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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 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Jurisdiction of incorporation or organization)
612 Saint-Jacques Street
Montréal, Québec, Canada H3C 4M8
(Address of principal executive offices)
Title of each class | Name of each exchange on which registered | |
None | None |
(Title of Class)
(Title of Class)
235,000 Cumulative First Preferred Shares, Series A
275,000 Cumulative First Preferred Shares, Series C
320,000 Cumulative First Preferred Shares, Series F
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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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Year Ended | Average(1) | High | Low | Period End | ||||||||||||
December 31, 2002 | 0.6370 | 0.6619 | 0.6200 | 0.6329 | ||||||||||||
December 31, 2003 | 0.7205 | 0.7738 | 0.6349 | 0.7738 | ||||||||||||
December 31, 2004 | 0.7719 | 0.8493 | 0.7158 | 0.8310 | ||||||||||||
December 31, 2005 | 0.8282 | 0.8690 | 0.7872 | 0.8579 | ||||||||||||
December 31, 2006 | 0.8847 | 0.9100 | 0.8528 | 0.8582 |
Month Ended | Average(2) | High | Low | Period End | ||||||||||||
September 30, 2006 | 0.8960 | 0.9048 | 0.8872 | 0.8968 | ||||||||||||
October 31, 2006 | 0.8861 | 0.8965 | 0.8784 | 0.8907 | ||||||||||||
November 30, 2006 | 0.8804 | 0.8869 | 0.8715 | 0.8762 | ||||||||||||
December 31, 2006 | 0.8672 | 0.8760 | 0.8582 | 0.8582 | ||||||||||||
January 31, 2007 | 0.8502 | 0.8586 | 0.8457 | 0.8480 | ||||||||||||
February 28, 2007 | 0.8540 | 0.8631 | 0.8437 | 0.8547 | ||||||||||||
March 2007 (through March 15, 2007) | 0.8513 | 0.8557 | 0.8467 | 0.8506 |
(1) | The average of the exchange rates on the last day of each month during the applicable year. | |
(2) | The average of the exchange rates for all days during the applicable month. |
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• | general economic, financial or market conditions; | ||
• | the intensity of competitive activity in the industries in which we operate, including competition from alternative means of programs and content transmission; | ||
• | unanticipated higher capital spending required to address continued development of competitive alternative technologies or the inability to obtain additional capital to continue the development of our business; | ||
• | our ability to implement successfully our business and operating strategies and manage our growth and expansion; | ||
• | our ability to continue to distribute a wide range of television programming and to attract large audiences and readership; | ||
• | variations in the cost, quality and variety of our television programming; | ||
• | cyclical and seasonal variations in our advertising revenue; | ||
• | disruptions to the network through which we provide our digital television, Internet access and telephony services, and our ability to protect such services from piracy; | ||
• | labour disputes or strikes; | ||
• | changes in our ability to obtain services and equipment critical to our operations; | ||
• | changes in laws and regulations, or in their interpretations, which could result in, among other things, the loss (or reduction in value) of our licenses or markets or in an increase in competition, compliance costs or capital expenditures; | ||
• | our substantial indebtedness and the restrictions on our business imposed by the terms of our debt; and | ||
• | interest rate fluctuations that affect a portion of our interest payment requirements on long-term debt. |
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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 or coverage deficiency(2)(3) | 231.1 | 1.5 | x | 1.5 | x | 1.7 | x | 209.2 |
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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Year Ended December 31, | ||||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||||
(restated)(4) | (restated)(4) | (restated)(4) | ||||||||||||||||||||
(in millions, except ratio) | ||||||||||||||||||||||
STATEMENT OF INCOME DATA: | ||||||||||||||||||||||
Revenues | ||||||||||||||||||||||
Cable | $ | 1,312.2 | $ | 1,086.5 | $ | 946.9 | $ | 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 | ) | ||||||||||||
3,013.6 | 2,709.1 | 2,471.7 | 2,298.1 | 2,253.0 | ||||||||||||||||||
Cost of sales, selling and administrative expenses | (2,216.9 | ) | (1,973.5 | ) | (1,764.3 | ) | (1,683.0 | ) | (1,677.0 | ) | ||||||||||||
Amortization | (257.9 | ) | (229.6 | ) | (225.7 | ) | (226.6 | ) | (224.6 | ) | ||||||||||||
Financial expenses | (220.0 | ) | (304.0 | ) | (322.2 | ) | (467.6 | ) | (179.7 | ) | ||||||||||||
Reserve for restructuring of operations, impairment of assets and other special charges | (18.9 | ) | 0.2 | (2.8 | ) | (1.8 | ) | (36.9 | ) | |||||||||||||
Loss on debt refinancing | (275.7 | ) | (48.5 | ) | (4.8 | ) | (9.6 | ) | — | |||||||||||||
Gain (loss) on sales of businesses and other assets | 2.2 | 1.6 | 9.3 | (1.1 | ) | 3.6 | ||||||||||||||||
Depreciation of goodwill and intangible assets | (180.0 | ) | — | — | (0.5 | ) | (2,322.4 | ) | ||||||||||||||
Income taxes | 12.2 | (8.1 | ) | (43.4 | ) | 13.8 | (5.5 | ) | ||||||||||||||
Non-controlling interest | (1.3 | ) | (18.4 | ) | (35.1 | ) | (34.6 | ) | (30.5 | ) | ||||||||||||
Other (expenses) revenues and (loss) income from discontinued operations | (0.1 | ) | — | (0.8 | ) | 16.4 | 11.6 | |||||||||||||||
Net (loss) income | $ | (142.8 | ) | $ | 128.8 | $ | 81.9 | $ | (96.5 | ) | $ | (2,208.4 | ) | |||||||||
OTHER FINANCIAL DATA AND RATIOS: | ||||||||||||||||||||||
Operating income(1) | $ | 796.7 | $ | 735.6 | $ | 707.4 | $ | 615.1 | $ | 576.0 | ||||||||||||
Additions to property, plant and equipment | 435.5 | 319.8 | 181.1 | 131.2 | 135.8 | |||||||||||||||||
Comprehensive (loss) income | (56.4 | ) | 160.0 | (25.5 | ) | (155.7 | ) | (2,204.1 | ) | |||||||||||||
Ratio of earnings to fixed charges or coverage deficiency(2)(3) | 162.9 | 1.5 | x | 1.5 | x | 76.0 | 2,205.5 |
As of December 31, | ||||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||||
(restated) (4) | (restated) (4) | (restated) (4) | ||||||||||||||||||||
(in millions) | ||||||||||||||||||||||
BALANCE SHEET DATA: | ||||||||||||||||||||||
Cash and cash equivalents | $ | 34.1 | $ | 97.4 | $ | 108.8 | $ | 103.6 | $ | 188.3 | ||||||||||||
Total assets | 6,533.4 | 6,664.1 | 6,480.1 | 6,602.2 | 6,885.2 | |||||||||||||||||
Long-term debt | 2,766.3 | 2,501.1 | 2,529.0 | 2,736.1 | 3,548.3 | |||||||||||||||||
Capital stock | 1,752.4 | 1,773.7 | 1,773.7 | 1,773.7 | 1,341.8 | |||||||||||||||||
Shareholders’ equity | 2,155.3 | 2,275.2 | 2,204.3 | 2,253.3 | 1,820.4 |
(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 (loss) on sales of businesses and other assets, depreciation of goodwill and intangible assets, income taxes, non-controlling interest, other (expenses) revenues and (loss) income 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. |
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 | ||||||||||||||||||||
Other expenses (revenues) and 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 | ||||||||||||||
Year Ended December 31, | |||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||
(restated)(4) | (restated)(4) | (restated)(4) | |||||||||||||||||
(in millions) | |||||||||||||||||||
Reconciliation between net (loss) income and operating income disclosed herein (U.S. GAAP) | |||||||||||||||||||
Net (loss) income | $ | (142.8 | ) | $ | 128.8 | $ | 81.9 | $ | (96.5 | ) | $ | (2,208.4 | ) | ||||||
Amortization | 257.9 | 229.6 | 225.7 | 226.6 | 224.6 | ||||||||||||||
Financial expenses | 220.0 | 304.0 | 322.2 | 467.6 | 179.7 | ||||||||||||||
Reserve for restructuring of operations, impairment of assets and other special charges | 18.9 | (0.2 | ) | 2.8 | 1.8 | 36.9 | |||||||||||||
Loss on debt refinancing | 275.7 | 48.5 | 4.8 | 9.6 | — | ||||||||||||||
(Gain) loss on sales of businesses and other assets | (2.2 | ) | (1.6 | ) | (9.3 | ) | 1.1 | (3.6 | ) | ||||||||||
Depreciation of goodwill and intangible assets | 180.0 | — | — | 0.5 | 2,322.4 | ||||||||||||||
Income taxes | (12.2 | ) | 8.1 | 43.4 | (13.8 | ) | 5.5 | ||||||||||||
Non-controlling interest | 1.3 | 18.4 | 35.1 | 34.6 | 30.5 | ||||||||||||||
Other expenses (revenues) and loss (income) from discontinued operations | 0.1 | — | 0.8 | (16.4 | ) | (11.6 | ) | ||||||||||||
Operating income | $ | 796.7 | $ | 735.6 | $ | 707.4 | $ | 615.1 | $ | 576.0 | |||||||||
(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. | |
(3) | Our 2006 coverage deficiency was significant due to the non-cash charge related to an impairment of goodwill and intangible assets in the amount of $180.0 million and to our loss on debt refinancing in the amount of $342.6 million pursuant to Canadian GAAP ($275.7 million pursuant to U.S. GAAP). We believe cash flows from continuing operating activities and available sources of financing will be sufficient to cover our operating, investing and financing needs during the twelve months following December 31, 2006. | |
(4) | Refer to note 26 of the audited consolidated financial statements for the year ended December 31, 2006. |
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• | As of December 31, 2006, 3 of Videotron’s 5 collective bargaining agreements, representing approximately 2,275 or 94% of its unionized employees will expire between December 2007 and December 2009; two other agreements, representing approximately 138 or 6% of its unionized employees, will expire between December 2010 and August 2011; | ||
• | As of February 28, 2007, 15 of Sun Media’s 50 collective bargaining agreements, representing approximately 642 or 31% of its 2,057 unionized employees, have expired. Negotiations regarding these 15 collective bargaining agreements are either in progress or will be undertaken in 2007. The other 35 of Sun Media’s collective bargaining agreements, representing approximately 1,415 or 69% of its unionized employees, are scheduled to expire on various dates between October 2007 and June 2010; | ||
• | As of December 31, 2006, 12 of TVA Group’s 15 collective bargaining agreements, representing approximately 273 or 33% of its unionized employees, will expire between April 2007 and the end of December 2008; 3 of its collective bargaining agreements, representing approximately 544 or 67% of its unionized employees, have expired and negotiations regarding these collective bargaining agreements are in progress; |
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• | As of December 31, 2006, 1 of the remaining 6 collective bargaining agreements, representing approximately 20 or 6% of our unionized employees, expired in 2006. Negotiations regarding this agreements will be undertaken in 2007. The other 5 collective bargaining agreements, representing approximately 315 or 94% of our other unionized employees, will expire between the end of April 2009 and April 2010. |
• | increase our vulnerability to general adverse economic and industry conditions; | ||
• | require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our indebtedness, reducing the availability of our cash flow to fund capital expenditures, working capital and other general corporate purposes; | ||
• | limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate; | ||
• | place us at a competitive disadvantage compared to our competitors that have less debt or greater financial resources; and | ||
• | limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds on commercially reasonable terms, if at all. |
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• | borrow money or sell preferred stock; | ||
• | issue guarantees of debt; | ||
• | make certain types of investments; | ||
• | pay dividends and make other restricted payments; | ||
• | create or permit certain liens; | ||
• | use the proceeds from sales of assets and subsidiary stock; | ||
• | enter into asset sales; | ||
• | create or permit restrictions on the ability of our restricted subsidiaries, if any, to pay dividends or make other distributions; | ||
• | engage in certain transactions with affiliates; and | ||
• | enter into mergers, consolidations and transfers of all or substantially all of our assets. |
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• | On August 2, 2006, TVA Group filed a new Normal Course Issuer Bid in order to purchase for cancellation, between August 4, 2006 and August 3, 2007, up to a maximum of 1,135,242 issued and outstanding Class B shares. During the financial years ended December 31, 2006 and 2005, Quebecor Media’s interest in TVA Group increased as a result of the Substantial Issuer Bid dated May 19, 2005 and various Normal Course Issuer Bids. In 2006 and 2005 respectively, 9,800 and 3,739,599 Class B shares were repurchased under the Substantial Issuer Bid and Normal Course Issuer Bids for cash considerations of $0.2 million and $81.9 million respectively. As a result of these repurchases, Quebecor Media’s interest in TVA Group increased by 5.5 percentage points, from 39.7% on January 1, 2005 to 45.2% as of December 31, 2006. | ||
• | On July 11, 2006, Nurun closed the acquisition of Crazy Labs Web Solutions, S.L. (“Crazy Labs”), an interactive communications agency based in Madrid, Spain, for a consideration of $5.9 million, including $5.1 million in cash and $0.8 million in Common Shares of Nurun. The acquisition strengthens Nurun’s presence in Spain, where it already has an office in Barcelona. | ||
• | In May 2006, Sun Media acquired two community publicationsThe Devon Dispatch NewsandThe Nouvelle Beaumont News, for total cash consideration of $1.1 million, including acquisition costs. | ||
• | On February 27, 2006, Nurun renewed its Normal Course Issuer Bid to repurchase, between March 1, 2006 and February 28, 2007, up to 1,656,016 Common Shares for cancellation on the open market, or approximately 5% of its issued and outstanding Common Shares. During the 12-month period ended December 31, 2006, a total of 437,500 Common Shares were repurchased for a cash consideration of $1.6 million. In 2005, Nurun repurchased a total of 377,600 Common Shares for a |
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cash consideration of $0.8 million under its Normal Course issuer Bid. In consideration of the acquisition of China Interactive in January 2006 and Crazy Labs in July 2006, Nurun issued 161,098 and 215,680 Common Shares respectively. As a result of these transactions, Quebecor Media’s interest in Nurun decreased from 57.9% as of January 1, 2005 to 57.8% as of December 31, 2006. | |||
• | On January 26, 2006, Nurun acquired China Interactive Limited, an interactive marketing firm located in Shanghai, People’s Republic of China for a consideration of $3.0 million, including $2.4 million in cash and $0.6 million in Common Shares of Nurun. The acquisition is an important step for Nurun in developing the Asian markets. | ||
• | On January 17, 2006, we repurchased US$561.6 million in aggregate principal amount of our Senior Notes due 2011 (representing 95.7% of the Senior Notes due 2011 outstanding) and US$275.6 million in aggregate principal amount at maturity of our Senior Discount Notes due 2011 (representing 97.4% of the Senior Discount Notes due 2011 outstanding). On July 15, 2006, Quebecor Media purchased the balance of its outstanding Senior Notes due 2011 and Senior Discount Notes due 2011. We paid total cash consideration of US$1.4 billion to purchase the notes, including the premium and the cost of settlement of cross-currency swap agreements. The refinancing entailed disbursements exceeding the book value of the repurchased notes, including repayment of liabilities related to cross-currency swap agreements and disbursements related to the loss on debt refinancing and on swap agreements, by $380.0 million, which was financed by issuing long-term debt. See also “Item 5. Operating and Financial Review and Prospects” below. | ||
• | On January 1, 2006, our indirect wholly-owned subsidiary Vidéotron Telecom was merged with and into Vidéotron pursuant to an amalgamation under Part IA of theCompanies Act(Québec). On the same date, Vidéotron (Régional) ltée was merged with and into CF Cable TV Inc. On July 1, 2006, Vidéotron was also merged with its parent 9101-0827 Québec inc. | ||
• | On December 12, 2005, we closed our acquisition of Sogides ltée (now Groupe Sogides inc.), which we refer to as Sogides, a major Québec-based book publishing and distribution group which owns the publishing houses Les Éditions de l’Homme, Le Jour, Utilis, Les Presses Libres and Groupe Ville-Marie Littérature inc. (which includes L’Hexagone, VLB Éditeur and Typo), and owns the distributor Les Messageries A.D.P. inc. (“Messageries ADP”), which is a distributor for more than 160 Québec-based and foreign publishing houses. With this acquisition, Quebecor Media offers a more complete selection of books by Québec authors, will be able to promote Québec writers in Europe through the Sogides network on that continent and becomes the largest Québec-based publisher and distributor of French-language books in the Province of Québec. For the acquisition of Sogides, we paid cash consideration of $24.0 million, and an additional contingent amount of $5.0 million, payable upon the satisfaction of specific conditions in 2008. | ||
• | On September 20, 2005, we announced, through Vidéotron, that we had signed a strategic relationship agreement with Rogers Wireless, Inc. (“Rogers Wireless”), the operator of Canada’s largest integrated wireless voice and data network, which was going to enable us to offer Québec consumers a quadruple play of television, broadband Internet, cable telephony and Videotron branded mobile wireless telephony services. Recently, on August 10, 2006, we launched our mobile wireless telephony services in the Quebec City area. Since then, the service has been completely rolled out throughout the Province of Québec. Our services include international roaming and popular options such as voicemail, call waiting, call display, call forwarding, text messaging and conference calling. We are responsible for acquiring and billing customers, as well as for providing customer support under our own brand. We operate as a Mobile Virtual Network Operator, or MVNO, utilizing wireless voice and data services provided by Rogers Wireless across its GSM/GPRS network. | ||
• | On September 16, 2005, Vidéotron issued US$175.0 million aggregate principal amount of its 63/8% Senior Notes due December 15, 2015. The net proceeds from this sale of Vidéotron’s 63/8% Senior Notes were used primarily to refinance the repurchase of all the outstanding Senior Notes issued by |
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our CF Cable TV subsidiary and a portion of the repurchase by Quebecor Media of its Senior Notes due 2011 and Senior Discount Notes due 2011. | |||
• | In August 2005, we announced a plan to invest in a new printing facility located in Toronto, Ontario. As part of this plan, Sun Media will transfer the printing of certain of its publications in Ontario to the new facility. In addition, in August 2005, we announced a plan to relocate the printing of certain Sun Media publications to a new printing facility owned by us, located in Saint-Janvier-de-Mirabel, Québec. During the fourth quarter of 2006, this new printing facility began printing certain Québec community publications, as well asThe Ottawa Sunand24 Heures(Montréal). The new facilities should make it possible to consolidate some of Sun Media’s printing operations in Ontario and Québec, improve the quality of its newspaper products and create additional revenue opportunities as well as strengthen the convergence among our Toronto media properties. | ||
• | On July 19, 2005, we repurchased and retired US$128.2 million in aggregate principal amount of our 111/8%Senior Notes due 2011 and US$12.1 million in aggregate principal amount at maturity of our 133/4% Senior Discount Notes due 2011 pursuant to cash tender offers commenced on June 20, 2005. We paid aggregate cash consideration of $215.3 million to purchase these notes, including the redemption premium and the cost of settlement of related cross-currency swap agreements, recognizing a $60.8 million loss on settlement of debt ($41.0 million after taxes). | ||
• | In January 2005, Vidéotron launched its telephony services in the Province of Québec, using VoIP technology. Vidéotron became the first major cable company in Canada to offer consumers residential telephone service over cable. See “— Cable” below. |
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• | cross-promote our brands, programs and other content across multiple media platforms; | ||
• | provide advertisers with an integrated solution for local, regional and national multi-platform advertising; | ||
• | offer a differentiated, bundled suite of entertainment, information and communication services and products, including digital television, cable Internet access, video-on-demand and other interactive television services, as well as residential and commercial cable telephony services using VoIP technology and mobile wireless telephony services; | ||
• | deliver high-quality services and products, including, for example, our standard cable Internet access service that enables our customers to download data at a higher speed than that currently offered by standard digital subscriber line, or DSL, technology, and the widest range of French-language programming in Canada; | ||
• | leverage our content, management, sales and marketing and production resources to provide superior information and entertainment services to our customers; | ||
• | extend our market reach by leveraging our multimedia platform and cross-marketing expertise and experience to enhance our national media platform; | ||
• | leverage our single, highly contiguous network that covers approximately 80% of Québec’s total addressable market and five of the province’s top six urban areas. We believe that our single cluster and network architecture provides many benefits, including a higher quality and more reliable network, the ability to rapidly and efficiently launch and deploy new products and services, and a lower cost structure through reduced maintenance and technical support costs; | ||
• | leverage our advanced broadband network, 98% of which is bi-directional which allows us to offer a wide range of advanced services on the same media, such as analog and digital television, video-on-demand, cable Internet access and cable and mobile wireless telephony services. We are committed to maintaining and upgrading our network capacity and, to that end, we currently anticipate that future capital expenditures over the next five years will be required to accommodate the evolution of our products and services and to meet the demand for increased capacity resulting from the launch of our new telephony service and the offering of our other advanced products and services. |
• | Introduce new and enhanced products and services.We expect a significant portion of our growth in our Cable segment revenues to be driven by the introduction of new products and services and continuing penetration of products and services such as digital cable services, cable Internet access, cable and mobile |
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wireless telephony services, high-definition television, video-on-demand and interactive television. Our objective is also to increase our revenue per subscriber by focusing sales and marketing efforts on the bundling of these value-added products and services. | |||
• | Offer multi-platform media advertising solutions.Our multi-platform media assets enable us to provide advertisers with an integrated advertising solution. We are able to provide flexible, bundled advertising packages that allow advertisers to reach local, regional and national markets, as well as special interest and specific demographic groups. We will focus on further integrating our television, newspaper and magazine publishing, and Internet advertising platforms to enable us to tailor advertising packages to customers’ needs. | ||
• | Cross-promote brands, programs and other content.The geographic overlap of our cable, television, newspaper and magazine publishing, music and video store chains, and Internet platforms enables us to cost effectively promote and co-brand media properties. We will continue to promote initiatives to advance these cross-promotional activities, including the cross-promotion of various businesses, cross-divisional advertising and shared infrastructures. | ||
• | Use content across media properties.We are the largest private-sector French-language programming broadcaster, a leading producer of French-language programming, the second largest newspaper publisher, and a leading English- and French- language Internet news and information portal in Canada. Our objective is to further accelerate the distribution of our content across platforms. | ||
• | Leverage geographic clustering.Our Vidéotron subsidiary holds cable licenses that cover over 80% of Québec’s 3 million homes and commercial premises passed by cable. Geographic clusters facilitate bundled service offerings and, in addition, allow us to tailor our offerings to certain demographic markets. We aim to leverage the highly clustered nature of our systems to enable us to use marketing dollars more efficiently and to enhance customer awareness, increase use of products and services and build brand support. | ||
• | Maximize customer satisfaction and build customer loyalty. Across our media platform, we believe that maintaining a high level of customer satisfaction is critical to future growth and profitability. An important factor in our historical growth and profitability has been our ability to attract and satisfy customers with high quality products and services and we will continue our efforts to maximize customer satisfaction and build customer loyalty. | ||
• | Manage expenses through success-driven capital spending and technology improvements. In our Cable segment, we aim to support the growth in our customer base and bandwidth requirements through strategic success-driven modernizations of our network and increases in network capacity. In our Newspaper segment, we have undertaken restructurings of certain printing facilities and news production operations, and invested in certain technology improvements with a view to modernizing our operations and cost structure. In addition, we continuously seek to manage our salaries and benefits expenses, which comprise a significant portion of our costs. |
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Twelve Months Ended August 31, | ||||||||||||||||||||||||||
CAGR(1) | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||||||
(Homes passed and basic cable customers in millions; dollars in billions) | ||||||||||||||||||||||||||
Canada | ||||||||||||||||||||||||||
Industry Revenue | 7.6 | % | $ | 4.6 | $ | 4.5 | $ | 4.2 | $ | 3.7 | $ | 3.4 | ||||||||||||||
Homes Passed(2) | 3.0 | % | 10.7 | 10.2 | 10.0 | 9.7 | 9.5 | |||||||||||||||||||
Basic Cable Customers | (0.8 | )% | 6.6 | 6.6 | 6.6 | 6.7 | 6.9 | |||||||||||||||||||
Basic Penetration | 61.9 | % | 65.0 | % | 65.5 | % | 69.3 | % | 72.0 | % |
Twelve Months Ended August 31, | ||||||||||||||||||||||||||
CAGR(3) | 2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||||||||
(Homes passed and basic cable customers in millions; US$ in billions) | ||||||||||||||||||||||||||
United States | ||||||||||||||||||||||||||
Industry Revenue | 6.7 | % | US$ | 68.2 | US$ | 62.3 | US$ | 57.6 | US$ | 51.3 | US$ | 49.4 | ||||||||||||||
Homes Passed(2) | 1.7 | % | 111.6 | 110.8 | 108.2 | 102.9 | 102.7 | |||||||||||||||||||
Basic Cable Subscribers | (0.4 | )% | 65.3 | 65.3 | 65.7 | 66.0 | 66.5 | |||||||||||||||||||
Basic Penetration | 66.0 | % | 68.0 | % | 71.3 | % | 71.6 | % | 72.6 | % |
Source of Canadian data: CRTC. Source of U.S. data: NCTA, A.C. Nielsen Media Research and Kagan Research LLC. | ||
(1) | Compounded annual growth rate from 2001 through 2005. | |
(2) | “Homes passed” means the number of residential premises, such as single dwelling units or multiple dwelling units, and commercial premises passed by the cable television distribution network in a given cable system service area in which the programming services are offered. | |
(3) | Compounded annual growth rate from 2002 through 2006. |
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• | Basic Service.All of our customers receive a package of basic programming, consisting of local broadcast television stations, the four U.S. commercial networks and PBS, selected Canadian specialty programming services, and local and regional community programming. Our basic service customers generally receive 27 channels on basic cable. | ||
• | Extended Basic Service.This expanded programming level of services, which is generally comprised of approximately 18 channels, includes a package of French- and English-language specialty television |
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programming and U.S. cable channels in addition to the basic service channel line-up described above. Branded as “Telemax”, this service was introduced in almost all of our markets largely to satisfy customer demand for greater flexibility and choice. |
• | Cable Internet Access.Leveraging our advanced cable infrastructure, we offer cable Internet access to our residential customers primarily via cable modems attached to personal computers. We provide this service at speeds of up to 360 times the speed of a conventional telephone modem. As of December 31, 2006, we had 791,966 cable Internet access customers, representing 50.4% of our basic customers and 32.2% of our total homes passed. In addition, as of December 31, 2006, we had 13,426 dial-up Internet access customers. Based on internal estimates, we are the largest provider of high-speed Internet access services in the areas we serve with an estimated market share of 53.7% as of December 31, 2006. | ||
• | Digital Television.As part of our network modernization program, we have installed headend equipment capable of delivering digitally encoded transmissions to a two-way digital-capable set-top box in the customer’s home. This digital connection provides significant advantages. In particular, it increases channel capacity, which allows us to increase both programming and service offerings while providing increased flexibility in packaging our services. We launched our digital television service in March 1999 with the introduction of digital video compression terminals in the greater Montréal area. Since introducing our digital television service in the greater Montréal area, we have also introduced the service in other major markets. In September 2001, we launched a new digital service offering under theillico™ brand. In addition to providing high quality sound and image quality,illico™ offers our customers significant programming flexibility. Our basic digital package includes 25 television channels, 45 audio services providing CD-quality music, 18 AM/FM radio channels, an interactive programming guide as well as television-based e-mail capability. Our extended digital basic television service, branded as “à la carte” (i.e. individual channel selections), offers customers the ability to select more than 200 additional channels of their choice, including U.S. super-stations and other special entertainment programs, allowing them to customize their choices. This service also offers customers significant programming flexibility including the option of French-language only, English-language only or a combination of French- and English-language programming, as well as many foreign-language channels. We also offer pre-packaged themed service tiers in the areas of news, sports and discovery. Customers who purchase basic service and one customized package can also purchase channels on anà la carte basis at a specified cost per channel per month. As part of our digital service offering, customers can also purchase near-video-on-demand services on a per-event basis. As of December 31, 2006, we had 623,646 customers for our digital television service, representing 39.7% of our basic customers and 25.4% of our total homes passed. Our customers currently have the option to purchase or lease the digital set-top boxes required for digital service. We believe that the sale of equipment to customers improves customer retention, and, as of December 31, 2006, approximately 94% of our digital television customers had purchased and 6% were leasing our digital set-top boxes. | ||
• | Cable Telephony. In January 2005, we launched our new cable telephony service using VoIP technology in selected areas of the Province of Québec (South Shore and North Shore of Montréal, the Island of Montréal, Laval and Quebec City). In 2006, we continued to launch this service progressively among our other residential and commercial customers in the Province of Québec which was available to 83.9% of our basic cable customers as of December 31, 2006. Our new telephony service includes both local and long-distance calling, and permits all of our telephony customers, both residential and |
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commercial, to access all service features mandated by CRTC Decision 97-8 and other regulatory decisions and orders, including: enhanced 911 Emergency service; number portability from and to any local exchange carrier; a message relay service allowing subscribers to communicate with the hearing impaired; and a variety of personal privacy features including universal call tracing. We also offer free basic listings in local telephone directories, as well as full operator assistance, including: operator-assisted calls; collect and third-party calls; local, national and international directory assistance; person-to-person calls; and busy-line verification. Finally, we offer as part of our new telephony service a host of convenient, optional features, including: name and number caller ID; call waiting with long-distance distinctive ring and audible indicator tone; name and number caller ID on call waiting; visual indicator of a full voice mail box and audible message waiting indicators; automatic call forwarding; three-way conference calling; automatic recalling; and last incoming call identification and recall. VoIP allows us to deliver new cutting-edge features, such as voice-mail to e-mail functionality launched in December 2005, which allows customers to access their voice-mail via e-mail in the form of audio-file attachments. In keeping with our competitive strength of providing differentiated, bundled service offerings, we offer free installation of our new telephony service to existing cable television and/or Internet customers and to new bundled customers. We also offer discounts to our bundled customers, when compared to the sum of the prices of the individual services provided to these customers. In addition, we offer discounts for a second telephone line subscription. As of December 31, 2006, we had 397,860 subscribers to our cable telephony service. | |||
• | Mobile Wireless Telephony Services. On August 10, 2006, we launched our mobile wireless telephony services in the Quebec City area. Since then, the service has been completely rolled out throughout the Province of Québec. Through our strategic relationship with Rogers Wireless, the operator of Canada’s largest integrated wireless voice and data network, we offer Québec consumers a quadruple play of television, broadband Internet, cable telephony and Vidéotron branded mobile wireless telephony services. Our services include international roaming and popular options such as voicemail, call waiting, call display, call forwarding, text messaging and conference calling. We are responsible for acquiring and billing customers, as well as for providing customer support under our own brand. We operate as a Mobile Virtual Network Operator, or MVNO, utilizing wireless voice and data services provided by Rogers Wireless across its GSM/GPRS network. | ||
• | Video-On-Demand.Video-on-demand service enables digital cable customers to rent from a library of movies, documentaries and other programming through their digital set-top box. Our digital cable customers are able to rent their video-on-demand selections for a period of 24 hours, which they are then able to watch at their convenience with full stop, rewind, fast forward, pause and replay functionality during that period. Our video-on-demand service is available to 98% of the homes passed by us. We also offer pay television channels on a subscription basis that permit our customers to access and watch any of their video-on-demand selections at any time at their convenience. | ||
• | Other Products and Services.To maintain and enhance our market position, we are focused on increasing penetration of high-definition television and personal video recorders, as well as other high-value products and services. |
As of December 31, | ||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
Homes passed(1) | 2,457,213 | 2,419,335 | 2,383,443 | 2,351,344 | 2,329,023 | |||||||||||||||
Basic analog cable | ||||||||||||||||||||
Basic customers(2) | 1,572,411 | 1,506,113 | 1,452,554 | 1,424,144 | 1,431,060 | |||||||||||||||
Penetration(3) | 64.0 | % | 62.3 | % | 60.9 | % | 60.6 | % | 61.4 | % | ||||||||||
Digital cable |
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As of December 31, | ||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
Digital customers | 623,646 | 474,629 | 333,664 | 240,863 | 171,625 | |||||||||||||||
Penetration(4) | 39.7 | % | 31.5 | % | 23.0 | % | 16.9 | % | 12.0 | % | ||||||||||
Number of digital terminals | 738,530 | 537,364 | 362,053 | 257,350 | 182,010 | |||||||||||||||
Dial-up Internet access | ||||||||||||||||||||
Dial-up customers | 13,426 | 18,034 | 23,973 | 28,821 | 43,627 | |||||||||||||||
Cable Internet access | ||||||||||||||||||||
Cable modem customers | 791,966 | 637,971 | 502,630 | 406,277 | 305,054 | |||||||||||||||
Penetration(3) | 32.2 | % | 26.4 | % | 21.1 | % | 17.3 | % | 13.1 | % | ||||||||||
Telephony services | ||||||||||||||||||||
Cable telephony customers | 397,860 | 162,979 | 2,135 | — | — | |||||||||||||||
Penetration(3) | 16.2 | % | 6.7 | % | 0.1 | % | ||||||||||||||
Wireless telephony lines | 11,826 | — | — | — | — |
(1) | “Homes passed” means the number of residential premises, such as single dwelling units or multiple dwelling units, and commercial premises passed by the cable television distribution network in a given cable system service area in which the programming services are offered. | |
(2) | Basic customers are customers who receive basic cable service in either the analog or digital mode. The numbers of basic customers for the years 2002-2004, inclusive, were restated in order to permit such numbers to be compared to the 2005 and 2006 numbers of basic customers. | |
(3) | Represents customers as a percentage of total homes passed. | |
(4) | Represents customers for the digital service as a percentage of basic customers. |
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Service | Price Range | |||||||||||
Basic analog cable(1) | $ | 15.07 | – | $ | 28.88 | |||||||
Extended basic analog cable(1) | $ | 27.50 | – | $ | 41.19 | |||||||
Basic digital cable(1) | $ | 13.98 | – | $ | 15.98 | |||||||
Extended basic digital cable(1) | $ | 26.98 | – | $ | 75.98 | |||||||
Pay-television | $ | 3.99 | – | $ | 29.99 | |||||||
Pay-per-view (per movie or event) | $ | 2.99 | – | $ | 49.99 | |||||||
Video-on-demand (per movie or event) | $ | 0.99 | – | $ | 14.99 | |||||||
Dial-up Internet access | $ | 9.95 | – | $ | 19.95 | |||||||
Cable Internet access | $ | 26.95 | – | $ | 89.95 | |||||||
Cable telephony | $ | 15.95 | – | $ | 22.95 | |||||||
Mobile wireless telephony | $ | 22.65 | – | $ | 78.10 |
(1) | These rates reflect price increases, effective March 15, 2007, of $0.69 on basic analog cable and extended basic analog cable, $1.00 on basic digital cable and $1.00 on extended digital cable. |
450 MHz | 480 to | 750 to | Two-Way | |||||||||||||
and Under | 625 MHz | 860 MHz | Capability | |||||||||||||
December 31, 2002 | 3 | % | 23 | % | 74 | % | 97 | % | ||||||||
December 31, 2003 | 3 | % | 23 | % | 74 | % | 97 | % | ||||||||
December 31, 2004 | 3 | % | 23 | % | 74 | % | 97 | % | ||||||||
December 31, 2005 | 2 | % | 23 | % | 75 | % | 98 | % | ||||||||
December 31, 2006 | 2 | % | 23 | % | 75 | % | 98 | % |
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• | continue to rapidly deploy advanced products and services such as cable Internet access, digital television, cable telephony and mobile wireless telephony services; | ||
• | design product offerings that provide greater opportunity for customer entertainment and information choices; | ||
• | target marketing opportunities based on demographic data and past purchasing behavior; | ||
• | develop targeted marketing programs to attract former customers, households that have never subscribed to our services and customers of alternative or competitive services; |
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• | enhance the relationship between customer service representatives and our customers by training and motivating customer service representatives to promote advanced products and services; | ||
• | leverage the retail presence of Le SuperClub Vidéotron, Archambault Group and third-party commercial retailers; | ||
• | cross-promote the wide variety of content and services offered within the Quebecor Media group (including, for example, the content of TVA Group productions and the1-900 service for audience voting during television programs such asStar Académie,Occupation Doubleand other reality shows popular in Québec) in order to distribute our cable, data transmission, cable telephony and mobile wireless telephony services to our existing and future customers; | ||
• | introduce new value-added packages of products and services, which we believe increases average revenue per user, or ARPU, and improves customer retention; and | ||
• | leverage our business market, using the Vidéotron Telecom network and expertise with our commercial customer base, which should enable us to offer additional bundled services to our customers and may result in new business opportunities. |
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• | Over-the-air Television and Providers of Other Entertainment.Cable television has long competed with broadcast television, which consists of television signals that the viewer is able to receive without charge using an over-the air antenna. The extent of such competition is dependent upon the quality and quantity of broadcast signals available through over-the-air reception compared to the services provided by the local cable system. Cable systems also face competition from alternative methods of distributing and receiving television signals and from other sources of entertainment such as live sporting events, movie theatres and home video products, including videotape recorders, DVD players and video games. The extent to which a cable television service is competitive depends in significant part upon the cable system’s ability to provide a greater variety of programming, superior technical performance and superior customer service than are available over the air or through competitive alternative delivery sources. | ||
• | Direct Broadcast Satellite.Direct broadcast satellite, or DBS, is a significant competitor to cable systems. DBS delivers programming via signals sent directly to receiving dishes from medium- and high-powered satellites, as opposed to cable delivery transmissions. This form of distribution generally provides more channels than some of our television systems and is fully digital. DBS service can be received virtually anywhere in Canada through the installation of a small rooftop or side-mounted antenna. Like digital cable distribution, DBS systems use video compression technology to increase channel capacity and digital technology to improve the quality of the signals transmitted to their customers. | ||
• | DSL.The deployment of digital subscriber line technology, known as DSL, provides customers with Internet access at data transmission speeds greater than that which is available over conventional telephone lines. DSL service is comparable to cable-modem Internet access over cable systems. We also face competition from other providers of DSL service. | ||
• | VDSL.The CRTC and Industry Canada have authorized video digital subscriber line, or VDSL, services. VDSL technology increases the capacity of DSL lines available, which permits the distribution of digital video. We expect that we will soon face competition from incumbent local exchange carriers, which have been granted licenses to launch video distribution services using this technology. ILECs are currently installing this new technology, which operates over the copper lines in phone lines, in our markets. This technology can achieve speeds as high as 52 Mbps upstream, but VDSL can only operate over a short distance of about 4,000 feet (1,200 metres). As a result, telephone companies are replacing many of their main feeds with fibre-optic cable. By placing a VDSL transceiver, a VDSL gateway, in larger multiple dwelling units, the distance limitation is overcome. Further, as a result of such improvements in broadband speeds over DSL and the evolution of compression technology, incumbent telephone carriers in our service areas may be in a position to enable delivery of digital television over their cable Internet connections (IPTV) in the coming years. Advanced trials are underway in Canada and in other countries. Tests in our service markets are still being performed. If successful, IPTV may provide telecommunications carriers with a way to offer services similar to those offered by cable operators in the consumer market. | ||
• | Private Cable.Additional competition is posed by satellite master antenna television systems known as “SMATV systems” serving multi-dwelling units, such as condominiums, apartment complexes, and private residential communities. |
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• | Other Cable Distribution.Currently, a cable operator offering television distribution and providing cable-modem Internet access service is serving the greater Montréal area. This cable operator, which has approximately 15,000 customers, is owned by the regional ILEC. | ||
• | Wireless Distribution.Cable television systems also compete with wireless program distribution services such as multi-channel multipoint distribution systems, or MDS. This technology uses microwave links to transmit signals from multiple transmission sites to line-of-sight antennas located within the customer’s premises. | ||
• | Grey and Black Market DBS Providers.Cable and other distributors of television signals continue to face competition from the use of access codes and equipment that enable the unauthorized decoding of encrypted satellite signals, from unauthorized access to our analog and digital cable signals (black market) and from the reception of foreign signals through subscriptions to foreign satellite television providers that are not lawful distributors in Canada (grey market). | ||
• | Telephony Service.Our cable telephony service competes against other telephone companies, including both the incumbent telephone service provider in Québec, which controls a significant portion of the telephony market in Québec, as well as other VoIP telephony service providers and cellular telephone service providers. | ||
• | Mobile wireless telephony services.Our new mobile wireless telephony service competes against a mix of competitors, some of them being active in all the products we offer, while others only offer mobile wireless telephony services in our market. | ||
• | Other Internet Service Providers.In the Internet access business, cable operators compete against other Internet service providers offering residential and commercial Internet access services. The CRTC requires the large Canadian incumbent cable operators to offer access to their high speed Internet system to competitive Internet service providers at mandated rates. |
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• | the Urban Daily Group; and | ||
• | the Community Newspaper Group. |
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2006 Average Readership | Market Position by | ||||||||||||||||
Newspaper | Saturday | Sunday | Mon-Fri | Paid Circulation(1) | |||||||||||||
Le Journal de Montréal | 687,800 | 470,100 | 663,400 | 1 | |||||||||||||
Le Journal de Québec | 206,300 | 129,200 | 182,700 | 1 | |||||||||||||
The Toronto Sun | 555,100 | 816,100 | 705,500 | 2 | |||||||||||||
The London Free Press | 169,700 | 106,700 | 167,200 | 1 | |||||||||||||
The Ottawa Sun | 101,900 | 97,300 | 122,500 | 2 | |||||||||||||
The Winnipeg Sun | 102,200 | 92,200 | 117,700 | 2 | |||||||||||||
The Edmonton Sun | 138,400 | 175,000 | 194,600 | 2 | |||||||||||||
The Calgary Sun | 145,000 | 184,600 | 197,900 | 2 | |||||||||||||
Total Average Readership | 2,106,400 | 2,071,200 | 2,351,500 |
(1) | Based on paid circulation data published by the Audit Bureau of Circulations in September 2006 with respect to non-national newspapers in each market. |
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Le Journal de Montréal | ||||||||||||
Saturday | 309,300 | 308,000 | 312,500 | |||||||||
Sunday | 263,700 | 259,800 | 262,400 | |||||||||
Monday to Friday | 263,400 | 268,200 | 267,000 |
Source: Internal Statistics. |
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Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Le Journal de Québec | ||||||||||||
Saturday | 127,400 | 123,400 | 124,100 | |||||||||
Sunday | 107,300 | 101,400 | 101,600 | |||||||||
Monday to Friday | 104,500 | 99,700 | 100,500 |
Source: Internal Statistics. |
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
The Toronto Sun | ||||||||||||
Saturday | 149,000 | 148,000 | 158,900 | |||||||||
Sunday | 328,500 | 326,500 | 339,700 | |||||||||
Monday to Friday | 189,900 | 183,600 | 192,600 |
Source: Internal Statistics. |
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
The London Free Press | ||||||||||||
Saturday | 100,400 | 104,400 | 108,300 | |||||||||
Sunday | 62,800 | 64,600 | 66,300 | |||||||||
Monday to Friday | 84,200 | 87,600 | 90,700 |
Source: Internal Statistics. |
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Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
The Ottawa Sun | ||||||||||||
Saturday | 44,100 | 44,800 | 44,200 | |||||||||
Sunday | 51,200 | 51,000 | 51,600 | |||||||||
Monday to Friday | 50,500 | 51,200 | 49,100 |
Source: Internal Statistics. |
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
The Winnipeg Sun | ||||||||||||
Saturday | 38,200 | 40,500 | 41,200 | |||||||||
Sunday | 47,100 | 49,100 | 52,700 | |||||||||
Monday to Friday | 39,500 | 40,600 | 42,100 |
Source: Internal Statistics. |
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
The Edmonton Sun | ||||||||||||
Saturday | 64,700 | 68,100 | 66,200 | |||||||||
Sunday | 90,500 | 94,900 | 95,400 | |||||||||
Monday to Friday | 68,000 | 70,000 | 68,900 |
Source: Internal Statistics. |
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Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
The Calgary Sun | ||||||||||||
Saturday | 59,000 | 62,500 | 62,800 | |||||||||
Sunday | 90,000 | 91,500 | 94,400 | |||||||||
Monday to Friday | 60,600 | 62,300 | 64,200 |
Source: Internal Statistics. |
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Average Daily | ||||||
Newspaper | Location | Paid Circulation | ||||
The Brockville Recorder and Times | Brockville, Ontario | 12,000 | ||||
Stratford Beacon Herald | Stratford, Ontario | 10,500 | ||||
The Daily Herald Tribune | Grande Prairie, Alberta | 8,600 | ||||
Woodstock Sentinel-Review | Woodstock, Ontario | 6,800 | ||||
Simcoe Reformer | Simcoe, Ontario | 6,800 | ||||
St. Thomas Time-Journal | St. Thomas, Ontario | 6,600 | ||||
Fort McMurray Today | Fort McMurray, Alberta | 3,600 | ||||
The Daily Miner & News | Kenora, Ontario | 2,900 | ||||
The Daily Graphic | Portage La Prairie, Manitoba | 2,600 | ||||
Total Average Daily Paid Circulation | 60,400 |
Source: Internal Statistics. |
Number of | ||||
Province | Publications | |||
Québec | 53 | |||
Ontario | 51 | |||
Alberta | 45 | |||
Manitoba | 12 | |||
Saskatchewan | 6 | |||
New Brunswick | 1 | |||
Total Publications | 168 |
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Share of Province of Québec | ||||
Network | Television Audience | |||
TVA Group | 27.0 | % | ||
Société Radio-Canada | 14.0 | % | ||
Réseau TQS | 13.0 | % | ||
Télé-Québec | 3.1 | % | ||
Various French-language specialty cable channels | 36.1 | % | ||
Others | 6.8 | % |
Source: BBM People Meter January 1, 2006 through December 31, 2006 (audimetry data). |
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Type of Service | Language | Voting Interest | ||
Analog Specialty Services: | ||||
•LCN — Le Canal Nouvelles | French | TVA(1) 99.9% | ||
•Canal Évasion | French | TVA 8.3% | ||
•CPAC | French and English | V(2) 21.7% | ||
Category One Digital Specialty Services: | ||||
•MenTV | English | TVA 51.0% | ||
•Mystery (13th Street) | English | TVA 50.0% | ||
•Mystère (13e rue) | French | TVA 99.9% | ||
•Argent (LCN — Affaires) | French | TVA 99.9% | ||
Category Two Digital Specialty Services: | ||||
•Prise 2 (Nostalgie) | French | TVA 99.9% | ||
Pay Per View Services (terrestrial & direct broadcasting satellite): | ||||
•Canal Indigo | French | TVA 20.0% | ||
Video-on Demand Services: | ||||
•illico sur Demande | French and English | AG(3) 100% | ||
Exempted Programming Service: | ||||
•Canal TVAchats | French | TVA(1) 99.9% |
(1) | TVA Group (“TVA”) controls the programming services. Quebecor Media controls TVA Group. | |
(2) | Vidéotron (“V”) controls the programming services. Quebecor Media controls Vidéotron. | |
(3) | Archambault Group (“AG”) controls the programming services. Quebecor Media controls the Archambault Group. |
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• | CANOE (canoe.qc.caandcanoe.ca), a bilingual, integrated media and Internet services network and one of Canada’s leading Internet portals with more than 369.8 million page views in October 2006, according to Canoe internal statistics; | ||
• | CanoeKlix (canoeklix.com). Canoe developed and launched in 2006 CanoeKlix, its own pay per click software. | ||
• | Webfin Argent and Canoe Money (argent.canoe.comandmoney.canoe.ca), a financial website which offers, among other things, a variety of services ranging from financial information to portfolio management tools (the Webfin Argent website was redesigned in early 2005 in partnership with TVA’s new financial channel,Argent); | ||
• | TVA Group and LCN (tva.canoe.comandlcn.canoe.com) dedicated websites for the TVA television network and the LCN all-news channel, which started streaming TVA and LCN shows live on the websites; and | ||
• | Several websites for popular TVA Group programs, such asOccupation Double (occupationdouble.com) andStar Académie(staracademie.ca). |
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• | Jobboom.com, a unique Web-based employment site with over 1.8 million members, which also includes Jobboom Formation, an Internet directory of continuing education services; | ||
• | Autonet.ca, one of Canada’s leading site devoted entirely to automobiles; | ||
• | ReseauContact.com/flirt.canoe.ca, a bilingual dating and friendship site with 622,000 unique visitors per month, over 1,073,000 registered members and approximately 115,000 active members generating more than 125 million page views per month, as of October 2006, according to internal statistics; | ||
• | Micasa.ca, one of the leading real-estate listing sites in Quebec, providing comprehensive property listing services available to all real estate brokers as well as individual homeowners; and | ||
• | Canoeclassifieds.caandcanoeclassees.ca, classified ad sites through which visitors can view classified ads from more than 190 Canadian newspapers. |
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Floor Space | ||||||
Address | Use of Property | Press Capacity(1) | occupied (sq. ft.) | |||
Toronto, Ontario | Operations building, | 4 Metro presses | 274,400 | |||
333 King Street East | including printing plant— | (32 units) and | ||||
The Toronto Sun | 1 Metroliner press | |||||
(8 units) | ||||||
Montréal, Québec | Operations building, | 3 Metro presses and | 162,000 | |||
4545 Frontenac Street | including printing plant — | 1 Cosmo press | ||||
Le Journal de Montréal | (37 units) | |||||
London, Ontario | Operations building, | 2 Headliner presses | 150,100 | |||
369 York Street | including printing plant — | (12 units) and | ||||
The London Free Press | 1 Urbanite press | |||||
(8 units) | ||||||
Calgary, Alberta | Operations building, | 1 Headliner press | 90,000 | |||
2615-12 Street NE | including printing plant — | (7 units) | ||||
The Calgary Sun | ||||||
Vanier, Québec | Operations building, | 2 Urbanite presses | 74,000 | |||
450 Bechard Avenue | including printing plant — | (24 units) | ||||
Le Journal de Québec | ||||||
Winnipeg, Manitoba | Operations building, | 1 Urbanite press | 63,000 | |||
1700 Church Avenue | including printing plant — | (15 units) | ||||
The Winnipeg Sun | ||||||
Edmonton, Alberta | Printing plant — | 1 Metro press | 50,700 | |||
9300-47 Street | The Edmonton Sun | (8 units) | ||||
Edmonton, Alberta | Operations building | N/A | 45,200 | |||
4990-92 Avenue | The Edmonton Sun — | |||||
(leased until Dec. 2013) | ||||||
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Floor Space | ||||||
Address | Use of Property | Press Capacity(1) | occupied (sq. ft.) | |||
Gloucester, Ontario | Distribution facility | N/A | 23,000 | |||
4080 Belgreen Drive(2) | The Ottawa Sun | |||||
Ottawa, Ontario | DriveOperations building | N/A | 19,300 | |||
6 Antares | (leased until Oct. 2013) — | |||||
The Ottawa Sun |
(1) | A “unit” is the critical component of a press that determines color and page count capacity. All presses listed have between 6 and 15 units. | |
(2) | In October 2006, the press facilities ofThe Ottawa Sunwere transferred to the new printing facilities in Saint-Janvier-de-Mirabel, owned by Quebecor Media. Accordingly, this building is currently being used principally as a distribution facility. |
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• | In the first phase, the Telecommunications Act should be amended to give the federal Cabinet authority to waive the foreign ownership and control restrictions on Canadian telecommunications common carriers when it deems a foreign investment or class of investments to be in the public interest. During the first phase, there should be a presumption that investments in any new start-up telecommunications investment or in any telecommunications common carrier with less than 10 percent of the revenues in any telecommunications service market are in the public interest. This presumption could be rebutted by evidence related to a particular investor or investment. The presumption should apply to all investments in fixed or mobile wireless telephony markets as well as to investments in new entrants and smaller players (i.e. those below the 10-percent limit). To encourage longer-term investment, foreign investors should remain exempt from the foreign investment restrictions if they are successful in growing the market share of their businesses beyond 10 percent. | ||
• | The second phase of liberalization should be undertaken after completion of the review of broadcasting policy proposed by the Panel. At that time, there should be a broader liberalization of the foreign investment rules in a manner that treats all telecommunications common carriers including the cable telecommunications industry in a fair and competitively neutral manner. The proposed liberalization should apply to the “carriage” business of BDUs, and new broadcasting policies should focus any necessary Canadian ownership restrictions on broadcasting “content” businesses. The Cabinet should retain the authority to screen significant investments in the Canadian telecommunications carriage business to ensure that they are consistent with the public interest. |
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• | Competition and Carriage Rules.The 1998 Regulations provide equitable opportunities for all distributors of broadcasting services. Similar to the signal carriage and substitution requirements that are imposed on existing cable television systems, under the 1998 Regulations, new broadcasting distribution undertakings are also subject to carriage and substitution requirements. The 1998 Regulations prohibit a distributor from giving an undue preference to any person, including itself, or subjecting any person to an undue disadvantage. This gives the CRTC the ability to address complaints of anti-competitive behavior on the part of certain distributors. | ||
• | Signal Substitution. A significant aspect of television broadcasting in Canada is simultaneous program substitution, or simulcasting, a regulatory requirement under which Canadian distribution undertakings, such as cable television systems with over 6,000 customers, are required to substitute the foreign programming service, with local Canadian signal, including Canadian commercials, for broadcasts of identical programs by a U.S. station when both programs are exhibited at the same time. These requirements are designed to protect the program rights that Canadian broadcasters acquire for their respective local markets. The CRTC, however, has suspended the application of these requirements to DTH satellite operators for a period of time, so long as they undertake certain alternative measures, including monetary compensation to a fund designed to help finance regional television productions. |
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• | Canadian Programming and Community Expression Financing Rules. All distributors, except systems with less than 2,000 customers, are required to contribute at least 5% of their gross annual broadcast revenues to the creation and presentation of Canadian programming including community programming. However, the allocation of these contributions between broadcast and community programming can vary depending on the type and size of the distribution system involved. | ||
• | Inside Wiring Rules.The CRTC determined that the inside wiring portion of cable networks creates a bottleneck facility that could affect competition if open access is not provided to other distributors. Incumbent cable companies may retain the ownership of the inside wiring but must allow usage by competitive undertakings to which the cable company may charge a just and reasonable fee for the use of the inside wire. On September 3, 2002, the CRTC established a fee of $0.52 per customer per month for the use of cable inside wire in MDUs. On October 9, 2002, the CRTC, had ordered Câblage QMI Inc. and Videotron to comply with the inside wiring access rules. In Broadcasting Decision CRTC 2005-223 of May 31, 2005, the CRTC rescinded the Mandatory Order issued against Videotron and its subsidiaries. |
(1) | 30% or more of the households in the licensed service area have access to the services of another broadcasting distribution undertaking. The CRTC has advised that as of August 31, 1997, the 30% availability criterion was satisfied for all licensed cable areas; and | ||
(2) | the number of customers for basic cable service has decreased by at least 5% since the date on which a competitor started offering its basic cable service in the particular area. |
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Operating income
(in millions of Canadian dollars)
2006 | 2005 | 2004 | ||||||||||
Operating income before cost of equipment subsidies to customers | $ | 541.2 | $ | 450.0 | $ | 400.5 | ||||||
Cost of equipment subsidies to customers | (28.7 | ) | (36.7 | ) | (36.7 | ) | ||||||
Operating income | $ | 512.5 | $ | 413.3 | $ | 363.8 | ||||||
Free cash flows from operations
(in millions of Canadian dollars)
2006 | 2005 | 2004 | ||||||||||
Cash flows from operating activities before undernoted item | $ | 449.2 | $ | 353.7 | $ | 318.8 | ||||||
Net change in non-cash balances related to operations | (8.6 | ) | 33.5 | 10.6 | ||||||||
Cash flows from operating activities | 440.6 | 387.2 | 329.4 | |||||||||
Additions to property, plant and equipment | (302.6 | ) | (219.9 | ) | (144.5 | ) | ||||||
Proceeds from disposal of assets | 0.6 | 1.3 | 3.0 | |||||||||
Free cash flows from operations | $ | 138.6 | $ | 168.6 | $ | 187.9 | ||||||
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• | On January 16, 2006, Videotron increased download and upload speeds on its basic cable Internet access service from 300 kbps to 600 kbps. On the Extreme High-Speed service, download speeds were increased from 6.5 mbps to 10 mbps. | ||
• | On February 20, 2006, Videotron launched a new Extreme Plus High-Speed Internet service, which supports speeds of up to 16 mbps. On July 17, 2006, Videotron announced an increase in the speed of its Extreme Plus High-Speed Internet service from 16 mbps to 20 mbps. Videotron became the first major telecom provider in Canada to offer Internet access service of this speed throughout its service area. | ||
• | On August 17, 2006, Videotron announced an increase in the speed of its High-Speed Internet service from 5.1 mbps to 7.0 mbps. The upgrade was phased in across Videotron’s service area starting September 7, 2006. | ||
• | On December 22, 2006, Videotron began testing a new technology that promises to substantially increase Internet access speed across its network. The technology will enable Videotron to offer customers throughout its service area speeds of up to 100 mbps, five times faster than its current Extreme High-Speed Internet service. |
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(in millions of Canadian dollars)
2006 | 2005 | 2004 | ||||||||||
Cash flows from operating activities before undernoted item | $ | 161.0 | $ | 184.6 | $ | 187.1 | ||||||
Net change in non-cash balances related to operations | (16.2 | ) | (3.2 | ) | (9.7 | ) | ||||||
Cash flows from operating activities | 144.8 | 181.4 | 177.4 | |||||||||
Additions to property, plant and equipment | (116.3 | ) | (74.0 | ) | (18.8 | ) | ||||||
Proceeds from disposal of assets | 0.5 | 0.5 | 0.6 | |||||||||
Free cash flows from operations | $ | 29.0 | $ | 107.9 | $ | 159.2 | ||||||
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(in millions of Canadian dollars)
Less than | 5 yrs | |||||||||||||||||||
Total | 1 yr | 1-3 yrs | 3-5 yrs | and more | ||||||||||||||||
Long-term debt | $ | 2,796.1 | $ | 23.1 | $ | 353.4 | $ | 187.4 | $ | 2,232.2 | ||||||||||
Interest payments (1) | 1,441.1 | 209.6 | 395.4 | 354.2 | 481.9 | |||||||||||||||
Operating leases | 158.8 | 39.6 | 60.2 | 32.5 | 26.5 | |||||||||||||||
Capital asset purchases and other commitments | 138.7 | 103.1 | 33.0 | 2.6 | — | |||||||||||||||
Derivative financial instruments | 205.3 | 0.8 | 63.0 | — | 141.5 | |||||||||||||||
Total contractual obligations | $ | 4,740.0 | $ | 376.2 | $ | 905.0 | $ | 576.7 | $ | 2,882.1 | ||||||||||
(1) | Estimate of interest to be paid on long-term debt based on the interest rates and foreign exchange rate at December 31, 2006. |
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(in millions of Canadian dollars)
December 31, 2006 | ||||||||||||||||
Notional | Carrying amount | Fair value | ||||||||||||||
value | asset (liability) | asset (liability) | ||||||||||||||
Derivative financial instruments | ||||||||||||||||
Interest rate swap agreements | $ | 5.0 | CAD | $ | — | $ | — | |||||||||
Foreign-exchange forward contracts | ||||||||||||||||
- In US$ | $ | 45.2 | US | — | 2.1 | |||||||||||
- In € | 17.4 | € | 1.6 | 1.6 | ||||||||||||
- In CHF | 16.1 | CHF | 0.6 | 0.6 | ||||||||||||
Cross-currency interest rate swap agreements | $ | 2,084.2 | US | (216.8 | ) | (335.0 | ) | |||||||||
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• | As of December 31, 2006, 3 of Videotron’s 5 collective bargaining agreements, representing approximately 2,275 or 94% of its unionized employees, will expire between December 2007 and December 2009; two other agreements, representing approximately 138 or 6% of its unionized employees, will expire between December 2010 and August 2011; |
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• | As of February 28, 2007, 15 of Sun Media’s 50 collective bargaining agreements, representing approximately 642 or 31% of its 2,057 unionized employees, have expired. Negotiations regarding these 15 collective bargaining agreements are either in progress or will be undertaken in 2007. The other 35 of Sun Media’s collective bargaining agreements, representing approximately 1,415 or 69% of its unionized employees, are scheduled to expire on various dates between October 2007 and June 2010; | ||
• | As of December 31, 2006, 12 of TVA Group’s 15 collective bargaining agreements, representing approximately 273 or 33% of its unionized employees, will expire between April 2007 and the end of December 2008; 3 of its collective bargaining agreements, representing approximately 544 or 67% of its unionized employees, have expired and negotiations regarding these collective bargaining agreements are in progress; | ||
• | As of December 31, 2006, 1 of the remaining 6 collective bargaining agreements, representing approximately 20 or 6% of our unionized employees, expired in 2006. Negotiations regarding this agreement will be undertaken in 2007. The other 5 collective bargaining agreements, representing approximately 315 or 94% of our unionized employees, will expire between the end of April 2009 and April 2010. |
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as at December 31, 2006
(in millions of dollars)
CDN dollar | ||||||||||||||||
exchange rate | ||||||||||||||||
Annual | Annual | of interest | ||||||||||||||
effective | nominal | and capital | ||||||||||||||
Period | Notional | interest | interest | payments per | ||||||||||||
covered | amount | rate | rate | one U.S. 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 plus 2.00 | % | 1.1625 | |||||||||
Term loan B credit facilities | 2009 to 2013 | US$198.9 | Bankers’ acceptance 3 months plus 2.22 | % | LIBOR plus 2.00 | % | 1.1625 | |||||||||
Term loan B credit facilities | 2006 to 2013 | US$148.9 | 6.44 | % | LIBOR plus 2.00 | % | 1.1625 | |||||||||
Videotron Ltd. and its subsidiaries: | ||||||||||||||||
Senior Notes | 2004 to 2014 | US$190.0 | Bankers’ acceptance 3 months plus 2.80 | % | 6.875 | % | 1.2000 | |||||||||
Senior Notes | 2004 to 2014 | US$125.0 | 7.45 | % | 6.875 | % | 1.1950 | |||||||||
Senior Notes | 2003 to 2014 | US$200.0 | Bankers’ acceptance 3 months plus 2.73 | % | 6.875 | % | 1.3425 | |||||||||
Senior Notes | 2003 to 2014 | US$135.0 | 7.66 | % | 6.875 | % | 1.3425 | |||||||||
Senior Notes | 2005 to 2015 | US$175.0 | 5.98 | % | 6.375 | % | 1.1781 | |||||||||
Sun Media Corporation and its subsidiaries: | ||||||||||||||||
Senior Notes | 2003 to 2008 | US$155.0 | 8.17 | % | 7.625 | % | 1.5227 | |||||||||
Senior Notes | 2008 to 2013 | US$155.0 | Bankers’ acceptance 3 months plus 3.70 | % | 7.625 | % | 1.5227 | |||||||||
Senior Notes | 2003 to 2013 | US$50.0 | Bankers’ acceptance 3 months plus 3.70 | % | 7.625 | % | 1.5227 | |||||||||
Term-loan B credit facility | 2003 to 2009 | US$181.4 | Bankers’ acceptance 3 months plus 2.29 | % | LIBOR plus 1.75 | % | 1.5175 |
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Carrying value and fair value of financial instruments
as at December 31, 2006
(in millions of dollars)
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 | ) |
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2007 | $ | 23.1 | ||
2008 | 26.6 | |||
2009 | 326.8 | |||
2010 | 160.7 | |||
2011 | 26.7 | |||
2012 and thereafter | $ | 2,232.2 |
• | 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. |
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Name and Municipality of Residence | Age | Position | ||||
Serge Gouin(2) Outremont, Québec | 63 | Director, Chairman of the Board of Directors and Chairman of the Compensation Committee | ||||
Pierre Karl Péladeau Montréal, Québec | 45 | Director, Vice Chairman of the Board of Directors and Chief Executive Officer | ||||
Érik Péladeau Rosemère, Québec | 51 | Director and Vice Chairman of the Board of Directors | ||||
Jean La Couture, FCA(1) Montréal, Québec | 60 | Director and Chairman of the Audit Committee | ||||
André Delisle(1) Montréal, Québec | 60 | Director | ||||
A. Michel Lavigne, FCA(1)(2) Brossard, Québec | 56 | Director | ||||
Samuel Minzberg(2) Westmount, Québec | 57 | Director | ||||
The Right Honourable Brian Mulroney, P.C., C.C., LL.D. Westmount, Québec | 67 | Director | ||||
Jean Neveu Longueuil, Québec | 65 | Director | ||||
Normand Provost Longueuil, Québec | 52 | Director | ||||
Pierre Francoeur Ste-Adèle, Québec | 54 | President and Chief Operating Officer | ||||
Luc Lavoie Montréal, Québec | 50 | Executive Vice President, Corporate Affairs | ||||
Bruno Péloquin Montréal, Québec | 42 | Senior Vice President, Strategic Development, Customer Relations | ||||
Hugues Simard Outremont, Québec | 40 | Senior Vice President, Development and Strategy | ||||
Louis St-Arnaud Mont-Saint-Hilaire, Québec | 60 | Senior Vice President, Legal Affairs and Secretary | ||||
Sylvie Cordeau Verdun, Québec | 42 | Vice President, Communications | ||||
Michel Ethier Montréal, Québec | 52 | Vice President, Taxation |
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Name and Municipality of Residence | Age | Position | ||||
Pierre Lampron Outremont, Québec | 60 | Vice President, Institutional Relations | ||||
Bruno Leclaire Saint-Bruno, Québec | 41 | Vice President, Interactive Media | ||||
Roger Martel Repentigny, Québec | 58 | Vice President, Internal Audit | ||||
Louis Morin Kirkland, Québec | 49 | Vice President, and Chief Financial Officer | ||||
Jean-François Richard Kirkland, Québec | 48 | Vice President, Advertising Convergence | ||||
Denis Sabourin Kirkland, Québec | 46 | Vice President and Corporate Controller | ||||
Edouard G. Trépanier Boucherville, Québec | 56 | Vice President, Regulatory Affairs | ||||
Jean-François Pruneau Repentigny, Québec | 36 | Treasurer | ||||
Claudine Tremblay Nuns’ Island, Québec | 53 | Senior Director, Corporate Secretariat and Assistant Secretary |
(1) | Member of the Audit Committee. | |
(2) | Member of the Compensation Committee. |
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Years of Membership | ||||||||||||||||||||
Compensation | 10 | 15 | 20 | 25 | 30 | |||||||||||||||
$111,111 or more | $ | 22,222 | $ | 33,333 | $ | 44,444 | $ | 55,556 | $ | 66,667 |
Years of Credited Service | ||||||||||||||||||||
Compensation | 10 | 15 | 20 | 25 | 30 | |||||||||||||||
$200,000 | $ | 17,778 | $ | 26,667 | $ | 35,556 | $ | 44,445 | $ | 53,333 | ||||||||||
$400,000 | $ | 57,778 | $ | 86,667 | $ | 115,556 | $ | 144,445 | $ | 173,333 |
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Years of Credited Service | ||||||||||||||||||||
Compensation | 10 | 15 | 20 | 25 | 30 | |||||||||||||||
$600,000 | $ | 97,778 | $ | 146,667 | $ | 195,556 | $ | 244,445 | $ | 293,333 | ||||||||||
$800,000 | $ | 137,778 | $ | 206,667 | $ | 275,556 | $ | 344,445 | $ | 413,333 | ||||||||||
$1,000,000 | $ | 177,778 | $ | 266,667 | $ | 355,556 | $ | 444,445 | $ | 533,333 | ||||||||||
$1,200,000 | $ | 217,778 | $ | 326,667 | $ | 435,556 | $ | 544,445 | $ | 653,333 | ||||||||||
$1,400,000 | $ | 257,778 | $ | 386,667 | $ | 515,556 | $ | 644,445 | $ | 773,333 |
Total number | Number of employees under | Number of | ||||||||||
Operations | of employees | collective agreements | collective agreements | |||||||||
Cable | 4,057 | 2,413 | 5 | |||||||||
Newspapers | 5,939 | 2,057 | 50 | |||||||||
Broadcasting | 1,495 | 817 | 15 | |||||||||
Leisure and Entertainment | 1,543 | 335 | 6 | |||||||||
Interactive Technologies and Communications | 682 | 0 | 0 | |||||||||
Internet / Portals | 440 | 0 | 0 | |||||||||
Others | 132 | 0 | 0 | |||||||||
Total | 14,288 | 5,622 | 76 | |||||||||
• | As of December 31, 2006, 3 of Videotron’s 5 collective bargaining agreements, representing approximately 2,275 or 94% of its unionized employees, will expire between December 2007 and December 2009 and two other collective bargaining agreements, representing approximately 138 or 6% of its unionized employees, will expire between December 2010 and August 2011; | ||
• | As of February 28, 2007, 15 of Sun Media’s 50 collective bargaining agreements, representing approximately 642 or 31% of its 2,057 unionized employees, have expired. Negotiations regarding these 15 collective bargaining agreements are either in progress or will be undertaken in 2007. The other 35 of Sun Media’s collective bargaining agreements, representing approximately 1,415 or 69% of its unionized employees, are scheduled to expire on various dates between October 2007 and June 2010; | ||
• | As of December 31, 2006, 12 of TVA Group’s 15 collective bargaining agreements, representing approximately 273 or 33% of its unionized employees, will expire between April 2007 and the end of December 2008; 3 of its |
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collective bargaining agreements, representing approximately 544 or 67% of its unionized employees, have expired and negotiations regarding these collective bargaining agreements are in progress; | |||
• | As of December 31, 2006, one of the remaining 6 collective bargaining agreements, representing approximately 20 or 6% of our other unionized employees, expired in 2006. Negotiations regarding this agreement will be undertakend in 2007. The other 5 collective bargaining agreements, representing approximately 315 or 94% of our other unionized employees, will expire between the end of April 2009 and April 2010. |
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(a) | standard rights of first refusal with respect to certain transfers of QMI Shares; | ||
(b) | standard preemptive rights which permit shareholders to maintain their respective holdings of QMI Shares on a fully diluted basis in the event of issuances of additional QMI Shares or our convertible securities; | ||
(c) | rights of representation on our Board of Directors in proportion to shareholdings, with Quebecor initially having five nominees (now six nominees) and Capital CDPQ having four nominees to our Board of Directors; | ||
(d) | consent rights in certain circumstances with respect to matters relating to us and our non-reporting issuer (public) subsidiaries, including (1) a substantial change in the nature of our business and our subsidiaries taken as a whole, (2) an amendment to our articles or certain of our subsidiaries, (3) the merger or amalgamation of us or certain of our subsidiaries with a person other than an affiliate, (4) the issuance by us or certain of our subsidiaries of shares or of securities convertible into shares except in the event of an initial public offering of QMI Shares, (5) any transaction having a value of more than $75,000,000, other than the sale of goods and services in the normal course of business, (6) a business acquisition in a business sector unrelated to sectors in which we and certain of our subsidiaries are involved, and (7) in respect of capital expenditures in excess of certain amounts for each of the first five years of our operations; | ||
(e) | standard rights of first refusal in favor of Capital CDPQ with respect to the sale of all or substantially all of the shares or assets of TVA Group or Vidéotron; | ||
(f) | so long as Capital CDPQ holds at least 22.5% of the QMI Shares on a fully diluted basis, if the Péladeau family (as defined in the shareholders’ agreement) ceases to control Quebecor, Capital CDPQ shall have at its |
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option either a “call” on Quebecor’s interest in us at fair market value, or a “put” right in respect of Capital CDPQ’s interest in us to Quebecor or its new controlling shareholder at fair market value, provided that the “call” right shall not apply if the Péladeau family (as defined in the shareholders’ agreement) has offered a standard right of first refusal on its Quebecor control block to Capital CDPQ before selling control of Quebecor, and all of the above-mentioned rights shall cease to apply five years following the approval by the CRTC of the acquisition by us of Vidéotron; and | |||
(g) | a non-competition covenant by Quebecor in respect of it and its affiliates pursuant to which Quebecor and its affiliates shall not compete with QMI and its subsidiaries in their areas of activity so long as Quebecor has “de jure” or “de facto” control of us, subject to certain limited exceptions. |
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• | 123,602,807 common shares outstanding, of which 67,636,713 were held by Quebecor and 55,966,094 were held by Capital CDPQ; | ||
• | 235,000 Cumulative First Preferred Shares, Series A, outstanding, which were held by Sun Media, Bowes Publishers Limited and Sun Media (Toronto) Corporation; | ||
• | 275,000 Cumulative First Preferred Shares, Series C, outstanding, which were held by 9101-0835 Québec inc.; and | ||
• | 320,000 Cumulative First Preferred Shares, Series F, outstanding, which Series F Shares were held by Bowes Publishers Limited, a subsidiary of Sun Media. |
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1. | We were incorporated, in Canada, under Part IA of theCompanies Act(Québec) (the “Companies Act”) as 9093-9687 Québec Inc. on August 8, 2000 under registration number 1149501992. On August 18, 2000, a Certificate of Amendment was filed to change our name to Media Acquisition Inc. Our name was further changed to Quebecor Media Inc. on September 26, 2000. Our Articles do not describe our object and purpose. | |||
2. | (a) | Our by-laws provide that we may transact business with one or more of our directors or with any firm of which one or more of our directors are members or employees or with any corporation or association of which one or more of our directors are shareholders, directors, officers or employees. The director who has an interest in the transaction shall disclose his interest to us and to the other directors and shall abstain from discussing and voting on the transaction, except if his vote is required to bind us in respect of the transaction. | ||
(b) | Neither the Articles nor our by-laws contain provisions with respect to directors’ power, in the absence of an independent quorum, to determine their remuneration. | |||
(c) | Subject to any restriction which may from time to time be included in the Articles or our by-laws, or the terms, rights or restrictions of any of our shares or securities outstanding, the directors may authorize us to borrow money and obtain advances upon the credit of our company, from any bank, corporation, firm, association or person, upon such terms and conditions, in all respects, as they think fit. The directors may authorize the issuance of bonds or other evidences of indebtedness of our company, and may authorize the pledge or sale of the same upon such terms and conditions, in all respects, as they think fit. The directors are also authorized to hypothecate the property, undertaking and assets, movable or immovable, of our company to secure payment for any bonds or other evidences of indebtedness or otherwise give guarantees to secure the payment of loans. |
3. | The rights, preferences and restrictions attaching to our Common Shares, Cumulative First Preferred Shares (consisting of the Series A Shares, the Series B Shares, the Series C Shares, the Series D Shares, the Series F Shares and the Series G Shares) and our Preferred Shares, Series E are set forth below: |
(a) | Dividend rights: Subject to the rights of the holders of our Preferred Shares, each common share shall be entitled to receive such dividends as our Board of Directors shall determine. |
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(b) | Voting rights: The holders of our common shares shall be entitled to receive notice of any meeting of our shareholders and to attend and vote on all matters to be voted on by our shareholders, except at meetings at which only the holders of another specified series or class of shares are entitled to vote. At each such meeting, each common share shall entitle the holder thereof to one vote. | ||
(c) | Rights to share in our profits: Other than as provided in paragraph (a) above (the holders of our common shares are entitled to receive dividends as determined by our Board of Directors) and paragraph (d) below (the holders of our common shares are entitled to participation in our remaining property and assets available for distribution in the event of our liquidation, dissolution or reorganization), none. | ||
(d) | Rights upon liquidation: In the event of our liquidation, dissolution or reorganization or any other distribution of our assets among our shareholders for the purpose of winding up our affairs, whether voluntarily or involuntarily, the holders of our common shares shall be entitled, subject to the rights of the holders of Preferred Shares, to participate equally, share for share, in our remaining property and assets available for distribution to our shareholders, without preference or distinction. | ||
(e) | Redemption provisions: None | ||
(f) | Sinking fund provisions: None | ||
(g) | Liability to capital calls by Quebecor Media: Our by-laws provide that our directors may, from time to time, accept subscriptions, allot, issue, grant options in respect of or otherwise dispose of the whole or any part of the unissued shares of our share capital on such terms and conditions, for such consideration not contrary to law or to theCompanies Act(Québec) and as determined by the Board of Directors. Our directors may, from time to time, make calls upon the shareholders in respect of any moneys unpaid upon their shares. | ||
(h) | Provisions discriminating against existing or prospective holders of common shares as a result of such holder owning a substantial number of shares: None |
(a) | Dividend rights: The holders of record of the Series A Shares shall be entitled to receive in each fiscal year fixed cumulative preferred dividends at the rate of 12.5% per share per annum. No dividends may be paid on |
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any shares ranking junior to the Series A Shares unless all dividends which shall have become payable on the Series A Shares have been paid or set aside for payment. |
(b) | Voting rights: Holders of Series A Shares shall not, as such, be entitled to receive notice of, or attend or vote at, any meeting of our shareholders unless we shall have failed to pay semi-annual dividends on the Series A Shares. In that event and only for so long as the dividend remains in arrears, the holders of Series A Shares shall be entitled to receive notice of, and to attend and vote at, all shareholders’ meetings, except meetings at which only holders of another specified series or class of shares are entitled to vote. At each such meeting, each Series A Share shall entitle the holder thereof to one vote. | ||
(c) | Rights to share in our profits: Except as provided in paragraph (a) above (the holders of Series A Shares are entitled to receive a 12.5% cumulative preferential dividend) and paragraph (d) below (the holders of Series A Shares are entitled to receive, in preference to the holders of common shares, an amount equal to $1,000 per Series A Share and any accumulated and unpaid dividends with respect thereto in the event of our liquidation, dissolution or reorganization), none. | ||
(d) | Rights upon liquidation: In the event of our liquidation, dissolution or reorganization or any other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the holders of Series A Shares shall be entitled to receive, in preference to the holders of common shares, an amount equal to $1,000 per Series A Share and any accumulated and unpaid dividends with respect thereto. | ||
(e) | Redemption provisions: Holders of Series A Shares may require us to redeem the Series A preferred shares at any time at a price of $1,000 per share plus any accumulated and unpaid dividends with respect thereto. In addition, we may, at our option, redeem the Series A Shares at a price of $1,000 per share plus any accumulated and unpaid dividends with respect thereto. | ||
(f) | Sinking fund provisions: None. | ||
(g) | Liability to capital calls by us: Our by-laws provide that our directors may, from time to time, accept subscriptions, allot, issue, grant options in respect of or otherwise dispose of the whole or any part of the unissued shares of our share capital on such terms and conditions, for such consideration not contrary to law or to theCompanies Act(Québec) and as determined by the Board of Directors. The directors may, from time to time, make calls upon the shareholders in respect of any moneys unpaid upon their shares. | ||
(h) | Provisions discriminating against existing or prospective holders of Series A Shares as a result of such holders owning a substantial number of shares: None. |
(a) | Dividend rights: The holders of record of the Series B Shares shall be entitled to receive a single dividend, payable in cash, in an amount to be determined by our Board of Directors in accordance with the Articles, which dividend, once determined by our Board of Directors, shall be paid on the date of conversion of the Series B Shares into our common shares. No dividends may be paid on any shares ranking junior to the Series B Shares unless all dividends which shall have become payable on the Series B Shares have been paid or set aside for payment. | ||
(b) | Voting rights: Holders of Series B Shares, as such, shall not be entitled to receive notice of, and to attend or vote at, any meeting of our shareholders, unless we shall have failed to pay the dividend due to such holders. In that event and only for so long as the said dividend remains in arrears, the holders of Series B Shares shall be entitled to receive notice of, and to attend and vote at, all shareholders’ meetings, except meetings at which only holders of another specified series or class of shares are entitled to vote. At each such meeting, each Series B Share shall entitle the holder thereof to one vote. |
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(c) | Rights to share in our profits: Except as provided in paragraph (a) above (the holders of Series B Shares are entitled to receive the dividend referred to in paragraph (a) above) and paragraph (d) below (the holders of the Series B Shares are entitled to receive, in preference to the holders of common shares, an amount equal to $1.00 per Series B Share and the dividend referred to in paragraph (a) above in the event of liquidation, dissolution or reorganization), none. | ||
(d) | Rights upon liquidation: In the event of our liquidation, dissolution or reorganization or any other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the holders of Series B Shares shall be entitled to receive, in preference to the holders of common shares, an amount equal to $1.00 per Series B Share held and the dividend referred to in paragraph (a) above. | ||
(e) | Redemption provisions: Holders of Series B Shares may require us to redeem the Series B Shares at any time at a price of $1.00 per share plus the dividend referred to in paragraph (a) above. In addition, we may, at our option, redeem the Series B Shares at a price of $1.00 per share plus the dividend referred to in paragraph (a) above. | ||
(f) | Sinking fund provisions:None. | ||
(g) | Liability to capital calls by us: Our by-laws provide that our directors may, from time to time, accept subscriptions, allot, issue, grant options in respect of or otherwise dispose of the whole or any part of the unissued shares of our share capital on such terms and conditions, for such consideration not contrary to law or to theCompanies Act(Québec) and as determined by the Board of Directors. The directors may, from time to time, make calls upon the shareholders in respect of any moneys unpaid upon their shares. | ||
(h) | Provisions discriminating against existing or prospective holders of Series B Shares as a result of such holders owning a substantial number of shares: None. |
(a) | Dividend rights: The holders of record of the Series C Shares shall be entitled to receive in each fiscal year fixed cumulative preferred dividends at the rate of 11.25% per share per annum. No dividends may be paid on any shares ranking junior to the Series C Shares unless all dividends which shall have become payable on the Series C Shares have been paid or set aside for payment. | ||
(b) | Voting rights: Holders of Series C Shares shall not, as such, be entitled to receive notice of, or attend or vote at, any meeting of our shareholders unless we shall have failed to pay certain dividends on the Series C Shares. In that event and only for so long as the dividend remains in arrears, the holders of Series C Shares shall be entitled to receive notice of, and to attend and vote at, all shareholders’ meetings, except meetings at which only holders of another specified series or class of shares are entitled to vote. At each such meeting, each Series C Share shall entitle the holder thereof to one vote. | ||
(c) | Rights to share in our profits: Except as provided in paragraph (a) above (the holders of Series C Shares are entitled to receive a 11.25% cumulative preferential dividend) and paragraph (d) below (the holders of Series C Shares are entitled to receive, in preference to the holders of Common Shares, an amount equal to $1,000 per Series C Share and any accumulated and unpaid dividends with respect thereto in the event of our liquidation, dissolution or reorganization), none. | ||
(d) | Rights upon liquidation:In the event of our liquidation, dissolution or reorganization or any other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the holders of Series C Shares shall be entitled to receive, in preference to the holders of Common Shares, an amount equal to $1,000 per Series C Share and any accumulated and unpaid dividends with respect thereto. |
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(e) | Redemption provisions: Holders of Series C Shares may require us to redeem the Series C preferred shares at any time at a price of $1,000 per share plus any accumulated and unpaid dividends with respect thereto. In addition, we may, at its option, redeem the Series C Shares at a price of $1,000 per share plus any accumulated and unpaid dividends with respect thereto. | ||
(f) | Sinking fund provisions: None. | ||
(g) | Liability to capital calls by us: Our by-laws provide that our directors may, from time to time, accept subscriptions, allot, issue, grant options in respect of or otherwise dispose of the whole or any part of the unissued shares of our share capital on such terms and conditions, for such consideration not contrary to law or to theCompanies Act(Québec) and as determined by the Board of Directors. The directors may, from time to time, make calls upon the shareholders in respect of any moneys unpaid upon their shares. | ||
(h) | Provisions discriminating against existing or prospective holders of Series C Shares as a result of such holders owning a substantial number of shares: None. |
(a) | Dividend rights: The holders of record of the Series D Shares shall be entitled to receive in each fiscal year fixed cumulative preferred dividends at the rate of 11.0% per share per annum. No dividends may be paid on any shares ranking junior to the Series D Shares unless all dividends which shall have become payable on the Series D Shares have been paid or set aside for payment. | ||
(b) | Voting rights: Holders of Series D Shares shall not, as such, be entitled to receive notice of, or attend or vote at, any meeting of our shareholders unless we shall have failed to pay certain dividends on the Series D Shares. In that event and only for so long as the dividend remains in arrears, the holders of Series D Shares shall be entitled to receive notice of, and to attend and vote at, all shareholders’ meetings, except meetings at which only holders of another specified series or class of shares are entitled to vote. At each such meeting, each Series D Share shall entitle the holder thereof to one vote. | ||
(c) | Rights to share in our profits: Except as provided in paragraph (a) above (the holders of Series D Shares are entitled to receive a 11.0% cumulative preferential dividend) and paragraph (d) below (the holders of Series D Shares are entitled to receive, in preference to the holders of Common Shares, an amount equal to $1,000 per Series D Share and any accumulated and unpaid dividends with respect thereto in the event of our liquidation, dissolution or reorganization), none. | ||
(d) | Rights upon liquidation: In the event of our liquidation, dissolution or reorganization or any other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the holders of Series D Shares shall be entitled to receive, in preference to the holders of Common Shares, an amount equal to $1,000 per Series D Share and any accumulated and unpaid dividends with respect thereto. | ||
(e) | Redemption provisions: Holders of Series D Shares may require us to redeem the Series D preferred shares at any time at a price of $1,000 per share plus any accumulated and unpaid dividends with respect thereto. In addition, we may, at its option, redeem the Series D Shares at a price of $1,000 per share plus any accumulated and unpaid dividends with respect thereto. | ||
(f) | Sinking fund provisions: None. | ||
(g) | Liability to capital calls by us: Our by-laws provide that our directors may, from time to time, accept subscriptions, allot, issue, grant options in respect of or otherwise dispose of the whole or any part of the unissued shares of our share capital on such terms and conditions, for such consideration not contrary to law or to theCompanies Act(Québec) and as determined by the Board of Directors. The directors may, from time to time, make calls upon the shareholders in respect of any moneys unpaid upon their shares. |
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(h) | Provisions discriminating against existing or prospective holders of Series D Shares as a result of such holders owning a substantial number of shares: None. |
(a) | Dividend rights: The holders of record of the Series F Shares shall be entitled to receive in each fiscal year fixed cumulative semi-annual dividends at the rate of 10.85% per share per annum. No dividends may be paid on any shares ranking junior to the Series F Shares unless all dividends which shall have become payable on the Series F Shares have been paid or set aside for payment. | ||
(b) | Voting rights: Holders of Series F Shares shall not, as such, be entitled to receive notice of, or attend or vote at, any meeting of our shareholders unless we shall have failed to pay eight semi-annual dividends on the Series F Shares. In that event and only for so long as the dividend remains in arrears, the holders of Series F Shares shall be entitled to receive notice of, and to attend and vote at, all shareholders’ meetings, except meetings at which only holders of another specified series or class of shares are entitled to vote. At each such meeting, each Series F Share shall entitle the holder thereof to one vote. | ||
(c) | Rights to share in our profits: Except as provided in paragraph (a) above (holders of Series F Shares are entitled to receive a 10.85% cumulative preferential semi-annual dividend) and paragraph (d) below (the holders of Series F Shares are entitled to receive, in preference to the holders of common shares, an amount equal to $1,000 per Series F Share and any accumulated and unpaid dividends with respect thereto in the event of our liquidation, dissolution or reorganization), none. | ||
(d) | Rights upon liquidation: In the event of our liquidation, dissolution or reorganization or any other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the holders of Series F Shares shall be entitled to receive, in preference to the holders of common shares, an amount equal to $1,000 per Series F Share and any accumulated and unpaid dividends with respect thereto. | ||
(e) | Redemption provisions: Holders of Series F Shares may require us to redeem the Series F preferred shares at any time at a price of $1,000 per share plus any accumulated and unpaid dividends with respect thereto. In addition, we may, at our option, redeem the Series F Shares at a price of $1,000 per share plus any accumulated and unpaid dividends with respect thereto. | ||
(f) | Sinking fund provisions: None. | ||
(g) | Liability to capital calls by Quebecor Media: Our by-laws provide that our directors may, from time to time, accept subscriptions, allot, issue, grant options in respect of or otherwise dispose of the whole or any part of the unissued shares of our share capital on such terms and conditions, for such consideration not contrary to law or to theCompanies Act(Québec) and as determined by the Board of Directors. The directors may, from time to time, make calls upon the shareholders in respect of any moneys unpaid upon their shares. | ||
(h) | Provisions discriminating against existing or prospective holders of Series F Shares as a result of such holders owning a substantial number of shares: None. |
(a) | Dividend rights: The holders of record of the Series G Shares shall be entitled to receive in each fiscal year fixed cumulative semi-annual dividends at the rate of 10.85% per share per annum. No dividends may be paid on any shares ranking junior to the Series G Shares unless all dividends which shall have become payable on the Series G Shares have been paid or set aside for payment. | ||
(b) | Voting rights: Holders of Series G Shares shall not, as such, be entitled to receive notice of, or attend or vote at, any meeting of our shareholders unless we shall have failed to pay eight semi-annual dividends on the Series G |
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Shares. In that event and only for so long as the dividend remains in arrears, the holders of Series G Shares shall be entitled to receive notice of, and to attend and vote at, all shareholders’ meetings, except meetings at which only holders of another specified series or class of shares are entitled to vote. At each such meeting, each Series G Share shall entitle the holder thereof to one vote. | |||
(c) | Rights to share in our profits: Except as provided in paragraph (a) above (holders of Series G Shares are entitled to receive a 10.85% cumulative preferential semi-annual dividend) and paragraph (d) below (the holders of Series G Shares are entitled to receive, in preference to the holders of common shares, an amount equal to $1,000 per Series G Share and any accumulated and unpaid dividends with respect thereto in the event of our liquidation, dissolution or reorganization), none. | ||
(d) | Rights upon liquidation: In the event of our liquidation, dissolution or reorganization or any other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the holders of Series G Shares shall be entitled to receive, in preference to the holders of common shares, an amount equal to $1,000 per Series G Share and any accumulated and unpaid dividends with respect thereto. | ||
(e) | Redemption provisions: Holders of Series G Shares may require us to redeem the Series G preferred shares at any time at a price of $1,000 per share plus any accumulated and unpaid dividends with respect thereto. In addition, we may, at our option, redeem the Series G Shares at a price of $1,000 per share plus any accumulated and unpaid dividends with respect thereto. | ||
(f) | Sinking fund provisions: None. | ||
(g) | Liability to capital calls by Quebecor Media: Our by-laws provide that our directors may, from time to time, accept subscriptions, allot, issue, grant options in respect of or otherwise dispose of the whole or any part of the unissued shares of our share capital on such terms and conditions, for such consideration not contrary to law or to theCompanies Act(Québec) and as determined by the Board of Directors. The directors may, from time to time, make calls upon the shareholders in respect of any moneys unpaid upon their shares. | ||
(h) | Provisions discriminating against existing or prospective holders of Series G Shares as a result of such holders owning a substantial number of shares: None. |
(a) | Dividend rights: The holders of record of the Series E Shares shall be entitled to receive a maximum non-cumulative preferential monthly dividend at the rate of 1.25% per share per month, which dividend shall be calculated based on the redemption price (the amount equal to the aggregate consideration for such share). The Series E Shares rank senior to the common shares but junior to the Series A Shares, Series B Shares, Series C Shares and Series D Shares. | ||
(b) | Voting rights: Holders of Series E Shares shall not, as such, be entitled to receive notice of, or attend or vote at, any meeting of our shareholders. | ||
(c) | Rights to share in our profits: Except as provided in paragraph (a) above (the holders of Series E Shares are entitled to receive a 1.25% maximum non-cumulative preferential monthly dividend) and paragraph (d) below (the holders of Series E Shares are entitled to receive, in preference to the holders of common shares, but subsequent to the holders of Series A Shares, Series B Shares, Series C Shares and Series D Shares, an amount equal to the redemption price of the Series E Shares and the amount of any declared but unpaid dividends on the Series E Shares referred to in paragraph (a) above), none. |
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(d) | Rights upon liquidation: In the event of our liquidation, dissolution or reorganization or any other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the holders of Series E Shares shall be entitled to receive, in preference to the holders of common shares, but subsequent to the holders of Series A Shares, Series B Shares, Series C Shares and Series D Shares, an amount equal to the redemption price of the Series E Shares held and the amount of any declared but unpaid dividends on the Series E Shares referred to in paragraph (a) above. | ||
(e) | Redemption provisions: Holders of Series E Shares may require us to redeem the Series E preferred shares at any time at a price equal to the redemption price plus an amount equal to any dividends declared thereon but unpaid up to the date of redemption. The redemption price shall be equal to the aggregate consideration received for such share. | ||
(f) | Sinking fund provisions: None. | ||
(g) | Liability to capital calls by us: Our by-laws provide that our directors may, from time to time, accept subscriptions, allot, issue, grant options in respect of or otherwise dispose of the whole or any part of the unissued shares of our share capital on such terms and conditions, for such consideration not contrary to law or to theCompanies Act(Québec) and as determined by the Board of Directors. The directors may, from time to time, make calls upon the shareholders in respect of any moneys unpaid upon their shares. | ||
(h) | Provisions discriminating against existing or prospective holders of Series E Shares: None. |
4. | For a description of the action necessary to change the rights of holders of our Cumulative First Preferred Shares, see “Section 3. Cumulative First Preferred Shares” above. As regards our Preferred Shares, Series E, we will not, unless consented to by the holders of the Series E Shares and upon compliance with the provisions of theCompanies Act(Québec), repeal, amend or otherwise alter any provisions of the Articles relating to the Series E Shares. Under the general provisions of theCompanies Act(Québec), (i) our Articles may be amended by the affirmative vote of the holders of two-thirds (2/3) of the vote cast by the shareholders at a special meeting, and (ii) our by-laws may be amended by our directors and ratified by a majority of the vote cast by the shareholders at a meeting called for such purpose. | |
5. | Our by-laws provide that the annual meetings of the shareholders shall be held at such time, on such date and at such place as the Board of Directors determines from time to time. Annual meetings of the shareholders may be called at any time by order of the Board of Directors, the chairman of the board, or, provided they are directors of our company, by the president or any vice president. Special general meetings of the shareholders shall be held at such time, on such date and at such place as the Board of Directors determines from time to time. Special general meetings of the shareholders may be called at any time by order of the Board of Directors, the chairman of the board, or, provided they are directors of our company, by the president or any vice president. | |
For any general meeting, our by-laws provide that a notice specifying the date, time and place of the meeting and the items to be discussed at the meeting must be sent to each shareholder entitled to vote at that meeting (at the address indicated in our books) at least twenty-one (21) days before the date of such a meeting. If the convening of any meeting of shareholders is a matter of urgency, notice of a meeting may be given not less than 48 hours before such meeting is to be held. | ||
The Chairman of the Board or, in his absence, the President, if he is a director or, in his absence, one of the Vice Presidents who is a director of our company shall preside at all meetings of shareholders. If all of the aforesaid officers are absent or decline to act, the persons present and entitled to vote may choose one of their number to act as chairman of the meeting. | ||
Our by-laws provide that the holders of not less than 50.1% of the outstanding shares of our share capital carrying rights to vote at such meeting, present in person or represented by proxy, shall constitute a quorum for |
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any meeting of our shareholders. | ||
6. | There is no limitation imposed by Canadian law or by the Articles or other constituent documents on the right of nonresidents or foreign owners to hold or vote shares, other than as provided in theInvestment Canada Act(Canada). TheInvestment Canada Actrequires “non-Canadian” (as defined in theInvestment Canada Act) (Canada) individuals, governments, corporations and other entities who wish to acquire control of a “Canadian business” (as defined in theInvestment Canada Act(Canada)) to file either an application for review (when certain asset value thresholds are met) or a post closing notification with the Director of Investments appointed under theInvestment Canada Act(Canada), unless a specific exemption applies. TheInvestment Canada Act(Canada) requires that, when an acquisition of control of a Canadian business by a “non-Canadian” is subject to review, it must be approved by the Minister responsible for theInvestment Canada Act (Canada) on the basis that the Minister is satisfied that the acquisition is “likely to be of net benefit to Canada”, having regard to criteria set forth in theInvestment Canada Act(Canada). | |
7. | The Articles provide that none of our shares may be transferred without the consent of the directors expressed in a resolution duly adopted by them. In addition, the total number of shareholders of our company is limited to fifty, exclusive of present or former employees of our company or a subsidiary. | |
A register of transfers containing the date and particulars of all transfers of shares of our share capital shall be kept either at our head office or at another of our offices or at such other place in the Province of Québec as may be determined, from time to time, by the Board of Directors. | ||
8. | Not applicable. | |
9. | Not applicable. | |
10. | Not applicable. |
(a) | Indenture relating to US$525,000,000 of our 73/4% Senior Notes due March 15, 2016, dated as of January 17, 2006, by and between Quebecor Media Inc., and U.S. Bank National Association, as trustee. | ||
On January 17, 2006, we issued US$525,000,000 aggregate principal amount of our 73/4% Senior Notes due March 15, 2016 pursuant to an Indenture, dated as of January 17, 2006, by and between Quebecor Media and U.S. Bank National Association, as trustee. These notes are unsecured and are due on March 15, 2016. Interest on these notes is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2006. These notes are not guaranteed by our subsidiaries. These notes are redeemable, at our option, under certain circumstances and at the redemption prices set forth in these indentures. These indentures contain customary restrictive covenants with respect to Quebecor Media and certain of its subsidiaries and customary events of default. If an event of default occurs and is continuing, other than our bankruptcy or insolvency, the trustee or the holders of at least 25% in principal amount at maturity of the then-outstanding notes may declare all the notes to be due and payable immediately. | |||
In connection with the issuance of these notes, we have agreed to file, within 120 days after the issue date of the notes, a registration statement relating to the exchange of these privately placed notes for publicly registered exchange notes with substantially identical terms evidencing the same continuing indebtedness. We have also agreed to use our best efforts to cause the registration statement to become effective within 210 days after the issue date of the notes and to consummate the exchange offer with 255 days after the issue date of the notes. |
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(b) | Credit Agreement, dated as of January 17, 2006, by and among Quebecor Media Inc., as Borrower, the financial institutions party thereto from time to time, as Lenders, and Bank of America, N.A., as Administrative Agent. | |
On January 17, 2006, in connection with our refinancing plan, we entered into Senior Secured Credit Facilities comprised of (i) a 5-year $100.0 million revolving credit facility that matures in January 2011, (ii) a 5-year $125.0 million term loan A that matures in January 2011, and (iii) a 7-year US$350.0 million term loan B facility that matures in January 2013. The Senior Secured Credit Facilities also include an uncommitted $350 million incremental facility that may be available to us, subject to compliance at all times with all financial covenants, absence of default and lenders being willing to fund the incremental amount. This incremental facility will have a term to be agreed with the lenders, although the maturity of borrowings under the incremental facility will be required to have a maturity falling on or extending beyond the maturity of the term loan B facility. We may draw Letters of Credit under the Senior Secured Credit Facilities. The proceeds of the term loan A and term loan B were used to refinance existing debt. The proceeds of our revolving facility may be used for our general corporate purposes. | ||
Borrowings under the revolving credit facility, term loan A and term loan B bear interest at the Canadian prime rate, the U.S. prime rate, the bankers’ acceptance rate or LIBOR, plus, in each case, an applicable margin. | ||
Borrowings under the revolving credit facility are repayable in full in January 2011. Borrowings under our term loan A facility are repayable in full in January 2011 and borrowing under our term loan B facility are repayable in full in January 2013. We are also required to make specified quarterly repayments of amounts borrowed under the term loan A and term loan B. | ||
Borrowings under the Senior Secured Credit Facilities and under eligible derivative instruments are secured by a first-ranking hypothec and security agreement (subject to certain permitted encumbrances) on all of our movable property and first-ranking pledges of all of the shares (subject to certain permitted encumbrances) of Sun Media and Vidéotron. | ||
The Senior Secured Credit Facilities contain customary covenants that restrict and limit our ability to, among other things, enter into merger or amalgamation transactions, grant encumbrances, sell assets, pay dividends or make other distributions, issue shares of capital stock, incur indebtedness and enter into related party transactions. In addition, the Senior Secured Credit Facilities contain customary financial covenants. The Senior Secured Credit Facilities contain customary events of default including the non-payment of principal or interest, the breach of any financial covenant, the failure to perform or observe any other covenant, certain bankruptcy events relating to Quebecor Media and its subsidiaries, and the occurrence of a change of control. | ||
(c) | Indenture relating to US$650,000,000 of Vidéotron’s 67/8% Senior Notes due January 15, 2014, dated as of October 8, 2003, by and among Vidéotron ltée, the guarantors party thereto and Wells Fargo Bank Minnesota, N.A. (now Wells Fargo Bank, National Association) as trustee, as supplemented. | |
On October 8, 2003, Vidéotron issued US$335.0 million aggregate principal amount of 67/8% Senior Notes due January 15, 2014 and, on November 19, 2004, Vidéotron issued an additional US$315.0 million in aggregate principal amount of these notes, pursuant to an Indenture, dated as of October 8, 2003, by and among Vidéotron, the guarantors party thereto and Wells Fargo Bank Minnesota, N.A. (now Wells Fargo Bank, National Association), as trustee. These notes are unsecured and are due January 15, 2014. Interest on these notes is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2004. These notes are guaranteed on a senior unsecured basis by most, but not all, of Vidéotron’s subsidiaries. The notes are redeemable, at Vidéotron’s option, under certain circumstances and at the redemption prices set forth in the indenture. The indenture contains customary restrictive covenants with respect to Vidéotron and certain of its subsidiaries and customary events of default. If an event of default occurs and is continuing |
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(other than Vidéotron’s bankruptcy or insolvency) the trustee or the holders of at least 25% in principal amount at maturity of the then-outstanding notes may declare all the notes to be due and payable immediately. | ||
(d) | Indenture relating to US$175,000,000 of Vidéotron’s 63/8% Senior Notes due December 15, 2015, dated as of September 16, 2005, by and among Vidéotron ltée, the guarantors party thereto, and Wells Fargo, National Association, as trustee. | |
On September 16, 2005, Vidéotron issued US$175,000,000 aggregate principal amount of its 63/8 Senior Notes due December 15, 2015, pursuant to an Indenture, dated as of September 16, 2005, by and among Vidéotron, the guarantors party thereto, and Wells Fargo, National Association, as trustee. These notes are unsecured and are due on December 15, 2015. Interest on these notes is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2005. These notes are guaranteed on a senior unsecured basis by most, but not all, of Vidéotron’s subsidiaries. These notes are redeemable, at Vidéotron’s option, under certain circumstances and at the redemption prices set forth in the indenture. The indenture contains customary restrictive covenants with respect to Vidéotron and certain of its subsidiaries, and customary events of default. If an event of default occurs and is continuing, other than Vidéotron’s bankruptcy or insolvency, the trustee or the holders of at least 25% in principal amount at maturity of the then-outstanding notes may declare all the notes to be due and payable immediately. | ||
(e) | Amended and Restated Credit Agreement, dated as of November 19, 2004, by and among Vidéotron ltée, as borrower, the guarantors party thereto, the financial institutions party thereto from time to time, as lenders, and Royal Bank of Canada, as administrative agent, as amended. | |
On November 19, 2004, concurrently with the closing of the private placement of a new series of Vidéotron’s 67/8% Senior Notes due January 15, 2014, Vidéotron amended and restated its credit agreement, dated as of November 28, 2000, by executing and delivering the seventh amending agreement to its credit agreement. Pursuant to this amendment, Vidéotron’s amended and restated credit agreement provides for a $450.0 million revolving credit facility maturing in 2009. The proceeds of Vidéotron’s revolving credit facility are to be used for Vidéotron’s general corporate purposes, including for distributions to Vidéotron’s shareholder in certain circumstances. | ||
Borrowings under Vidéotron’s amended and restated credit facility bear interest at the Canadian prime rate, the bankers’ acceptance rate or LIBOR, plus, in each case, an applicable margin. Borrowings under Vidéotron’s revolving credit facility are repayable in full in November 2009. | ||
Borrowings under this amended and restated credit facility and under eligible derivative instruments are secured by a first-ranking hypothec or security interest (subject to certain permitted encumbrances) on most but not all of Vidéotron’s current and future assets, as well as those of the guarantors party thereto, including most but not all of Vidéotron’s subsidiaries (the “Vidéotron Group”), guarantees of all the members of the Vidéotron Group, pledges of the shares of Vidéotron and the members of the Vidéotron Group, and other security. | ||
This amended and restated credit facility contains customary covenants that restrict and limit the ability of Vidéotron and the members of the Vidéotron Group to, among other things, enter into merger or amalgamation transactions, grant encumbrances, sell assets, pay dividends or make other distributions, issue shares of capital stock, incur indebtedness and enter into related party transactions. In addition, this amended and restated credit facility contains customary financial covenants. It also contains customary events of default including the non-payment of principal or interest, the breach of any financial covenant, the failure to perform or observe any other covenant, certain bankruptcy events relating to Vidéotron and the members of the Vidéotron Group, and the occurrence of a change of control. | ||
(f) | Indenture relating to US$205,000,000 of Sun Media’s 75/8% Senior Notes due February 15, 2013, dated as of February 7, 2003 by and among Sun Media Corporation, the guarantors party thereto, and National City Bank, as trustee, as supplemented. |
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On February 7, 2003 Sun Media issued US$205.0 million aggregate principal amount of its 75/8% Senior Notes due February 15, 2013 under an Indenture, dated as of February 7, 2003, as supplemented, by and among Sun Media, the guarantors party thereto, and National City Bank, as trustee. These notes are unsecured and are due February 15, 2013. Interest on these notes is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2003. These notes are guaranteed on a senior unsecured basis by most, but not all, of Sun Media’s subsidiaries. These notes are redeemable, at Sun Media’s option, under certain circumstances and at the redemption prices set forth in the indenture. The indenture contains customary restrictive covenants with respect to Sun Media and certain of its subsidiaries and customary events of default. If an event of default occurs and is continuing, other than Sun Media’s bankruptcy or insolvency, the trustee or the holders of at least 25% in principal amount at maturity of the then-outstanding notes may declare all the notes to be due and payable immediately. | ||
(g) | Credit Agreement, dated as of February 7, 2003, by and among Sun Media Corporation, the guarantors party thereto, Banc of America Securities LLC, Credit Suisse First Boston Canada, the lenders party thereto, and Bank of America, N.A., as Administrative Agent, as amended. | |
On February 7, 2003, as part of the refinancing of its indebtedness, Sun Media entered into a secured credit facility consisting of a five-year revolving credit facility of $75.0 million and a six-year term loan B of US$230.0 million. In connection with Quebecor Media’s refinancing plan completed in January 2006, Sun Media’s credit facility was amended for the addition of a $40.0 million term loan C. | ||
Borrowings under the revolving credit facility are repayable in full in February 2008. Borrowings under the term loan B and term loan C facilities are repayable in full in February 2009. Sun Media is also required to make specified quarterly repayments of amounts borrowed under the term loan B and term loan C facilities. | ||
Borrowings under the term loan B facility are in US dollars and bear interest at LIBOR plus an applicable margin. Borrowings under the revolving credit facility and the term loan C facility are in Canadian dollars and bear interest at the Canadian prime rate or the bankers’ acceptance rate plus an applicable margin. The proceeds of the term loan B and and term loan C were used to refinance existing debt and for permitted distributions to Sun Media’s shareholder. The proceeds of Sun Media’s revolving facility may be used for general corporate purposes including distributions to Sun Media’s shareholder in certain circumstances. | ||
Borrowings under this amended and restated credit facility and under eligible derivative instruments are secured by a first-ranking hypothec and security agreement (subject to certain permitted encumbrances) on all of Sun Media’s current and future assets, as well as those of the guarantors party thereto, including most, but not all, of Sun Media’s subsidiaries (the “Sun Media Group”), guarantees of all the members of the Sun Media Group, pledges of shares of the members of the Sun Media Group, and other security. | ||
This credit facility contains customary covenants that restrict and limit the ability of Sun Media and its subsidiaries to, among other things, enter into merger or amalgamation transactions, grant encumbrances, sell assets, pay dividends or make other distributions, issue shares of capital stock, incur indebtedness and enter into related party transactions. In addition, this credit facility contains customary financial covenants. This credit facility also contains customary events of default including the non-payment of principal or interest, the breach of any financial covenant, the failure to perform or observe any other covenant, certain bankruptcy events relating to Sun Media and members of the Sun Media Group, and the occurrence of a change of control. | ||
(h) | Indenture relating to US$715,000,000 of our 111/8% Senior Notes due July 15, 2011, dated as of July 6, 2001, by and between Quebecor Media Inc. and National City Bank (now U.S. Bank Corporate Trust Services), as trustee, as amended, and Indenture relating to US$295,000,000 of our 133/4% Senior Discount Notes due July 15, 2011, dated as of July 6, 2001, by and between Quebecor Media Inc. and National City Bank (now U.S. Bank Corporate Trust Services), as trustee, as amended. | |
In July 2001, we issued US$715.0 million aggregate principal amount of our 111/8 % Senior Notes due 2011 and US$295.0 million aggregate principal amount at maturity of our 133/4% Senior Discount Notes due 2011 |
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in a private placement exempt from the registration requirements of the Securities Act. In October 2001 we completed an exchange offer pursuant to which we exchanged without novation our unregistered 111/8 % Senior Notes due 2011 and 133/4% Senior Discount Notes due 2011 for new SEC- registered 111/8% Senior Notes due 2011 and 133/4% Senior Discount Notes due 2011, respectively. On July 19, 2005, pursuant to partial tender offers, we purchased US$128.2 million in aggregate principal amount of our 111/8 % Senior Notes due 2011 and US$12.1 million in aggregate principal amount at maturity of our 133/4% Senior Discount Notes due 2011, for aggregate cash consideration of $215.3 million, including the redemption premium and the cost of settlement of the cross-currency swap agreements. On January 17, 2006, as part of Quebecor Media’s refinancing plan, we repurchased US$561.6 million in aggregate principal amount of our 111/8 % Senior Notes due 2011 (representing 95.7% of the 111/8 % Senior Notes due 2011 outstanding) and US$275.6 million in aggregate principal amount at maturity of 133/4% Senior Discount Notes due 2011 (representing 97.4% of the 133/4% Senior Discount Notes due 2011 outstanding) for aggregate cash consideration of $1.3 billion, including the premium and the cost of settlement of cross-currency swap agreements. On July 15, 2006, we redeemed all of our remaining outstanding 111/8 % Senior Notes due 2011 and 133/4% Senior Discount Notes due 2011 for aggregate cash consideration of $39.3 million. | |||
(i) | Share Purchase Agreement dated December 22, 2003 between Carlyle VTL Holdings, L.P. and Carlyle Partners III (Vidéotron), L.P., and Quebecor Media Inc. and 9101-0827 Québec Inc. relating to the purchase 9101-0827 Québec Inc. of 5,000 Class C Preferred Shares of 3662527 Canada Inc., as amended by a First Amendment to Share Purchase Agreement dated as of December 31, 2004, and by an Assignment and Assumption Agreement dated as of June 30, 2006. | ||
On December 22, 2003, 9101-0827 Québec Inc., a wholly-owned subsidiary of Quebecor Media entered into an agreement with Carlyle VTL Holdings, L.P. and Carlyle Partners III (Vidéotron), L.P. (collectively “Carlyle”) to purchase the 5,000 Class C Preferred Shares held by Carlyle in 3662527 Canada Inc., the parent company of Vidéotron Télécom Ltd., Quebecor Media’s business telecommunications venture. The acquisition was made for a purchase price with a value estimated at approximately $125 million at closing. A payment of $55 million was made to Carlyle at closing on December 22, 2003. The balance of the purchase price is subject to variation on the basis of the valuation of the common shares of Quebecor Media and is payable on demand at any time after December 15, 2004, but no later than December 15, 2008. 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. The Company holds an option to pay this Additional Amount in cash, at its fair value for a period of 30 days following each of June 15, 2007 and June 15, 2008. Quebecor Media may, under certain conditions and if its shares are publicly traded at that time, pay the deferred purchase price by delivering 3,740,682 common shares to Carlyle (123,602,807 common shares of QUEBECOR MEDIA were outstanding as of December 22, 2003). |
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• | dealers in stocks, securities or currencies; | ||
• | securities traders that use a mark-to-market accounting method; | ||
• | banks and financial institutions; | ||
• | insurance companies; | ||
• | tax-exempt organizations; | ||
• | persons holding notes as part of a hedging or conversion transaction or a straddle; | ||
• | persons deemed to sell notes under the constructive sale provisions of the Code; | ||
• | persons who or that are, or may become, subject to the expatriation provisions of the Code; | ||
• | persons whose functional currency is not the U.S. dollar; and | ||
• | direct, indirect or constructive owners of 10% or more of our outstanding voting shares. |
• | an individual citizen or resident alien of the United States; | ||
• | a corporation or other entity treated as such formed in or under the laws of the United States, any state thereof or the District of Columbia; | ||
• | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or | ||
• | a trust, if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more “U.S. persons” (within the meaning of the Code) have |
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• | the amount of cash and the fair market value of any property received (less any portion allocable to the payment of accrued interest not previously included in income, which amount will be taxable as ordinary interest income); and | ||
• | the U.S. Holder’s tax basis in the notes. |
• | fails to furnish a social security number or other taxpayer identification number (“TIN”) certified under penalty of perjury within a reasonable time after the request for the TIN;] | ||
• | furnishes an incorrect TIN; | ||
• | is notified by the IRS that is has failed to report properly interest or dividends; or | ||
• | under certain circumstances, fails to provide a certified statement, signed under penalties of perjury, that the TIN furnished is the correct number and that such holder is not subject to backup withholding. |
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as at December 31, 2006
(in millions of dollars)
CDN dollar | ||||||||||||||||||||||||
exchange rate | ||||||||||||||||||||||||
Annual | Annual | of interest | ||||||||||||||||||||||
effective | nominal | and capital | ||||||||||||||||||||||
Period | Notional | interest | interest | payments per | ||||||||||||||||||||
covered | amount | rate | rate | one U.S. 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 plus 2.00 | % | 1.1625 | ||||||||||||||||
Term loan B credit facilities | 2009 to 2013 | US$ | 198.9 | Bankers’ acceptance 3 months plus 2.22 | % | LIBOR plus 2.00 | % | 1.1625 | ||||||||||||||||
Term loan B credit facilities | 2006 to 2013 | US$ | 148.9 | 6.44 | % | LIBOR plus 2.00 | % | 1.1625 | ||||||||||||||||
Videotron Ltd. and its subsidiaries: | ||||||||||||||||||||||||
Senior Notes | 2004 to 2014 | US$ | 190.0 | Bankers’ acceptance 3 months plus 2.80 | % | 6.875 | % | 1.2000 | ||||||||||||||||
Senior Notes | 2004 to 2014 | US$ | 125.0 | 7.45 | % | 6.875 | % | 1.1950 | ||||||||||||||||
Senior Notes | 2003 to 2014 | US$ | 200.0 | Bankers’ acceptance 3 months plus 2.73 | % | 6.875 | % | 1.3425 | ||||||||||||||||
Senior Notes | 2003 to 2014 | US$ | 135.0 | 7.66 | % | 6.875 | % | 1.3425 | ||||||||||||||||
Senior Notes | 2005 to 2015 | US$ | 175.0 | 5.98 | % | 6.375 | % | 1.1781 | ||||||||||||||||
Sun Media Corporation and its subsidiaries: | ||||||||||||||||||||||||
Senior Notes | 2003 to 2008 | US$ | 155.0 | 8.17 | % | 7.625 | % | 1.5227 | ||||||||||||||||
Senior Notes | 2008 to 2013 | US$ | 155.0 | Bankers’ acceptance 3 months plus 3.70 | % | 7.625 | % | 1.5227 | ||||||||||||||||
Senior Notes | 2003 to 2013 | US$ | 50.0 | Bankers’ acceptance 3 months plus 3.70 | % | 7.625 | % | 1.5227 | ||||||||||||||||
Term-loan B credit facility | 2003 to 2009 | US$ | 181.4 | Bankers’ acceptance 3 months plus 2.29 | % | LIBOR plus 1.75 | % | 1.5175 |
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as at December 31, 2006
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 | ) |
2007 | $ | 23.1 | ||
2008 | 26.6 | |||
2009 | 326.8 | |||
2010 | 160.7 | |||
2011 | 26.7 | |||
2012 and thereafter | $ | 2,232.2 |
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2005 | 2006 | |||||||
Audit Fees(1) | $ | 2,422,696 | $ | 2,520,904 | ||||
Audit-related Fees(2) | 462,030 | 614,494 | ||||||
Tax Fees(3) | 186,447 | 23,580 | ||||||
All Other Fees(4) | 349,125 | 19,115 | ||||||
Total | $ | 3,420,298 | $ | 3,178,093 |
(1) | Audit Fees consist of fees approved for the annual audit of the Company’s consolidated financial statements and quarterly reviews of interim financial statements of the Company with the SEC, including required assistance or services that only the external auditor reasonably can provide and accounting consultations on specific issues. | |
(2) | Audit-related Fees consist of fees billed for assurance and related services that are traditionally performed by the external auditor, and include consultations concerning financial accounting and reporting standards on proposed transactions, review of security controls and operational effectiveness of systems, due diligence or accounting work related to acquisitions; employee benefit plan audits, internal control reviews and audit or attestation services not required by statute or regulation and audit and attestation services required by statute or regulation, such as comfort letters and consents, SEC prospectus and registration statements, other filings and other offerings, including annual reports and SEC forms, statutory audits, and reports on internal controls required by the Sarbanes-Oxley Act of 2002 or other regulations. | |
(3) | Tax Fees include fees billed for tax compliance services, including the preparation of original and amended tax returns and claims for refunds, tax consultations, such as assistance and representation in connection with tax audits and appeals, tax advice related to mergers, acquisitions and divestitures, transfer pricing, and requests for advance tax rulings or technical interpretations. | |
(4) | All Other Fees include fees billed for forensic accounting and occasional training services, assistance with respect to internal controls over financial reporting and disclosure controls and procedures. |
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Exhibit | ||||
Number | Description | |||
1.1 | Articles of Incorporation of Quebecor Media Inc. (translation) (incorporated by reference to Exhibit 3.1 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |||
1.2 | Certificate of Amendment of Articles of Incorporation filed February 3, 2003 (translation) (incorporated by reference to the applicable exhibit to Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2002, filed on March 31, 2003). | |||
1.3 | By-laws of Quebecor Media Inc. (translation) (incorporated by reference to Exhibit 3.2 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |||
1.4 | Certificate of Amendment of Articles of Incorporation filed December 5, 2003 (translation) (incorporated by reference to the applicable exhibit to Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2003, filed on March 31, 2004). | |||
1.5 | Certificate of Amendment of Articles of Incorporation filed January 16, 2004 (translation) (incorporated by reference to the applicable exhibit to Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2003, filed on March 31, 2004). | |||
1.6 | Certificate of Amendment of Articles of Incorporation filed November 26, 2004 (translation) (incorporated by reference to Exhibit 1.6 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2004, filed on March 31, 2005). | |||
1.7 | By-law number 2004-1 of Quebecor Media Inc. (translation) (incorporated by reference to Exhibit 1.7 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2004, filed on March 31, 2005). | |||
1.8 | By-law number 2004-2 of Quebecor Media Inc. (translation) (incorporated by reference to Exhibit 1.8 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2004, filed on March 31, 2005). | |||
1.9 | Certificate of Amendment of Articles of Incorporation of Quebecor Media Inc., as of January 14, 2005 (translation) (incorporated by reference to Exhibit 1.9 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2005, filed on March 29, 2006). | |||
1.10 | By-law number 2005-1 of Quebecor Media Inc. (translation) (incorporated by reference to Exhibit 1.10 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2005, filed on March 31, 2006). | |||
1.11 | Certificate of Amendment of Articles of Incorporation of Quebecor Media, Inc., as of January 12, 2007 (translation) (previously filed in the Original Filing). | |||
1.12 | By-law number 2007-1 of Quebecor Media Inc. (translation) (previously filed in the Original Filing). | |||
2.1 | Form of 111/8% Senior Note due 2011 (included in Exhibit A to Exhibit 2.3 below) (incorporated by reference to Exhibit 4.1 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |||
2.2 | Form of 133/4% Senior Discount Note due 2011 (included in Exhibit A to Exhibit 2.4 below) (incorporated by reference to Exhibit 4.2 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |||
2.3 | 111/8% Senior Note Indenture, dated as of July 6, 2001, by and between Quebecor Media Inc. and National City Bank, as trustee (incorporated by reference to Exhibit 4.3 to Quebecor Media Inc.’s Registration |
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Exhibit | ||||
Number | Description | |||
Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | ||||
2.4 | 133/4% Senior Discount Note Indenture, dated as of July 6, 2001, by and between Quebecor Media Inc. and National City Bank, as trustee (incorporated by reference to Exhibit 4.4 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |||
2.5 | First Supplemental Indenture, dated as of December 30, 2005, to the Indenture, dated as of July 6, 2001, relating to Quebecor Media Inc.’s 111/8% Senior Notes due 2011, by and between Quebecor Media Inc. and U.S. Bank Corporate Trust Services (as successor to National City Bank), as trustee. (incorporated by reference to Exhibit 2.5 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2005, filed on March 29, 2006). | |||
2.6 | First Supplemental Indenture, dated as of December 30, 2005, to the Indenture, dated as of July 6, 2001, relating to Quebecor Media Inc.’s 133/4% Senior Discount Notes due 2011,, by and between Quebecor Media Inc. and U.S. Bank Corporate Trust Services (as successor to National City Bank), as trustee. (incorporated by reference to Exhibit 2.6 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2005, filed on March 29, 2006). | |||
2.7 | Form of 73/4 % Senior Note due 2016 (included as Exhibit A to Exhibit 2.8 below). (incorporated by reference to Exhibit 2.7 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2005, filed on March 29, 2006). | |||
2.8 | 73/4% Senior Notes Indenture, dated as of January 17, 2006, by and between Quebecor Media Inc., and U.S. Bank National Association, as trustee. (incorporated by reference to Exhibit 2.8 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2005, filed on March 29, 2006). | |||
2.9 | Form of Sun Media Corporation 75/8% Senior Note due 2013 (included in Exhibit A to Exhibit 2.10 below) (incorporated by reference to Exhibit A to Exhibit 4.2 to Sun Media Corporation’s Registration Statement on Form F-4 dated April 10, 2003, Registration Statement No. 333-103998). | |||
2.10 | Indenture relating to Sun Media Corporation 75/8% Senior Notes due 2013, dated as of February 7, 2003, among Sun Media Corporation, the subsidiary guarantors signatory thereto, and National City Bank, as trustee (incorporated by reference to Exhibit 4.2 to Sun Media Corporation’s Registration Statement on Form F-4 dated April 10, 2003, Registration Statement No. 333-103998). | |||
2.11 | Sun Media Corporation First Supplemental Indenture, dated as of July 30, 2004, by and among Sun Media Corporation, the subsidiary guarantors signatory thereto, and U.S. Bank Corporate Trust Services (formerly National City Bank), as trustee (incorporated by reference to Exhibit 2.4 of Sun Media Corporation’s annual report on Form 20-F for the year ended December 31, 2004, filed on March 24, 2005). | |||
2.12 | Form of Vidéotron ltée 67/8% Senior Notes due January 15, 2014 (incorporated by reference to Exhibit A to Exhibit 4.3 to Vidéotron’s Registration Statement on Form F-4 dated January 8, 2004, Registration Statement No. 333-110697). | |||
2.13 | Form of Notation of Guarantee by the subsidiary guarantors of the 67/8% Vidéotron ltée Senior Notes due January 15, 2014 (incorporated by reference to Exhibit E to Exhibit 4.3 to Vidéotron’s Registration Statement on Form F-4 dated January 8, 2004, Registration Statement No. 333-110697). | |||
2.14 | Indenture relating to Vidéotron ltée 67/8% Notes due 2014, dated as of October 8, 2003, by and among Vidéotron ltée, the subsidiary guarantors signatory thereto and Wells Fargo Bank Minnesota, N.A., as trustee (incorporated by reference to Exhibit 4.3 to Vidéotron ltée’s Registration Statement on Form F-4 dated January 8, 2004, Registration Statement No. 333-110697). | |||
2.15 | Vidéotron ltée First Supplemental Indenture, dated as of July 12, 2004, by and among Vidéotron ltée, SuperClub Vidéotron Canada inc., Les Propriétés SuperClub inc. and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.4 to Vidéotron’s Registration Statement on Form F-4 dated January 18, 2005, Registration Statement No. 333-121032). | |||
2.16 | Form of Vidéotron ltée 63/8 % Senior Note due 2015 (included as Exhibit A to Exhibit 2.18 below). | |||
2.17 | Form of Notation of Guarantee by the subsidiary guarantors of Vidéotron ltée’s 63/8% Senior Notes due 2015 (included as Exhibit E to Exhibit 2.18 below). | |||
2.18 | Indenture relating to Vidéotron ltée 63/8% Senior Notes, dated as of September 16, 2005, by and between Vidéotron ltée, the guarantors party thereto, and Wells Fargo, National Association, as trustee (incorporated by reference to Exhibit 4.3 of Vidéotron ltée’s Registration Statement on Form F-4 dated October 14, 2005, Registration Statement No. 333-128998). | |||
3.1 | Shareholders’ Agreement dated December 11, 2000 by and among Quebecor Inc., Capital Communications |
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Exhibit | ||||
Number | Description | |||
CDPQ inc. (now known as Capital d’Amérique CDPQ inc.) and Quebecor Media, together with a summary thereof in the English language (incorporated by reference to Exhibit 9.1 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | ||||
3.2 | Letter Agreement dated December 11, 2000 between Quebecor Inc. and Capital Communications CDPQ inc. (now known as Capital d’Amérique CDPQ inc.) (translation) (incorporated by reference to Exhibit 9.2 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001 Registration Statement 333-13792). | |||
3.3 | Written Resolution adopted by the Shareholders of Quebecor Media Inc. on May 5, 2003 relating to the increase in the size of the Board of Directors of Quebecor Media Inc. (translation) (incorporated by reference to the applicable exhibit to Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2003, filed on March 31, 2004). | |||
4.1 | Lease Agreement dated November 24, 1993 between Le Groupe Vidéotron ltée and National Bank of Canada for the property located at 300 Viger Avenue East, Montréal, Province of Québec, Canada, together with a summary thereof in the English language (incorporated by reference to Exhibit 10.3 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |||
4.2 | Credit Agreement, dated as of January 17, 2006, by and among Quebecor Media Inc., as Borrower, the financial institutions party thereto from time to time, as Lenders, and Bank of America, N.A., as Administrative Agent. (incorporated by reference to Exhibit 4.2 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2005, filed on March 29, 2006) | |||
4.3 | Credit Agreement dated as of February 7, 2003 among Sun Media Corporation, as borrower, Bank of America, N.A., Banc of America Securities LLC and Credit Suisse First Boston Corporation, as arrangers, Bank of America, N.A., as administrative agent, and the financial institutions signatory thereto, as lenders (incorporated by reference to Exhibit 10.4 to Sun Media Corporation’s Registration Statement on Form F-4 dated April 10, 2003, Registration Statement No. 333-103998). | |||
4.4 | First Amending Agreement, dated as of December 3, 2003, amending the Credit Agreement dated as of February 7, 2003 among Sun Media Corporation, Banc of America Securities LLC and Credit Suisse First Boston Canada and the lenders thereto (incorporated by reference to the applicable exhibit to Sun Media’s Annual Report on Form 20-F for the year ended December 31, 2003, filed on March 30, 2004). | |||
4.5 | Second Amending Agreement, dated as of October 12, 2004, amending the Credit Agreement dated as of February 7, 2003 among Sun Media Corporation, Banc of America Securities LLC and Credit Suisse First Boston Canada and the lenders thereto (incorporated by reference to Exhibit 4.5 of Sun Media Corporation’s Annual Report on Form 20-F for the year ended December 31, 2004, filed on March 24, 2005, Commission file No. 333-6690). | |||
4.6 | Third Amending Agreement, dated as of January 17, 2006, amending the Credit Agreement dated as of February 7, 2003, as amended, among Sun Media Corporation, Banc of America Securities LLC, Credit Suisse First Boston Canada, the lenders party thereto, and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 4.6 of Sun Media Corporation’s Annual Report on Form 20-F for the year ended December 31, 2005, filed on March 21, 2006, Commission file no. 333-6690). | |||
4.7 | Credit Agreement dated as of November 28, 2000 among Vidéotron ltée, RBC Dominion Securities Inc., Royal Bank of Canada and the co-arrangers and lenders thereto, together with the First Amending Agreement dated as of January 5, 2001 and the Second Amending Agreement dated as of June 29, 2001 (incorporated by reference to Exhibit 10.5 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |||
4.8 | Sixth Amending Agreement, dated as of October 8, 2003, to the Credit Agreement dated as of November 28, 2000, among Vidéotron ltée, Royal Bank of Canada, as administrative agent, and the financial institutions signatory thereto and acknowledged by Le SuperClub Vidéotron ltée, Groupe de Divertissement SuperClub inc., Vidéotron (1998) ltée, CF Cable TV Inc., Videotron (Regional) Ltd, Télé-Câble Charlevoix (1997) inc., Vidéotron TVN inc. and Câblage QMI inc., as guarantors and by Quebecor Media Inc. (incorporated by reference to Exhibit 10.1 to Vidéotron ltée’s Registration Statement on Form F-4 dated January 8, 2004, Registration Statement No. 333-110697). | |||
4.9 | Seventh Amending Agreement dated as of November 19, 2004 to the Credit Agreement dated as of November 28, 2000, among Vidéotron ltée, Royal Bank of Canada, as administrative agent, and the |
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Exhibit | ||||
Number | Description | |||
financial institutions signatory thereto and acknowledged by Le SuperClub Vidéotron ltée, Groupe de Divertissement SuperClub inc., Vidéotron (1998) ltée, CF Cable TV Inc., Videotron (Regional) Ltd., 9139-3256 Québec inc., Vidéotron TVN inc., Les Propriétés SuperClub inc. and SuperClub Vidéotron Canada inc., as guarantors (the “Guarantors”), and by Quebecor Media Inc. (incorporated by reference to Exhibit 10.2 to Vidéotron ltée’s Registration Statement on Form F-4 dated January 18, 2005, Registration Statement No. 333-121032). | ||||
4.10 | Form of Amended and Restated Credit Agreement entered into as of November 28, 2000, as amended by a First Amending Agreement dated as of January 5, 2001, as Second Amending Agreement dated as of June 29, 2001, a Third Amending Agreement dated December 12, 2001 and accepted by the Lenders as of December 21, 2001, a Fourth Amending Agreement dated as of December 23, 2002, a Fifth Amending Agreement dated as of March 24, 2003, a Sixth Amending Agreement dated as of October 8, 2003 and a Seventh Amending Agreement dated as of November 19, 2004, among Vidéotron ltée, Royal Bank of Canada, as administrative agent, and the financial institutions signatory thereto (incorporated by reference to Schedule 2 to Exhibit 10.2 to Vidéotron’s Registration Statement on Form F-4 dated January 18, 2005, Registration Statement No. 333-121032). | |||
4.11 | Form of Guarantee under the Vidéotron ltée Credit Agreement (incorporated by reference to Schedule D of Exhibit 10.5 to Quebecor Media’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |||
4.12 | Form of Share Pledge of the shares of Vidéotron ltée and of the guarantors of the Vidéotron ltée Credit Agreement (incorporated by reference to Schedule E of Exhibit 10.5 to Vidéotron’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |||
4.13 | Share Purchase Agreement dated December 22, 2003 between Carlyle VTL Holdings, L.P. and Carlyle Partners III (Vidéotron), L.P., and Quebecor Media Inc. and 9101-0827 Québec Inc. relating to the purchase 9101-0827 Québec Inc. of 5,000 Class C Preferred Shares of 3662527 Canada Inc. (incorporated by reference to Exhibit 4.11 of Quebecor Media’s Annual Report on Form 20-F for the fiscal year ended December 31, 2003, filed on March 31, 2004). | |||
4.14 | First Amendment to Share Purchase Agreement dated as of December 31, 2004 between Carlyle VTL Holdings, L.P. and Carlyle Partners III (Vidéotron), L.P. and Quebecor Media Inc. and 9101-0827 Québec Inc. (incorporated by reference to Exhibit 4.18 of Quebecor Media’s Annual Report on Form 20-F for the fiscal year ended December 31, 2004, filed on March 31, 2005). | |||
7.1 | Statement regarding calculation of ratio of earnings to fixed charges (previously filed in the Original Filing). | |||
8.1 | Subsidiaries of Quebecor Media Inc. (previously filed in the Original Filing). | |||
11.1 | Code of Ethics (incorporated by reference to Exhibit 11.1 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2003, filed on March 31, 2004). | |||
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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QUEBECOR MEDIA INC. | ||||
By: | /s/ Louis Morin | |||
Name: | Louis Morin | |||
Title: | Vice President and Chief Financial Officer | |||
153
Table of Contents
F-1 | ||
Financial Statements | ||
F-2 | ||
F-3 | ||
F-4 | ||
F-6 | ||
F-8 | ||
F-11 |
154
Table of Contents
F-1
Table of Contents
(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 | |||||
F-2
Table of Contents
(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 | ||||||||
F-3
Table of Contents
(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
Table of Contents
Consolidated statements of cash flows(continued)
(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 | |||||||||
F-5
Table of Contents
(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
Table of Contents
consolidated balance sheets(continued)
(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 | |||||
F-7
Table of Contents
(in millions of Canadian dollars)
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
Table of Contents
Segmented information(continued)
(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
Table of Contents
Segmented information (continued)
(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 | |||||
F-10
Table of Contents
(tabular amounts in millions of Canadian dollars, except for option data)
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
Notes to consolidated financial statements(continued)
(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. | |||
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 and, in the case of wireless phones, revenue from equipment sales are recognized when the phone is delivered and activated. Revenues from video rentals are recorded as revenue when services are provided. Promotion offers related to services are accounted for as a reduction in the related service revenue when customers take advantage of the offer. Promotion offers related to equipment are accounted for as a reduction in the related equipment sales when the equipment is delivered. 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
Notes to consolidated financial statements (continued)
(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
Table of Contents
Notes to consolidated financial statements(continued)
(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
Table of Contents
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Table of Contents
Notes to consolidated financial statements(continued)
(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
Table of Contents
Notes to consolidated financial statements(continued)
(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. |
F-18
Table of Contents
Notes to consolidated financial statements(continued)
(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. |
F-19
Table of Contents
Notes to consolidated financial statements(continued)
(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
Table of Contents
Notes to consolidated financial statements(continued)
(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. |
F-21
Table of Contents
Notes to consolidated financial statements(continued)
(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. |
F-22
Table of Contents
Notes to consolidated financial statements(continued)
(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. |
F-23
Table of Contents
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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. |
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
Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
18. | CAPITAL STOCK: |
(a) | Authorized capital stock: |
• | An unlimited number of Cumulative First Preferred Shares, Series A (“Preferred A Shares”), carrying a 12.5% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company; | ||
• | An unlimited number of Cumulative First Preferred Shares, Series B (“Preferred B Shares”), carrying a fixed cumulative preferential dividend generally equivalent to the Company’s credit facility interest rate, redeemable at the option of the holder and retractable at the option of the Company | ||
• | An unlimited number of Cumulative First Preferred Shares, Series C (“Preferred C Shares”), carrying an 11.25% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company; | ||
• | An unlimited number of Cumulative First Preferred Shares, Series D (“Preferred D Shares”), carrying an 11.00% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company; | ||
• | An unlimited number of Cumulative First Preferred Shares, Series F (“Preferred F Shares”), carrying a 10.85% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company. |
(b) | Issued capital stock: |
Common Shares | ||||||||
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 | |||||
F-35
Table of Contents
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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 | ||||||||||
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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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 fair value adjustment to the carrying value of debt was previously calculated by comparing the fair value of the hedged debt at the end of a period to its fair value at the issuance date, excluding any impact of principal repayments since the debt issuance date. The fair value of the debt was previously determined by discounting future cash flows using the risk-free interest rate (swap rates excluding our credit risk premium) as at the date of valuation. Using this method, the fair value of the debt at inception was higher than its initial carrying value on the issuance date due to the fact that the discount rate used to fair value the debt is lower than the Company's cost of borrowing. Using this present value as the starting point to calculate the change to the fair value related to the risk being hedged resulted in the reversal of the initial difference as time advanced. In 2007, the Company determined that we should exclude the impact of this reversal in the recognition of the fair value adjustment to the carrying value of debt, in order to reflect only the impact of the risk being hedged. | ||
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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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
Notes to consolidated financial statements(continued)
(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. |
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Table of Contents
Notes to consolidated financial statements(continued)
(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. | ||
The Company uses cross-currency interest rate swaps to hedge (i) the foreign currency rate exposure on interest and principal payments on certain foreign currency denominated debt and/or (ii) the fair value exposure on certain debt resulting from changes in interest rates. The Company’s cross-currency interest rate swaps that set in fixed Canadian dollars all future interest and principal payments on U.S. denominated debt are designated as cash flow hedges. The Company’s cross-currency interest rate swaps that set in Canadian dollars all future interest and principal payments on U.S. denominated debt in addition to converting the interest rate from a fixed rate to a floating rate or to converting a floating rate index to another floating rate index, are designated as fair value hedges. | |||
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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Table of Contents
Notes to consolidated financial statements(continued)
(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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Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
27. | NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY: |
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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Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
27. | NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY (continued): |
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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Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
27. | NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY (continued): |
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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