | Leases and purchasing agreements: | ||
The Company rents premises and equipment under operating leases and has entered into long-term commitments to purchase services, capital equipment, and distribution and broadcasting rights that call for total future payments of $297.5 million. The minimum payments for the coming years are as follows: |
Other | ||||||||
Leases | commitments | |||||||
2007 | $ | 39.6 | $ | 103.1 | ||||
2008 | 33.6 | 22.1 | ||||||
2009 | 26.6 | 10.9 | ||||||
2010 | 20.6 | 2.1 | ||||||
2011 | 11.9 | 0.5 | ||||||
2012 and thereafter | 26.5 | — | ||||||
Operating lease expenses amounted to $44.8 million, $42.4 million and $35.1 million for the years ended December 31, 2006, 2005 and 2004, respectively. | |||
(b) | Other commitments: | ||
As part of the acquisition of Group TVA Inc. in 2001 and Sun TV in 2004, the Company is committed, over period ending in 2012, to invest $58.2 million in the Canadian TV industry and in the Canadian communications industry to promote Canadian TV content and the development of communications. As at December 31, 2006, $8.6 million remained to be invested. | |||
(c) | Contingencies: | ||
On March 13, 2002, legal action was initiated by the shareholders of a cable company against Videotron Ltd., Cable segment. They contend that Videotron Ltd. did not honor its commitment related to a stock purchase agreement signed in August 2000. The plaintiffs are requesting compensation totalling $26.0 million. Videotron Ltd.’s management claims the suit is not justified and intends to vigorously defend its case in Court. | |||
A number of other legal proceedings against the Company and its subsidiaries are still outstanding. In the opinion of the management of the Company and its subsidiaries, the outcome of these proceedings is not expected to have a material adverse effect on the Company’s results or its financial position. |
F-41
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
21. | GUARANTEES: | |
In the normal course of business, the Company enters into numerous agreements containing guarantees including the following: | ||
Operating leases: | ||
The Company has guaranteed a portion of the residual values of certain assets under operating leases for the benefit of the lessor. Should the Company terminate these leases prior to term (or at the end of these lease term) and should the fair value of the assets be less than the guaranteed residual value, then the Company must, under certain conditions, compensate the lessor for a portion of the shortfall. In addition, the Company has provided guarantees to the lessor of certain premise leases, with expiry dates through 2015. Should the lessee default under the agreement, the Company must, under certain conditions, compensate the lessor. As at December 31, 2006, the maximum exposure with respect to these guarantees is $16.2 million and no liability has been recorded in the consolidated balance sheet since the Company does not expect to make any payments pertaining to these guarantees. | ||
Business and asset disposals: | ||
In the sale of all or part of a business or an asset, in addition to possible indemnification relating to failure to perform covenants and breach of representations or warranties, the Company may agree to indemnify against claims related to its past conduct of the business. Typically, the term and amount of such indemnification will be limited by the agreement. The nature of these indemnification agreements prevents the Company from estimating the maximum potential liability it could be required to pay to guaranteed parties. The Company has not accrued any amount in respect of these items in the consolidated balance sheet. | ||
Outsourcing companies and suppliers: | ||
In the normal course of its operations, the Company enters into contractual agreements with outsourcing companies and suppliers. In some cases, the Company agrees to provide indemnifications in the event of legal procedures initiated against them. In other cases, the Company provides indemnification to counterparties for damages resulting from the outsourcing companies and suppliers. The nature of the indemnification agreements prevents the Company from estimating the maximum potential liability it could be required to pay. No amount has been accrued in the consolidated financial statements with respect to these indemnifications. |
F-42
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
22. | FINANCIAL INSTRUMENTS: | |
The Company is exposed to risks relating to foreign exchange fluctuations and is as well as risks relating to interest rate fluctuations. To reduce these risks, the Company and its subsidiaries use derivative financial instruments. None of these instruments is held or issued for speculative purposes. |
(a) | Description of derivative financial instruments: |
(i) | Foreign exchange forward contracts: |
Average | Notional | |||||||||||
Currencies (sold/bought) | Maturing | exchange rate | amount | |||||||||
Quebecor Media Inc. | ||||||||||||
$/Euro | Less than 1 year | 1.4459 | $ | 25.1 | ||||||||
$/CHF | Less than 1 year | 0.9265 | 14.9 | |||||||||
Sun Media Corporation | ||||||||||||
$ / US$ | February 15, 2013 | 1.5227 | 312.2 | |||||||||
Videotron Ltd. and its subsidiaries: | ||||||||||||
$ / US$ | Less than 1 year | 1.1152 | 50.4 | |||||||||
F-43
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
22. | FINANCIAL INSTRUMENTS (continued): |
(a) | Description of derivative financial instruments (continued): |
(ii) | Cross-currency interest rate swaps: |
CDN dollar | ||||||||||||||||||||
exchange rate | ||||||||||||||||||||
Annual | Annual | of interest | ||||||||||||||||||
effective | nominal | and capital | ||||||||||||||||||
Period | Notional | interest | interest | payments per | ||||||||||||||||
covered | amount | rate | rate | one US dollar | ||||||||||||||||
Quebecor Media Inc.: | ||||||||||||||||||||
Senior Notes | 2006 to 2016 | US$ | 525.0 | 7.39 | % | 7.75 | % | 1.1600 | ||||||||||||
Term loan B credit facilities | 2006 to 2009 | US$ | 198.9 | 6.27 | % | LIBOR | 1.1625 | |||||||||||||
+2.00 | % | |||||||||||||||||||
Term loan B credit facilities | 2009 to 2013 | US$ | 198.9 | Bankers’ | LIBOR | 1.1625 | ||||||||||||||
acceptances | +2.00 | % | ||||||||||||||||||
3 months | ||||||||||||||||||||
+2.22 | % | |||||||||||||||||||
Term loan B credit facilities | 2006 to 2013 | US$ | 148.9 | 6.44 | % | LIBOR | 1.1625 | |||||||||||||
+2.00 | % | |||||||||||||||||||
Videotron Ltd. and its subsidiaries: | ||||||||||||||||||||
Senior Notes | 2004 to 2014 | US$ | 190.0 | Bankers’ | 6.875 | % | 1.2000 | |||||||||||||
acceptances | ||||||||||||||||||||
3 months | ||||||||||||||||||||
+2.80 | % | |||||||||||||||||||
Senior Notes | 2004 to 2014 | US$ | 125.0 | 7.45 | % | 6.875 | % | 1.1950 | ||||||||||||
Senior Notes | 2003 to 2014 | US$ | 200.0 | Bankers’ | 6.875 | % | 1.3425 | |||||||||||||
acceptances | ||||||||||||||||||||
3 months | ||||||||||||||||||||
+2.73 | % | |||||||||||||||||||
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 |
F-44
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
22. | FINANCIAL INSTRUMENTS (continued): |
(a) | Description of derivative financial instruments (continued): |
(ii) | Cross-currency interest rate swaps (continued): |
CDN dollar | ||||||||||||||||||||
exchange rate | ||||||||||||||||||||
Annual | Annual | of interest | ||||||||||||||||||
effective | nominal | and capital | ||||||||||||||||||
Period | Notional | interest | interest | payments per | ||||||||||||||||
covered | amount | rate | rate | one US dollar | ||||||||||||||||
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’ | 7.625 | % | 1.5227 | |||||||||||||
acceptances | ||||||||||||||||||||
3 months | ||||||||||||||||||||
+3.70 | % | |||||||||||||||||||
Senior Notes | 2003 to 2013 | US$ | 50.0 | Bankers’ | 7.625 | % | 1.5227 | |||||||||||||
acceptances | ||||||||||||||||||||
3 months | ||||||||||||||||||||
+3.70 | % | |||||||||||||||||||
Term-loan B credit facility | 2003 to 2009 | US$ | 181.4 | Bankers’ | LIBOR | 1.5175 | ||||||||||||||
acceptances | plus 1.75% | |||||||||||||||||||
3 months | ||||||||||||||||||||
+2.29 | % | |||||||||||||||||||
F-45
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
22. | FINANCIAL INSTRUMENTS (continued): |
(a) | Description of derivative financial instruments (continued): |
(ii) | Cross-currency interest rate swaps (continued): | ||
The cross-currency swap agreements settled as part of the refinancing of the Company’s debts on January 17, 2006, were subject to a floor limit on negative fair market value, below which the Company was required to make prepayments to limit the exposure of the counterparties. Such prepayments were offset by equal reductions in the Company’s commitments under the agreements. The Company was required to make prepayments of $75.9 million in 2005 and $197.7 million in 2004 under this provision. | |||
Also, certain cross-currency interest rate swaps entered into by the Company and its subsidiaries include an option that allows each party to unwind the transaction on a specific date at the then-market value. |
(b) | Fair value of financial instruments: | ||
The carrying amount of cash and cash equivalents, temporary investments, accounts receivable, bank indebtedness, accounts payable and accrued charges, dividend payable, amounts payable to the parent company and companies under common control and the Additional Amount payable approximates their fair value since these items will be realized or paid within one year or are due on demand. |
F-46
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
22. | FINANCIAL INSTRUMENTS (continued): |
(b) | Fair value of financial instruments (continued): | ||
Carrying value and fair value of other financial instruments as at December 31, 2006 and 2005 are as follows: |
2006 | 2005 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
value | Fair value | value | Fair value | |||||||||||||
Quebecor Media Inc. | ||||||||||||||||
Long-term debt | $ | (1,191.6 | ) | $ | (1,206.3 | ) | $ | (988.1 | ) | $ | (1,078.8 | ) | ||||
Cross-currency interest rate swaps | 3.8 | (17.8 | ) | (21.5 | ) | (261.3 | ) | |||||||||
Foreign exchange forward contracts | 2.2 | 2.2 | — | (1.8 | ) | |||||||||||
Videotron Ltd. and its subsidiaries | ||||||||||||||||
Long-term debt | (1,021.2 | ) | (1,010.6 | ) | (971.7 | ) | (967.4 | ) | ||||||||
Interest rate swaps | — | — | (0.9 | ) | (0.9 | ) | ||||||||||
Cross-currency interest rate swaps | (71.8 | ) | (141.1 | ) | (73.7 | ) | (135.0 | ) | ||||||||
Foreign exchange forward contract | — | 2.1 | — | (0.2 | ) | |||||||||||
Sun Media Corporation and its subsidiaries | ||||||||||||||||
Long-term debt | (486.8 | ) | (492.9 | ) | (466.3 | ) | (476.1 | ) | ||||||||
Cross-currency interest rate swaps and foreign exchange forward contract | (148.8 | ) | (176.1 | ) | (154.1 | ) | (186.5 | ) | ||||||||
TVA Group Inc. and its subsidiaries | ||||||||||||||||
Long-term debt | (96.5 | ) | (96.5 | ) | (107.1 | ) | (107.1 | ) | ||||||||
The fair value of the financial liabilities are estimated based on discounted cash flows using year-end market yields or market value of similar instruments with the same maturity. The fair value of the derivative financial instruments is estimated using year-end market rates, and reflects the amount the Company would receive or pay if the instruments were closed out at those dates. | |||
(c) | Credit risk management: | ||
The Company is exposed to credit losses resulting from defaults by counterparties when using financial instruments. | |||
When the Company enters into derivative contracts, the counterparties (either foreign or Canadian) must have at least credit ratings in accordance with the Company’s credit risk management policy and are subject to concentration limits. The Company does not foresee any failure by counterparties in meeting their obligations. | |||
In the normal course of business, the Company continuously monitors the financial condition of its customers and reviews the credit history of each new customer. As at December 31, 2006, no customer balance represented a significant portion of the Company’s consolidated trade receivables. The Company establishes an allowance for doubtful accounts based on the specific credit risk of its customers and historical trends. |
F-47
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
22. | FINANCIAL INSTRUMENTS (continued): |
(C) | Credit risk management (continued): | ||
The Company believes that its product-lines and the geographic diversity of its customer base is instrumental in reducing its credit risk, as well as the impact of fluctuations in product-line demand. The Company does not believe that it is exposed to an unusual level of customer credit risk. |
23. | RELATED PARTY TRANSACTIONS: | |
During the year, the Company made purchases and incurred rent charges from companies under common control and from affiliated companies in the amount of $86.9 million ($88.4 million in 2005 and $75.1 million in 2004), included in the cost of sales and selling and administrative expenses. The Company made sales to companies under common control and to an affiliated company in the amount of $18.1 million ($21.7 million in 2005 and $11.1 million in 2004). These transactions were concluded and accounted for at the exchange value. | ||
In 2005, the Company acquired certain assets from Quebecor World Inc., a company under common control, for a cash consideration of $3.3 million. The transaction was recorded at the carrying value of the assets transferred. | ||
In 2004, the Cable segment purchased some of the Quebecor World Inc.’s information technology (IT) infrastructure equipment of Quebecor World Inc., a company under common control, at a cost of $3.0 million, as part of an IT outsourcing long-term agreement signed between the parties. Both the price of the equipment transferred and revenues from this outsourcing agreement are accounted for at the exchange value. | ||
Quebecor Inc. (the “parent company”) has entered into management arrangements with the Company. Under these management arrangements, the parent company and the Company provide each other management services on a cost reimbursement basis. The expenses subject to reimbursement include the salaries of the Company’s executive officers who also serve as executive officers of the parent company. Also, in connection with the Company’s previous credit facility, which was secured by the Company’s shareholders, an annual security fee equivalent to 1% of the credit facility was charged to the Company by its shareholders. The new credit facilities, entered into in January 2006, are not secured by the Company’s shareholders. In 2006, the Company received an amount of $3.0 million, which is included as a reduction in selling and administrative expenses ($3.0 million in 2005 and 2004) and the Company has incurred management and security fees of $1.1 million ($2.2 million in 2005 and $1.8 million in 2004) with the shareholders. | ||
In addition, the Company incurred rent expense with a subsidiary of a shareholder and with a shareholder of the parent company for an amount of $2.7 million ($2.6 million in 2005 and $3.7 million in 2004). | ||
During the year ended December 31, 2006, Nurun Inc., Interactive Technologies and Communications segment, received interest of $0.9 million ($0.8 million in 2005 and $0.7 million in 2004) from Quebecor Inc. As at December 31, 2006, cash and cash equivalents totalling $20.2 million ($22.3 million as at December 31, 2005) have been invested on a revolving basis in Quebecor Inc. under the terms of an agreement for the consolidation of bank operations. These advances on demand bear interest at prime rate less 1.4%. | ||
During the years ended December 31, 2006 and 2004, some of the Company’s subsidiaries acquired tax benefits amounting to $6.5 million and $12.9 million, respectively, from Quebecor World Inc., a company under common control, that were recorded as income taxes receivable. These transactions allowed the Company to realize a gain of $0.4 million and $0.1 million (net of non-controlling interest), respectively, which was recorded as contributed surplus. | ||
On December 14, 2005, the Company entered into a tax consolidation transaction by which the Company has transferred to its parent company $192.0 million of capital losses for a cash consideration of $15.9 million. In addition, in 2006, Quebecor Inc., the parent company, transferred to the Company’s subsidiary, Sun Media Corporation, $74.2 million of non-capital losses in exchange of a cash consideration of $16.1 million. These transactions were recorded at the exchange amounts. As a result, the Company has recorded a reduction of $15.9 million of its income tax expense in 2005 and expects to reduce its income tax expense by $8.4 million in the future. |
F-48
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
24. | PENSION PLANS AND POSTRETIREMENT BENEFITS: | |
The Company maintains various flat-benefit plans, final-pay plans with indexation features from none to 2%, and defined contribution plans. The Company’s policy is to maintain its contribution at a level sufficient to cover benefits. Actuarial valuations of the Company’s numerous pension plans were performed once at least in the last three years and the next required valuations will be performed at least over the next three years. | ||
The Company provides postretirement benefits to eligible employees. The costs of these benefits, which are principally health care, are accounted for during the employee’s active service period. | ||
The following tables give a reconciliation of the changes in the plans’ benefit obligations and the fair value of plan assets for the years ended December 31, 2006 and 2005, and a statement of the funded status as at those dates: |
Pension benefits | Postretirement benefits | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Change in benefit obligations: | ||||||||||||||||
Benefit obligations at beginning of year | $ | 555.9 | $ | 444.9 | $ | 40.4 | $ | 35.5 | ||||||||
Service costs | 22.1 | 15.3 | 1.3 | 1.8 | ||||||||||||
Interest costs | 29.0 | 27.7 | 1.9 | 2.2 | ||||||||||||
Plan participants’ contributions | 11.7 | 10.4 | — | — | ||||||||||||
Actuarial loss | 1.8 | 68.7 | 1.3 | 4.5 | ||||||||||||
Benefits and settlements paid | (25.6 | ) | (16.7 | ) | (1.7 | ) | (1.2 | ) | ||||||||
Plan amendments | 0.7 | 5.6 | (3.1 | ) | — | |||||||||||
Curtailment gain | — | — | — | (2.4 | ) | |||||||||||
Other | 0.2 | — | 0.6 | — | ||||||||||||
Benefit obligations at end of year | $ | 595.8 | $ | 555.9 | $ | 40.7 | $ | 40.4 | ||||||||
Pension benefits | Postretirement benefits | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Change in plan assets: | ||||||||||||||||
Fair value of plan assets at beginning of year | $ | 480.8 | $ | 421.8 | $ | — | $ | — | ||||||||
Actual return on plan assets | 68.5 | 47.2 | — | — | ||||||||||||
Employer contributions | 25.0 | 18.1 | 1.7 | 1.2 | ||||||||||||
Plan participants’ contributions | 11.7 | 10.4 | — | — | ||||||||||||
Benefits and settlements paid | (25.6 | ) | (16.7 | ) | (1.7 | ) | (1.2 | ) | ||||||||
Fair value of plan assets at end of year | $ | 560.4 | $ | 480.8 | $ | — | $ | — | ||||||||
The plan assets are comprised of: |
2006 | 2005 | |||||||
Equity securities | 59.8 | % | 55.8 | % | ||||
Debt securities | 36.5 | 43.4 | ||||||
Other | 3.7 | 0.8 | ||||||
100.0 | % | 100.0 | % | |||||
F-49
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
24. | PENSION PLANS AND POSTRETIREMENT BENEFITS (continued): | |
As at December 31, 2006, plan assets included shares of the parent company and of a company under common control representing an amount of $2.5 million ($2.7 million as at December 31, 2005). |
Pension benefits | Postretirement benefits | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Reconciliation of funded status: | ||||||||||||||||
Excess of benefit obligations over fair value of plan assets at end of year | $ | (35.4 | ) | $ | (75.1 | ) | $ | (40.7 | ) | $ | (40.4 | ) | ||||
Unrecognized actuarial loss | 47.9 | 81.1 | 13.0 | 12.3 | ||||||||||||
Unrecognized net transition (asset) obligation | (5.2 | ) | (5.7 | ) | 0.5 | 0.5 | ||||||||||
Unrecognized prior service cost (benefit) | 17.0 | 18.1 | (5.1 | ) | (2.7 | ) | ||||||||||
Valuation allowance | (19.5 | ) | (17.4 | ) | — | — | ||||||||||
Net amount recognized | $ | 4.8 | $ | 1.0 | $ | (32.3 | ) | $ | (30.3 | ) | ||||||
Included in the above benefit obligations and fair value of plan assets at year-end are the following amounts in respect of plans that are not fully funded: |
Pension benefits | Postretirement benefits | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Benefit obligations | $ | (585.5 | ) | $ | (549.5 | ) | $ | (40.7 | ) | $ | (40.4 | ) | ||||
Fair value of plan assets | 548.8 | 473.6 | — | — | ||||||||||||
Funded status — plan deficit | $ | (36.7 | ) | $ | (75.9 | ) | $ | (40.7 | ) | $ | (40.4 | ) | ||||
Amounts recognized in the consolidated balance sheets are as follows: |
Pension benefits | Postretirement benefits | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Accrued benefit liability | $ | (4.7 | ) | $ | (7.2 | ) | $ | (32.3 | ) | $ | (30.3 | ) | ||||
Deferred pension charge | 9.5 | 8.2 | — | — | ||||||||||||
Net amount recognized | $ | 4.8 | $ | 1.0 | $ | (32.3 | ) | $ | (30.3 | ) | ||||||
F-50
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
24. | PENSION PLANS AND POSTRETIREMENT BENEFITS (continued): | |
Components of the net benefit costs are as follows: |
Pension benefits | Postretirement benefits | |||||||||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||||||
Service costs | $ | 22.1 | $ | 15.3 | $ | 11.9 | $ | 1.3 | $ | 1.8 | $ | 1.5 | ||||||||||||
Interest costs | 29.0 | 27.7 | 26.2 | 1.9 | 2.2 | 1.9 | ||||||||||||||||||
Actual return on plan assets | (68.5 | ) | (47.2 | ) | (38.6 | ) | — | — | — | |||||||||||||||
Current actuarial loss | 1.8 | 68.7 | 6.6 | 1.3 | 4.5 | 2.6 | ||||||||||||||||||
Current prior service costs (benefits) | 0.7 | 5.6 | 0.3 | (3.1 | ) | — | — | |||||||||||||||||
Curtailment (gain) loss and other | — | — | — | — | (1.6 | ) | 1.9 | |||||||||||||||||
Elements of net benefit costs before adjustments to recognize the long-term nature and valuation allowance | (14.9 | ) | 70.1 | 6.4 | 1.4 | 6.9 | 7.9 | |||||||||||||||||
Difference between actual and expected return on plan assets | 33.0 | 15.1 | 9.2 | — | — | — | ||||||||||||||||||
Deferral of amounts arising during the period: | ||||||||||||||||||||||||
Actuarial loss | (1.8 | ) | (68.7 | ) | (6.6 | ) | (1.3 | ) | (4.5 | ) | (2.6 | ) | ||||||||||||
Prior service costs | (0.7 | ) | (5.6 | ) | (0.3 | ) | 3.1 | — | — | |||||||||||||||
Amortization of previously deferred amounts: | ||||||||||||||||||||||||
Actuarial loss | 2.0 | (0.2 | ) | 1.3 | 0.6 | (0.1 | ) | — | ||||||||||||||||
Prior service costs (benefits) | 1.8 | 1.6 | 1.2 | (0.7 | ) | (0.3 | ) | (0.3 | ) | |||||||||||||||
Transitional obligations | (0.5 | ) | (0.5 | ) | (0.5 | ) | — | 0.1 | 0.1 | |||||||||||||||
Total adjustments to recognize the long-term nature of benefit costs | 33.8 | (58.3 | ) | 4.3 | 1.7 | (4.8 | ) | (2.8 | ) | |||||||||||||||
Valuation allowance | 2.1 | 1.0 | 2.6 | — | — | — | ||||||||||||||||||
Net benefit costs | $ | 21.0 | $ | 12.8 | $ | 13.3 | $ | 3.1 | $ | 2.1 | $ | 5.1 | ||||||||||||
The expense related to defined contribution pension plans amounted to $10.9 million in 2006 ($9.7 million in 2005 and $10.3 million in 2004). | ||
The total cash amount paid or payable for employee future benefits for all plans, consisting of cash contributed by the Company to its funded pension plans, cash payment directly to beneficiaries for its unfunded other benefit plans, and cash contributed to its defined contribution plans, totalled $37.6 million for the year ended December 31, 2006 ($29.0 million in 2005 and $28.3 million in 2004). |
F-51
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
24. | PENSION PLANS AND POSTRETIREMENT BENEFITS (continued): | |
The weighted average rates used in the measurement of the Company’s benefit obligations as at December 31, 2006, 2005 and 2004 and current periodic costs are as follows: |
Pension benefits | Postretirement benefits | |||||||||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||||||
Benefit obligations | ||||||||||||||||||||||||
Rates as at year-end: | ||||||||||||||||||||||||
Discount rate | 5.00 | % | 5.00 | % | 6.00 | % | 5.00 | % | 5.00 | % | 6.00 | % | ||||||||||||
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 | 5.00 | % | 6.00 | % | 6.25 | % | 5.00 | % | 6.00 | % | 6.25 | % | ||||||||||||
Expected return on plan assets1 | 7.25 | 7.50 | 7.75 | — | — | — | ||||||||||||||||||
Rate of compensation increase | 3.50 | 3.50 | 3.50 | 3.50 | 3.50 | 3.50 | ||||||||||||||||||
1 | After management and professional fees. |
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligations was 8.6% at the end of 2006. The cost, as per an estimate, is expected to decrease gradually for the next nine years to 5.0% and remain at that level thereafter. A one-percentage point change in the assumed health care cost trend would have the following effects: |
Postretirement benefits | ||||||||
1% | 1% | |||||||
Sensitivity analysis | increase | decrease | ||||||
Effect on service and interest costs | $ | 0.6 | $ | (0.4 | ) | |||
Effect on benefit obligations | 6.6 | (5.1 | ) | |||||
F-52
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
25. | RATES SUBJECT TO CRTC REGULATION | |
The Cable segment operations are subject to rate regulations on certain services based on geographical regions, mainly by the Broadcasting Act (Canada) and the Telecommunications Act (Canada), both managed by the Canadian Radio-television and Telecommunication Commissions. Accordingly, the Cable segment’s operating revenues could be affected by changes in regulations or decisions made by this regulating body. The Company does not select accounting policies that would differ from GAAP, even though the Company is subject to these regulations. |
F-53
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
26. | SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES: | |
The Company’s consolidated financial statements are prepared in accordance with GAAP in Canada, which differ in some respects from those applicable in the United States. The following tables set forth the impact of material differences between GAAP in Canada and in the United States on the Company’s consolidated financial statements: | ||
Restatement of U.S. GAAP Reconciliation Note to Financial Statements Relating to Accounting for Fair Value Hedge Relationships | ||
The following 2006, 2005 and 2004 U.S. GAAP financial information from the consolidated statements of income, comprehensive loss and consolidated balance sheets have been restated to reflect certain adjustments to previously reported financial information for the correction of an error related to the accounting for certain fair value hedge relationships. | ||
As described in Note 26 (iii), the Company has entered into fair value hedges of its debt with derivative instruments. The accounting for a fair value hedge in accordance with GAAP in the United States requires that the change in fair value of the hedging instrument and the change in fair value of the hedged item attributable to the hedged risk, be recognized currently in earnings. The Company has determined that the adjustment to the carrying value of the debt (hedged item) attributable to the hedged risks was calculated and recorded incorrectly in previously presented financial information calculated in accordance with GAAP in the United States due to a misinterpretation of the applicable GAAP in the United States. | ||
The following tables summarize the effects of the adjustments on previously reported financial information. | ||
Consolidated statements of income and comprehensive income: |
2006 | 2005 | 2004 | ||||||||||
Decrease in change in fair value and ineffective portion of derivative instruments | $ | (10.5 | ) | $ | (18.5 | ) | $ | (14.2 | ) | |||
Decrease in income tax expense | 3.0 | 6.1 | — | |||||||||
Net decrease of net income and comprehensive income | $ | (7.5 | ) | $ | (12.4 | ) | $ | (14.2 | ) | |||
Consolidated balance sheets: |
December 31, | December 31, | December 31, | ||||||||||
2006 | 2005 | 2004 | ||||||||||
Increase in long term debt | $ | 43.1 | $ | 32.5 | $ | 14.1 | ||||||
Decrease in future income tax liabilities | (9.1 | ) | (6.1 | ) | — | |||||||
Increase in deficit | 34.0 | 26.4 | 14.1 | |||||||||
F-54
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
26. | SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES (CONTINUED): | |
Restatement of U.S. GAAP Reconciliation Note to Financial Statements Relating to Accounting for Fair Value Hedge Relationships (continued) | ||
Adjustment to unaudited interim financial information calculated in accordance with U.S. GAAP : |
First quarter | Second quarter | Third quarter | Fourth quarter | |||||||||||||
2006 | 2006 | 2006 | 2006 | |||||||||||||
Decrease in change in fair value and ineffective portion of derivative instruments | $ | (2.5 | ) | $ | (2.3 | ) | $ | (2.3 | ) | $ | (3.4 | ) | ||||
Decrease in income tax expense | 0.9 | 0.5 | 0.9 | 0.7 | ||||||||||||
Net decrease of net income and comprehensive income | $ | (1.6 | ) | $ | (1.8 | ) | $ | (1.4 | ) | $ | (2.7 | ) | ||||
(a) | Consolidated statements of income: |
2006 | 2005 | 2004 | ||||||||||
(restated) | (restated) | (restated) | ||||||||||
Net (loss) income, as reported in the consolidated statements of income per GAAP in Canada | $ | (169.7 | ) | $ | 96.5 | $ | 88.2 | |||||
Adjustments: | ||||||||||||
Development, pre-operating and start-up costs (i) | (0.7 | ) | (1.3 | ) | (2.1 | ) | ||||||
Pension and postretirement benefits (ii) | 0.9 | 2.1 | 0.9 | |||||||||
Change in fair value and ineffective portion of derivative instruments (iii) | 71.6 | (7.2 | ) | (7.6 | ) | |||||||
Stock-based compensation (iv) | (4.8 | ) | — | — | ||||||||
Income taxes (v), (vi) | (40.1 | ) | 37.2 | (4.4 | ) | |||||||
Non-monetary transactions (vii) | — | 1.5 | — | |||||||||
Other | — | — | 6.9 | |||||||||
Net (loss) income, as adjusted per GAAP in the United States (in Canadian dollars) | $ | (142.8 | ) | $ | 128.8 | $ | 81.9 | |||||
F-55
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
26. | SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES (CONTINUED): |
(b) | Comprehensive (loss) income: | ||
The application of GAAP in the United States requires the disclosure of comprehensive (loss) income in a separate financial statement, which includes net (loss) income as well as revenues, charges, gains and losses recorded directly to equity. The details of the comprehensive loss are as follows: |
2006 | 2005 | 2004 | ||||||||||
(restated) | (restated) | (restated) | ||||||||||
Net (loss) income, as adjusted per GAAP in the United States | $ | (142.8 | ) | $ | 128.8 | $ | 81.9 | |||||
Pension and post-retirement benefits (ii) | 17.6 | (18.8 | ) | (4.4 | ) | |||||||
Derivative instruments (iii) | 132.0 | (22.0 | ) | (105.7 | ) | |||||||
Translation adjustment1 | 1.2 | (1.3 | ) | 0.5 | ||||||||
Income taxes (v), (vi) | (64.4 | ) | 73.3 | 2.2 | ||||||||
Comprehensive (loss) income per GAAP in the United States | $ | (56.4 | ) | $ | 160.0 | $ | (25.5 | ) | ||||
1 | Change of the year |
Accumulated other comprehensive loss as at December 31, 2006, 2005 and 2004 is as follows: |
2006 | 2005 | 2004 | ||||||||||
Pension and post-retirement benefits (ii) | $ | (52.3 | ) | $ | (30.2 | ) | $ | (11.4 | ) | |||
Derivative instruments (iii) | (44.4 | ) | (176.4 | ) | (154.4 | ) | ||||||
Translation adjustment | (1.1 | ) | (2.3 | ) | (1.0 | ) | ||||||
Income taxes (ii), (v), (vi) | 25.8 | 77.8 | 4.5 | |||||||||
Accumulated other comprehensive loss at end of year | $ | (72.0 | ) | $ | (131.1 | ) | $ | (162.3 | ) | |||
F-56
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
26. | SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES (continued): |
(c) | Consolidated balance sheets: |
2006 | 2005 | |||||||||||||||
Canada | United States | Canada | United States | |||||||||||||
(restated) | (restated) | |||||||||||||||
Goodwill | $ | 3,721.1 | $ | 3,717.1 | $ | 3,871.9 | $ | 3,868.0 | ||||||||
Other assets | 243.6 | 197.1 | 259.4 | 251.9 | ||||||||||||
Current liabilities | (956.4 | ) | (945.9 | ) | (964.3 | ) | (964.3 | ) | ||||||||
Long-term debt | (2,773.0 | ) | (2,743.2 | ) | (2,530.5 | ) | (2,498.3 | ) | ||||||||
Other liabilities | (356.5 | ) | (470.9 | ) | (359.3 | ) | (684.5 | ) | ||||||||
Future income tax liabilities | (118.9 | ) | (81.0 | ) | (227.0 | ) | (97.7 | ) | ||||||||
Non-controlling interest | (142.1 | ) | (137.1 | ) | (144.3 | ) | (144.0 | ) | ||||||||
Contributed surplus (vi), (viii) | (3,217.2 | ) | (3,395.2 | ) | (3,216.8 | ) | (3,386.4 | ) | ||||||||
Deficit | 2,731.5 | 2,920.3 | 2,538.1 | 2,753.7 | ||||||||||||
Accumulated other comprehensive loss | 1.1 | 72.0 | 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, certain start-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. |
F-57
Table of Contents
QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
26. | SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES (continued): |
(c) | Consolidated balance sheets (continued): |
(ii) | Under GAAP in the United States, Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158) was issued in 2006 and requires the recognition in the balance sheet of the over or under funded positions of defined benefit pension and other postretirement plans, along with a corresponding non-cash adjustment, which will be recorded in the accumulated other comprehensive loss. The SFAS 158 was adopted prospectively on December 31, 2006 and did not have an impact on the Company’s consolidated statement of income. | ||
Under GAAP in the United States, for 2006 and prior years, if the accumulated benefit obligation exceeded the fair value of a pension plan’s assets, the Company was required to recognize a minimum accrued liability equal to the unfunded accumulated benefit obligation, which was recorded in accumulated other comprehensive loss. The additional minimum liability concept has been eliminated with the adoption of SFAS 158. | |||
On the adoption of SFAS 158, an adjustment of $27.3 million (net of income tax of $12.4 million and non-controlling interest of $14.5 million) was recorded as a component of the ending balance of accumulated other comprehensive loss as at December 31, 2006 to reflect the unfunded status of benefit plans and the reversal of the minimum pension liability that was recognized in accordance with SFAS 87. | |||
Under GAAP in Canada, a company is not required to recognize the over or under funded positions or to recognize an additional minimum liability. However, 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. | |||
(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 (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. |
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
26. | SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES (continued): |
(c) | Consolidated balance sheets (continued): |
(iv) | Under U.S. GAAP, the Company adopted the new standards of FASB No. 123(R), Share-Based Payment (SFAS 123(R)) in 2006. In accordance with SFAS 123(R), the liability related to stock-based awards that call for settlement in cash or other asset, must be measured at its fair value based on the fair value of stock options awards, and shall be remeasured at the end of each reporting period through settlement. Under Canadian GAAP, the liability is measured and remeasured based on the intrinsic value of the stocks options awards instead of the fair value. | ||
(v) | 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 are recognized since that period in the statement of income and in the statement of comprehensive income. | ||
(vi) | The Company entered into a tax consolidation transactions by which in 2006, the parent company transferred to the Company’s subsidiary, Sun Media Corporation, non-capital losses in exchange of a cash consideration of $16.1 million and by which in 2005, the Company has transferred to its parent company capital losses for a cash consideration of $15.9 million (note 7). Under GAAP in Canada, these transactions were recorded in accordance with CICA Handbook 3840, Related Party Transactions. It resulted in the recognition of a deferred credit of $8.4 million in 2006 and in a reduction of $15.9 million of the Company’s income tax expense in 2005. Under GAAP in the United States, since these transactions related to assets transfer between a subsidiary and its parent company, the difference between the carrying value of the tax benefits transferred and the cash consideration received or paid were recognized in contributed surplus. | ||
(vii) | 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. | |||
(viii) | Under GAAP in Canada, in 2003, the Company recorded a gain on repurchase of redeemable preferred shares of a subsidiary of $153.7 million in the statement income. Under GAAP in the United States, this gain is recognized in contributed surplus. |
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
27. | NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY: |
The Company has access to the cash flow generated by its subsidiaries by way of dividends declared by its public subsidiaries and dividends and advances from its private subsidiaries. However, some of the Company’s subsidiaries have restrictions, based on contractual debt obligations and corporate solvency tests, regarding the amounts of dividends and advances that could be paid to the Company.
The U.S. Securities and Exchange Commission requires that the non-consolidated financial statements of the parent company be presented when its subsidiaries have restrictions that may limit the amount of cash that can be paid to the parent company. These non-consolidated and condensed financial statements, as prepared under Canadian GAAP, are as follows:
Non-consolidated and condensed statements of income
2006 | 2005 | 2004 | ||||||||||
Revenues | ||||||||||||
Management fees | $ | 41.8 | $ | 30.0 | $ | 20.4 | ||||||
Interest on loan to subsidiaries | 0.7 | 6.9 | 6.0 | |||||||||
Other | 7.3 | 28.0 | 20.8 | |||||||||
49.8 | 64.9 | 47.2 | ||||||||||
Expenses | ||||||||||||
General and administrative | (49.1 | ) | (53.7 | ) | (46.4 | ) | ||||||
Depreciation and amortization | (0.8 | ) | (1.2 | ) | (1.4 | ) | ||||||
Financial | (106.4 | ) | (171.3 | ) | (181.0 | ) | ||||||
Loss before undernoted items | (106.5 | ) | (161.3 | ) | (181.6 | ) | ||||||
Gain on disposal of investments and other assets | 0.1 | — | 1.4 | |||||||||
Loss on debt refinancing | (342.1 | ) | (60.8 | ) | — | |||||||
Loss before income taxes | (448.5 | ) | (222.1 | ) | (180.2 | ) | ||||||
Income taxes | (93.6 | ) | (24.9 | ) | (48.2 | ) | ||||||
(354.9 | ) | (197.2 | ) | (132.0 | ) | |||||||
Equity income from subsidiaries | 185.2 | 293.7 | 220.2 | |||||||||
Net (loss) income | $ | (169.7 | ) | $ | 96.5 | $ | 88.2 | |||||
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
27. | NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY (continued): |
Non-consolidated and condensed statements of cash flows
2006 | 2005 | 2004 | ||||||||||
Cash flows related to operations | ||||||||||||
Net (loss) income | $ | (169.7 | ) | $ | 96.5 | $ | 88.2 | |||||
Amortization of plant, property and equipment | 0.8 | 1.2 | 1.4 | |||||||||
Gain on disposal of investments and other assets | (0.1 | ) | — | (1.4 | ) | |||||||
Loss on debt refinancing | 342.1 | 60.8 | — | |||||||||
Repayment of accrued interest on Senior Discount Notes | (197.3 | ) | (3.0 | ) | — | |||||||
Amortization of deferred financing costs and of long term debt discount | 4.8 | 61.2 | 55.0 | |||||||||
Loss on revaluation of the Additional Amount payable | 13.8 | — | — | |||||||||
Future income taxes | (93.3 | ) | (25.7 | ) | (48.5 | ) | ||||||
Excess of equity income over equity distributions from subsidiaries | (86.3 | ) | (111.2 | ) | (76.1 | ) | ||||||
Net change in non-cash balances related to operations | 21.2 | (29.7 | ) | 9.4 | ||||||||
Cash flows (used in) provided by operations | (164.0 | ) | 50.1 | 28.0 | ||||||||
Cash flows related to investing activities | ||||||||||||
Net acquisitions of investments in subsidiaries | (100.3 | ) | (39.9 | ) | (26.3 | ) | ||||||
Dividends received in excess of accumulated equity income from subsidiaries | 10.0 | 210.0 | 205.2 | |||||||||
Reduction to paid-up capital of subsidiaries | 164.6 | — | — | |||||||||
Proceeds from disposal of a business to a subsidiary | 7.7 | — | — | |||||||||
Proceeds from disposal of tax deductions to a subsidiary | — | 35.2 | — | |||||||||
Net decrease (increase) in temporary investments | — | 78.4 | (59.9 | ) | ||||||||
Other | 8.3 | (1.6 | ) | 1.4 | ||||||||
Cash flows provided by investing activities | 90.3 | 282.1 | 120.4 | |||||||||
Cash flows related to financing activities | ||||||||||||
Proceeds from issuance of redeemable preferred shares | 279.0 | 316.9 | 1,370.0 | |||||||||
Repurchases of redeemable preferred shares | (842.0 | ) | (334.0 | ) | (1,550.0 | ) | ||||||
Net increase in bank indebtedness | 1.9 | — | — | |||||||||
Net repayments of revolving credit facilities | — | — | (97.0 | ) | ||||||||
Repayments of long-term debt and unwinding of hedging contracts | (1,174.2 | ) | (212.7 | ) | — | |||||||
Issuance of long-term debt, net of financing fees | 1,186.5 | — | — | |||||||||
Net decrease (increase) in prepayments under cross-currency swap agreements | 21.6 | (34.1 | ) | (184.4 | ) | |||||||
Dividends and reduction of Common Shares paid-up capital | (105.0 | ) | (45.0 | ) | (20.0 | ) | ||||||
Net decrease (increase) in advances to or from subsidiaries | 687.9 | (19.8 | ) | 254.3 | ||||||||
Cash flows provided by (used in) financing activities | 55.7 | (328.7 | ) | (227.1 | ) | |||||||
Net (decrease) increase in cash and cash equivalents | (18.0 | ) | 3.5 | (78.7 | ) | |||||||
Cash and cash equivalents at beginning of year | 18.0 | 14.5 | 93.2 | |||||||||
Cash and cash equivalents at end of year | $ | — | $ | 18.0 | $ | 14.5 | ||||||
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
Notes to consolidated financial statements(continued)
Notes to consolidated financial statements(continued)
Years ended December 31, 2006, 2005 and 2004
(tabular amounts in millions of Canadian dollars, except for option data)
(tabular amounts in millions of Canadian dollars, except for option data)
27. | NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY (continued): |
Non-consolidated and condensed balance sheets
2006 | 2005 | |||||||
Assets | ||||||||
Current assets | $ | 101.4 | $ | 153.6 | ||||
Advances to subsidiaries | 216.3 | 175.9 | ||||||
Investments in subsidiaries | 3,448.7 | 3,372.9 | ||||||
Convertible obligation and notes receivable — subsidiaries | 830.0 | 1,392.9 | ||||||
Other assets | 155.5 | 84.8 | ||||||
$ | 4,751.9 | $ | 5,180.1 | |||||
Liabilities and Shareholders’ equity | ||||||||
Current liabilities | $ | 199.4 | $ | 207.8 | ||||
Long-term debt | 1,171.4 | 988.2 | ||||||
Advances from subsidiaries | 245.3 | 77.7 | ||||||
Other liabilities | 68.8 | 63.4 | ||||||
Redeemable preferred shares issued to subsidiaries | 830.0 | 1,392.9 | ||||||
Shareholders’ equity | 2,237.0 | 2,450.1 | ||||||
$ | 4,751.9 | $ | 5,180.1 | |||||
28. | SUBSEQUENT EVENTS: | |
On May 31, 2007, the Company announced that it had entered into an acquisition and support agreement pursuant to which the Company will make a take-over bid to acquire all outstanding units of Osprey Media Income Fund (“Osprey Media”) resulting in a total purchase consideration of approximately $518.0 million, including the repayment of the assumed debt of $161.5 million and estimated transaction fees of $1.0 million. Osprey Media is one of Canada’s leading publishers of daily and non-daily newspapers, magazines and specialty publications. Its publications include 20 daily newspapers and 34 non-daily newspapers together with shopping guides, magazines and other publications. | ||
On May 31, 2007, the Company also announced that it has made a proposed bid to acquire all of the minority interest in Nurun Inc. for a total cash consideration of approximately $63.4 million. Following the transaction, Nurun would become a wholly-owned subsidiary of Quebecor Media and it would be delisted from the Toronto Stock Exchange. |
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